The balance of a student loan of an individual (like HECS, now HELP) is not an amount which is required to be paid by the estate of that person. That is, the estate may be liable for a compulsory repayment arising in respect of an outstanding tax return (including for the period up to the date of a person’s death) but any remaining loan is essentially waived.
For the 2022-23 income years some repayment may be required if a resident individual’s ‘repayment income’ is above $48,361. The rate varies depending on the amount of the individual’s repayment income, but the maximum rate of 10% applies if it is above $141,847.
In this context, repayment income, is the sum of the individual’s taxable income, reportable fringe benefits, total net investment loss, reportable super contributions and any exempt foreign employment income.
However, the way in which repayments are determined for a former resident is different.
Changes to the Higher Education Support Act 2003 that apply from 1 July 2017, mean that non-residents with an Australian study loan are required to report the details of their worldwide income to the ATO every year. Worldwide income comprises:
- repayment income, and
- non-resident foreign sourced income
Depending on how the worldwide income is constituted, they may then be obliged to make a compulsory repayment, an overseas levy or both.
So, the moral of the story is don’t assume that a foreign deceased person who was not taxable in Australia will have no outstanding tax liabilities (as that term is defined for the purposes of the Taxation Administration Act 1953) in Australia.
Gerard lived in Australia until shortly after he completed his studies. In 2012, Gerard followed work opportunities overseas. Since leaving Australia, Gerard has been a foreign resident for Australian tax purposes. Gerard’s only source of income has been foreign-sourced salary and wages – averaging US$180,000 per year which was not taxable here. Gerard had not lodged tax returns for the 2013 – 2020 income years. In 2014, Gerard inherited a property in Australia from his father.
Gerard died from Covid-19 in September 2020; he did not have a Will.
Jerome, Gerard’s brother and administrator of his estate, planned to transfer the property to Gerard’s next of kin. Jerome assumed that Gerard’s outstanding $60,000 HELP debt lapsed at death.
Clearly when Gerard left Australia, there was no obligation on him to provide the ATO with details of his worldwide income. However, that changed while he was away, and he should have been providing that information to the ATO.
Jerome as administrator is obliged under section 260-140 of the TAA to provide the information that Gerard was obliged to provide when he died, and to pay the amounts owing. In this case, although Gerard had no taxable income and therefore no income tax to pay, Jerome is liable to repay Gerard’s student loan.
While there are different methods of assessing the amount of non-resident foreign income, on a simple self-assessment method Jerome has an obligation to repay almost all of Gerard’s HELP loan:
- 2017 – 2018 A$210,000 7.5% $15,750
- 2018 – 2019 A$230,000 8.0% $18,400
- 2019 – 2020 A$250,000 10% $25,000
If Jerome had distributed the property to the beneficiaries of Gerard’s estate, he may have had to repay the student loan from his own funds.
Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.
This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning. Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.