A common HELP indexation complaint over the last couple of years is that compulsory repayments during the financial year are not deducted prior to indexation. I explained the current system in this post last year.

In that post, I noted that one reason for not taking compulsory HELP repayments out prior to the current 1 June indexation date is that their exact amount is not yet known by the ATO. The repayment amount is calculated after the financial year ends, on 30 June, and during tax return processing. There are many reasons why HELP repayments sent via the PAYG system could be less or more than the final repayment amount.

The ATO has raised another administrative obstacle, which is that HELP repayments are not separately identified in the PAYG information it receives from employers. As the ATO collects salary information, and already knows who is a HELP debtor, it perhaps would not be that hard to infer why the amount withheld from an employee is higher than income tax rates require. But clarity on what is intended as a HELP repayment would require system re-designs for the ATO and employers. HELP PAYG information would still often vary from the final correct amount, so the system would need a reconciliation after 30 June, with corresponding adjustment of indexation up or down. This would add complexity and administrative costs. These practical issues rule out real-time reduction of HELP balances.

The Accord final report instead recommends another option, changing the date of HELP indexation. They do not, however, suggest a date.

A 30 November indexation date?

Given the administrative issues involved, the ATO’s advice on choosing a later date will be important. It would need to be after the tax return due date, 31 October. The due date for payments to the ATO, if required, is 21 November this year, so a date after that makes sense. 30 November or the next business day if that date falls on a weekend might work.

This system would also bring compulsory and voluntary repayments into closer alignment. After people have done their tax returns they will know how much their HELP balance will reduce by due to compulsory repayments. They would then have a period before the indexation date – presuming they submitted their tax return on schedule – to decide whether to make a voluntary repayment, which would further reduce their indexation.

For taxpayers receiving a refund this could be a lump sum they use to reduce or clear their HELP debt. This might increase voluntary repayments.

Late tax returns

HELP debtors who are late in submitting their returns would miss out on having their compulsory repayments deducted for that year’s indexation.

The ATO’s Individual income statistics reports give some guide to this issue. For the latest tax year the ATO reports on income tax returns filed by 31 October, but earlier tax year figures are updated to reflect processing of late tax returns. Typically the ATO collects HELP repayments from another 25,000 or so debtors in the financial years after the amount was originally due.

This means that about 4% of the people with a Australian income compulsory HELP repayment are late. The figure is higher for overseas debtors, some of whom may be unaware of their obligations until they return to Australia.

People who submit late tax returns will not be worse off compared to the current system. Their compulsory repayments will be deducted for the next financial year (if received before the following year’s indexation date). However, they will be worse off compared to other debtors. This creates an additional incentive to submit tax returns on time.

Conclusion

As with the proposed new system of setting indexation rates it is probably too late to change the indexation date for 2024. The transition between systems will involve complex administrative issues. However the government could announce it for 2025, fixing a policy problem while managing the politics of HELP debt.