For the first time, many Australians are finding themselves in a position where they are being told they owe the ATO money after completing their tax return this year.
A significant number of taxpayers in this position are those that are still paying off their HECS/HELP debts – many of them young Australians. Following are some myths and facts around why this may be the case.
We also tackle the LMITO myth.
When PAYGW is deducted from salaries and wages to take account of HELP liabilities, the withheld amount is not applied against the HELP debt until after the end of the income year, when the tax return is lodged. This means that indexation is applied to the debt without taking into account any PAYGW withheld during the year.
Fact or myth?
This is a myth.
Indexation only affects the loan balance, it doesn’t affect the amount of the year-end tax liability.
Where an employee has salary sacrificed, the lower salary will reduce the PAYGW withheld, but the reportable fringe benefit is included in the repayment income that is used to determine liability to HELP repayments.
This is not likely to be understood or expected by affected taxpayers.
Fact or myth?
This is a fact.
HELP repayment income is the total sum of the following amounts from a person’s income tax return for the income year:
taxable income
total net investment loss
reportable fringe benefits (as reported on their payment summary)
total net investment loss (which includes net rental losses)
reportable super contributions (including salary sacrificed contributions); and
any exempt foreign employment income amounts
Negative gearing amounts are added back and included in HELP repayment income. The rapid rise in interest rates will flow through to negative gearing amounts which increase the repayment income.
This is not likely to be understood by affected taxpayers and will have caught them off-guard.
Fact or myth?
This is a fact.
However, this will only affect those engaged in negative gearing which may not be many young Australians with a HELP debt.
The high indexation applied to HELP debts this year of 7.1% compared to prior years (3.9% in 2022 and 0.6% in 2021) has caught taxpayers off-guard. Prior to 2022, over the last 10 years, the rate had not exceeded 2.6% and was often around 2%.
Fact or myth?
This is a myth.
Again, indexation only affects the loan balance, it doesn’t affect the amount of the year-end tax liability.
The end of LMITO after 2021/22 is only just being realised by taxpayers now, despite two years of talking about this. The message did not get through, or the impact was not fully understood.
Fact or myth?
This is a myth.
For employees, the PAYGW rates were increased to take the LMITO abolition into account, so yes no refund, but there shouldn’t be tax payable as a result of just the LMITO ending.
If you have any questions as to why you received a tax bill this year or would like assistance in entering into a payment plan with the ATO, please contact us.
Personal Property Securities Register
Are you aware of the personal property securities register?
What is it?
The personal property securities register (more commonly known as the PPSR) is an official government register. It’s effectively a public noticeboard of *security interests in **personal property that is managed by the Registrar of Personal Property Securities.
*security interests are most commonly created when a secured party (such as a lender) takes an interest in personal property of a grantor (such as a borrower) as security for a loan or other obligation. The security interest means the secured party can take the personal property (known as the collateral) if the secured obligation is not met, such as defaulting on a loan.
**personal property to which the PPSR applies is property other than land, buildings and fixtures to the land. It includes goods, motor vehicles, planes, boats, intellectual property such as copyright/patents/designs, shares, bank accounts and debts.
The debts or other obligations that are secured by personal property are shown on the register (if registered). The PPSR is accessible by the public 24/7. The PPSR came into existence on 30 January 2012 replacing many state-based registers, such as REVS and other vehicle registers and the ASIC Register of Company Charges, to form one national register.
Put simply, the register assists both those with a security interest over property, and also consumers/businesses purchasing property as follows:
Registering
When someone registers a security interest on the PPSR, they are letting the world at large know that they claim to have a security interest over certain personal property. Registering on the PPSR is a way to notify others if personal property such as cars, goods or company assets have security interests over them. Registering your security interest correctly on the PPSR can protect you and give you extra rights in the property it’s registered over. This is especially important if the person who gave you the interest goes insolvent. A registration also offers other protections such as ranking you as a higher priority over other security interests.
Searching
Consumers including businesses can search the PPSR to see if someone has registered a security interest over personal property (which they may want to do before buying property or lending money to someone). When you search you will receive a certificate that you can retain as proof of whether or not a security interest was registered at the time of your search. If you don’t do a search and then proceed to purchase property that has an existing security interest registered over it, you place yourself at risk of the goods being repossessed even though you have paid for them. Millions of searches and registrations take place on the PPSR every year.
To access the PPSR, visit www.ppsr.gov.au
Contact us for more information if you are uncertain around the PPSR.
Superannuation and age pension eligibility
Come retirement, many folks rely on a combination of their superannuation savings and the age pension in order to financially sustain them moving forward. Accordingly, a front-of-mind issue for individuals is: at what point does your level of superannuation savings and payments impact your eligibility for the age pension?
While you are under age pension age, in relation to any Centrelink payment, Centrelink do not count your or your partner’s superannuation balance in either the income or assets test if your fund is not paying you a superannuation pension. However, if your fund is paying you a superannuation pension, that pension is taken into account.
Once you reach age pension age, Centrelink counts your super both (a) in the assets test and (b) in the income test under the deeming rules. The same rules apply to your partner and their super when they are age pension age, even if they are not in receipt of a Centrelink payment.
To recap, deeming is a set of rules used to work out the income created from your financial assets. It assumes these assets earn a set rate of income, no matter what they really earn. The main types of financial assets are:
savings accounts and term deposits
managed investments, loans and debentures
listed shares and securities
some income streams
some gifts you make.
Centrelink includes any deemed income as your income under the income test. The income test helps Centrelink work out how much income support it can pay you.
Taking money out of superannuation doesn’t affect your Centrelink payments but you may be impacted by the deeming rules (see earlier) depending on where that money is invested outside super.
Recent research into retirement confidence by Monash University found people aged 50 and over – who take time to understand and plan their finances – are less anxious about transitioning into retirement. It found they were more confident overall about their retirement options.
Knowing how much of the age pension you could be eligible for can help you understand your finances in retirement. For many, a qualified financial adviser with knowledge of superannuation and retirement planning can help you get the balance right.
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