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Re: Preventing Indexation of Student Loans

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Dear Sir/Madam 

 

QC18714 states that, 'On 1 June each year, indexation is applied to the part of an accumulated study and training loan that has remained unpaid for more than 11 months'. 

 

On 8 October 2020, an ATO call-center employee advised that indexation of the loan would not occur if I were to make a repayment every 6 months. 

 

Would you please advise: 

  1. Is the ATO call-center employee's advice is correct? 
  2. Does 'to the part' and 'remained unpaid' refer to the outstanding balance of the student loan? 
  3. If a repayment is made every 6 months, is the outstanding balance of the student loan still considered, 'remained unpaid'?
  4. Is there a taxation ruling or taxation determination that considers the above issues? 

 

Thank you for your assistance. 

 

Kind regards 

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Hi @Arman,

 

No, the information provided by the call centre operative is not correct.

 

The indexation is applied to the part of the loan that is older than 11 months. What that means is, on 1 June, the account is indexed, but any loans that have been added to the account with an effective date after 1 July of the previous year will not be included in the indexed amount. So if you had a loan added to the account for study you undertook in the second semester last year, that would not be indexed, but any earlier amounts would.

 

You would need to pay the whole amount older than 11 months, before indexation is applied, to prevent your account being indexed. If you only paid part of the amount, the remainder would still be indexed.

 

Regards

RochL

 

 

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Hi @Arman,

 

No, the information provided by the call centre operative is not correct.

 

The indexation is applied to the part of the loan that is older than 11 months. What that means is, on 1 June, the account is indexed, but any loans that have been added to the account with an effective date after 1 July of the previous year will not be included in the indexed amount. So if you had a loan added to the account for study you undertook in the second semester last year, that would not be indexed, but any earlier amounts would.

 

You would need to pay the whole amount older than 11 months, before indexation is applied, to prevent your account being indexed. If you only paid part of the amount, the remainder would still be indexed.

 

Regards

RochL

 

 

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Hi @RochL and @LisaATO 

I have received conflicting information on whether indexation of a student loan can be prevented by making regular repayments.

On 9 October 2020, Lisa advised, "Yes the call centre operative's advice is correct. All you need to do in order to not be charged indexation is to make a voluntary payment to the account within that 11 months ... So, if you were making a payment towards your loan account every 6 months that would work. This amount will directly come off your loan balance and stop indexation being applied" and Roch advised, "No, the information provided by the call centre operative is not correct". 

Would you please confirm which advice is correct?

Kind regards

Arman

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Hi @Arman,

 

The only way to avoid indexation is to ensure that there is no debt older than 11 months on your account on 1 June. The original information provided to you was incorrect. Making a voluntary repayment every six months will not stop indexation, unless those repayments pay out the full amount that is older than 11 months.

 

For example, if your loan account on 1 June 2021, only has loans with an effective date after 1 July  2020, indexation will not be applied. But, if there are any amounts prior to 1 July 2020, then indexation will be applied to those amounts.

 

Hope this helps.

 

Kind regards

RochL