8 tax tips for students

Lodging a tax return can seem daunting for students. Parents who may be helping to navigate these uncertain waters can also find it challenging. To assist, CPA Australia has put together eight tax tips for students for the year ending 30 June 2017.

Obtain your refund

When a person’s taxable income for the year ended 30 June 2017 is below the tax-free threshold of $18,200, they may not need to lodge an income tax return.

However, if you have had tax withheld from your income during the year you must lodge a return to have the withholding amounts refunded.

Typical situations where tax may have been withheld are PAYG withholding amounts from your salary, withholding from bank interest income during the year where you have not provided your tax file number (TFN) to the bank, or distributions from a family trust where you have not previously provided a TFN to the trustee.

Identify all your sources of assessable income

To determine whether you need to lodge a tax return or not, it is important to identify all sources of income derived during the year that are assessable for income tax purposes. 

Such amounts include:

  • income from work as an employee or a contractor, including any tips or gratuities
  • investment income, such as bank interest or share dividends
  • certain government payments like Austudy, ABSTUDY living allowance and Youth Allowance
  • some non-government scholarships, grants and awards
  • distributions from a family trust or partnership.

Consider the special rules for those under 18

Certain types of income derived by minors may be taxed at a higher rate than would apply to the same income if the taxpayer was aged 18 or over. The types of income that could be taxed differently include:

  • income received as a beneficiary from a trust; and
  • interest, dividends, rent and royalties.

Such income will be taxed at a rate of 68 per cent for an amount greater than $416 and less than $1307, and at 47 per cent for income exceeding $1307.

Also, minors will generally not be able to claim the low income tax offset to reduce their tax liability on such income.

Ordinary marginal tax rates will apply to other income derived by anyone under 18 years, such as:

  • employment or business income
  • taxable government payments such as Youth Allowance
  • income from a deceased estate
  • income from property transferred to a minor as a result of a person’s death or a family breakdown
  • net capital gains on disposal of investments.

Know your deductions

You are entitled to claim tax deductions for certain expenses that are directly related to the income you receive. For example, you can claim work-related deductions if you have the necessary receipts or credit card statements and they directly relate to the work you do.

Typical allowable work-related expenses include:

  • uniforms and protective clothing
  • employment-related telephone, mobile and internet costs
  • subscriptions and union fees
  • travel expenses between worksites or client locations, but not the commute to and from home.

Consult your CPA Australia-registered tax agent to identify all eligible deductions.

Claim the right tax offsets

If you receive Austudy, ABSTUDY living allowance, Newstart Allowance, Youth Allowance or other taxable Commonwealth Government education or training payments, you are eligible for the beneficiary tax offset (BTO)..

The offset ensures you do not have to pay tax on those payments. You may, however, have to pay tax on other income, such as wages or returns from investments.

In certain circumstances the low income tax offset will be available to reduce tax payable on such income, provided your taxable income exceeds the tax-free threshold for the particular year.

The Australian Taxation Office (ATO) will automatically calculate these offsets when it processes your tax return.

In the event you may be eligible for other tax offsets, you must claim through the return.

Students should therefore consult their CPA Australia-registered tax agent to identify if any other tax offsets are available.

Identify eligible self-education expenses

If your study is directly related to maintaining or improving skills in your current occupation, or could increase income from your existing employment, you can claim self-education expenses such as:

  • course fees
  • textbooks
  • stationery
  • student union fees
  • depreciation of assets such as computers, tablets and printers.

By contrast, if you are embarking on study for the first time or if the study is unrelated to your work, the expenses incurred are not deductible.

Understand HELP debts

Higher Education Loan Program (HELP) debt repayments are not tax deductible.

If you have a HELP debt, repayments only commence once your salary exceeds A$54,869 (this figure is for year ending 30 June 2017). The specific amount required to be repaid will depend on a range of factors, including taxable income.

If you are working and have filled out a TFN declaration indicating you have a HELP debt, your employer will withhold additional tax from your salary to assist with covering the debt. The ATO will automatically calculate your HELP repayment for the year once you lodge your tax return.

However, if you do not notify your employer about the HELP debt through a TFN declaration, the employer will not withhold additional tax and you may face an unexpectedly hefty tax bill.

If your income varies significantly over a year and you do not expect to exceed the minimum repayment threshold, you can ask your employer to stop withholding additional tax for HELP purposes and the tax that was withheld may be refunded to you after you lodge your tax return.

People who are overseas with a HELP debt will be required to make repayments from 1 July 2017 based on their worldwide income for the 2016‑17 financial year onwards.

Are you a resident for tax purposes?

If you’re an international student studying at an Australian education institution within Australia for a period of six months or more, you will be regarded as an Australian resident for tax purposes. You will therefore pay the same concessional rate of income tax as other resident taxpayers and have access to the tax-free threshold.

Note: The lists above are not exhaustive and you should always speak to a CPA Australia-registered tax agent about your specific circumstances.

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