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On 5 July 2019, the ATO published a Gazette Notice titled Notice of a Data Matching Program advising that the ATO will acquire overseas movement data from the Department of Home Affairs (DHA) for individuals with an existing Higher Education Loan Program (HELP), Vocational Education and training Student Loan (VSL) and/or Trade Support Loans (TSL) debt. The ATO has published a data matching program protocol which sets out the details of the data matching program.

The new data matching program will be conducted for the 2019–20, 2020–21 and 2021–22 income years. The HELP, VSL and TSL debtor population affected by this data collection is expected to involve approximately three million individuals each financial year. This is an extension of the data matching program, gazetted on 27 September 2017, which is currently being conducted for the 2016–17, 2017–18 and 2018–19 income years.

On 8 July 2019, the ATO issued a media release titled Escape from the country, but not your student loans to alert taxpayers that it will be contacting Australian expatriates to remind them about their outstanding student loan obligations.

Note
HELP was first known as the Higher Education Contribution Scheme (HECS), which was introduced in 1989. The scheme is still commonly referred to as ‘HECS’.

In 2003, there were major reforms to higher education, including significant changes to HECS. These reforms were legislated by the Higher Education Support Act 2003 and came into effect in 2005. Additional loan types were added and the program was renamed the Higher Education Loan Program (HELP). HECS was absorbed into HELP and the scheme is now referred to as HECS–HELP.

About income contingent study and training loans

Student loans such as HELP, VSL and TSL are income contingent loans because minimum repayments depend on the taxpayer’s income.

The taxpayer is required to make compulsory repayments when their ‘repayment income’ exceeds the minimum repayment threshold for an income year. The repayment thresholds are adjusted annually to reflect changes in average weekly earnings.

Foreign residents are obliged to pay an overseas levy where, broadly, their assessed worldwide income (but not Australian taxable income) exceeds the repayment threshold.

Note
The ATO notes in its media release that, as at 31 January 2019, there were over 3.2 million Australians with outstanding student loan debts, totalling more than $66 billion.

Meaning of ‘repayment income’

A taxpayer’s repayment income is the sum of their:

• taxable income (disregarding assessable amounts released under the First Home Super Saver Scheme);
• reportable fringe benefits;
• total net investment losses;
• reportable superannuation contributions; and
• exempt foreign employment income.

Repayment thresholds

From 1 July 2019, the minimum repayment threshold is a repayment income of $45,881 at which the repayment rate is 1 per cent. The compulsory repayment rate increases as repayment income increases. The maximum repayment rate of 10 per cent applies to a repayment income of $134,573 and above.

The repayment thresholds and rates for 2019–20 are set out in the table below.

Website
The repayment thresholds and rates for the 2017–18 to the 2018–19 income years are available on the ATO fact sheet ‘Study and training loan repayment thresholds and rates’ (QC 16176). The repayment thresholds and rates are updated annually.

Note
From 1 July 2019, one set of thresholds and rates apply to all of the income contingent loans. Prior to 1 July 2019, SFSS had its own repayment thresholds and rates.

Repaying the loan

The rules relating to the repayment of HELP debts are set out in Part 4-2 of the Higher Education Support Act 2003 (HESA). Similar provisions exist in other legislation governing the other types of income contingent loans.

Compulsory repayments

Compulsory payments are made through the tax return and are taken into account in working out the taxpayer’s amount of tax payable or refundable.

Hierarchy of compulsory repayment

The hierarchy in which a compulsory repayment is applied is as follows:

1. 1. HELP
   2. VSL
   3. Student Financial Supplement Scheme (SFSS)
   4. Student Start-up Loan (SSL)
   5. ABSTUDY Student Start-up Loan (ABSTUDY SSL)
   6. TSL

Note
The hierarchy changed on 1 July 2019.

Note
Taxpayers working in Australia must advise their employer of their study debt. The employer must withhold and remit additional amounts under the Pay As You Go (PAYG) withholding rules to cover compulsory repayments. For taxpayers within the PAYG instalment system, the ATO takes into account a study debt in working out the PAYG instalment amount and rate.

Voluntary repayments

A taxpayer can make a voluntary repayment at any time. These are in addition to compulsory repayments or the overseas levy. Voluntary repayments are not refundable.

Tip
If a voluntary repayment is made before 1 June, indexation will be avoided.
Some taxpayers enter into a salary sacrifice arrangement to make voluntary repayments.

Viewing the loan balance

An individual can view their study loan account through their myGov account. The individual can also phone the ATO to request a statement at any time.

Indexation

When the debt is more than 11 months old, the balance is subject to indexation. The indexation is applied on 1 June of each year. The indexation figure is calculated after the March Consumer Price index (CPI) figure is released. For 2019, the indexation rate is 1.8 per cent. The indexation rates for each year is available here.

Note
No interest is charged on study loans.

Death

The unpaid balance of a study loan is cancelled upon the taxpayer’s death. It is the only debt that does not pass to the estate or to another person following death.

When an individual dies, their final tax assessment may include a compulsory repayment. This amount must be paid from the estate. The remainder of the debt is then cancelled. The individual’s legal personal representative and beneficiaries are not liable for the unpaid amount.

ABC News reported on 14 June 2019 that, under a proposal drawn up by federal bureaucrats in 2017, HELP debts ‘would be treated in the same manner as other government debts such as tax debts’ and recovered from deceased estates.

According to ABC News, the policy proposal said:

There are risks associated with the negative reaction from the Australian community to the collection of debt upon death that would otherwise not be payable.

It changes the income-contingent nature of the loan scheme.

Existing debtors took out their loans on the understanding that any unpaid debt would be written off upon death.

Recovering unpaid HELP debts from deceased estates remains a divisive issue in the community, and there is no announced Government position to change the current policy.

Bankruptcy

Study loan accounts are not provable (i.e. where the creditor is entitled to receive a share of the bankrupt’s estate) under s. 82(3AB) of the Bankruptcy Act 1986. Accordingly, an individual who has been declared bankrupt remains liable for the study debts.

Deferring repayments

A taxpayer may apply to:

• defer a repayment; or
• amend (reduce) the repayment required.

This may be appropriate where:

• making the repayment would cause serious hardship; or
• there are other special circumstances, e.g. natural disasters, death or serious illness, or other serious or difficult circumstances.

Repayment by overseas debtors

Individuals who study in Australia, incur a study loan and then move overseas to work, and may not have sufficient repayment income to make compulsory repayments (even though they are earning income overseas). This is because the foreign income of a foreign resident is generally not included in taxable income in Australia.

The Education Legislation Amendment (Overseas Debt Recovery) Act 2015 — which received Royal Assent as Act No. 154 of 2015 (the Act) — created an overseas payment obligation to recover HELP and TSL debts from Australians living overseas. The Act amended the HESA. The rules only apply to foreign residents (s. 154-16(a)).

Note
The legislative references in this article are to the HESA unless otherwise specified. The HESA applies to HELP debts. The Act made equivalent amendments to the Trade Support Loans Act 2014 in respect of an overseas payment obligation for TSL debts.

(Note: The VSL scheme — which is also subject to the data matching program — commenced on 1 January 2017.)

The new reporting rules

From 1 January 2016, taxpayers with HELP and TSL debts who move overseas for six months or more must notify the ATO.

From the 2016–17 income year, taxpayers with HELP or TSL debts who are foreign residents will be assessed on their assessed worldwide income — their Australian and foreign sourced income — for the purposes of determining whether they meet the repayment income threshold for compulsory repayments (s. 154-16).

From 1 July 2017, affected overseas taxpayers must use a myGov account to lodge their assessment of assessed worldwide income.

In its media release, the ATO sets out the top five destinations for Australians with income contingent loans:

Moving overseas — notifying the ATO

If an individual has an intention to reside overseas for 183 days or more in any 12-month period, they must submit an overseas travel notification within seven days of leaving Australia (s. 154-18(1)). The overseas travel notification can be completed through ATO online services via myGov or through a registered tax agent.

The notification requires the following details:

• Australian or foreign passport details;
• travel information, including:
  • the country the individual is planning to reside in while overseas;
  • the individual’s expected or actual departure date from Australia; and
  • the individual’s expected or actual date of return to Australia.

The individual must also continue to update their contact details while overseas, either through ATO online or a registered tax agent. Another notification will need to be lodged if the person returns to Australia or if their residency changes, but not if they only return to Australia for a short period (e.g. for a holiday).

Reporting assessed worldwide income

A taxpayer’s assessed worldwide income is the sum of their repayment income and their foreign resident foreign sourced income (s. 154-17).

Under the law, a foreign resident with a debt must report their assessed worldwide income (s. 154-18(3)).

The ATO only requires the assessed worldwide income to be reported if it exceeds 25 per cent of the minimum repayment threshold.

For the:

• 2018–19 income year, it is $12,989;
• 2019–20 income year, it is $11,470.

The taxpayer can report their assessed worldwide income through ATO online services or through a registered tax agent.

Repayments may be in the form of a compulsory repayment or an overseas levy depending on how the assessed worldwide income is made up.

Assessed worldwide income assessment methods

A foreign resident may choose one of three income assessment methods to calculate their foreign resident foreign sourced income. These are set out in the Overseas Debtors Repayment Guidelines 2017, registered on 19 July 2018.

Overseas levy

A foreign resident taxpayer is liable to pay an overseas levy that is equal to the difference between:

• the compulsory repayment that the person would have been liable to pay had their repayment income been equal to their assessed worldwide income; and
• the compulsory repayment that the person is liable to pay (s.154-32).

Study and training loan repayment calculator

The ATO has released a Study and training loan repayment calculator to help taxpayers determine the amount of their compulsory repayment or overseas levy.

The calculator can be used for the 2015–16 to the 2019–20 income years. The taxpayer discloses the values for the various elements of repayment income for the relevant income year, and the calculator then works out the estimated minimum repayment.

The following estimate of a compulsory repayment is for the 2018–19 income year for an Australian resident:

The following estimate of the overseas levy is for the 2018–19 income year for a foreign resident. This individual as the same total income as the resident taxpayer above, except that $85,000 is non-assessable foreign income.

The data matching program

The Department of Home Affairs (DHA) will provide overseas movement data for the HELP, VSL and TSL debtor population, including:

• identifying particulars — name, date of birth, ATO/DHA identifiers; and
• overseas movement details held on DHA system — passport number, passport country of issue, offshore status, departure and return dates.

The data will be used by the ATO to identify those HELP, VSL or TSL debtors that have left Australia and remain overseas. The ATO will assess their status against ATO records and other data held to identify debtors that may not be meeting their registration, lodgment and/or payment obligations.

The primary use of the data is to support voluntary compliance through successful targeting of communications and provision of self-help information.

In its media release, the ATO indicates that it will be contacting overseas debtors in the coming months.

Background

Since the Federal Court confirmed in 2017 that an Uber driver was supplying taxi travel for the purposes of the GST Act when he was operating as an uberX Partner, there has been a cloud of doubt hanging over whether employers are entitled to the FBT exemptions available to taxis when they use an Uber and similar ride-sourcing services. In recent guidance on the operation of the FBT exemption for taxi travel, the ATO has clarified its view that the FBT exemption does not extend to ride-sourcing services provided in a vehicle that is not licensed to operate as a taxi.

GST treatment

Federal Court case

The case of Uber B.V. v FCT [2017] FCA 110 (‘the Uber decision’) in the Federal Court turned on whether carrying on the enterprise of providing uberX services to passengers constituted a supply of ‘taxi travel’ within the meaning of s. 144-5(1) of the GST Act which requires that an entity is:

required to be registered if, in *carrying on your enterprise, you supply *taxi travel.

Taxi travel is defined in s. 195 of the GST Act to mean:

travel that involves transporting passengers, by taxi or limousine, for fares.

Taxpayer’s contentions

The taxpayer contended that the provision of uberX ride-sharing services was not travel that involves transporting passengers by taxi because:

• the statutory context indicated that the provisions were intended to create an exception for a specific industry — i.e. taxi operators;
• the word taxi cannot simply mean any vehicle available for hire, at a fare, by members of the public; and
• a taxi is identified by particular features as regulated by the States and Territories, for example, broadly taxis:
  • contain physical markings which identify them as such, e.g. signs and roof lights;
  • generally cannot refuse a hire;
  • are permitted to use taxi ranks; and
  • contain a taximeter which displays the progressive fare.

Commissioner’s contentions

The Commissioner contended that the definition of taxi travel should be construed as a whole and connotes:

the transportation, by a person driving a private vehicle, of a passenger from one point to another at the passenger’s discretion and for a fare, irrespective of whether the fare is calculated by reference to a taximeter.

Decision

On 17 February 2017, the Federal Court dismissed the taxpayer’s application and made a declaratory order to the effect that the uberX service supplied by the Uber driver constituted ‘taxi travel’ within the meaning of s. 144-5(1) of the GST Act.

GST implications

All ride-sourcing (sometimes referred to as ride-sharing) arrangements — encompassing uberX, uberXL, UberSELECT, UberBLACK, Hi Oscar, Shebah, GoCatch and similar services — constitute ‘taxi travel’ for GST purposes. All these services are subject to GST. Accordingly, ride-sourcing drivers must have an ABN and be registered for GST. The usual turnover threshold of $75,000 does not apply in the case of ‘taxi travel’.

The ATO has reminded those providing ride-sourcing services that they will need:

• an ABN;
• to register for GST from the day they start, regardless of how much they earn;
• to pay GST on the full fare (see below);
• to lodge business activity statements (BAS) on a monthly or quarterly basis (annual lodgment is not available); and
• to know how to issue a tax invoice (tax invoices will need to be provide for fares over $82.50 if asked by the passenger).

Calculate GST on the full fare

GST must be calculated on the full fare, not on the net amount received after deducting any fees or commissions.

Income tax implications

There are also income tax issues for those earning ride-sourcing income. They will need to:

• include income earned in their income tax return;
• only claim deductions related to transporting passengers for a fare, including apportioning car expenses limited to the time actually providing a ride-sourcing service (driving around looking for a passenger does not count towards the taxable use of the vehicle); and
• keep accurate records of all income and expenses, in particular:
  • statements showing income from ride-sourcing;
  • receipts for any claimable expenses; and
  • a car logbook to track their trips (and claim only the business portion) — a GPS or odometer will need to be used to calculate the distance travelled while driving passengers to their destination to accurately record their car trips.

Note

The ATO is conducting a data matching program in relation to ride-sourcing for the 2015–16 to the 2018–19 income years. The ATO is acquiring the following information from ride-sourcing facilitators:

• • the identification of drivers and their vehicle registration details; and
  • details of the payments made to the drivers.

FBT treatment

Legislative references

FBT exemption for taxi travel

Section 58Z of the FBT Assessment Act 1986 (FBTAA) provides employers with an exemption for taxi travel in certain circumstances. It provides that:

1. Any benefit arising from taxi travel by an employee is an exempt benefit if the travel is a single taxi trip beginning or ending at the employee’s place of work.
2. Any benefit arising from taxi travel by an employee is an exempt benefit if the travel:
   1. is as a result of sickness of, or injury to, the employee; and
   2. is the whole or a part of the journey directly between any of the following:
      1. the employee’s place of work; or
      2. the employee’s place of residence; or
      3. any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury.

Taxi is defined in s. 136 of the FBTAA to mean:

a motor vehicle that is licensed to operate as a taxi.

Other references to taxis in the FBTAA

Other references to taxis in the FBTAA include:

• a taxi or short-term hire-car is not treated as a car ‘held’ by an employer under s. 7(7);
• a taxi (and certain other vehicles) is an exempt car fringe benefit under s. 8(2) provided that there is no private use of the car other than:
  • work related travel of the employee — i.e. travel between home and work, or travel that is incidental to travel undertaken in the course of work; or
  • minor, infrequent or irregular private use.

FBT issue following the Uber decision

Following the Uber decision in February 2017, TaxBanter (and other tax professionals) promptly identified that there could be an inconsistency between the GST legislation and the FBT legislation, depending on whether the meaning of ‘taxi travel’ for GST purposes which was determined to include ride-sourcing services also applied for the purposes of the FBT exemption for ‘taxi travel’. There was speculation that the ATO would consider the FBT exemption as being confined to traditional taxi services. On 27 September 2017, the ATO issued a discussion paper titled TDP 2017/2: Fringe Benefits Tax – Definition of Taxi. The discussion paper set out the ATO’s preliminary views on the meaning of ‘taxi’ for FBT purposes, having regard to the Uber decision and the proposed changes to taxi licensing regulations in a number of States and Territories. In the discussion paper, the ATO stated:

It is the ATO’s preliminary view that it is appropriate to interpret the meaning of ‘taxi’ in the FBTAA in a manner that encompasses the Federal Court’s finding in Uber. Accordingly, the ATO is proposing that a ‘taxi’ — as defined in the FBTAA — should be interpreted to mean a vehicle that is available for hire by the public and is licensed to transport a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter.

Consultation questions

Feedback was requested in relation the following questions:

1. Should a ‘motor vehicle that is licensed to operate as a taxi’ be interpreted to mean a motor vehicle that is statutorily permitted to transport a passenger at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a taximeter?
2. Should the definition of ‘taxi’ in s. 136(1) of the FBTAA be interpreted to include not just vehicles licensed to provide taxi services, including rank and hail services, but ride-sourcing vehicles and other vehicles for hire?
3. If the proposed definition is adopted, the result will be an expansion of the exemption. Are there consequences of taking this approach that the ATO should be aware of?
4. Have you identified any issues with the proposed interpretation of ‘taxi’ in its application to other provisions within the FBTAA?

Recent ATO guidance

In early July 2019, the ATO clarified that the FBT exemption for taxi travel does not extend to ride-sourcing services provided in a vehicle that is not licensed to operate as a taxi. This is because the FBT exemption is limited to travel undertaken in a vehicle that is licensed to operate as a taxi by the relevant State or Territory. This position is based on the definition of ‘taxi’ in the FBTAA which differs to ‘taxi travel’ as defined in the GST Act. Notably, this view differs from the ATO’s preliminary view expressed in its September 2017 discussion paper.

Other FBT exemptions may apply

The ATO holds the view that the FBT exemption for certain taxi travel does not apply where the employee travels using a ride-sourcing services such as Uber — but all is not lost. The fringe benefit may be eligible for other FBT relief.

Minor benefits exemption

Section 58P of the FBTAA provides an exemption for minor benefits. For the benefit to be considered ’minor’, the notional taxable value of the benefit must be less than $300 and it would be unreasonable to treat it as a fringe benefit, having regard to a number of factors including whether the benefit is provided infrequently and irregularly. It would be expected (and hoped) that becoming ill or injured in the workplace and requiring a ride home or to hospital is an infrequent event for any employee.

Where the minor benefits exemption is not available, two other options may be considered.

Otherwise deductible rule

Under  the ’otherwise deductible rule’, the taxable value of a benefit is reduced by the amount that would have been allowed as a deduction to the employee had they incurred the cost themselves (s. 24). Whether the Uber fare would have been allowable as a deduction to the employee depends on the facts and circumstances.

Employee contributions

Broadly, the employer’s FBT liability in respect of an expense payment fringe benefit is reduced to the extent that the employee makes a payment to the employer as a contribution towards part or all of the cost of the benefit (s. 23 of the FBTAA). However, it is unlikely, in practice, that an employer would pay for an employee’s ride in an Uber then receive a payment for that ride from the employee that reduces the taxable value of the fringe benefit.

So how is the taxable FBT treatment of ride-sourcing services an issue?

There may be a number of scenarios where the inability to access the taxi travel exemption in s. 58Z of the FBTAA will be an issue, but consider an employee who salary packages the cost of travelling to or from work in a taxi versus an Uber. If the employee salary packages taxi travel from their home to their place of work, or from their place of work to their home, the provision of the benefit is exempt under s. 58Z because the trip either begins or ends at the employee’s place of work and the travel is undertaken in a taxi. However, equivalent travel using an Uber would not qualify as an exempt benefit under s. 58Z; nor would it be otherwise deductible under s. 24.

Proposed amendment to remove anomaly in law

On 6 September 2019, the Government released for comment draft legislation titled Treasury Laws Amendment (Measures for a Later Sitting) Bill 2019: Miscellaneous Amendments. Part 2 of the draft Bill proposes to amend the definition of ‘taxi’ in s. 136(1) of the FBT Act to replace the reference to ‘taxi’ with ‘a car used for taxi travel (other than a limousine)’ (see paras. 1.61 and 1.62 of the draft EM).

The term ‘taxi travel’ will be defined as having the same meaning as in the GST Act, namely:

travel that involves transporting passengers by taxi or limousine, for fares.

This will address concerns that the current meaning of ‘taxi’ (i.e. ‘a motor vehicle licenced to operate as a taxi’) in the FBT Act prevents the FBT exemptions from applying to ride sharing providers such as Uber.

Since the Federal Court’s decision in Uber B.V. v FCT [2017] FCA 110, Ubers have been treated the same as taxis for GST purposes. However, the distinction for FBT purposes has been an issue, as this article has discussed.

The application of the proposed amendment is the provision of a fringe benefit on or after the day of Royal Assent.

Final observations

From a policy perspective, this illustrates, yet again, how similar terms in the tax law can have very different meanings within specific statutes. Such inconsistencies lead to confusion, make the tax law more complex and can ultimately result in higher compliance costs. Practically, the difference in the meaning of ‘taxi’ for FBT purposes and ‘taxi travel’ for GST purposes has the following implications:

• an employer can utilise the FBT exemption for certain trips by their employees provided they use a taxi service which will generally cost more than a ride-sourcing service; or
• to try and save money the employer can a use a ride-sourcing service, but the trip will be subject to FBT …

… take your pick.

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