Is HECS-HELP Indexation Tax Deductible?

Lprometheuis on 27/06/2023 - 14:39

Hi All,

I've been doing a lot of reading on the ATO website and through the income tax legislation act trying to find out if indexation on HECS-HELP debt is tax deductible.

Now all the answers I've found (mostly through the ATO forums) have said that the indexation is not deductible. But they never provide a source to the legislation, and as far as I have read there is nothing that excludes it in the act under section 26-20. To me it seems like one of those things that everyone accepts is true - but it doesn't actually clearly state that in the law.

Section 26-20

Here's my logic - please point out where I am wrong.

Obviously it is known that repayments against HECS-HELP debt are not tax deductible. Presumably this is because the self-education expense was incurred in prior years when you were studying and you are now just paying down this debt. So makes sense there is no deduction available.
But if you were working in a professional career and incurred approved self-education expenses. Those are tax deductible - regardless of whether you paid the invoice that year, got a personal loan or even had it paid through HECS-HELP, if its an approved self-education expense that has been incurred in that year then it is tax deductible.
If you had a personal loan on approved self-education expenses the interest each year is tax deductible. As per ATO reference Here
How is the above any different to indexation expense? My studies were necessary for my current employment, I am now incurring an additional indexation/interest expense each year. So why would it be treated any differently? Indexation may have a different definition, but regardless of what definition you go with. It is an expense. The amount I need to pay has increased. I have incurred an expense. I can't find any legislation that would directly exclude it.
Again just to be clear I am not arguing against debt repayments being deductible. Just on indexation expense incurred.

So can anyone shed some light on what I am missing? It seems that this should be deductible despite the general advice I hear from everyone being that it isn't but with no solid backing for why.

Financial

Comments

Keplaffintech on 27/06/2023 - 14:44

+8

Surprisingly, a solid argument.

However the answer is probably 'no, because they say so' Example

For most people it will be this:

You can't claim a deduction for a self-education expense if, at the time you incur the expenses:

it doesn't have a sufficient connection to your employment activities at that time
you are not employed
it only relates in a general way to your employment activities at that time – such as undertaking a full-time fashion photography course and working as a casual sales assistant on the weekends
it enables you to get new employment or change employment – such as moving from employment as a nurse to employment as a doctor.

But if you were to study a masters while working full time, I don't see why it shoudn't be deductible.
- prometheuis on 27/06/2023 - 15:17
  
  Yes I read the exact same link you have supplied.
  
  But then if you actually click through to their supporting links they have provided. They are either expired links, or link to legislation that does not support what they are saying at all.
  
  What I really want is to see legislation that explains why indexation is excluded , when interest expenses are included. Whats the difference?
  - Crow K on 27/06/2023 - 15:20
    
    +1
    
    At the moment the original expense (education) is incurred, the nature of it determines the future deductibility of it.
    
    While you're working that industry? Deductible
    Looking to get a job in that industry? Non-deductible
    
    Later costs (be it interest or indexation) won't affect that original assessment. You can't have deductible interest/HECS now on what was originally a private amount.
    - prometheuis on 27/06/2023 - 15:25
      
      -1
      
      Well that actually contradicts the ATO's own standing.
      
      Their is a post in their own forums that states a personal loan used to pay off HECS, the interest on that loan WOULD be tax deductible. So I don't think the moment in time argument works.
      
      I understand that my study expenses were not deductible while I was not working in the profession. But now i am working in the profession. The activities do meeting self-education requirements, and the expense has been incurred this year. How would it not be applicable?
      - Crow K on 27/06/2023 - 15:29
        
        +1
        
        @prometheuis: If I had to guess (because you haven't provided a link to the post - maybe think of doing that if you want discuss its contents yeah) I'd say the person worked in the industry at the time of the study AND then took out a loan to pay off the amount. Boom, interest is now deductible. Because they were following the little flowchart I posted before.
        
        prometheuis on 27/06/2023 - 15:32
        
        @Crow K: Well your explanation does satisfy how they would justify it. So maybe that is the answer.
        
        But I think there is still a hole here - because indexation is not deductible across the board (according to the ATO).
        
        Whereas in your example above - if you entered into HECS/HELP debt while working in that industry then subsequent indexation would be tax deductible.
        
        So how do you explain that?
        
        Crow K on 27/06/2023 - 15:38
        
        +3
        
        @prometheuis: Fast explanation: ATO makes the rules, if they disallow indexation, that's that.
        
        If you want to talk "but wait" logic, then you can join the line with the people saying their boss makes them wear a suit and they have to eat lunch to have the energy to work their jobs, so clothing and lunch should be deductible too, etc.
        
        Drakesy on 27/06/2023 - 16:47
        
        +1
        
        @prometheuis: Indexation does not equal interest though
        
        Shadowsfury on 27/06/2023 - 20:25
        
        @Drakesy: I wouldn't be surprised if this is one of the key arguments against the OP actually - there's a difference in treatment between indexation and interest even though they may appear functionally the same on the surface.
        
        happydude on 27/06/2023 - 15:34
        
        +1
        
        @Crow K: This does seem to be the case according to TR 98/9.
        
        Example: After completing his secondary education, Alex studied commerce as a full-time student at a private university. He borrowed $30,000 in 1995, repayable over 5 years, and used the funds to pay course tuition fees. He completed his degree the following year and obtained employment with an accounting firm in early 1997.
        
        No deduction is allowable for interest incurred on the loan. The funds borrowed were not used for an income-producing purpose, but related to a course of study undertaken by Alex before he obtained his current employment. Accordingly, there is not a sufficient connection between the interest expense and Alex's current income-earning activities.
        
        prometheuis on 27/06/2023 - 15:37
        
        @happydude: Thanks that is very helpful. So Crow was right with the timing issue.
        
        So does this mean if you undertook your studies while already in the relevant industry that your indexation expense is deductible?
        
        happydude on 27/06/2023 - 15:40
        
        @prometheuis: That is my current situation, hence my interest.
SBOB on 27/06/2023 - 14:44

+2

How is the above any different to indexation expense?

Because the indexation (interest) is being applied to the HECS-HELP debt (loan) obtained prior to it being 'self-education' expenses and therefore as the 'debt' isn't tax deductible neither is any cost of holding or servicing that 'debt'.?

(You're also not including any included governmental funding benefits from reduce course fees via not being a full fee paying student, so likely some 'still well ahead' context compared to indexation increases)

Feel free to give it a crack on your next tax return though
- prometheuis on 27/06/2023 - 15:16
  
  -1
  
  So just to confirm the ATO has confirmed this in their own forums.
  
  If you paid off your HECS debt using a personal loan.
  
  THAT interest is tax deductible. Which I believes counters your argument above.
  - SBOB on 27/06/2023 - 15:18
    
    If you paid off your HECS debt using a personal loan.
    
    only if it was paid upfront with no "Request for Commonwealth support and HECS-HELP form" (and as such paid a much higher fee for the course)
    
    Also the example linked seems to be 'self education' related which may have some bearing also on being deductible for a full fee paid loan based payment
Gunnar on 27/06/2023 - 14:45

+2

I look forward to your next post about why the ATO is not accepting gift card payments for fines against tax avoidance
nubix on 27/06/2023 - 14:45

You can't claim a deduction for a self-education expense if, at the time you incur the expenses, it enables you to get new employment or change employment – such as moving from employment as a nurse to employment as a doctor.

This is from your link.

Why? Because they said so!
- prometheuis on 27/06/2023 - 15:19
  
  -4
  
  I don't see how this is relevant…
  
  Lets say I study accounting. I complete my degree. I am now working as an accountant. Each year I am getting indexation expenses against my student loan. My student loan is necessary for my current employment.
  
  It meets the self education requirements in section 98 of the legislation.
  - nubix on 27/06/2023 - 15:23
    
    +3
    
    You were not an accountant at the time to made the expenditure, therefore it is NEW employment.
  - Crow K on 27/06/2023 - 15:23
    
    +2
    
    My student loan is necessary for my current employment.
    
    Will your employer terminate your employment if you don't have a loan?
    
    Also, your employer requires you to wear clothes to work, does that mean your clothes are deductible?
    
    Stop getting "creative" with these well-established concepts, you're wasting valuable people's time.
    - prometheuis on 27/06/2023 - 15:29
      
      haha although I like your examples.
      
      I am simply asking for the legislative support that says indexation is excluded.
      
      If interest on a personal loan for studies is an approved self education education. Why not indexation?
      
      Don't give me clever anecdotes. I want to know from the actual law.
      - Crow K on 27/06/2023 - 15:32
        
        +2
        
        @prometheuis: Flat out s 8-1 is all the law you're going to need.
        
        Your HECS debt was a private expense. Interest or indexation on your private expense is also not deductible.
        
        prometheuis on 27/06/2023 - 15:35
        
        @Crow K: I really do appreciate the debate Crow - it is quite likely I am wrong. So I am just arguing the point to get to the bottom of this.
        
        If that is the case that HECS debts are just treated differently (i.e. personal interest debts can be deductible but HECS indexation debts are never deductible). Then that's fine. I just want to know where it says that in the law.
        
        Personal loan interest expense is deductible for self education as per the ATO. So if HECS is excluded. Where does it state that?
        
        Crow K on 27/06/2023 - 15:41
        
        @prometheuis:
        
        I just want to know where it says that in the law.
        
        Fair enough.
        
        https://www.ato.gov.au/law/view/document?docid=PAC/19970038/…
        
        prometheuis on 27/06/2023 - 15:43
        
        @Crow K: Thats cheeky ! Thats my own link I shared in this post lol.
        
        None of these lines exclude or mention indexation. They are related to repayments.
        
        What line in particular do you think is relevant?
        
        Crow K on 27/06/2023 - 15:46
        
        @prometheuis: The HECS repayments aren't deductible. Why would you get a deduction for an increase to your HECS debt???
        
        prometheuis on 27/06/2023 - 15:51
        
        -1
        
        @Crow K: That's just accounting 101.
        
        Interest incurred in a FY is an expense.
        
        Loan repayments are not an expense (debit liability, credit cash at bank)
        
        Its very simple.
        
        Crow K on 27/06/2023 - 15:55
        
        +1
        
        @prometheuis: It IS simple, yes.
        
        Loans for private purposes and HECS debts: not deductible on repayment. Interest expense on them, also non-deductible.
        
        prometheuis on 27/06/2023 - 16:00
        
        -1
        
        @Crow K: My point of difference is that I don't believe HECS repayments being excluded necessitates that HECS indexation expenses are excluded.
        
        I think they're quite different because repayments are just paying off a liability and indexation you are incurring an expense that year that I believe falls within the requirements of self-education expense in 98.
        
        But again I really appreciate the insight to what the argument would be against.
        
        But can we at least agree that no where in the legislation is it spelt out black and white that indexation expenditure is excluded? It does seem to be somewhat open to interpretation.
        
        Crow K on 27/06/2023 - 16:14
        
        +1
        
        @prometheuis: Your argument is a private non-deductible HECS debt has a deductible component because its indexation in the current year is occurring while you are working in the industry itself in that year, and so that bit is actually an education related deduction?
        
        I'm not sure you've "incurred" that expense. (You haven't paid it. I feel an individual arguing they should be assessed on accrued expenses in these circumstances is suicidal at best).
        
        But even if you had, you're accruing non-deductible expense, because it's additional HECS debt, and HECS debt isn't deductible.
        
        You could have a letter from your employer telling you a condition of your employment is you repay $X of your HECS debt each year, and that $X would be entirely non-deductible. Employers don't decide what's deductible.
        
        prometheuis on 27/06/2023 - 16:19
        
        -1
        
        @Crow K: Crow their is a clear distinction between a debt repayment and interest incurred.
        
        I dispute that this is a "private non-deductible HECS debt" as we have already established that if the debt was incurred while working in the relevant industry that it would be deductible. Subsequent repayments would not be deductible.
        
        Yes the expense has been incurred as it relates to that FY. If I took a microsoft excel course on 25 June 2023 for $1000 then I could claim it as a tax deduction. Even if I didn't pay the invoice until August 2023. I don't think thats disputed.
        
        Again to be clear you keep claiming that HECS debt isn't deductible. When the legislation you linked only claims that repayments are not deductible.
        
        Crow K on 27/06/2023 - 16:31
        
        @prometheuis: Alright, I see where you are getting confused.
        
        Education expenses are only deductible if incurred while working in that industry while doing the study.
        
        HECS-HELP debt fees are specifically non-deductible regardless of whether you are working or not, per s26-20.
        
        You can incur private/non-deductible "expenses" while studying education. Lunch, for instance. You'll never get lunch as an education expense.
        
        HECS-HELP debt is specifically excluded as being deductible when paid (point 2).
        
        If you want to argue you're "accruing a non-deductible when paid" expense and that means it's now a deduction, let me know which day you're showing up in court because I'll bring popcorn. You'll have as much success as accruing "lunch".
        
        Reminder: the ATO requires you to prove your case. They don't need to prove you are wrong, you have to prove you are right.
        
        prometheuis on 27/06/2023 - 17:04
        
        @Crow K: "HECS-HELP debt fees are specifically non-deductible regardless of whether you are working or not, per s26-20."
        
        But this isn't the case? If I was to go study a masters while working in the relevant field. I can put it through HECS and claim the course fees as a tax deduction.
        
        Look at this university link Here
        
        Tax deductibility
        If your postgraduate degree is related to your employment, your tuition fees may be tax deductable as a self education expense, even if you defer your payments using FEE-HELP.
        
        Crow K on 27/06/2023 - 17:10
        
        +1
        
        @prometheuis: If you're doing it now as post-grad, it's FEE-HELP fees and yes, those are allowed ( https://www.ato.gov.au/misc/downloads/pdf/qc16918.pdf ) because those are treated differently from HECS-HELP.
        
        That's specifically the tuition fees that the FEE-HELP amount is paying off (while you're working in the industry) are deductible. Making loan payments on your FEE-HELP loan in later years are NOT a deduction, they are loan repayments.
        
        prometheuis on 27/06/2023 - 17:13
        
        @Crow K: Yes 100% I'm on the same page as you. Loan repayments are not a deduction. You don't need to put it in capitals. I have never disputed that and I made the clear point of repeating it several times in my original post.
        
        But you would agree in the specific instance above - that indexation should be tax deductible if the original expense incurred was an approved self education expense?
        
        You had previously claimed that all HELP fees are specifically non-deductible. But now you agree that they are deductible if it is an approved self education expense?
        
        Crow K on 27/06/2023 - 17:19
        
        @prometheuis:
        
        But you would agree in the specific instance above - that indexation should be tax deductible if the original expense incurred was an approved self education expense?
        
        No, I would look up the tax act and find out the answer. "Should" is wishful thinking without law behind it.
        
        Your deduction for education expenses is in the year the fees are raised by the Uni. Later increases to the loan (if you have one) are not additional education expenses. (e.g. look up ATO ID 2005/27)
        
        Maybe you're confused because loans to buy capital assets like houses and shares can have ongoing deductible interest? That's not the case here.
        
        prometheuis on 27/06/2023 - 17:23
        
        @Crow K: No I'm confused because the specific example given by the ATO states that is allowable to take loans to pay for approved self-education expenses, and that ongoing interest expenses to service that loan are tax deductible.
        
        That's the example they give on their website. As per link I shared in the post.
        
        They specify that ongoing interest payments ARE tax deductible.
        
        ATO Example below:
        "Tim is a solicitor undertaking a Master of Law degree part-time. He borrows $10,000, repayable over 3 years, to pay for his tuition fees. He incurs $1,000 interest each year.
        
        Tim can claim a deduction of $1,000 for interest in each of the 3 years."
        
        Crow K on 27/06/2023 - 17:27
        
        +1
        
        @prometheuis: They certainly are, unless they conflict with some hard written rules like s26-20, in which case no deduction (no govt loans!).
        Also, stop calling HECS indexation "interest", it's getting annoying.
        
        Seriously, give ATO ID 2005/27 a glance, I think you'll find it helpful.
        
        prometheuis on 27/06/2023 - 17:40
        
        -1
        
        @Crow K: I've provided sources that invalidate both of your prior claims which you seem to be glossing over each time.
        
        You just claimed that increases to a loan are not education expenses. Which is just wrong - as proven by the ATO example I provided.
        
        I don't believe I have referred to HECS indexation as interest - I have simply stated that from the perspective of tax outcomes, the treatment is the same. Whether its indexation or interest is just nomenclature. It makes no difference to the fact that an expense has been incurred.
        
        ATO ID 2005/27 - which you have conveniently have been unable to link (which I suspect is because you haven't read it). Simply refers back to the 26-20 issue about how repayments are non-deductible. It seems like we are going in a circle and you refuse to concede when you have made false statements.
        
        Crow K on 27/06/2023 - 17:48
        
        +1
        
        @prometheuis:
        
        I've provided sources that invalidate both of your prior claims which you seem to be glossing over each time
        
        ???
        
        Alright, spell out the actual sources (not "hey so page said", I want to see your sources for itself) and what comments of mine they are specifically refuting. Be specific in both cases.
        
        its indexation or interest is just nomenclature.
        
        front up to the ATO and tell them "it's just the vibe, nevermind the nomenclature" and see how far you get
        
        happydude on 27/06/2023 - 17:54
        
        @Crow K: ATO ID 2005/27 is about repayments, not the point the debt is incurred.
        
        It's a different issue.
        
        Crow K on 27/06/2023 - 17:56
        
        +1
        
        @prometheuis: Scenario A: Take up loan from Commonwealth Bank for a course related to your current workplace.
        
        Fees for the course - deductible when paid (via your loan)
        Ongoing interest on loan: deductible each year thereafter.
        
        Scenario B: Take up FEE-HELP loan for a course related to your current workplace.
        
        Fees for the course - deductible when paid (via your loan)
        Ongoing repayments on loan: NOT deductible (s26-20)
        Accruing (moving forward) an increase on your non-deductible loan: NOT deductible
        Non-accruing (leaving where it is) an increase on your non-deductible loan: NOT deductible
        
        Stop thinking HECS/HELP loans are "education expenses". They are not. You had the expense when the Uni issued the fee.
        
        Crow K on 27/06/2023 - 18:27
        
        @prometheuis:
        
        Yes 100% I'm on the same page as you. Loan repayments are not a deduction. You don't need to put it in capitals. I have never disputed that and I made the clear point of repeating it several times in my original post.
        
        Alright, new approach given you agree on that at least.
        
        HECS/HELP loan debt balance on 30 June 2023: $100,000 all non-deductible on repayment
        
        Indexation occurs
        
        HECS/HELP loan debt balance on 1 July 2023: $120,000 all non-deductible on repayment
        
        Loan has increased by $20,000 which must be a non-deductible amount for the math to work.
        
        You can't claim a deduction for a non-deductible amount, none of the $20,000 is a permitted deduction now or ever.
tsunamisurfer on 27/06/2023 - 14:53

+14

The OP has :
- Consulted the ATO website and got an answer.
- Consulted tax related forums and got an answer.
- Established that HECS repayments itself is not tax deductible under the ITAA.

Yet :
- Believes there is room for interpretation.
- By consulting a bargain website.
happydude on 27/06/2023 - 15:10
https://www.ato.gov.au/law/view/document?DocID=TXR/TR989/NAT…

Types of self-education expenses allowable

Subject to the general tests under section 8-1 being met, the following types of expenses related to self-education are allowable:

(e) interest incurred on borrowed monies where the funds are used to pay for self-education expenses associated with a course of education, that enables a taxpayer to maintain or improve his or her skill or knowledge or is likely to lead to an increase in income from the taxpayer's current income-earning activities. Regard must be had to the connection between the interest expense and the income-earning activity in each income year interest is claimed because a change in circumstances, for example, a change of employment, may mean that the necessary connection no longer exists.

Is indexation interest??
- lordezekiel on 27/06/2023 - 15:35
  
  +1
  
  Interest = A percentage increase on an amount owed.
  Indexation = A percentage increase on an amount owed.
  
  Other than a different name, how are they functionally different?
  - MITM on 27/06/2023 - 15:43
    
    +1
    
    Indexation is a realignment of the debt relevant to the day calculated by an index. Interest is a cost of borrowed funds. HECS debt is not borrowed monies - its a bill.
    - happydude on 27/06/2023 - 15:45
      
      +2
      
      HECS debt is not borrowed monies - its a bill.
      
      I disagree. The Higher Education Support Act refers to it as a loan, over and over again.
- marty260 on 27/06/2023 - 15:43
  
  +1
  
  Indexation is not interest
  They might get to the same result but they are not the same.
  Indexation increases the debt, whereas Interest creates a separate charge which you can then in some cases add to the debt.
  Pretty much everything the Government puts out says HECS does not incur interest
  So in a tax point of view you might be closer to arguing you have a capital loss as the debt has increased!
  - prometheuis on 27/06/2023 - 17:08
    
    -2
    
    You do realise that a capital loss is just another way of saying expense right?
    - Shadowsfury on 27/06/2023 - 20:32
      
      +3
      
      Capital losses can't be offset against regular income, a deductible expense can.
      
      So no, they aren't the same thing.
jv on 27/06/2023 - 15:10

+1

No education expenses are tax deductible unless they are directly attributable to the income you have earned.
happydude on 27/06/2023 - 15:15

+2

Op you could be on to something.

There was a case years ago where someone wanted to claim their textbooks as a tax deduction while receiving youth allowance.

The argument being that Youth Allowance was a taxable payment. As study and the textbooks were required to obtain that income it made them an allowable deduction.

Long story short they won in the high court….. and then the government changed the law.

Case - https://austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/2010…
- prometheuis on 27/06/2023 - 15:23
  
  I certainly hope so -
MITM on 27/06/2023 - 15:35

The indexation OF your HECS debt is not an interest charge. It is to align the debt with CPI (the CPI index). This is to maintain the cost of the education relevant to today.
If you incurred a HECS debt a hundred years ago, it would be an insignificant amount and possibly not worth collection. A little like when you get a cheque for $1, when it costs $1.10 to mail.
- prometheuis on 27/06/2023 - 15:41
  
  Yes I understand the function of Indexation vs Interest.
  
  But the outcome is the same - I have incurred an expense. I have an amount that I need to pay, that has been incurred in this financial year. This is the definition of an expense.
  
  Furthermore - how far can we stretch this logic. What if my revenue for my business is tied to CPI increases. I have a massive construction business and I lock the contract value to CPI over 3 years. Does that mean any increase in my sales as a result of an increase in CPI are not taxable?
  E.g. 100k sales contract, but with CPI it increases to 107k. Somehow the 7k is not taxable/assessble income? Thats ludicrous.
  - MITM on 27/06/2023 - 15:45
    
    No, you haven't incurred an expense this year. Your debt has been revalued by CPI. Pretty simple.
    2+1 = 3 so does 1+2 and 4-1. The answer is alike but the equations are different.
    - prometheuis on 27/06/2023 - 15:48
      
      So by your logic my hypothetical construction company doesn't need to pay tax on any CPI increases in his construction sales contracts?
      
      That makes no sense.
      
      Yes I understand the nature of what indexation is and its purpose. But an expense has still been incurred. The amount I need to pay has increased.
      - larndis on 28/06/2023 - 09:33
        
        +1
        
        @prometheuis: @Prometheuis Our personal income tax system runs on cash accounting, not accrual. Your debt has gone up but you haven't paid the indexation amount out of your own pocket (ie. incurred the expense). As HECS repayments are specifically not tax deductible, when you do pay it you will not be able to claim it as a deduction. The legislation is clear, even if not to you.
MITM on 27/06/2023 - 15:53

-1

The amount you now need to pay has been adjusted for inflation. No one has sent you another bill to pay. A commercial lease usually has + CPI to the lease amount. It's still the same lease but you've agreed to pay more with each CPI - therefore the landlord maintains equilibrium with the original rental amount or he'd be out of pocket each year. Perhaps we should negotiate our hourly rate + CPI - but then we just renegotiate our rate each year anyway.
- prometheuis on 27/06/2023 - 15:56
  
  You've given more support against your own argument.
  
  A commercial lease is usually + CPI. The total lease payment each year is still a tax deductible expense for the business owner.
  
  Or do you think they can only expense the original amount?
  
  E.g. lease payment is 1200 a month goes up to 1300 a month with CPI. Does the business claim 1300 or 1200 as an expense in their tax deductions? obviously the full amount they paid.
  - MITM on 27/06/2023 - 16:11
    
    All business expenses are fully tax deductible.
    - prometheuis on 27/06/2023 - 16:14
      
      But you're claiming its not an expense? Your claim was that CPI increases are not an expense.
      
      So which is it?
      - MITM on 27/06/2023 - 16:50
        
        @prometheuis: Business yes - Educational no
- happydude on 27/06/2023 - 16:10
  
  No one has sent you another bill to pay.
  
  They do actually. It is a separate line item on the statement.
  - MITM on 27/06/2023 - 16:13
    
    and so would any payments - to the original debt.
MITM on 27/06/2023 - 16:03

Prom - can you restate - do you believe your HECS debt is tax deductible ?
- prometheuis on 27/06/2023 - 16:05
  
  I think I've made it very clear that I know HECS debt repayments are not tax deductible. I stated that several times in my original post.
  - larndis on 28/06/2023 - 09:35
    
    This is the answer. HECS debt repayments include repayments of indexation amounts and are not deductible.
MITM on 27/06/2023 - 16:09

Then that is the end of the argument. You have an unfixed HECS debt adjustable according to legislation, and calculated using an index (CPI). No one has sent you an additional bill.
JimmyF on 27/06/2023 - 16:26

+2

Is HECS-HELP Indexation Tax Deductible?

No /thread
Drakesy on 27/06/2023 - 16:45

I wouldn't say indexation is "interest" per sae as it's merely reflective of the inflationary environment and not an expense.
The loan is still effectively interest free and therefore not subject to deductions.

So in short, no
- MITM on 27/06/2023 - 16:52
  
  Mic drop.
- prometheuis on 27/06/2023 - 17:01
  
  I don't see how its possible to not define this as an expense. Its very interesting that so many have this point of view.
  
  In any other instances were CPI adjustments are made or any revaluations are made for that matter. The common accounting treatment would be to recognise the change in value as either income or expenditure.
  
  If you claim is that CPI amounts incurred are not an expense. I would love to know what the proposed accounting treatment would be if it isn't going through the profit and loss statement.
  - Drakesy on 27/06/2023 - 17:05
    
    Well, yes we're getting into semantics and i guess as long as the CPI and indexation are in alignment then there's not allot we can do unfortunately.
    
    But the alternative would be what they do in America where you're getting charged the actual personal loan interest rate which would be significantly more. This wouldn't be a preferable outcome even if you can claim back a proportion as a tax deduction.
    - prometheuis on 27/06/2023 - 17:10
      
      The typical student interest rate in America is approximately 4.5%.
      
      CPI indexation was just 7.1%
      - filmer on 28/06/2023 - 09:15
        
        @prometheuis: What about all the other years where indexation was well below 4.5%?
        
        prometheuis on 28/06/2023 - 12:47
        
        @filmer: I understand that typically CPI will be interest rates - historically this is usually the case.
        
        I'm not disputing that.
        
        The claim was made by Drakesy that personal loan rates are significantly more than CPI. I was just pointing out this is not currently the case.
  - MITM on 27/06/2023 - 20:22
    
    A HECS debt isn’t entered into business/PL accounts. It may in your family budget for provision of future payments but your PAYG withholding would provision for any possible payment at the end of the year, and if not then returned as a tax refund.
happydude on 27/06/2023 - 16:54

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

Regardless of whether it is interest or not it is a debt incurred and owed. Therefore an outgoing.
- larndis on 28/06/2023 - 09:37
  
  -1
  
  A debt is not an outgoing. Repayments of debts are outgoings. And repayments of HECS debts are specifically not deductible.
Trance N Dance on 27/06/2023 - 17:03

+1

Simply put the original education to allow you to work in your field is not tax deductible. So any loan against it is not deductible either; hence why HECS repayments are not tax deductible nor any indexation against it.

Any education to further your career progression or allows you to take on more tasks/responsibility is not tax deductible either. As it's considered education to allow you to get a job.
Any education that is required to maintain your license and/or legal requirements to continue to work in the position that you are in is tax deductible as it's a work related expense.

Anything that is obtained to gain work is not a work related expense.
Anything that is obtained to retain work is a work related expense.
- happydude on 27/06/2023 - 17:24
  
  Any education to further your career progression or allows you to take on more tasks/responsibility is not tax deductible either.
  
  That bit isn't quite true. If the study of a subject of self-education objectively leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income-earning activities in the future, the self-education expenses are allowable as a deduction.
  
  So if it is for promotion or new tasks with the same employer, its deductible.
  - Trance N Dance on 27/06/2023 - 17:28
    
    Yes I shouldn't have said any education, HECS incurring education isn't self-education though.
    - happydude on 27/06/2023 - 17:30
      
      Well, the HECs (student contribution) bit isn't, but you can still claim other outgoings, like textbooks, some travel, computers etc.
freefall101 on 27/06/2023 - 17:45

Pretty simple, the loan wasn't incurred when earning assessable income therefore the interest on that loan isn't deductible. The ATO example you list someone taking out a loan who's already a solicitor, therefore the expense and the interest is deductible.
AndyC1 on 27/06/2023 - 18:09

What did he ATO say when you called them on the bargain basement phone line?
- djsweet on 27/06/2023 - 18:45
  
  I think op already knows what the ATO say. But what the ATO thinks doesn’t define tax law.
  - prometheuis on 27/06/2023 - 18:50
    
    +1
    
    Thank you it feels good to be understood.
    
    Just because some customer service officer at the ATO reads a handbook to me verbatim. Doesn't mean that's actually what the law is.
djsweet on 27/06/2023 - 18:46

+1

Put it on your return. Get done by the ATO. Challenge in court. Set legal precedence. Sounds like a plan :)
- prometheuis on 27/06/2023 - 18:50
  
  I'll let you know how it goes.
Shadowsfury on 27/06/2023 - 20:33

Why don't you just ask the ATO for the private ruling and be done with it?
Jaduqimon on 28/06/2023 - 00:15
Alright let me chip in.

You accept that the HECs amount is not deductible because you did the course whilst not working.

Hence any repayment of the HECs amount is non-deductible regardless of when you pay it back.

The HECs amount increases, i.e the principal amount increases by indexation.

if U take out any loan. When you repay the loan. The repayment consists of the principal portion and a interest portion. When U lodge your tax return you only claim deduction on the interest portion.

Now. Your repayment on HECs consists of 100% principal portion and 0% interest portion. So nothing to deduct.

Now what you read on the forum is correct. If you take out a personal loan for the sole purpose of paying off the HECS balance. Then when it comes time to repay your personal loan, the interest portion becomes deductible.

However you will probably be worse off this way because the personal loan interest rate is higher than the indexation they apply to HECs even after consideration made to the deductible nature of the interest so no sane person would do this.
- prometheuis on 28/06/2023 - 12:55
  
  -1
  
  I mostly agree with 1-6 but I disagree with point 7.
  
  My current mortgage rate is 5.5% (at least last I checked - it does change every month nowadays) I have the option to redraw on my mortgage to pay off my HECS which is a much lower rate than the 7.1% indexation.
  
  But even if it wasn't done through my mortgage and I got a direct personal loan - a quick google search shows that I can get a personal loan from rates between 6.8% - 9%. When you factor in interest payments will also give me an approximately 35% tax deduction. That becomes an effective interest rate of 4.4% - 5.8% interest. A range which is much lower than indexation.
  
  Its alarming you would say no sane person would do this - all it took was simple math to show a substantial saving.
  - Jaduqimon on 28/06/2023 - 13:03
    
    yes when you redraw your mortgage you will come out ahead but you can't claim the interest offset you would of had if you didnt pay the HECS from your mortgage account as a deduction.
    
    For the personal loan. I must admit i was not in the loop and back then the personal loan rates were all >10%. Hard to believe that an unsecured personal loan would be 6.8% when a secured mortgage is 5.5% but anyway. if you can get the 6.8% loan then by all means do it. but this is kind of a moot point because if you can pay back your HECs then why don't you? it comes down to more of an investment decision than a tax deducibility decision.
    
    If you think you can make better use of the funds (i.e your HECs balance) elsewhere, i.e return greater than the 7% indexation, then you should not pay the HECs back. if you can't then you should not pay the HECs back.
    - prometheuis on 28/06/2023 - 15:20
      
      Yes you are right if its lower I should've just done it. But I left it too late and wasn't paying much attention to it before so I have copped that now.
      
      So fair call that's just on me for being lazy.
      
      But now I am looking at it, and I've come across this indexation issue. Which brings me to the point of this post. If interest payments are deductible for self education, surely I can put the indexation expense as a deduction under that same premise.
      
      But overwhelming response appears to be no. Unsure of whether its worth the effort/risk to try and put it through my return and see what happens.
      - larndis on 28/06/2023 - 16:32
        
        @prometheuis: The system won't stop you claiming the indexation, or any other imaginary or non-deductible expenses. Whether you want to commit tax fraud is a separate issue.
        
        Do you understand though that to deduct any expense you need to have paid it? Having indexation added to your balance is not the same as incurring an expense.
        
        Jaduqimon on 28/06/2023 - 17:00
        
        @larndis: He is saying he will claim the 7% indexation.
        
        I.e. whatever HECs amount he repaid this year multiplied by 0.07 is the amount he will claim as deduction
        
        prometheuis on 28/06/2023 - 17:43
        
        @Jaduqimon: No not quite - because repayments arent deductible.
        
        Jaduqimon on 28/06/2023 - 19:24
        
        @prometheuis: Yes not deductable but aren't you trying to claim it anyway though? And the way I described it is how you would calculate it if you wanted to claim the deduction

Is HECS-HELP Indexation Tax Deductible?

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