Consequential matters
Miscellaneous amendments
Non-standard due dates for overseas-based borrowers
(Clause 16)
The bill gives the Commissioner a general discretion to set non-standard due dates for overseas-based borrowers, similar to the discretion provided for due dates for New Zealand-based borrowers.
The standard due dates for an overseas-based borrower’s repayment are currently 30 September and 31 March. Currently the legislation allows the Commissioner to set non-standard due dates for the payment of an overseas-based borrower’s repayment obligation only when the borrower’s repayment holiday ends.
However, there are other situations when it is appropriate for the Commissioner to be able to set non-standard due dates – for example, when a borrower may have a part-year repayment obligation because they are going overseas or returning from overseas.
This amendment will apply from 1 April 2012.
Clarifying the challenge procedures for student loans
(Clauses 27, 28, 29 and 30)
When a borrower disagrees with a decision made by the Commissioner under the Student Loan Scheme Act 2011, they can dispute the Commissioner’s decision. If, at the end of the disputes process the Commissioner’s decision stands, the borrower can challenge that decision. However, it is unclear from the Act whether the challenge process is determined by the relevant Court (in the same way as tax offences are) or by the Commissioner.
For consistency with the tax system and to ensure the process is transparent, clause 28 inserts new section 174A to ensure that challenges under the Act are determined by the relevant Court.
As a consequence, clause 30 repeals section 188 which gave the Commissioner the power to allow or disallow a challenge.
Also as part of Budget 2011, changes were made to the student loan scheme to introduce a requirement for borrowers who go overseas to apply for a repayment holiday before they become overseas-based. However, when this change was made, a legislative oversight meant the challenge provisions were not updated to provide borrowers with the ability to challenge the Commissioner’s decision whether to grant a repayment holiday. Clause 29 overcomes this problem by inserting new section 182A to provide the ability to challenge a decision of the Commissioner not to grant the borrower a repayment holiday.
The amendments will apply from the date of enactment.
Reduction or removal of the student loan shortfall penalty
(Clause 26)
When a borrower takes an incorrect tax position relating to their income (which affects their student loan repayment liability) and they have a shortfall penalty imposed for income tax, a shortfall penalty can also be imposed for student loans.
To ensure symmetry between the tax system and student loans, the Student Loan Scheme Act 2011 also removes or reduces the shortfall penalty if the borrower has successfully challenged the imposition of a shortfall penalty for income tax through the relevant Court.
Through the disputes process, a borrower can dispute the imposition of a shortfall penalty for income tax and, if successful, have the penalty reduced or cancelled. However, a legislative oversight has resulted in no similar relief being provided for a student loan shortfall penalty when the borrower has successfully disputed the imposition of a shortfall penalty.
The amendments will apply from the date of enactment.
Transitional rule required for instalment arrangements entered between 1 April 2012 and 31 March 2013
(Clause 39(2))
Currently, borrowers who are in default and cannot repay their loan can apply to the Commissioner to enter into an instalment arrangement for repayment of the debt. Under the arrangement, the borrower is required to repay their debt in instalments, and if the borrower keeps to the arrangement, any late payment interest imposed during the term of the arrangement is written off. If the borrower fails to keep to the terms of the arrangement, they are subject to the penalties regime that applies at that point.
However, with the introduction of the new late payment interest rules from 1 April 2013, two sets of instalment arrangement rules could potentially apply to the instalment arrangement entered into between 1 April 2012 and 31 March 2013. This could cause confusion for borrowers.
To clarify which rules apply to these instalments, a transitional provision is proposed. The provision reflects the current practice whereby borrowers who keep to the terms of the arrangement will have the late payment interest imposed during the instalment arrangement written off. However, if the borrower fails to keep to the terms of the arrangement, the late payment interest rules that apply during the period the instalment remains in default will apply.
The amendment will apply from 1 April 2012.
General requirement to keep contact details up to date with Inland Revenue
(Clauses 9 and 32)
There is a general requirement in the student loan contract for borrowers to keep their contact details up to date with StudyLink and Inland Revenue. There is also a requirement for borrowers to provide contact details when they move overseas. However, there is no specific provision in the Student Loan Scheme Act 2011 requiring the borrower to keep their contact details up to date with Inland Revenue. To enable Inland Revenue to contact borrowers about their loan, the bill includes an amendment to provide this requirement. The recently enacted Student Loan Scheme Amendment Act 2012 has placed an obligation on borrowers to keep the details of an alternate contact up to date. It is also appropriate to require that borrowers keep their own details up to date.
The amendments will apply from the date of enactment.
Overseas-based borrower repayment obligation in the year of return
(Clauses 7, 18 and 19)
The trigger when determining whether a borrower is overseas-based or New Zealand-based is the six-month rule. That is, a borrower is treated as being overseas-based if they are physically absent from New Zealand for a period of 184 consecutive days. A borrower is treated as being New Zealand-based if they are physically in New Zealand for a period of 183 consecutive days.
When an overseas-based borrower returns to New Zealand and contacts Inland Revenue to advise they will be returning for at least 183 days (six months) the legislation requires Inland Revenue to treat the borrower as overseas-based even though Inland Revenue has been notified that the borrower will be New Zealand-based. This creates confusion for the borrower and triggers the collection process for overseas-based instalments that may have to be subsequently re-assessed.
The proposed amendments will ensure that when a borrower who has returned to New Zealand notifies Inland Revenue that they intend to meet the 183-day qualifying period, the borrower’s overseas-based repayment obligation and New Zealand-based repayment obligations will be assessed before the end of the qualifying period to become New Zealand-based.
The amendments will apply from the date of enactment.
Overseas-based borrower repayment obligation when repayment holiday ends
(Clauses 14 and 15)
Inland Revenue calculates an overseas-based repayment obligation for the tax year based on the borrower’s balance at the time the borrower becomes overseas-based, and annually at the start of each subsequent tax year. When the annual calculation is made, borrowers on a repayment holiday for part of the tax year have their overseas-based repayment obligation calculated based on their balances at the start of the tax year. The obligation is then apportioned to the number of days the borrower will not be on a repayment holiday.
However, the Student Loan Scheme Act 2011 requires that overseas-based borrowers whose repayment holiday ends part-way through a tax year have their overseas-based repayment obligation based on their balance at the time the repayment holiday ends.
The proposed amendment ensures that Inland Revenue can include all borrowers who are overseas-based at the start of the tax year in the annual calculation of borrowers’ overseas-based repayment obligations, based on borrowers’ balances at the start of the tax year. This will also ensure that administrative practice is applied consistently to all borrowers.
The amendments will apply from the date of enactment.
Notifying borrower of significant over-deductions
(Clause 12)
The Student Loan Scheme Act 2011 states that the Commissioner must notify a borrower in writing that a significant over-deduction has been made.
Before confirming that a significant over-deduction has been made, an Inland Revenue staff member will contact the borrower by telephone to discuss the matter.
In the interests of efficiency, an amendment is being made to allow the Commissioner to “notify” the borrower of a significant over-deduction by telephone.
The amendment will apply from the date of enactment.
The amount of late payment interest
(Clauses 55 and 56)
Consequential amendments are being made to link the payment interest rate to the loan interest rate so that it responds to market changes. Clause 55 replaces .843% with “late payment interest rate” and defines “late payment interest rate”. Clause 56 reduces the late payment interest rate for borrowers who are under agreed repayment arrangements.
The amendments apply from 1 April 2013 for the 2013–14 and later tax years.
Pre-emptive instalment arrangements
(Clause 23)
Borrowers can enter into instalment arrangements if they have an unpaid obligation. At present there is no provision to enter into a pre-emptive instalment arrangement if the borrower knows they will be unable to pay an obligation in full and on time.
An amendment is being made to allow borrowers to enter into pre-emptive instalment arrangements before an amount becomes unpaid.
The amendment will apply from the date of enactment.
Right to cancel loan contract
(Clause 8)
Borrowers may cancel their loan contract within seven working days of the date they received their loan entitlement letter. The borrower must then return any loan advances and pay any interest accrued.
The loan advance paid back to StudyLink as part of the cancellation process is effective from the date of the original drawdown. This means the loan is effectively cancelled for Inland Revenue’s purposes on the date of the original transaction and any interest charged is reversed.
There is therefore no need for the provision stating that the borrower must pay any interest accrued.
The amendment will apply from the date of enactment.
Minor technical amendments
Clause 49 ensures that the Student Loan Scheme Act 1992 continues to be included in the schedule of Acts administered by Inland Revenue. The amendment will apply from the date of enactment.
Clause 22 corrects a drafting error to ensure that the Commissioner has the discretion not to collect a repayment obligation if the amount involved is $20 or more. The amendment will apply from the date of enactment.
Clause 33 amends section 204 to ensure that the ability to recall all or part of a loan balance applies to contracts signed on, as well as those signed before or after, the date that the section came into force. The amendment will apply from the date of enactment.
Clause 31 amends section 191(1) to ensure that the repayment obligations on all salary and wage payments are limited to the loan balance as at the last day of the month that the pay-period falls in. The amendment will apply from the date of enactment.
Clause 35 amends the regulation-making power in section 215 by including reference to new section 16A and section 107A in the list of provisions in paragraph (d) under which regulations may be made specifying requirements for further information to be provided. The amendment will apply from 1 April 2012.
Clauses 54, 57, 60 and 61 carry forward amendments previously located in schedule 7 as this schedule has been repealed (see Retaining the current penalty interest rules on unpaid amounts). The amendments apply from 1 April 2013.
Clause 48 repeals section 57 of the Student Loan Scheme Amendment Act 2012. This section included changes to schedule 7, which this bill repeals. The amendment applies from the date of enactment.