Flaw with ATO Interest Calculation on HECS Loans

LemonShapedRock on 23/02/2018 - 21:36
Last edited 24/02/2018 - 08:57

So, checking through my MyGov statement I noticed a something very interesting about the way the ATO calculate your interest payments.

To start off; The ATO charges interest on your HECS loan proportional to the CPI, which in itself is good value.

In traditional loans, anytime you make a payment that payment goes towards offsetting your interest charge as the principal is now lower.

However, if you have your HECS deducted from your weekly/fortnightly pay then that amount that is taken out is not applied to the principal until you file your return.

So essentially throughout the year you're giving the ATO thousands of dollars of your pay and it's not going towards anything until you file your return.

Just some food for thought.

Anyway, this is also to drive some discussion around different ways the OzB community approaches paying these debts.

Financial

Comments

  • k-rokfm on 23/02/2018 - 22:46

    Yes.

  • reno on 23/02/2018 - 23:42
    +1

    technically speaking they don't charge you interest… it's an interest free loan… they just index the outstanding amount that you owe them with inflation movements…

  • cheeseandbacon on 24/02/2018 - 00:09
    +2

    Tax file number declaration form

    Section A: To be completed by the PAYEE

    9 (a) Do you have a Higher Education Loan Program (HELP), Student Startup Loan (SSL) or Trade Support Loan (TSL) debt?

    DECLARATION by payee:
    I declare that the information I have given is true and correct.

    There are penalties for deliberately making a false or misleading statement.

    edit: ATO probably wouldn't care, but it's another factor that may or may not need consideration.

  • spal on 24/02/2018 - 06:58
    +1

    I went to University as a mature age student again. As my employer didn’t change from prior to me starting education again, I got away with not needing to lodge an amended TFN declaration. How’re what I did was that I had contacted the ATO to find out when the debt is reported on their system (there is a considerable gap). I paid it off as soon as it appeared as a debt; and pocketed the bonus. Claimed deduction on the full fees, less emploer contribution, because debt repayments are not deductible it is the fees itself which is required to be deducted. Mind you I obtained a private ruling issued for my deductions.

  • peterpeterpumpkin on 24/02/2018 - 08:39
    +1

    The same hack was proposed a couple here of years ago (and the guy was hounded): https://www.ozbargain.com.au/node/205363

    • spal on 25/02/2018 - 07:56

      Thank you. Couple of things which I did it differently was, paid my debt within the week it appeared on my account, and I was a full fees paying student (postgraduate degree). Only reason I did this was to receive a discount on my university fees. Regarding the tax deduction aspect, I called them after receiving my private ruling. I was advised that I couldn’t deduct the help repayment and I needed invoices to prove my expenses. So, I wasn’t left with any choice. My employer part funded my education, which although didn’t appear on my payment summary, because of fringe benefits otherwise deductible rule, I still did the right thing to claim employer contribution as an allowance income.

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