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Matters raised by officials

Interim and remaining repayments

Clauses 76 and 88

Submission

(Matter raised by officials)

Officials have identified a number of problems with the way interim and remaining payments are calculated and how interest is imposed on these payments. The proposed amendments address these issues as follows:

  • The provisions that deal with the calculation of interim payments (clauses 76 and 88) should provide for the interim payment amounts to be updated following the end-of-year assessment of the actual repayment obligation for the year. The provisions also need to reflect the original policy intent that the repayments apply in a similar manner to provisional tax payments.
  • When a borrower repays their loan during the year, the interim repayments payable during the year are limited to the outstanding loan balance at the start of the year to avoid the borrower overpaying, or a later date, to take account of loan advances drawn down during the year. The bill does not reflect this outcome and should be amended accordingly.
  • A new provision is required in the bill to ensure that interim payments are not required for a tax year when a borrower’s repayment obligations from either pre-taxed or other income are less than $1,000. This will reduce compliance costs for borrowers with small amounts of repayment obligations and reflects the original policy intent.
  • Amendments are required to provide that late payment interest can only be charged on interim repayments or remaining repayments once the Commissioner has determined the borrower’s repayment obligation for the year. Also, interest on interim or remaining repayments will only arise if the amount paid is less than the actual repayment obligation determined at the end of the year. These changes will ensure that borrowers who underpay their interim repayments are not penalised if at the end of the year it turns out that they have a lower or no repayment liability for the year.
  • When a borrower either estimates their repayment obligation for the year or when their pre-taxed or other income repayment obligation is $16,000 or more, they are required to take greater care in quantifying their interim repayments so they do not pay less than their end-of-year liability. This is due to the amount of revenue involved or the opportunity for abuse by these borrowers. In these situations the remaining repayments are due on the same date as the interim payments were due, and replace those interim payments. Changes are proposed to ensure that borrowers will only be subject to interest on remaining repayments not the interim payments which they have replaced.

These changes reflect the original policy intent to more closely align the treatment of interim and remaining repayments with provisional tax.

Recommendation

That the submission be accepted.