Aussie expat HECS debts: your questions answered

aussie-expat-student-debt-worldwide-income

Aussie expats who still have student debt in the form of HECS, HELP or TSL bills may have to begin paying it back based on their worldwide income.

If you’ve managed to miss this piece of news, you can catch up on what you need to do and why in this blog and this one too. The quick and dirty is that the Australian Tax Office will begin considering your “worldwide income” (any money you earned in Australia and overseas), when working out how much they’ll require you to pay towards you student debt.

Previously the ATO only took your Australian income into account, to see if you met the compulsory repayment threshold.

The ATO hasn’t exactly been forthcoming with much information on this either. It’s been a struggle for me to get straight answers – especially when the call centre staff’s advice directly contradicts that of the ATO website.

So I spoke to Aussie expat financial expert Brett Evans about the changes. He’s the managing director of Atlas Wealth Management, which gives financial advice to Aussie expats all over the world. He’s answered some of the curlier questions out there.

1. If a stay-at-home mum or dad has a partner earning above the threshold, how will the ATO determine that the non-working partner doesn’t make any income? Especially since in the US, couples jointly file tax returns.

Stay-at-home mums, dads and those who aren’t earning an income need to log into their MyGov account and file a Non-Lodgement Advice. This is how the ATO will be able to discern your non or low income from that of your partner’s.

The Non-Lodgement Advice basically tells the ATO that you won’t be filling a tax return because your worldwide income is less than the minimum student debt repayment threshold of $13,717 (AUD).

“Long story short, you just virtually have to tell them that ‘I’m earning less than $13,000’. Whether that’s $0 or that’s $12,999 you still have to disclose to them,” Evans says.

2. How will the ATO know if I haven’t disclosed my worldwide income, or disclosed it incorrectly?

This is probably the most asked question that I’ve come across while writing about this topic. For some it comes from a place of genuine curiosity and, frankly, I’ve also heard it from people who just don’t want to pay back the money they borrowed to finance their education. Which is robbing the next generation of their opportunity for higher education, if you ask me.

But let’s go to Evans to find out the answer to this curly one.

“My response to that always is, [the ATO] may not know now, but they love to go retrospective and go back,” he said.

Almost all countries have signed up to a Common Reporting Standard, which allows the free exchange of some financial information centered on resident’s assets and income. It makes it that much more difficult to “hide” anything from tax organisations.

“Believe it or not the US is the only country in the world not signing up to the Common Reporting Standard, so they’re like ‘give us all the information but we’re not going to share it’,” he said.

“So essentially, the US may almost become the last tax haven in the world when you think about it.”

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Don’t get too excited by that news though, there is always the possibility that the IRS will share your information.

“The US has left the door open. They say they’ll share information if they see fit to share that information. As in ‘we’re not going to do it if we have to, but if we feel that we’re having a nice Tuesday, then we might share it with you,” he said.

3. What’s the penalty if we play dumb and ignore it?

Penalties are yet to be disclosed by the ATO, however you can almost be certain that you’ll be paying back the amount you owed in the first place, probably with a nice fine to go with it.

If you’re living outside of the US, the ATO will use the Common Reporting Standards to match what you reported (or didn’t report) to them, with the data from your expat country. If it matches there’ll be no issues.

“It may take five years, but you know, they’ll love to go back five years prior and say ‘well you told us five years ago that you earned this and we’ve got some information that says otherwise, therefore, you’re toast’,” Evans said.

Just because the US hasn’t signed up to the Common Reporting Standards yet, doesn’t mean it won’t in the future, which could mean sharing your financial information from years ago.

4. What if I mistakenly disclose the wrong information?

Some people don’t have a head for numbers (myself front and centre of that line), and taxes can be confusing at the best of times. So what happens if you’ve unknowingly made a mistake?

“Whether that’s intentional or unintentional, that’s the biggest thing that’s going to be quite different,” Evans said.

“You could have knowingly put your information in thinking that you were doing the right thing, and in that, you may be able to argue the fact with the ATO if it does come back to bite you.

But if you turn and say ‘I earned $45,000 to get below the $54,000 threshold, and the HRMC in the UK turns around and says that you earned £150,000, then guess what, you’re in trouble.”

So there you have it, the most asked questions answers. Got any more? Ask them in the comments section.

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