10 ways students can save tax on education

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10 Ways students can save tax on education

Education is one of the most important investments that a person can make in their lifetime. However, the cost of education can be prohibitive for some students. This blog post discusses 10 ways that students can save tax on their education expenses.

Contrary to what many real estate experts and stock traders say, investing in yourself is the most acceptable investment you can make. With the economy getting better, people with more skills will have a lot of great job opportunities to choose from.

66% of the 531,000 taxpayers who submitted claims for self-education expenses in 2017–18 had annual incomes under $80,000. Australia is aiming for more highly qualified people and undergoing an educational revolution.  

Part-time students are helping to fill the classrooms of universities, and technical and further education (TAFE) institutes around the nation every evening with the support of tax and governmental incentives. 

Additionally, employers are pushing workers to pursue education alongside their jobs and have higher expectations for them.

Tax saving tip for students:

Make sure the course you are claiming is directly related to a present income-producing function and not one you expect to have in the future if you intend to claim a deduction on self-education expenses.

This section focuses on the costs associated with studying and the Government's financial incentives.

10-Tips-For-Students-To-Save-Tax-On-Education

1. Claim self-education expenses

The charges you incur to enrol in a work-related course of study at a school, college, university, or other accredited educational institution are known as work-related self-education expenses.

Claim-self-education-expenses

How to claim self-education expenses

According to the ATO, you may be eligible for a tax deduction for your self-education expenses if you work and study simultaneously, the course has a sufficient relationship to your existing employment, and it either:

  • keeps or gains the precise abilities or information you need for your present job

or

  • Results in or have a good chance of resulting in a raise in your current job's pay.

The necessary relationship between the self-education expenses and your income-earning activity does not exist if a course of study is too general in terms of your existing income-earning activities.

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Regarding self-education tax, the ATO is relatively rigorous. You cannot claim a self-education tax deduction if a course has no solid connection to your current employment.  

It is true even if the course:

  • Has a general connection to your place of employment
  • Allows you to obtain a new job.

If there was a relationship between your course and employment at the time you incurred them, you could claim a deduction for the following self-education expenses:

  • Lodging and meals, but only if taking your course requires you to spend one or more nights away from home.
  • Computer costs, as well as interest payments on them.
  • The value for depreciating assets such as your computer, professional libraries, desks, chairs, filing cabinets, bookshelves, calculators, and other tools and equipment (such as desk lamps)
  • Copying photos
  • Operating costs, such as the price of heating, cooling and lighting the space you use for work-related study purposes while you are in it.
  • Self-education expenses that you paid for with an OS-HELP loan (overseas study-higher education loan programme)
  • Paper goods
  • Union dues for students
  • Textbooks, scholarly, and commercial journals
  • Transport costs from your place of residence (or employment) to your educational institution and back
  • Tuition costs, including those covered by FEE-HELP.

Tax saving tip for students:

Instead of tracking separate costs for heating, cooling, lighting, cleaning, and the depreciation of furniture, you can claim a fixed rate of 52 cents per hour of consumption if you have a room designated for work-related study purposes.

The following items are not tax-deductible:

  • Daily living costs, such as lodging and food
  • Repayments you make for debts you may have under the following lending programmes, whether they are required or voluntary:
    • Student Financial Supplement Scheme
    • HECS-HELP
    • FEE-HELP
    • OS-HELP (SFSS)
  • Self-education expenses like tuition fees paid through HECS-HELP.
  • The final leg of your journey from your home to your workplace or school.

2. Self-development courses

The number of self-development courses has increased over the past few decades, covering various topics, most of which are not tax-deductible.  

The ATO will only let you claim a deduction of tax on education expenses associated with courses that have a sufficient nexus with your income-producing activities, just like with university and TAFE courses. 

The number of "success seminars," where thousands of people sit in an audience for one or two days and listen to a lecturer on a large stage, has also increased dramatically. They are brief, intense courses that lack the active participation typical of TAFE or university students.  

The ATO believes that the information given in these seminars is too general and not tailored enough to a taxpayer's income-generating activities.

Some subjects, like diet and nutrition, sexual relations, and meditation, are private. 

Similarly, self-development courses can be completed over months or years, have a significant philosophical or spiritual component, and are frequently given via correspondence.

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Because the connection between the course and your current employment is primarily personal, personal development or life coaching programmes fees are typically not tax-deductible. 

Other topics, such as communication abilities, decision-making, and interpersonal relations, are too broad to be classified as income-related.

There is not enough link between your self-education expenses and your employees if a course is too general or the abilities you obtain over qualify you for your existing work. 

According to the ATO, a course must have a significant connection to your current employment or both for you to be eligible for the benefits of a tax on education costs you pay.

  • Keep up with or gain the specialised abilities and information needed for your current position.
  • Lead to a raise in your income from your existing job, or be likely to lead to one.

When you enrol in a self-improvement or personal development course that has modules or components that you can directly tie to your current income-generating activities, you may be able to claim a tax deduction. 

The following are acceptable subjects that are sufficiently particular to be categorised as income-related:

  • Management
  • Leading change
  • Guiding employees
  • Managing projects.

The degree to which the course is directly tied to your current income-earning activities will influence how much of a deduction you are eligible to make.

Example:

John is a manager who enrols in a self-development programme that has the following five modules, all of which are equally valuable and expensive:

  • Communication
  • Compatibility with others
  • Dealing with change
  • Management
  • Mediation

The management module would be categorised as income-related, while the other courses are either too private or too general in scope to qualify for a tax deduction. 

John can only deduct 20% of the costs of taking the course because it only makes up 20% of the course's content relevant to income.

3. The $250 point

In some situations, you might need to exclude $250 from your permissible self-education expenses for calculating a claim for work-related self-education expenses.  

The calculation is as follows - 

Total claimed expenses for self-education.

= A – [$250 – (C + D + E costs)] + B + C + D

New change:

The first $250 in deductions for required educational courses would no longer be excluded, according to the federal budget for 2021–22. 

The measure is expected to go into effect the first tax year following the date the enabling law received royal assent.

The table below lists the various expense categories:

Category

Allowable expenses

A

tuition, books, supplies, student union dues, travel costs on public transportation, car expenses calculated using the "logbook" approach, and maintenance costs for a study room

B

Deductions for depreciation on items such a computer, desk, or car that you are claiming in Category A

C

repair expenses for equipment used for work-related research

D

car expenses calculated using the cents-per-kilometre approach; you are not permitted to deduct car expenses under this category if you have deducted car expenses for repairs or a fall in value under categories B or C.

E

expenses that you paid but cannot be deducted

Example:

While attending university in the evenings, John works as an accounting cadet for a local firm. He spends $350 on textbooks for the academic year and pays $100 annually for the bus fare from his place of employment to the university.

John's expenses totalled $450, but after the $250 deduction, he can only claim $200.

If the sum of the (C + D + E expenditures) exceeds $250, it is decreased to 0, but not a negative amount. 

Before you have to lower the amount you can deduct, you can use the $250 to offset any additional expenses that are not deductible (see category E).

Australian tax legislation does not deduct the first $250 of self-education expenses. However, there are other self-education expenses that you may have incurred that you are not eligible to deduct to offset the $250 reduction. 

These include

  • Capital costs of things purchased during the fiscal year and used for work-related study purposes. such as a desk or computer
  • The cost of child care associated with attending lectures or engaging in other work-related study activities
  • Travel expenses for the final leg of the journey from - 
    • Your home to your place of study, followed by your workplace
    • Your workplace to your place of study, followed by your home.
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4. Student loans

Numerous government programmes offer financial aid while you enrol in college or pursue a trade.

Student-loans

Higher education loan program

Most college students are pretty poor and can barely pay their rent for next week, let alone their course fees. The Higher Education Loan Program (HELP) was established to help students pay for university tuition.  

Although there isn't a specific interest rate for HELP debts, on June 1 of every year, a consumer price index (CPI) adjustment is applied.

According to the ATO, the average HELP debt among 2,203 million taxpayers is $22,140. 

You must make required repayments after you begin working and your income exceeds a minimum repayment threshold, which the ATO determines using your income tax assessment, as shown in the table below.

Repayment Rates and Income Thresholds For The 2021-22 Year

HELP repayment rates and thresholds from 1 July 2021 for 2021-22.

Repayment Rates and Income Thresholds For The 2021-22 Year

The CPL indexes these HELP repayment thresholds on July 1 of each year.

A combined lifetime HELP limit of $155,448 applies to students majoring in medicine for loans incurred after January 1 2020, for veterinary medicine and dentistry courses, dropping to $108,232 for all other students.  

All debts from the FEE-HELP, VET FEE-HELP, and VET Student Loan programmes that were incurred before 2020 are carried forward and contribute toward your HELP loan maximum.

Tax saving tip for students:

Ask your employer not to deduct additional amounts for HELP or SFSS debts if you only work full-time during university breaks or part-time while in school, as long as you don't anticipate earning more than the annual payback requirements.

You should file your tax return as soon as feasible to receive your tax refund if your employer continues to withhold these sums. If you relocate abroad or file for bankruptcy, your HELP debts will not be discharged.

Even after your death, your executor must file all unfiled tax returns, and your estate is responsible for any required repayments that pertain to the time preceding your death. The ATO will only then cancel the remaining balance of the accumulated debt.

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Think twice before leaving the country to avoid having to pay back your HELP debt. The ATO will ask for mandatory repayments based on worldwide income earned during an Australian tax year.  

Non-residents must submit a worldwide income report to the ATO and advise them of their contact information before they can compulsorily calculate their HELP repayment obligations.

FAQs

Question - I have a HELP loan and am working two jobs while I go to school, but I expect to make just $25,000, which is significantly below the amount required to pay back HELP. However, they deduct about $150 from my pay every two weeks in my second job.  

Will I receive a refund for everything when I file my tax return, and will the ATO recognise that my earnings fall below the threshold? 

Answer - The ATO won't calculate any HELP debt repayments when they assess you at the end of the year since your salary will be below the repayment level. 

Due to the $150 in taxes being deducted every two weeks going into a shared pool of taxes being deducted, this may not indicate that you will receive a maximum refund at the end of the year. 

The ATO will utilise the excess HELP deductions to make up for any tax shortfall if adequate tax is not being withheld from the second job.

Student financial supplement scheme

The Student Financial Supplement Scheme (SFSS) was a voluntary loan programme designed to assist tertiary students in paying for living expenses while enrolled in classes. 

Although they shut down the initiative in 2003, the ATO still uses the tax system to recover outstanding financial supplement arrears. Like HELP loans, SFSS debts are subject to a CPI adjustment on June 1 of every year. 

The repayment rates and thresholds for your SFSS debt in the 2021–22 year and afterwards are the same as for HELP once you are free of HELP debt. While you have a HELP debt, the SFSS debt will not need to be repaid.

Based on the increased HELP repayment thresholds, SFSS loans are paid off after HELP loans. There is no benefit if you make a voluntary repayment toward your SFSS debt, just like there is for HELP debts.

FAQs

Question - I owe SFSS money. Does my debt pass to my surviving family members, or is it entirely cancelled if I pass away? 

Answer - Your estate will be required to file a final "date of death" tax return, and SFSS repayments will be computed the same way they would for any other tax year. 

However, if you pass away, the Government would wipe off any outstanding SFSS (or HELP) debt, and you won't be leaving your family with a huge obligation.

If you can demonstrate one of the following, you may be allowed to postpone your mandatory HELP or SFSS payments for up to a year:

  • You have experienced or would experience severe hardship making your payback.
  • Delaying your repayment is appropriate and fair for other unique factors.

5. Loans to support trade

The Trade Support Loans (TSL) programme was created in 2014 to help young people to start and finish a trade. 

A lifetime loan limit of $21,542 (indexed for inflation on July 1 of each year) is available to eligible Australian apprentices to help with living expenses as they finish their apprenticeship over four years. 

To qualify for payments from Trade Support Loans, the apprentice must - 

  • Have a permanent visa or be an Australian citizen who resides in Australia;
  • Be engaged in a:
    • a certificate III or IV at the level required for employment on the National Skills Needs List
    • Certificate II, III, or IV in agriculture
    • while working in rural or regional Australia, with a Certificate II, III, or IV in horticulture.
  • Satisfy the requirements for eligibility that the Australian Apprenticeships Centre evaluates after receiving a Trade Support Loans Application Form.

Application for a Trade Support Loan is not age-restricted. 

Australian apprentices who qualify may get up to $8,617 in their first year, $6,463 in their second, $4,308 in their third, and $2,154 in their fourth under the TSL.  

After four years, if apprentices have not achieved their lifetime cap of $21,542, they may get up to $2,154 annually.

Tax saving tip for student:

Australian trainees will be eligible for a 20% loan discount after completing their apprenticeship. That should motivate you to work hard and learn your trade.

The loans become repaid if apprentices reach a certain level of global income, much like HELP loans for college students. 

Once your income is above the minimum payback threshold for mandatory repayment, the TSL debt is reimbursed through the tax system. Like the Higher Education Loan Program, the repayment thresholds and rates apply. The minimal payback for the 2021–22 tax year is $47,014.

Loans-to-support-trade

FEE-HELP

FEE-HELP is a loan programme for qualified, fee-paying students enrolling at approved higher education institutions or Open Universities of Australia.

The lifetime cap for all tuition support under HECS-HELP, FEE-HELP, VET FEE-HELP, and VET Student Loans for 2020 is $108,232 for most students and $155,448 for those enrolled in programmes in medicine, dentistry, or veterinary science.  

You can view your available borrowing limits and HELP balance by visiting their site.

VET student loans

The Government offers qualified students enrolled in specific VET diplomas, advanced diplomas, graduate diplomas, and graduate certificate programmes of study at an approved VET provider an income-contingent loan under the Vocational Education and Training (VET) student loan programme.

Tax saving tip for student:

You may be eligible for a tax deduction for the cost of your tuition if you borrow money through FEE-HELP or VET student loans to cover your tuition costs.

OS-HELP

A loan programme called Overseas Study HELP (OS-HELP) assists students in paying for their travel expenses and living expenses while doing some of their studies abroad.

Tax saving tip for student:

You might be able to claim a tax deduction for some of the costs if you take out an OS-HELP loan to cover expenses related to studying abroad.

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Repaying all or a portion of a FEE-HELP, VET student, or OS-HELP loan is not tax-deductible. 

Once your payback income is above the minimum repayment threshold, these loans are added to your total HELP debt and are collected through the tax system. 

Repayments made voluntarily or involuntarily are not tax-deductible.

6. AUSTUDY

The government programme AUSTUDY, which Centrelink funds, offers financial assistance to students and apprentices. 

If you are 25 years or older and enrolled in a full-time course at an authorised institution or doing a full-time Australian apprenticeship, you may qualify for AUSTUDY.  

Full-time secondary education courses, graduate courses, undergraduate courses, some master's, certificate, and TAFE courses are all approved for AUSTUDY purposes.  

Whether or if you meet the requirements above, you will probably not get paid if you have already earned a master's or a doctorate.  

To be eligible for AUSTUDY, applicants must pass both the income and wealth requirements. No parental means test is required, in contrast to the Youth Allowance.

AUSTUDY

Tests of income

With the full AUSTUDY entitlement, you can make up to $437 per fortnight (before taxes). If your income is between $437 and $524 every fortnight, the payment is lowered by 50 cents, and if it is beyond $524, it is decreased by 60 cents.  

Even if you are not paid every two weeks while receiving AUSTUDY, you are still required to report your employment income to Centrelink every two weeks.

Test of assets

Depending on your age and property ownership status, you will be evaluated against an assets test as an AUSTUDY applicant. 

The assets test for AUSTUDY entitlements (and the majority of other government benefits and pensions) requires single homeowners to have non-housing assets worth less than $268,000, which rises to $482,500 for single non-homeowners.  

For couples, the joint asset limit is $401,500 with property and $616,000 without. These limits apply when illness separated spouses. 

If your assets are more significant than these sums, AUSTUDY is not payable. Payments may still be postponed even if you pass the assets test if your liquid assets exceed $5,500 for a single person or $11,000 for a couple or a single person without dependents.

If you receive AUSTUDY, you may also be eligible for additional government benefits and payments, such as:

  • Fares reimbursement
  • Low-income health insurance card
  • Medication reimbursement
  • Provision for remote areas
  • Assistance with rent
  • Scholarships for student start-ups.

7. ABSTUDY

To encourage Indigenous secondary or tertiary students or full-time Australian apprentices to continue their education, the Government offers ABSTUDY, a comparable benefit to AUSTUDY.  

Students and apprentices who identify as Aboriginal or Torres Strait Islander people (and are acknowledged by their community) or who are of Australian Aboriginal or Torres Strait Islander ancestry may be eligible for ABSTUDY. 

If the sole income you got was from the following: 

  • AUSTUDY
  • ABSTUDY
  • similar payments providing financial help

You are not eligible for a tax deduction for self-education expenses.

According to the ATO, self-education expenses cannot be deducted from government aid payments, including AUSTUDY and ABSTUDY.

8. Scholarships

Whether or not scholarships are taxable will depend on how they are set up.

When a full-time student at a school, college, or university receives a stipend for a scholarship, bursary, educational allowance, or other educational support, the money is free from tax.  

The student's education must, however, be the primary goal of the grant. Scholarship payments are exempt from tax if they meet specific criteria, including the following:

  • They must be made to a full-time student enrolled in a school, college, TAFE, or university.
  • They must be in the form of a scholarship, bursary, educational allowance, or educational assistance.
  • It must be acknowledged that the scholarship selection process is merit-based and serves the necessary educational purpose.

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Be wary of salespeople who promise to set up a scholarship fund for your children's education and claim that doing so will reduce your tax liability.  

The ATO has stated that because students are not independently chosen based on various criteria, these agreements are not actual scholarships, and any scholarship payments made under these arrangements are taxable in the student's hands.

A friendly society scholarship plan's educational advantages are among the scholarship, bursaries, grants, and awards subject to taxation.

Scholarships are taxable if:

  • made by the Commonwealth for education or training
  • to part-time students
  • under a scholarship that does not have a merit-based selection process
  • on the condition that the recipient will become an employee of the payer
  • on the condition that the recipient will enter into a contract with the payer that is entirely or primarily for the recipient's labour

Contact the organisation that provided the scholarship payment if you are unsure of the tax implications. 

If you have a taxable bonded scholarship, you should let your payer know that it is assessable income and that they need to deduct tax (PAYG) from your regular payments. Your tax return must include the scholarship money as taxable income.

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You do so at your own risk if you have a family trust and give a portion of the net income to your child's school to pay for their tuition. 

The ATO sees these transactions as an attempt to evade taxes, so it will typically impose a tax on the trustees of the family trust at a rate of 47% of the money given to the school.

9. Funds for school building

Although many parents contribute to school construction funds, their contributions may not be tax-deductible

The following requirements must be met for a donation to a school building fund to be eligible for tax deductions:

  • Contributed to a school building fund that is designated as a deductible contribution recipient
  • Amounts to $2 or more
  • Is maintained solely to raise funds for the purchase, construction, or upkeep of school or college buildings
  • Devoted by a non-profit organisation to a structure or collection of buildings utilised for a function associated with the curriculum of a school or college
  • Does not give the donor a material benefit (such as a decrease in tuition fees, tickets to events, or the awarding of scholarships to candidates for college)
  • Fundamentally results from generosity.

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A school building fund's mandatory contributions are not tax-deductible. They are effectively a tax that is included in the total tuition fees. 

The ATO won't permit construction fund deductions for sports fields, tennis courts, covered play areas, parking fees, landscaping, furniture, or equipment.  

However, because it is a permanent structure forming an enclosure offering protection from the weather, the ATO would permit tax deductions linked to constructing an indoor sports complex on school grounds. 

A building that has more than one use is considered to be used as a school or college if it is used as a school or college more than half of the time.

Example:

A school or college building is one that houses faculty, staff, and students throughout the workweek and hosts community events on the weekends. The structure would not be regarded as a school or college if it served just as a basketball court for outside groups.

To keep tax records, donors must keep track of their deductible gifts. The name of the fund, authority, or institution to whom the donation was made, the DGR's Australian business number (if applicable), and the statement that the receipt is for a gift must all be included on receipts for gifts.

Example:

John voluntarily contributes $900 in cash to a DGR school construction fund. He is qualified to deduct $900 from his taxable income because:

  • There are no gift requirements for school building funding
  • The payment is given to a DGR
  • It is a gift
  • It fits within one of the gift kinds.

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A tax loss for a taxpayer cannot be increased by or result from a deduction for a gift to a school building fund. 

During the 2018–19 fiscal year, more than 4.43 million people claimed more than $3.74 billion in donations. In Australia, there were 58,000 charities as of April 2021, of which 32% were receivers of deductible gifts.

10. Plans to save tax on education

Since it is an excellent concept, every responsible parent should start as early as possible with a savings plan for their children's education. You already know how expensive it is to raise and educate a family.

By the time the class of 2033 graduates from Year 12, parents of children starting school in 2021 can anticipate spending anywhere from $81,823 (Government) to $340,882 (independent) on their children's education.

Tax saving tip:

Usually, friendly societies offer education tax savings plans. They can be tax-effective and help instill discipline. Check their investment returns before you invest because, occasionally, they can be subpar.

The education saving plan aims to provide designated students with "education benefits" and not as collateral for or other forms of financing to qualify for tax-free status. 

Withdrawals of money related to donations are treated as capital and are therefore exempt from taxes. However, a student's taxable income should include any withdrawals of money related to investment income on those contributions.  

There should be no tax due on any payments paid to students in the year they turn 18 (and future years), as they are assessed at adult tax rates due to the more significant tax-free threshold and the low-income tax offset.

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Investing income may be taxed at unfavourable minor rates if school benefits are received before the student turns 18.

The term "non-education benefits" shall be used to describe benefits that are withheld and used for a cost that is not directly associated with the nominated student's education. 

In that case, the ATO considers the beneficiary to be the member rather than the designated student.  

This benefit shall be regarded in the same manner as the proceeds of a ten-year bond, subject to the following restrictions:

  • Subject to the 125 per cent additional contributions tax rule, no personal tax is due on withdrawals made after 10 years.
  • If a withdrawal occurs within the first eight years, the growth component is assessable, but a 30% tax offset is used to reduce the impact on personal taxes. 
  • Only two-thirds of the increase is assessable if the withdrawal occurs during the ninth year, and only one-third is assessable if it occurs within the tenth year. On withdrawals made in those years, the 30% tax credit is also available and is based on the assessable portion.

Tax saving tip:

Consider maintaining the bond and continuing to contribute once your child has finished school and is no longer in need of the education savings plan. You may continue to benefit from the tax advantages of the bond reaching its 10th anniversary.

Summary

The cost of education can be prohibitive for some students, but there are a number of ways that they can save tax on their expenses. We discussed 10 different ways that students can save tax on their education.  

Some of these methods include claiming self-education expenses, taking self-development courses, and using the $250 point. Additionally, students can take advantage of loans and scholarships to help offset the cost of their education.  

Hope this blog post has been helpful in providing you with information on how to save tax on your education expenses.

FAQs

Does paying your student loans help with taxes?

Yes, paying your student loans can help with taxes in Australia. The Australian government offers a tax offset for repayments made on Higher Education Loan Program (HELP) and Vocational Education and Training (VET) student loans. The offset is equivalent to 10% of the amount you repay each year, up to a maximum of $540 per year. So if you pay $1,000 off your loan in a year, you'll get a $100 tax offset.

What can students claim on tax in Australia?

Here's a list of things students studying in Australia can claim on their taxes!
Deductions for educational expenses- If you are enrolled in an accredited institution, you may be able to get deductions for your tuition, textbooks, and other materials.
Deductions for travel costs – If your education requires you to travel a certain distance, you may be able to get deductions for those travel costs
Uniforms and other required clothing -If you are required to wear a uniform or specialised clothing as part of your job, you may be able to get deductions for those items
Work-related expenses – If you have any work-related expenses, such as a mobile phone or computer, you may be able to get deductions for that too.

How much tax should a student pay in Australia?

There's no simple answer to this question, as the amount of tax a student pays will vary depending on their individual circumstances. However, as a general rule, students can expect to pay between 18% and 46% of their income in tax, depending on their income level and the type of tax they are paying.

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