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HECS based on actual or taxable income

Discussion in 'Accounting, Tax & Legal' started by Muzza, 15th Jan, 2007.

  1. Muzza

    Muzza Active Member

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    So far i have been able to stay below the HECS threshold with a few tax minimisation strategies but am now looking at buying an IP... Someone recently suggested that HECS would be calculated on my income including the rental income I will be recieving even though the property would be negatively geared. Does anyone know if this is true? I had assumed that HECS would have been based on my taxable income.
     
  2. Glebe

    Glebe Well-Known Member

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    Don't know for sure but it could be right.

    Centrelink paternity costs are based on actual income not received, so I'm told.
     
  3. coopranos

    coopranos Well-Known Member

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    i think it is calculated on your taxable income plus any rental property losses through negative gearing.
    eg $60k employment income
    $10k rent
    $20k interest expense
    Income for HECS (and family tax benefit/centrelink i think) = $60k + $10k -$20k = $50k + $10k rental property loss added back = $60k.
     
  4. Muzza

    Muzza Active Member

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    So for example what you are saying is:

    My income is $35,000 (PAYG) + $15,000 (rent) = $50,000

    My expenses for maintaining the property $24,000 i.e. a $9,000 loss on the investment.

    My income for HECS purposes would be the $50,000 - $9,000 = $41,000????
     
  5. coopranos

    coopranos Well-Known Member

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    No. As far as I am aware, you add back the rental property loss:
    Income $35,000 + Rent $15,000 - Expenses $24,000 = $26,000
    Add back rental loss: $26,000 + $9,000 = $35,000

    essentially for HECS purposes, you dont have a rental property unless it is +ve geared, in which case you add it onto your taxable income.
    I may be wrong, but pretty sure this is how it works
     
  6. -T-

    -T- Well-Known Member

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    I'm not sure how it works either (probably a quick visit to ato.gov.au would help), but two years ago when I had a taxable income of sub-$10k, I had to pay about $13k in PELS (postgrad verion of HELP, which is the new version of HECS).

    Just checked the ATO site and coopranos is correct; rental losses are treated as add-backs.

    From the ATO site:
    HRI (HELP Repayment Income) = Taxable income plus any net rental losses, total reportable fringe benefits amounts and exempt foreign employment income.