Accounting for Psychologists Newsletter #11

Welcome to the May Accountant for Psychologists Newsletter #11

I’m going to start with another proud Dad moment:  Here are my children in the Australian team uniforms.  They both won Silver in the Oceania Championship and got great results in the Trans-Tasman Youth Challenge over the first two weeks of April.  It's been a fantastic archery experience for all of us.

What’s next? 

My daughter will represent Australia in the World Youth Archery Tournament in Dublin, Ireland in July.  Stay tuned!

Right, onto business.
 This month the newsletter will cover:

  •  Important dates for accounting and tax
  •  Fringe Benefits Tax
  •  HECS-HELP Student loans

Important Dates for Accounting

15 May
Income tax return due date if you use a  tax agent and are not required to lodge earlier
21 May
Lodge and pay April 2023 monthly business activity statement.
Lodge and pay Fringe Benefit tax return
26 May
Quarter 3 (January to March) activity statements – final date for lodgement and payment – if you are using a tax agent
21 June
Lodge and pay April 2023 monthly business activity statement.

Fringe Benefits Tax

Recently, there have been a few inquiries about Fringe Benefits Tax and how it applies to psychologists.
To give you a brief overview, Fringe Benefits Tax (FBT) is a tax that Australian employers must pay on non-cash benefits provided to their employees, in addition to the employee’s regular salary or wages. These benefits can include items such as company cars, car parking, gym memberships, reimbursing an expense incurred by an employee (such as school fees) and other perks.

The purpose of FBT is to ensure employees are not given an unfair advantage by receiving non-cash benefits instead of cash payments, and that the tax system is equitable for everyone.

FBT is separate from income tax and is calculated based on the taxable value of the benefits provided, with a current rate of 47% payable by the employer.

To work out how much FBT to pay, the taxable value of the benefits is grossed-up so that it is equivalent to  what the employee would have to earn at the highest marginal tax rate ( including the Medicare levy) to purchase the benefits themselves. The ATO explains how to do this here: Visit Website

The FBT the employer pays is 47% of this 'grossed-up' value of the fringe benefits.

Employers must register for FBT and keep records of the fringe benefits they provide. 

Employers must self-assess their FBT liability for the FBT year which is 1 April to 31 March. An FBT return must be lodged, and the amount paid to the ATO by 21 May.

Employers can claim an income tax deduction and GST credits for the cost of providing the fringe benefits and an income tax deduction for the FBT required to be paid.

Note that clients are not employees and benefits provided to them, such as entertainment, are not subject to FBT.

If you're a sole trader or a partner in a partnership, you are not considered to be an employee of the entity. Benefits you provide to yourself are not subject to FBT.

As a sole trader, you can claim tax deductions for expenses that are incurred in the course of running your business. However, any expenses that are personal in nature are not tax deductible.

For example -if you buy yourself a gym membership you cannot deduct this from your tax.  However, if you buy furniture for your office this is directly related to your business and is tax deductible.

If you are a sole trader or a partner in a partnership and you have employees working for you, and you provide them with non-cash benefits such as a company car, then you’ll be required to pay FBT on those benefits.

 For more detailed information, the ATO the ATO has made a comprehensive guide for employers about FBT.  Here’s a link to it : Fringe benefits tax – a guide for employers 

If you have any questions, please do not hesitate to contact the Accountants for Psychologists team.

HECS/HELP debt and inflation

In the past weeks, I’ve seen a few panicky articles in the media recently about HECS-HELP student loans and how they will be affected by rising inflation.

In my opinion, HECS-HELP is the lowest priority when it comes to paying off debt.  If you have a home loan, a personal loan, a car loan or a credit card debt, pay them off first. Those debts are much more expensive and will have a greater impact on your financial well-being.

Having said that, there are a few situations where you might consider making voluntary repayments to speed up your repayment.  The first is if you’ve nearly completed your repayment, the other is if you’re thinking about getting a home loan and finally if you’re planning to take a break from employment.   Whether it’s worthwhile or not depends on your personal situation and what other debts you have.

As a psychologist, with years of university education, I’m sure you’re familiar with HELP (the Higher Education Loans Program) or its earlier rendition HECS (Higher Education Contribution Scheme) which you can use to pay for eligible higher education courses and then begin to pay back when you earn an amount above a threshold - which is currently $48,361. A percentage of your income, ranging from 1% to 10%, depending on how much you earn above the threshold, will be automatically taken out of your pay with the rest of your tax by your employer. 

If you have other income, you may need to pay a top-up on your HECS-HELP debt at the end of the financial year.

If your income goes below the threshold, you are no longer charged HECS-HELP repayments.  Unlike other loans, if you pass away the debt dies with you.

If you’re self-employed, you’ll need to put some money aside each month in an interest earning account till the end of the year to cover your HECS-HELP repayments through your tax return.  You can calculate what your repayments will be here : Visit Website

You can also make voluntary repayments to pay down your HECS- HELP debt at any time even if you are under the  repayment threshold. Although, the payments are non-refundable, meaning you cannot redraw on the loan. 

The voluntary repayments do not affect your minimum compulsory repayments. If you make voluntary repayments during the year, you must still  pay your  minimum compulsory repayments at the end of the financial year. There is also no discount for early repayment of your HECS-HELP debt.

Voluntary repayments made by you, or by someone else other than your employer, are not tax deductible. 
You can check your loan balance online with a myGov account and make voluntary payments online.

The important difference between HECS- HELP and other loans like your credit card, personal loan or home loan,  is that HECS-HELP loans don’t charge interest, instead, the loan  is adjusted for inflation.

Every year on June 1 indexation is added to your debt. This means the inflation rate for the year will be applied to the debt, for example, in 2022 it was 3.9% and in 2021 it was 0.6%. The indexation changes but the real value of your debt will not change. It’s just being adjusted to today’s prices. For the past 10 years, the indexation rate been around 2%. This year the indexation is 7.1%.

Any voluntary repayment that you make which is received before May 31 will reduce the balance used for indexation. 

As I mentioned earlier, other debts which are more expensive like credit card debt, a personal loan, car loan or home loan have priority.  The interest rates on those are higher than indexation and the sooner you pay them down the better.

In addition, while the indexation is high this year, inflation is changeable.  It could go up or down in the coming years.

If you are due to pay off your HECS-HELP in the next two years, it may be  worthwhile paying off your debt early. Getting rid of the last of your debt before May 31 might save you a few hundred dollars.  However, at the risk of sounding repetitive,  other debts such as credit card debt, personal loans and home loan debt should have priority.  If you think you might be in this situation, give me a call because it’s something we need to work on right away.

HECS- HELP debts  affect how much a bank is willing to lend you for a mortgage, because they lower your take-home pay. If you’re thinking about applying for a home loan, talk to a mortgage broker to see if it would be better to pay off  any of your HECS-HELP debt now, or to use that money for your deposit.

If you are planning to take extended parental leave, you might consider making some voluntary repayments to keep the HECS-HELP debt down while you’re not earning, however, it depends on your situation and if you have other debts.

While it may seem like it’s taking an age to pay down your student loan, that’s ok. You already have the benefit of your education, and the loan terms are much more favourable than a loan from a bank.
As always, if you have any questions don’t hesitate to get in touch.

Till next month,

Live Long and Prosper,

Fairuz  the Accountants for Psychologists Team

The greatest compliment we receive from our clients is the referral of their friends, family and business colleagues. Thank you for your support and trust.