STSL tax: What it is and how it works

The Study and Training Support Loans (STSL) is an umbrella term that represents an Australian government initiative. It covers HECS-HELP and other applicable study and training loans. The aim of STSL is to assist Australians repay their student and training-related debts. These may include loans for higher education, vocational training, and apprenticeships. STSL tax applies to any of your employees who've received government funding for education or training. As an employer, you have an essential role in the collection of these STSL repayments through your payroll system.

Understanding your STSL tax obligations is important. By knowing when and how to make deductions from an employee’s pay, you can maintain compliance with tax laws.

In this article, we provide a general guide to managing STSTL tax. We explain the minimum repayment threshold and how to calculate the correct deductions.

The information provided in this article is accurate as of 12/12/2024. For the most up-to-date information, please refer to the Australian Taxation Office.

What is STSL tax?

The Study and Training Support Loan (STSL) tax forms part of Australia's income tax system. It involves employees with eligible study and training loans servicing their loans via payroll deductions. It works in a similar way to income tax payments. When an employee's income exceeds the threshold set by the ATO's, their employer must withhold STSL repayments from their pay.

STSL encompasses a range of loans. These loans cover varying forms of education and training. For example, university degrees and vocational education. Deducting the required amounts from eligible employees' paychecks is the employer's responsibility. Managing the collection and administration of these repayments is the ATO's responsibility.

Student loans subject to STSL tax

Here are some of the student loans subject to STSL tax:

• Higher Education Loan Program (HELP): This loan helps eligible students cover tuition fees for university or higher education providers. There are different HELP loans. The applicable one depends on the student's circumstances.
• VET Student Loans (VSL): This program helps eligible students undertake various diploma-level and above vocational education and training.
• Student Financial Supplement Scheme (SFSS): This closed in 2003. However, those who have existing loans still make their compulsory repayments via the tax system. The SFSS offered voluntary loans to help tertiary students pay for expenses related to their studies.
• Student Start-up Loan (SSL): The SSL assists eligible higher education students who receive Youth Allowance or Austudy payments. Prior to 2016, The Student Start-up Loan was the Student Start-up Scholarship.
• Trade Support Loan (TSL): The TSL was previously known as the Australian Apprenticeship Support Loan (AASL). It offers financial support to apprentices over a four-year period.

Each one of these training loans is subject to compulsory repayments. Though, this only occurs when an employee's repayment income exceeds the minimum repayment threshold set by the ATO.

Employer obligations under STSL

As an employer, your main obligation within the STSL system is to deduct the correct repayments from employees’ paychecks. You should only do this once their repayment income meets or exceeds the set threshold. To do this correctly, you need to stay current with the ATO's annual tax tables. You can also use their online calculators.

Upon identifying an employee with an STSL debt, you need to deduct the correct repayment amount each pay period. This will usually align with your payroll cycle, which may be weekly, fortnightly, or monthly. After you withhold the STSL tax amount, you must report the deduction to the ATO. You can do this via Single Touch Payroll (STP).

Payment deadlines for PAYG withholding (including STSL deductions):

• Monthly payments: due on the 21st of the following month
• Quarterly payments: due on the 28th of the month following the end of the quarter

It's important to submit your STSL tax reports correctly and on time. Doing so can help you avoid penalties. If you miss ATO deadlines or make inaccurate deductions, you may face fines and compliance issues.

How to process STSL deductions in payroll

Here are some steps to follow that can assist you with the correct processing of your employees' study and training support tax:

1. Collect employee tax declarations

When you onboard a new hire, they fill out a Tax File Number (TFN) Declaration form. In this form, they note whether they have a Study and Training Support Loan. Recording this information correctly in your payroll system is the first important step.

2. Check the ATO’s annual income thresholds

As mentioned, STSL repayments only begin when an employee’s repayment income meets the annual threshold. For instance, the repayment income threshold for 24-25 financial year is $54,435. If your employee earns less than this, there's no compulsory repayment requirement. If they earn this amount or more, there is a compulsory repayment requirement and you need to deduct the amount each pay run. It's worth noting that the repayment income includes taxable income and reportable fringe benefits. It also includes super contributions. Be sure to check the current threshold for each financial year. This can help you mitigate over- or under-deducting.

3. Determine the repayment rate

The repayment rate for STSL tax operates on a variable scale. It starts at 1% of the repayment income for those just over the threshold. For higher earners, it goes up to 10%. Consider an employee who earns $67,000. According to the ATO's repayment table, you'd withhold 2.5% of their repayment income. If an employee earns $90,000, you'd withhold 5% of their repayment income.

4. Set up automated deductions in payroll software

Many payroll software systems facilitate you inputting the STSL status of an employee and their repayment income. Upon your input, these systems can sometimes calculate and deduct the right amount each pay cycle. Say you have an employee who earns $70,000 a year. The system will then analyse their earnings, apply the correct STSL tax rate, and withhold it from their paycheck.

Example calculation

Consider an employee who earns $73,000 per year. Based on the ATO’s tax tables, their STSL repayment rate is 3%. This means their yearly repayment rate is 3% of $73,000, which equates to $2,190. To work out the fortnightly deduction, you can divide $2,190 by 26 (the number of fortnights in a year). This equals $84.23 per fortnight, which is the amount you'll pay and report to the ATO. This is alongside your other PAYG obligations.

5. Report deductions via STP

Once you deduct the STSL tax amount, you must report it to the ATO. You do this via STP each time you process payroll. It's important to do this reporting on or by the day you pay your employees. Your PAYG withholding obligations, which include STSL deductions, are due monthly or quarterly.

Common mistakes employers make with STSL

When it comes to STSL tax, employers commonly make the following mistakes:

• Failing to identify STSL debts early: Some employers fail to notice that employees have an STSL debt. This is mostly because of incomplete or incorrectly filled out TFN declaration forms. It's important to distribute, collect and review these forms carefully. This can help you verify employees' STSL debt statuses during the onboarding process.
• Applying the wrong repayment rates: Another common pitfall is applying an incorrect repayment rate. Using current ATO tax tables or online calculators can be helpful in determining the correct withholding percentage. Relying on outdated tax tables or doing manual calculations is often error prone.
• Using manual or outdated payroll systems: Manual or outdated payroll systems risk calculation errors. These methods can also mean missing key updates to the ATO’s thresholds or repayment rates. Using modern payroll software can allow you to automate your payroll and STSL deductions. This can help you ensure accuracy and compliance with current regulations.
• Failing to report deductions via STP: Employers may miss STP reporting deadlines or forget to report deductions altogether. This can lead to penalties. Reporting all STSL deductions to the ATO on or by payday through STP is essential. Aligning your reporting with your payroll cycle and payment obligations can simplify this process.

Being aware of these typical oversights can help you mitigate compliance issues. 

End of financial year reporting and reconciliation

As an employer, you must ensure the ATO receives correct information on your employees’ compulsory repayments. As each financial year comes to a close, reconcile all STSL deductions to ensure accuracy and stay compliant.

At tax time, employees don't report their STSL repayments to the ATO manually. Rather, the ATO relies on the payroll data you submit through STP to help them manage repayments. If there are any inconsistencies in the data you submit, it can cause errors in the ATO’s calculations. This can mean potential issues for your employees and your business. These issues may include ATO penalties, employee frustration, and administrative burden, for example.

What to do if an employee repays their STSL loan

It's the employee's responsibility to inform you once they repay their STSL in full. Once they let you know, it's important that you update your payroll system to reflect this right away. This will stop any more deductions for compulsory repayments being withheld from their pay.

If you deduct a compulsory repayment by mistake after this point, you can simply correct the employee’s records and give them a refund. If this happens, you must update your STP tax declarations to ensure accurate employee repayment reporting to the ATO.

STSL tax FAQs

What happens if an employee has multiple employers in Australia?

Only the primary employer deducts STSL tax repayments. The primary employer is the one who pays the employee the highest income. If an employee has more than one job, they must let their secondary employer know not to withhold additional STSL repayments. They can do this when they complete their TFN Declaration form. This assures that their repayments reflect their overall repayment income across all their jobs.

If an employee doesn’t submit a TFN Declaration form, it may lead to all their employers deducting STSL tax repayments. This would obviously lead to an overpayment. If this happens, the ATO will reconcile the overpayments when the employee lodges their tax return.

Is the Student Financial Supplement Scheme still available under the STSL system?

The Student Financial Supplement Scheme (SFSS) is no longer available. It closed in 2003. However, existing loans under SFSS are still subject to compulsory repayments through the tax system.

How does exempt foreign employment income affect STSL repayments?

Exempt foreign income doesn’t count toward an employee’s STSL repayment income. Only the taxable income they earn in Australia counts toward their compulsory repayments. As an employer, you must withhold repayments based only on the income your employee earns in Australia. Managing or accounting for any income they earn overseas is not your responsibility.

Simplify STSL tax with Rippling

It's vital to comply with STSL tax obligations. By doing so, you can make sure your business and your employees align with ATO regulations. Effective management of compulsory repayments for study and training loans under the STSL umbrella is an essential element of payroll accuracy. Tools like ATO calculators and innovative payroll software can make the process a lot easier.

Rippling can automate and streamline the calculation and reporting of STSL repayments. The platform also meshes seamlessly with STP for real-time submissions to the ATO. What's more, Rippling makes the onboarding process a lot more efficient. It does this by putting the delivery and collection of new hires' TFN declaration forms on autopilot. This means you can ensure accurate record-keeping from the get-go!

With Rippling on your side, you can free up time, lessen the risk of manual errors, and stay effortlessly compliant. The result? More time and energy to focus on other important areas of your business.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.