If you've ever confidently told yourself "I salary sacrifice into super, so my income will be under the HECS threshold" - you might be in for a nasty surprise at tax time.
A common misconception among Australians with HELP/HECS debt is that repayments are calculated on your taxable income - the number after your deductions. THEY'RE NOT. The ATO uses a broader figure called repayment income, and it deliberately adds several things back in that you might have assumed would help you.
What Is "Repayment Income"?
Repayment income is the figure the ATO actually uses to determine whether you owe a compulsory HECS/HELP repayment, and how much. It is made up of:
- Your taxable income
- Reportable fringe benefits (e.g. from salary packaging)
- Reportable super contributions (e.g. salary-sacrificed super above the SGC amount)
- Total net investment losses (e.g. negative gearing losses)
- Exempt foreign employment income
This means many common strategies people use to legitimately reduce their taxable income have little to no effect on their HECS repayment obligations.
For 2025-26, the minimum repayment threshold is $67,000 of repayment income (up from $54,435 in 2024-25). From this year, repayments are also calculated on a new marginal basis - you only pay on income above the threshold, not on your total income - which is good news. But the definition of what counts as income is just as broad as ever.
The Concessional Super Trap
This is the one that catches the most people out.
Say you're earning $72,000 and you salary sacrifice $8,000 into super to reduce your taxable income to $64,000, comfortably below what you thought was the threshold. Problem: that $8,000 is a reportable super contribution, and the ATO adds it straight back in. Your repayment income is still $72,000, and you still owe a compulsory repayment.
The ATO's logic is sound: concessional contributions reduce your take-home tax, but they don't reduce your overall earning capacity. The money still came from your labor; it just went into a different bucket.
The same applies to employer contributions above the compulsory Superannuation Guarantee rate. If your employer contributes an extra $5,000 beyond the mandatory 12%, that amount is reportable and gets added back.
The Salary Packaging Trap
Salary packaging - popular with employees at hospitals, charities, and other FBT-exempt organisations - has a similar effect.
When you package reportable benefits (like the $15,900 FBT-exempt cap at public benevolent institutions, or meal entertainment), your taxable income drops. But your employer reports the grossed-up value of those benefits as a Reportable Fringe Benefits Amount (RFBA) on your income statement, and the ATO adds it back into your repayment income.
For example: you earn $70,000 and package $15,900 worth of living expenses. Your taxable income falls to around $54,100 - below the old threshold. But the grossed-up RFBA can push your repayment income back up to over $84,000. Not only do you owe a compulsory repayment, you owe more than you would have without any packaging at all.
The tax savings from salary packaging usually still outweigh the extra HECS repayment. But going in unaware is a recipe for a tax-time shock.
Note: not all packaged benefits are reportable. Novated leases using the Employee Contribution Method (ECM), laptops, airline lounge memberships, and some other items carry an RFBA of $0 and have no impact on HECS repayments.
The Negative Gearing Trap
Investment property owners who use negative gearing to reduce their taxable income face the same issue.
If your salary is $80,000 and you have a net rental loss of $12,000, your taxable income drops to $68,000. Sounds like a modest HECS repayment, right? Wrong. Net investment losses are added back into repayment income, putting you back at $80,000.
This catches many property investors off guard - particularly those who have structured their finances specifically to reduce taxable income.
The Common Thread
All of these situations share the same underlying design: the ATO is trying to measure your true economic capacity to repay, not your capacity to minimise a tax bill. Strategies that are perfectly legitimate for reducing income tax don't reduce your HECS obligations, because the ATO can see through them.
As one accountant puts it, this is "a very common misunderstanding" - clients frequently believe that because their taxable income falls below the threshold, no repayment is owed. That's simply not how the rules work.
A Practical Example
| Scenario | Taxable Income | Add-backs | Repayment Income | HECS Owed? |
|---|---|---|---|---|
| Salary only, $72,000 | $72,000 | - | $72,000 | Yes |
| Salary sacrifice $8,000 super | $64,000 | +$8,000 reportable super | $72,000 | Yes |
| Salary package $15,900 at NFP | ~$54,100 | +~$30,000 RFBA | ~$84,100 | Yes (more than before) |
| $80,000 salary + $12,000 rental loss | $68,000 | +$12,000 net investment loss | $80,000 | Yes |
| Salary $65,000 + $5,000 employer super above SGC | $65,000 | +$5,000 reportable super | $70,000 | Yes |
What Can You Do?
1. Know your actual repayment income. Add up your taxable income plus any reportable super contributions, reportable fringe benefits, net investment losses, and exempt foreign income. That's the number that matters.
2. Tell your payroll department. If your repayment income is higher than your taxable income, you may have insufficient HECS withheld from your pay throughout the year. Ask payroll to increase your PAYG withholding, or set aside money separately, to avoid a surprise bill when you lodge your return.
3. Don't abandon salary packaging. Even though packaging doesn't reduce your HECS repayment the way some people expect, the income tax savings it delivers often still outweigh any extra HECS liability. The mistake is going in without understanding the numbers.
4. Use our tools. Our income tax calculator can help you estimate your HECS repayments and model different scenarios. For anything complex - multiple income sources, investment properties, salary packaging - a tax agent or financial adviser is worth the cost.
The Bottom Line
HECS/HELP repayments are calculated on repayment income, not taxable income. Common tax-minimisation strategies - salary-sacrificed super, salary packaging, negative gearing - reduce your income tax but generally don't reduce your HECS obligations. The ATO adds them back in because the threshold is designed to reflect what you're actually earning, not what you've arranged on paper.
Over 3 million Australians hold a HELP debt. If you're one of them, it's worth checking the full picture before assuming your deductions have taken you safely under the line.
For your personal circumstances, speak with a registered tax agent or financial adviser. This article is general information only and does not constitute financial advice.