House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

Chapter 3 - Income tax treatment of the HECS-HELP benefit

Outline of chapter

3.1 Schedule 3 to this Bill amends the Income Tax Assessment Act 1997 ( ITAA 1997) to exempt from income tax the value of the benefit received by eligible recipients of the Higher Education Contribution Scheme-Higher Education Loan Programme benefit (HECS-HELP benefit).

Context of amendments

3.2 The HECS-HELP benefit was an initiative first introduced in the 2008-09 Budget. This benefit gives eligible recipients a reduction in their compulsory HECS debt repayment and/or their HELP debt repayment or, in some cases where a repayment is not required due to low income, a direct reduction in their HELP debt.

3.3 Mathematics and science graduates and early childhood education teachers were initially eligible for the benefit. In the 2009-10 Budget it was announced that the HECS-HELP benefit had been extended to nurses and teachers generally.

3.4 These amendments ensure that no income tax is payable on the value of the HECS-HELP benefit received by eligible recipients.

Summary of new law

3.5 From the 2008-09 income year, the HECS-HELP benefit will be exempt from income tax.

Detailed explanation of new law

3.6 Section 157-1 of the Higher Education Support Act 2003 allows an individual to apply to the Commissioner of Taxation (Commissioner) for the benefit if they satisfy the eligibility requirements set out in the HECS-HELP benefit guidelines.

3.7 These guidelines set out the eligibility criteria and the amount of the HECS-HELP benefit. One criterion for eligibility is that the person has completed at least one employed week in a specified occupation for their particular degree.

3.8 Once the Commissioner has determined the value of the HECS-HELP benefit in accordance with the guidelines, section 154-85 of the Higher Education Support Act 2003 provides that a person's compulsory repayment amount is reduced by the amount of the HECS-HELP benefit received.

3.9 Section 15-2 of the ITAA 1997 deems any benefits which are provided to a person in relation to their employment to be assessable income.

3.10 These amendments ensure that the value of a benefit received by an eligible recipient of the HECS-HELP benefit is exempt from income tax.

3.11 The list of classes of exempt income in section 11-15 of the ITAA 1997 is amended to include a reference to the receipt of a HECS-HELP benefit . [Schedule 3, item 1]

3.12 A definition of a 'HECS-HELP benefit' is inserted into the Dictionary in subsection 995-1(1) of the ITAA 1997 . [Schedule 3, item 3]

3.13 The table of exempt education and training amounts in section 51-10 is amended to include a reference to the receipt of a HECS-HELP benefit . [Schedule 3, item 2]

Application and transitional provisions

3.14 These amendments apply to assessments for the 2008-09 income year and later income years . [Schedule 3, item 4]