New rules mean Australians who live and work abroad while owing money on government loans must register with the tax office

This article is more than 4 years old

This article is more than 4 years old

Australians who move overseas before paying off their student loans will be forced to continue paying off their debts while living abroad, under new laws that come into effect on Friday.

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The new law means graduates will have to register with the Australian tax office (ATO) before moving overseas, if they plan to be away for six months or more.

Before the new law kicked in, residents living abroad were not required to lodge tax returns, so the ATO had no way of knowing if they were earning over the $54,126 minimum repayment threshold.

No penalties are currently in place for failing to register, but Australia has debt recovery agreements with other countries that allow for the sharing of tax information. Australians who fail to lodge their returns from 1 January could get audited.

“Data sharing between countries is critical to ensuring the future sustainability of the higher education loan program and trade support loan schemes,” federal education minister Simon Birmingham said.

Graduates earning less than the $54,000 threshold, such as backpackers on working holiday visas, will not have to pay off their student loans, but will be required to register with the ATO.

“As well as making the scheme fairer and more equitable, the government’s changes will improve the sustainability of the scheme with taxpayers to benefit by $150m over the next decade,” Birmingham said.

It is estimated that the government loses between $20m and $3om annually due to missing student loan repayments from graduates who have moved overseas.

Birmingham said the non-repayment of student debt had cost the economy $800m since the loan scheme was introduced in 1989.

The law was flagged ahead of the May 2015 federal budget.

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“There is no good reason why someone working as a banker in London or New York and earning over the threshold shouldn’t pay back what they owe Australia,” the then education minister Christopher Pyne said. “No government has ever tackled this obviously unfair situation – it’s been in the too-hard basket. Our plan will enforce the same Hecs [higher education contribution scheme] repayment obligations on Australians living overseas that apply to those who remain on our shores.”

The top three destinations for graduates – Britain the US and Singapore – account for almost 40% of all Australian residents working abroad, according to a 2012 report by the Grattan Institute.