Salary packaging can affect your tax position in some unexpected ways. Sometimes these can be pitfalls for the unwary, causing large bills at tax time. Knowledge is power, and preparations can be made in advance to avoid these issues.


Repayment income and HECS


Repayment income is what the ATO bases your HECS repayments on. The clear aim of this is to prevent people from negatively gearing and salary packaging their way out of ever having to pay back HECS. It’s quite a reasonable goal.

It includes

  • Taxable income
  • Total net investment loss (which includes net rental losses) – ie negative gearing
  • Total reportable fringe benefits amounts – ie salary packaging
  • Reportable super contributions – ie additional super contributions above the 9.5% your employer makes
  • Exempt foreign employment income – not likely to be relevant

Hopefully the little comments explain each component.

The unfortunate part for salary packaging is that “Total reportable fringe benefits amounts” is the grossed up amount, after the addition of 49% FBT. This means that salary sacrificing $9010 can lead to the full cap amount of $17000 being added to your repayment income.

This additional repayment income is then subject to HECS, at rates as shown in the table below.

Repayment HECS salary packaging
Repayment rates for HECS HELP



How does this affect salary packaging?


The outcome can be particularly interesting if you are salary packaging aggressively at more than one hospital. In the highest bracket, with a resident salary of $80000 and two salary packaging general exemptions of $17000, you might repay $6720 in HECS. Without salary packaging, that doctor might have repaid $4800 in HECS.

The thing to keep in mind if you end up paying more HECS is that they are repayments. They end once you finish paying back the loan. Tax on the other hand, which is also minimised in the first arrangement outlined above, never ends. So paying a bit more HECS and a lot less tax isn’t the end of the world. For our two doctors above, the one with salary packaging pays $12867 in tax, while the second pays $19147.

Overall, the cash in hand position is still positive from salary packaging, even once these small increases in HECS are taken into account. The doctor with salary packaging pays $6280 less in tax and $1920 more in HECS – an overall position $4360 in front and with more repaid from HECS.


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Sanjana Sharma

thankyou so much! i am going to be starting internship next year and am new to this world of finance! you post such valuable information!
just wanted to confirm that there hasn’t been any changes in the way that HECS is repaid since you published this article in 2018?