Australia: HELP and TSL debt repayments - new obligations ...

[Pages:4]Insights from Global Mobility

Australia: HELP and TSL debt repayments - new obligations for Australians overseas

August 1, 2017

In brief

The Australian Government introduced changes to Higher Education Loan Program (HELP) and Trade Support Loan (TSL) repayment obligations for overseas debtors, as announced in the 2015-16 Federal Budget. Effective July 1, 2017, taxpayers with a HELP or TSL debt relocating overseas for at least six months (referred to as `overseas debtors') are now required by the Australian Tax Office (ATO) to:

1) Update their contact details with the ATO

Individuals with a HELP or TSL debt are now required to update their contact details using the ATO online services via myGov if they have an intention to, or already, reside overseas for 183 days or more in any given 12-month period.

2) Lodge an Australian tax return or form each year declaring their worldwide income (or complete a non-lodgement advice)

Overseas debtors with a HELP or TSL debt will need to declare their worldwide income to the ATO either via myGov or through an Australian tax agent. The full procedure is still not yet known however is likely to involve either a tax return or a form depending on the taxpayer's circumstances.

For Australian resident overseas debtors, this would already be completed as part of their normal tax return process, however, for non-resident overseas debtors they may not have previously had an Australian tax filing requirement. With respect to part-year residents, they would not have previously been declaring their foreign income in their Australian tax return where it was earned as a non-resident.

In detail

Mandatory loan repayments

Loans under HELP and TSL programs are loans made by the Australian government to students to pay for certain types

of education. HELP was previously known as the Higher Education Contribution Scheme (HECS). The loans under these schemes were previously only repayable when an individual's taxable income in Australia exceeded certain thresholds.

From July 1, 2017 (i.e., for income earned in the year ended June 30, 2017), overseas debtors (including Australian tax non-residents) with `worldwide income' that exceeds the repayment threshold



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are required to make mandatory repayments against their HELP and TSL government debts. This change means that Australian non-resident taxpayers now have to repay their loans in the same way as Australian resident taxpayers.

Contact details update

From July 1, 2017, debtors going overseas for more than six months in any 12-month period are required to update their country of residence and contact details with the ATO (including passport details, mobile number, international residential, postal and email addresses) within seven days of leaving Australia through myGov.

Debtors who already have a myGov account before moving overseas can log in to their account and provide these details. If they will not have access to their Australian mobile phone number while overseas, they will also need to turn off their mobile phone number security check.

Individuals who are already overseas and have a myGov account will be able to log in to their myGov account only if they have access to their Australian mobile number (or do not have the mobile phone security check activated). Where they do not have access to their Australian mobile number and this security check is active they will need to create a new MyGov account in order to update their details or request their tax agent to update their contact details with the ATO.

General reporting requirements

Individuals who opt to pay their debt through the tax system are required to make payments if their "repayment income" is above the repayment threshold for the year (i.e., A$54,869 for 2016-17).

Note that in the 2017-18 Federal Budget, the Government announced that the HELP repayment threshold would be reduced to A$42,000 from July 1, 2018.

Repayment income includes the following:

taxable income;

total net investment loss (including net rental losses);

reportable fringe benefits amounts; reportable superannuation contributions; and

exempt foreign employment income.

Until June 30, 2016, non-resident overseas debtors did not have to make repayments on their HELP and TSL balances, despite deriving worldwide income in excess of the minimum repayment threshold.

From July 1, 2016, a non-resident's "assessed worldwide income" is taken into account in determining whether non-resident overseas debtors with a HELP or TSL debt are liable to repay their debt.

Thus, similarly to if an overseas debtor were living and working in Australia, if they live and work overseas and earn worldwide income that exceeds the minimum HELP and TSL repayment threshold, they will be required to make compulsory repayments against their outstanding HELP or TSL balances, known as an "overseas levy".

Income to be declared

From July 1, 2016, overseas taxpayers with a HELP or TSL debt, regardless of tax residency status, are required to declare their worldwide income to the ATO.

The deadline to report their worldwide income for the 2016-17

Australian income year is October 31, 2017 (an extended deadline to as late as May 15, 2018 may be granted if the return is lodged through an Australian tax agent, such as PwC).

Situation 1

Where the overseas debtor's worldwide income is at or below A$13,717 for the 2016-17 income year (i.e., 25% of the minimum HELP and TSL repayment threshold), they will need to submit a non-lodgment advice form making this statement.

Situation 2

Where the overseas debtor's worldwide income is above A$13,717 but below the minimum repayment threshold of A$54,869, they will be required to declare their worldwide income for the 2016-17 income year.

An overseas levy would not be raised, on the basis that their worldwide income is below the minimum repayment threshold.

Situation 3

Where the overseas debtor's worldwide income is at or above the minimum repayment threshold of A$54,869, they will also need to declare their worldwide income for the 2016-17 income year.

However, in this situation, the overseas debtor will be required to make a repayment of their HELP and TSL liability.

Repayments may be in the form of a compulsory repayment (for Australian residents) and/or an overseas levy (for non-residents of Australia).

Assessment methods

Subject to certain conditions, when declaring their worldwide income, the overseas debtor will have the option of choosing between three income

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assessment methods in calculating their foreign income.

Prior to declaration, all amounts are first required to be converted to Australian dollars using the relevant average exchange rate for the Australian tax year.

Simple self-assessed method

This method will require the overseas debtor to provide their gross foreign income earned during the Australian income year and state the occupation from which they derived the majority of their foreign sourced income.

A standard deduction will be applied to reduce their foreign income based on their occupation.

Overseas assessed method

This method will allow the overseas debtor to enter the foreign income amount they were assessed for on their most recent income tax assessment from their foreign country of residence.

The assessment must cover a 12month period in order to use this method.

Comprehensive tax-based assessment method

This method will require the overseas debtor to declare their gross foreign income and enter allowable deductions similar to how they would complete an Australian income tax return.

The takeaway

For the year ended June 30, 2017 onwards, taxpayers with a HELP or TSL debt are required to declare to the ATO their worldwide income regardless of their Australian tax residency position either by utilizing the ATO's online myGov services or engaging the services of an Australian tax agent, such as PwC.

Considerations for overseas debtors

Penalties may arise

Failure to update contact details or to declare worldwide income will constitute a failure to comply with taxation requirements and penalties may be imposed.

It is important that the overseas debtor lodges on time, in order to avoid a penalty for late lodgement.

Cash flow issues and planning

Overseas debtors will need to ensure they have sufficient funds to meet the repayment amount arising as a result of issuance of their overseas levy. In most cases it is unlikely that the overseas debtor's employer will be able to withhold tax from their foreign payroll in order to assist them in managing their cash flow associated with this liability.

Accessing information required to meet reporting requirement

Overseas debtors will need to consider how they best obtain the relevant information needed in order to meet this new reporting requirement.

Depending on the method selected, they may need access to foreign payslips, foreign personal income details, etc. in order to calculate their worldwide income on an Australian tax year basis which will likely be different to the tax year of the foreign country where they are residing.

Considerations for employers

Communications to employees working overseas to alert them of the changes

What, if any communications do you want to send your current employee population working overseas alerting them of the new rules?

Communications to new employees undertaking overseas assignments

What if anything do you as an employer want to include on your intranet and/or in relocation packs to advise employees of their HELP/TSL obligations as a result of taking on the assignment?

Employee assistance while working overseas

Will the employer provide any assistance in relation to the obligations to lodge forms with the ATO?

Employees remaining on home country payroll

In order to assist employees in managing cash flow, does the employer calculate hypothetical tax inclusive of the HELP /TSL repayment?

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Let's talk

For a deeper discussion of how this might affect your business, please contact your PwC Global Mobility Services engagement team or one of the following individuals:

Global Mobility Services ? Australia

Norah Seddon, Sydney +61 (2) 8266 5864 norah.seddon@

Jackie Shelton, Sydney +61 (2) 8266 7355 jackie.shelton@

Lisa Hando, Perth +61 (8) 9238 5116 lisa.hando@

Anna Law, Brisbane +61 (7) 3257 8081 anna.law@

Shane Smailes, Melbourne +61 (3) 8603 6097 shane.smailes@

Maria Ravese, Adelaide +61 (8) 8218 7494 maria.a.ravese@

Global Mobility Services ? United States

Peter Clarke, Global Leader +1 (203) 539-3826 peter.clarke@

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