Why Do I Have a Tax Bill When I’ve Got Both FBT and a HECS Debt?

It’s a nasty surprise to finish your tax return expecting a refund, only to find you actually owe the ATO money. For many people, this happens when they receive reportable fringe benefits and also have a HECS debt.

Here’s why these two together can tip you into a tax bill.

1. Reportable Fringe Benefits Count as Income

Some employers provide benefits instead of (or in addition to) salary. This might be:

• A company car

• Novated lease

• Entertainment or expense reimbursements

These are called fringe benefits. They don’t get taxed through your weekly or fortnightly pay, but they do get reported on your income statement at year end.

The ATO adds the grossed-up value of these benefits to your income when working out things like:

• HECS-HELP repayment thresholds

• Medicare levy surcharge

• Family tax benefits

So even though you didn’t physically receive more cash in hand, your “income” for certain purposes is higher.

2. HECS Repayments Kick In Automatically

Once your income passes the repayment threshold, the ATO automatically calculates how much of your income should go toward your HECS debt.

The catch? Your employer usually only withholds HECS repayments on your salary and wages. If your reportable fringe benefits push you over a higher threshold, the ATO adds an extra repayment — but no extra tax has been withheld to cover it.

3. Why That Means a Tax Bill

Because your employer hasn’t withheld tax on the fringe benefits portion, and hasn’t accounted for the higher HECS repayment, you can end up with a shortfall. That shortfall shows up as a tax bill at assessment time.

Example

Jess earns $80,000 in wages and has a HECS debt. Her employer also provides a novated lease that counts as $15,000 in reportable fringe benefits.

• On her payslips, tax and HECS repayments are only based on the $80,000 salary.

• At tax time, the ATO looks at $95,000 for HECS purposes.

• Her compulsory repayment is higher than what was withheld, leaving her with a tax bill.

What Can You Do About It?

• Ask your employer to withhold extra tax. You can complete a withholding declaration to top up PAYG tax during the year.

• Plan ahead for fringe benefits. Be aware that benefits can affect HECS, Medicare levy surcharge and family benefits, and put away some money for this purpose.

• Get advice early. An accountant can help you estimate the impact and avoid nasty surprises at tax time.

  
  

Final Word

Having both FBT and a HECS-HELP debt is common, but without planning it can leave you with a tax bill instead of a refund. The key is understanding how fringe benefits are treated and making sure enough tax is withheld during the year. It's also important to make sure you are claiming all the deductions you are entitled to.

If you’re worried about a tax bill this year, get in touch with Flinn Accounting — we can help you work out the numbers and set things up so you’re not caught short next time.