HIGHER EDUCATION SUPPORT ACT 2003
Higher Education (Occupation and Occupation Standard Deduction) Determination 2017
EXPLANATORY STATEMENT
OUTLINE
The Overseas Debtors Repayment Guidelines 2017 (the Guidelines) provide three methods by which non‑residents for Australian taxation purposes (overseas debtors) can determine their foreign-sourced income. One of these methods, the simple self‑assessment method, allows an overseas debtor to advise the Australian Taxation Office (ATO) of their total (gross) foreign-sourced income and their occupation. A standard deduction, based on their occupation, will then be applied against their income by the ATO. That is, the person’s foreign-sourced income will be the difference between their total (pre-tax) foreign-sourced income and the standard deduction that applies to the occupation they nominated.
Subsection 154-17(2) of the Higher Education Support Act 2003 (the Act) states that the Guidelines may provide the methodology to work out a person’s foreign-sourced income for an income year. Subsection 7(2) of the Guidelines allows the Minister, by legislative instrument, to determine a list of occupations and the amount of a standard deduction, or the method by which the standard deduction is derived. The Higher Education (Occupation and Occupation Standard Deduction) Determination 2017 (the Determination) specifies the occupations and method by which the standard deduction is derived.
BACKGROUND
The Education Legislation Amendment (Overseas Debt Recovery) Act 2015 (which made amendments to the Act) and the Student Loans (Overseas Debtor Repayment Levy) Act 2015 were passed by Parliament on 9 November 2015 and received Royal Assent on 26 November 2015. These Acts create an obligation for Higher Education Loan Program (HELP) and Trade Support Loan (TSL) debtors to make repayments on their debts if they are non-residents of Australia for taxation purposes. Under the HELP scheme, eligible students can obtain income‑contingent loans to assist them during their higher education studies. This Determination relates to HELP debts only.
Overseas debtors will, from 1 July 2017, be required to make income‑contingent repayments, known as an overseas repayment levy, on their HELP debt.
DETAILED EXPLANATION
Clause 1
This clause provides for the name of the Determination – the Higher Education (Occupation and Occupation Standard Deduction) Determination 2017.
Clause 2
This clause provides for the Determination to take effect the day after it is registered on the Federal Register of Legislation.
Clause 4
This clause provides definitions for terms used in the Determination.
Clause 5
The Act requires HELP debtors, who are non‑residents of Australia for taxation purposes, to make repayments on their HELP debts based on their income.
To work out their foreign-sourced income, subsection 154-17(2) of the Act refers to the Guidelines. These Guidelines allow an overseas debtor the choice of one of three methods to work out their foreign-sourced income, these being:
- the simple self‑assessment method;
- the overseas assessed method;
- the comprehensive tax‑based assessment method.
This Determination relates to the simple self‑assessment method only. This method allows an overseas HELP debtor to advise the ATO of their gross foreign-sourced income and occupation. The ATO then applies a standard deduction based on the occupation (see section 7 of the Guidelines). This allows for the person’s foreign‑sourced income to be worked out (it being the difference between their total (pre-tax) foreign-sourced income and the standard deduction that applies to their occupation).
The ATO’s publication Salary and wage occupation codes 2017 (ATO Occupation Code), published in June 2017, is to be used as the occupations specified under subsection 7(2) of the Guidelines. The ATO Occupation Code is developed by the ATO based on occupations reported by individuals. Clause 5 specifies the ATO Occupation Code as in force on the date of commencement.
Overseas debtors completing a notification of income may select the most appropriate occupation from those listed in the ATO Occupation Code. The ATO Occupation Code may be accessed on the ATO’s website.
By using the ATO Occupation Code, overseas debtors completing the form will have the same occupation options as are currently available in the Australian standard income tax return.
Clause 6
This clause specifies how the occupation standard deduction is to be applied to an overseas debtor’s income using the simple self-assessment method as calculated by the ATO.
The ATO has data collected from tax assessments on occupations and deductions claimed by Australian residents. The standard deduction rate for a selected occupation is based on the median ratio of work‑related expenses to employment-related income calculated by the ATO from the collected occupation code data from lodged returns.
The standard deduction is an amount determined by multiplying the standard deduction rate of an occupation by gross income.
Example
Amanda is a lawyer and earns $100,000 in Ireland. If the standard deduction rate for a lawyer is 2%, and her gross income is $100,000 then the standard deduction received by Amanda is $2,000.
An overseas debtor must choose the occupation description from the ATO Occupation Code that most closely applies to their work. If their occupation is not listed in the ATO Occupation Code, the person may choose one of the other two methods of assessing foreign-sourced income (as provided in paragraphs 6(1)(b) and (c) of the Guidelines), or they may select ‘Occupation not listed’.
If they select ‘Occupation not listed’ the standard deduction rate will be zero per cent.
Example
Gino is a share trader and does not earn salary and wages income. There is no similar occupation in the ATO Occupation Code so he selects ‘Occupation not listed’. He therefore receives a standard deduction of $0. As a result Gino might prefer to use the comprehensive tax based method instead.
CONSULTATION
The Australian Taxation Office has been consulted in the development of this instrument to ensure that it is able to effectively administer the simple self‑assessment method.
REGULATION
The Regulation Impact Statement for the overseas debt recovery measure has been agreed with the Office of Best Practice Regulation (reference 18482).
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Higher Education (Occupation and Occupation Standard Deduction) Determination 2017
The Higher Education (Occupation and Occupation Standard Deduction) Determination 2017 (the Determination) is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the determination
Under Section 154-18 of the Higher Education Support Act 2003 (the Act) Australians with Higher Education Loan Program (HELP) debts who are non-residents for tax purposes are required to notify the Australian Taxation Office (ATO) of their total worldwide income, including foreign-sourced income, each financial year to determine whether or not an overseas debtors repayment levy will apply in relation to their HELP debt.
This measure supports the simple self-assessment method for assessing a person’s foreign-sourced income under the Overseas Debtors Repayment Guidelines 2017 (the Guidelines) by specifying what occupations a debtor may choose, and the method for working out the standard deduction that applies to their occupation. The simple self-assessment method is one option debtors will have for working out their foreign-sourced income for each income year.
The determination engages the following human rights:
- the right to education – Article 13 of the International Covenant on Economic, Social and Cultural Rights (ICESCR)
- the right to privacy – Article 17 of the International Covenant on Civil and Political Rights (ICCPR)
- the right to an adequate standard of living, including food, water and housing – Article 11 of ICESCR
Human rights implications
Right to Education
This Determination promotes the right to education set out in Article 13 of the ICESCR. Article 13 recognises the right of everyone to education, stating that “higher education shall be made equally accessible to all, on the basis of capacity, by every appropriate means, and in particular by the progressive introduction of free education”.
In providing for the repayment of student loans by collecting debt from overseas residents, and by further clarifying the administrative structure applicable to overseas residents, this determination will contribute to a reduction in debt not expected to be repaid and will ensure the integrity and accessibility of funding for students to pursue tertiary education.
The Determination is compatible with the right to education.
Right to Privacy
The Determination also engages the right to privacy outlined in Article 17 of the ICCPR. Article 17 provides that no one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation.
The Guidelines created a requirement for persons leaving Australia or persons who are absent from Australia and who have a HELP debt, to provide certain personal information to the ATO including their total Australian and foreign-sourced income. This Determination specifies how an individual will disclose their occupation if they choose to use the simple self-assessment method of assessing their foreign-sourced income. The collection of such information could be seen as limiting a person’s right to privacy and reputation.
However, this information is collected for the legitimate purpose of recovering HELP debt. All parties with access to this data are required to use appropriate safeguards to ensure the confidentiality of this information.
Personal information collected by the ATO is considered taxation information, and governed by strict privacy legislation. Taxation information is held on a classified server, and access is limited only to individuals who require the information in the course of their employment. The safeguards for information collected as a result of this Determination will be the same as for other taxation information which ensures that any lawful interference is not arbitrary or at risk of abuse.
The cohort from whom the ATO will collect personal information is limited to HELP debtors who are living, or intend to live overseas. This Determination only specifies the manner in which a person’s occupation is disclosed. The ATO will only request information that is necessary for administration of overseas HELP debts and ensuring compliance. By collecting repayments from overseas debtors, the sustainability and integrity of HELP, and thus access to higher education, will be protected.
The Determination is compatible with the right to privacy.
Right to an adequate standard of living, including food, water and housing
The Determination also engages the right to an adequate standard of living, including food, water and housing outlined in Article 11 of the ICESCR.
Article 11 recognises everyone be entitled to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions. This Determination may be seen to impact this right, as the standard deduction applied to income may not be accurate for all individuals and result in higher repayments. However, use of this method is not compulsory and debtors would have recourse to two other options for assessing their foreign-sourced income more accurately. Low income earners or those without incomes who are below this threshold would not be adversely affected, as they would not need to make repayments regardless of the standard deduction applied to their income.
The Determination is compatible with the right to an adequate standard of living, including food, water and housing.
Conclusion
This Determination is compatible with human rights because, to the extent that it may limit human rights, the limitations are reasonable, necessary and proportionate.