Effective from Tuesday 19 May
Some employees have study or training support loans (STSL) that need to be repaid when the employee's earnings (or "repayment income") exceeds the minimum repayment threshold. The minimum repayment threshold is normally reviewed every financial year. Current data on the threshold amount can be accessed here.
Information on the different type of loans that fall into the STSL category can be found here. From 1 July 2019, all study and training loans were consolidated into one set of thresholds and rates. In addition, the hierarchy in which compulsory repayments are applied to study and training loans (relevant to employees who have more than one type of loan) was changed to the following:
- Higher Education Loan Program (HELP);
- VET Student Loans (VSL);
- Student Financial Supplement Scheme (SFSS);
- Student Start-up Loan (SSL);
- ABSTUDY Student Start-up Loan (ABSTUDY SSL);
- Trade Support Loan (TSL).
What is the repayment income?
The repayment income is the employee's pay run earnings that determines the amount of STSL payable/deducted for that employee. The components that make up an employee's repayment income are:
- Taxable earnings (this is different to gross earnings);
- Reportable fringe benefits (regardless of the exempt status of your employer);
- Total net investment loss (which includes net rental losses);
- Reportable super contributions, including salary sacrifice super and employer contributions over the legislated 10% that the individual employee has influenced (eg negotiated a higher rate of super in their employment contract);
- Exempt foreign employment income amounts.
N.B. Reportable fringe benefits and total net investment loss are managed outside of payroll. Employees should be aware of their obligations around these components and possibly consider withholding extra tax from their pay to cover any potential STSL debt incurred. Salary packaging providers often have a calculator that will show an employee how much extra tax they'll owe at the end of the year if they have STSL.
You can set up recurring additional tax deductions for an employee using our pay run inclusions feature.
Examples of STSL calculations based on taxable earnings, reportable super contributions and exempt foreign income amounts are detailed further below.
What is the relationship between PAYG and STSL?
In layman terms, STSL is an additional tax debt to PAYG. Regardless of whether the employee has an STSL debt or not, the employee's PAYG amount will be the same. Some payroll systems incorporate PAYG and STSL into one amount and so there is no clear separation between the 2 amounts. This payroll system separates the 2 amounts (in the pay run, pay slips and most payroll reports) to provide greater transparency to the employer and employee.
When reporting these amounts to the ATO however (through STP or payment summaries) they are consolidated into one combined amount, as per ATO guidelines. At the end of the financial year, the ATO will determine the actual PAYG and STSL owed based on the employee's payroll and non payroll income. If an insufficient amount of tax has been deducted through the payroll for the employee, the employee will be required to pay an extra amount directly to the ATO. If however, the amount of tax deducted is more than required, the ATO will refund the 'overpaid' amount back to the employee.
N.B. If an employee chooses to have additional/voluntary tax deducted, the additional amount will appear in the PAYG column.
Examples of STSL pay run calculations
The amount of STSL deducted in a pay run depends on the pay run's frequency. You can access the ATO STSL tax tables here based on the applicable pay frequency:
The examples provided below use a fortnightly pay frequency and include an employee who is an Australian resident for tax purposes, is claiming the tax free threshold and has an STSL debt for the 19/20 FY. The examples provided are based on 'positive' earnings. However, take note that if earnings or any other components affecting STSL calculations apply in the pay run as a negative, the negative earnings will also be taken into account when calculating STSL (ie they will reduce the STSL debt). As per existing practice with PAYG calculations, we do not calculate negative STSL in the pay run. If your employee's earnings are negative (due to a reversal, for eg), you will then need to manually adjust the employee's PAYG and apply a negative PAYG/STSL amount.
To compare the STSL calculations provided in these examples, you can refer to the ATO's component look up tool provided here.
Example 1: Pre-tax deductions that are not salary sacrifice super
Any pre-tax deduction amount that is not paid to a super fund is not included as part of the employee's repayment income. The pre-tax deduction does however affect the employee's taxable income. For eg, we apply a $500 pre-tax deduction to the employee's pay:
This results in the employee's taxable earnings being $500 less than their gross earnings:
When calculating the employee's STSL debt, we use their taxable earnings in this instance as there is no reportable super contributions or exempt foreign employment income amounts for this pay.
Example 2: Salary sacrifice super deduction
Where an employee salary sacrifices a component of their earnings to super (ie reportable super contribution), this will reduce their taxable earnings but the deduction amount must still be included in their repayment income. For eg, we apply a $1000 salary sacrifice (pre-tax) deduction to the employee's pay:
This results in the employee's taxable earnings being $1000 less than their gross earnings:
When calculating the employee's STSL debt in this instance, we use their taxable earnings + reportable super contributions (ie salary sacrifice super) amount. So $1538 + $1000 = $2538; this is the employee's repayment income amount.
N.B. If a super salary sacrifice deduction is not set up to be paid to the employee's super fund (ie it's configured as a manual payment or paid to a bank account), it will not be deemed a reportable super contribution and therefore no STSL will be applied to the amount. As such, be careful when processing super salary sacrifice deductions and ensure they are being set up to be paid to the super fund!
Example 3: Multiple pre-tax deductions
Where an employee's pay includes several pre-tax deductions, the system will only look at deductions paid to a super fund when determining the employee's repayment income amount. For eg, the following pre-tax deductions are applied to the employee's pay:
This results in the employee's taxable earnings being $2000 less than their gross earnings:
When calculating the employee's STSL debt in this instance, we use their taxable earnings + salary sacrifice super amount (ie reportable super contributions) only. So $538 + $1000 = $1538; this is the employee's repayment income amount. Because this amount is below the fortnightly repayment income threshold there is no STSL deducted.
Example 4: Exempt foreign employment income
Any tax-free foreign employment income processed in an employee's pay is included as part of the employee's repayment income. The system recognises earnings as foreign employment income if the pay category's "Payment Classification" is configured to 'Exempt foreign employment income':
For eg, an employee's earnings are made up of $2000 worth of foreign employment income only:
This results in $0 taxable earnings:
When calculating the employee's STSL debt in this instance, we use their taxable earnings + foreign employment income. So $0 + $2000 = $2000; this is the employee's repayment income amount.
Example 5: Employer Contributions
This does not affect an employee taxable earnings at all. Rather the amount is displayed in the "EC" column under "Super Contributions":
When calculating the employee's STSL debt in this instance, we use their taxable earnings + employer contribution amount. So $2485 + $200 = $2685; this is the employee's repayment income amount.
Why are the withheld amounts different in the pay run?
The ATO prescribes that payroll software use specific formulas to derive the PAYG and STSL amounts. The specific details of these formulas can be accessed, as follows:
As a result, there may be some minimal instances where the withheld amounts in the pay run vary to what is displayed in the tax tables published by the ATO. For eg, the ATO tax tables may show that an employee's PAYG amount is $532 and STSL amount is $108, totalling an amount of $640 to be withheld for the employee. The pay run amounts however are displaying as $534 PAYG and $106 STSL. This also totals $640.
Don't forget that the amounts withheld are sent to the ATO as a consolidated figure so if there is a small variance, there is no need to be concerned if the consolidated amounts are the same.
If you have any queries or comments please contact us via email@example.com.