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

            • prometheuis on 28/06/2023 - 17:42

              @larndis: "to deduct any expense you need to have paid it"

              I understand this is false. As I understand its optional to complete your tax return on an accrual basis.

              • larndis on 28/06/2023 - 21:09

                @prometheuis:

                As I understand its optional to complete your tax return on an accrual basis.

                Evidence?

            • sabracad on 28/06/2023 - 23:14

              @larndis:

              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.

              The ATO wording is based on the expense being incurred - i.e. when you make payment OR have a legal obligation to make payment.

              Claiming deductions

              Incur the expense

              Obviously this is different if considering say business income on a cash basis - in which case all income and expenses for that activity must be treated as such.

              This isn't really relevant to the OP though - the starting point for deductibility should always be: Is the expense connected to the earning of taxable income? This isn't.

              • larndis on 29/06/2023 - 09:09

                @sabracad: Since HECS repayments are specifically not deductible, the issue of connection to the earning of taxable income doesn't even come into it, though I agree OP also fails on this point.

                I can't see any evidence to support the assertion that personal income tax can be calculated on an accrual basis either. Businesses do have this option.

                • sabracad on 22/03/2024 - 18:26

                  @larndis:

                  Since HECS repayments are specifically not deductible, the issue of connection to the earning of taxable income doesn't even come into it, though I agree OP also fails on this point.

                  I was addressing your comment about incurring an expense, not the OP's. You don't seem to understand the definition of "incur" per the ATO.

                  You'd said:

                  Do you understand though that to deduct any expense you need to have paid it?

                  This is not correct.

                  I can't see any evidence to support the assertion that personal income tax can be calculated on an accrual basis either. Businesses do have this option.

                  You obviously didn't bother reading my comment or the ATO links provided - both of which were specific to individuals. I'd copied the ATO wording regarding their use of the word incur. It looks like the second link has now expired, so here's another.

                  Search for "To incur an expense means".

          • MrHyde on 28/06/2023 - 17:06

            @prometheuis: You can always ask the ATO for a private ruling and get 100% clarity on whether its deductible or not. And then use the outcome to determine if you want to claim it or not.

  • Kothos on 22/03/2024 - 03:28
    +1

    HECS not being tax deductible has nothing to do with the time the debt was incurred. It's used for paying fees that are already heavily subsidised by the government, so it is specifically excluded from getting a tax concession on top of that.

    And, indexation is not interest. Interest is a charge. Indexation increases the amount of the original debt. The debt is not any bigger than it was, because the indexation matches inflation, the debt is the same percentage of the wider economy that it always has been. And since it's the same debt, it's still not deductible.

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