Nick Bruining Q+A: Working abroad but still have student debt in Australia? What you need to do right now

Question

Ten years ago in 2016, my son graduated with a computer science degree and got a good job. Early in 2017, he moved to the UK where he remains, earning good money in Glasgow.

After he left Australia, he lodged his tax return and noticed that his refund was reduced by an amount used to pay off some of his HELP debt.

He was told that as he is no longer an Australian taxpayer, he does not need to lodge a tax return.

My concerns relate to the HELP debt.

He tells me that he only has to pay it with Australian tax when he returns, but I have read and think that repayments must be made, even if you live overseas.

Answer

Unfortunately for your son, you are correct.

It is good to see that he is benefiting from the HELP scheme, where the Australian government provides an interest-free loan so that individuals can advance their income-earning abilities through higher education.

Since 2018, however, Australians with a student HELP, HECS, VSL or AASL (previously TSL) loan are required to notify the Australian Taxation Office if they will reside overseas for 183 days or more. This must be done within seven days of their departure, or if they are already overseas. That would apply to your son.

Once there, he must report his worldwide income to the ATO at the end of each financial year, and by no later than October 31. If his income for a year is less than 25 per cent of the minimum repayment threshold, he can lodge a “non-lodgement advice” and no repayments need to be made.

It seems likely that there may be potential liabilities for the past few years because the minimum income threshold in previous years has been income above about $46,000.

In the past couple of years, various discounts and changes have applied. For the current tax year, the minimum payment threshold is now $67,000. There is a sliding scale which determines how much of the loan is repayable annually, ranging from one to 10 per cent.

The 10 per cent rate applies to incomes above $179,286. For example, if your son’s worldwide income is $180,000, his repayment will be $18,000.

Your son might be tempted to wait until his eventual return or even under-report his income while living overseas. He should be aware that the ATO now has sophisticated data-sharing arrangements with most jurisdictions around the world.

There are various penalties for avoiding loan repayments. They can include a fixed penalty plus the outstanding loan repayments and, maybe, daily interest charges for the outstanding amount.

Being proactive and contacting the ATO now might help him avoid penalties, but not the repayment of the loan.

Question

My parents are in their 70s and retired.

They worked very hard to try and provide for their own retirement and purchased a property about 35 years ago, which has been used for rental purposes and is under a family trust.

This property is their primary source of income.

Could you explain the consequences of the proposed changes to trust taxation?

Answer

In the absence of specific legislation, this is a simplified version of how we think it will operate.

The rental income from the property, less the expenses, will be subject to the minimum 30 per cent discretionary trust tax rate.

The distribution to your parents will be the remaining income, but with a non-refundable 30 per cent tax credit.

Various senior and other tax offsets will still apply to them and, in essence and using the 2026/27 figures, these credits alone mean neither is liable for tax or Medicare levy if their income is less than $31,847 each, or a combined $63,694.

Under proposed transitional arrangements, they may be able to move the property out of the trust into their names without capital gain tax implications.

But at this stage we do not know the State Government’s position with respect to stamp duty.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association