How Can Salary Sacrifice Affect STSL/HELP Repayments?

How Can Salary Sacrifice Affect STSL/HELP Repayments?

If you or your employees have a student loan (STSL/HELP/HECS), it’s important to understand how salary sacrifice arrangements can affect repayments. Salary sacrifice can reduce taxable income, which in turn impacts how much is withheld for STSL/HELP during the year. Here’s what you need to know, with examples to make things clear.

What Happens With Salary Sacrifice and STSL/HELP?

Salary sacrifice (e.g., for superannuation or other benefits) reduces an employee’s taxable income for PAYG withholding purposes. However, when the Australian Taxation Office (ATO) calculates the required STSL/HELP repayment at the end of the financial year (EOFY), it uses repayment income, which includes salary sacrifice amounts.

This can create a situation where:

• The employer withholds little or no STSL/HELP repayments during the year due to reduced taxable income.
• At EOFY, the ATO assesses the total repayment income and calculates a larger repayment amount.

Voluntary Repayments

It’s important to note that voluntary repayments made throughout the year (by the employee) do not affect the compulsory recalculated amount required at EOFY. Even if an employee makes voluntary payments to reduce their loan balance, the ATO will still calculate the required repayment based on their repayment income.

Example 1: Falling Below the Threshold Due to Salary Sacrifice

Amy earns $65,000 annually and has a salary sacrifice arrangement of $10,000 for superannuation.

• Taxable income: $65,000 - $10,000 = $55,000
• Repayment income: $65,000 (includes salary sacrifice amount)

During the year:

• Amy’s employer withholds no STSL/HELP repayments because her taxable income ($55,000) is below the current STSL/HELP repayment threshold of $60,948.

At EOFY:

• The ATO assesses Amy’s repayment income as $65,000.
• Based on the repayment rate, she owes $3,250 in STSL/HELP repayments.
• Amy must pay this amount directly to the ATO.

Example 2: Additional Withholding to Cover STSL/HELP

Ben earns $70,000 annually and salary sacrifices $8,000 for superannuation.

• Taxable income: $70,000 - $8,000 = $62,000
• Repayment income: $70,000 (includes salary sacrifice amount)

During the year:

• Ben’s employer withholds repayments based on his taxable income of $62,000, which falls in the 2% repayment rate.
• $1,240 is withheld for STSL/HELP during the year.

At EOFY:

• The ATO assesses Ben’s repayment income as $70,000, which falls in the 3% repayment rate.
• Ben owes $2,100 in STSL/HELP repayments.
• Since only $1,240 was withheld, Ben must pay the $860 shortfall directly to the ATO.

How Can Employers and Employees Manage This?

1. Educate Employees: Explain that salary sacrifice reduces taxable income for PAYG withholding but does not reduce the ATO’s calculation of repayment income.
2. Additional Withholding: Employers can set an upwards variation increase to tax each pay under Employees >> Tax Rates >> Upwards Variation. This will withhold additional tax and help employees avoid a HELP debt at EOFY. Note that the extra amount withheld will not classify as STSL/HELP in reports or payslips but can still be used to cover the potential tax debt.
3. Monitor Repayment Income: Employees should review their taxable income, salary sacrifice amounts, and expected repayment income to avoid surprises at EOFY.

Useful Links

For more information, visit the ATO website:

• Understanding HELP and TSL repayment thresholds
• Salary sacrifice and reportable employer super contributions

By understanding these interactions, employees can plan effectively to manage their student loan repayments and avoid unexpected EOFY debts.