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Student Loan Scheme Amendment Bill

Matters raised by officials

OFFSETTING A SIGNIFICANT OVER-DEDUCTION AGAINST UNPAID AMOUNTS

Clause 12

Submission

(Matter raised by officials)

The bill should be amended so that a significant over-deduction may also be offset against an unpaid amount prior to being refunded. The amendment should apply from 1 April 2012.

Comment

When a borrower has both a significant over-deduction for one period and a significant under-deduction for another period, the bill allows the two significant deductions to be offset against each other.

Officials have identified situations when a borrower has a significant over-deduction and an unpaid amount. Such borrowers should not receive a refund of the over-deduction while still leaving a debt due to Inland Revenue.

Recommendation

That the submission be accepted.

MEANING OF “REPAYMENT OBLIGATION” FOR DETERMINING EXCESS REPAYMENTS

Clause 22

Submission

(Matter raised by officials)

To correct an oversight, officials recommend that the bill amend the excess repayment legislation to provide that whatever repayment deductions are made from salary and wages satisfies the borrower’s repayment obligations from that income. The amendment should apply from 1 April 2012.

Comment

For a borrower to have an excess repayment, and therefore qualify for the excess repayment bonus, they must have made repayments in excess of their repayment obligations for the year.

In determining whether a borrower has met their repayment obligations for the purposes of calculating excess repayments and the bonus, the policy intent was that whatever repayment deductions were made from salary and wages would satisfy a borrower’s repayment obligations. If there is an under-deduction then there are other mechanisms available to collect the debt.

However, the legislation does not achieve this outcome. Instead, the excess repayment legislation incorrectly refers to repayment obligations from salary and wages being what should have been deducted not what was actually deducted. The result is that if a borrower has an under-deduction, whether significant or not, they will not have met their repayment obligations in relation to their salary and wage income and their bonus entitlement will be reduced or cancelled.

Recommendation

That the submission be accepted.

DATE PAYMENT CREDITED FOR CALCULATING INTEREST

Submission

(Matter raised by officials)

To ensure consistency between the student loan administrative system and the legislation, officials recommend that the legislation be amended to provide that for the purposes of calculating interest, payments are treated as being received on the day after payment was made.

Comment

Under the student loan scheme, the loan balances of New Zealand-based borrowers are interest-free. Only overseas-based borrowers are subject to interest on their loan balances. For overseas-based borrowers, the system imposes interest on outstanding loan balances up to and including the date of payment. For example, if an overseas-based borrower repays his or her loan in full on the 10th of August, interest is imposed on the outstanding loan balance up to and including the 10th of August.

However, the legislation does not reflect this practice, and instead imposes interest up to the date of payment being 9th August, not including the date of payment on 10th of August.

Recommendation

That the submission be accepted.

DECLARATION OF WORLDWIDE INCOME

Submission

(Matter raised by officials)

With the enactment of the Student Loan Scheme Act 2011, a legislative oversight has resulted in one of the obligations that need to be fulfilled before an overseas borrower can qualify for an interest-free loan under special exemption criteria being omitted from the new Act. Officials recommend that a borrower who qualifies for one of the exemptions be treated as physically in New Zealand and be required to file a declaration of worldwide income to qualify for the exemption or continue to qualify for the exemption. This amendment should apply from 1 April 2012.

Comment

A borrower who goes overseas but meets one of the exemption criteria can still be treated as physically in New Zealand for determining their New Zealand-based status. The exemptions include when the borrower is working for an approved overseas charity, undertaking full-time study overseas (including study at undergraduate or post-graduate level), or living in Niue, the Cook Islands, Tokelau or the Ross Dependency.

Under the Student Loan Scheme Act 1992, a borrower had to meet a number of requirements to qualify for the exemptions, including the requirement to file a declaration of their worldwide income and do so in future years to continue to qualify.

Recommendation

That the submission be accepted.

TREATMENT OF NEW ZEALAND-BASED BORROWERS WHO ARE NON-RESIDENT

Submissions

(Matters raised by officials)

Officials recommend that an amendment be included in the bill to enable New Zealand-based borrowers who are non-resident to apply for an extension of time to file their information, and for the Commissioner to have the discretion to provide an extension of time when satisfied that the borrower would not be able to provide the information by the original due date, being 7 July.

The late filing penalty provisions also need to be consequentially amended to ensure that the penalty is only imposed on New Zealand-based borrowers (including those non-resident and those with pre-taxed income) when the extended time to file a declaration or provide information has expired. This amendment should apply from 1 April 2012.

Officials also recommend that the legislation be amended to ensure that New Zealand based borrowers who are non-resident be required to pay their annual repayment obligation on the same remaining payment dates that apply to borrowers with other income. This amendment should apply from 1 April 2012.

Comment

Two problems have been identified in relation to New Zealand-based borrowers who are non-resident. The first relates to the provision of an extension of time to file information and the second relates to the due date for payment of remaining repayments.

The Student Loan Scheme Act 2011 requires a New Zealand-based borrower who is non-resident, such as a borrower studying overseas or working for an overseas aid agency, to provide the Commissioner with information on the borrower’s annual gross income and annual total deductions. This information must be provided in the same timeframe as New Zealand-based borrowers who are required to file an IR3 tax return or declaration of pre-taxed income. For most borrowers, this is 7 July.

Extension of time for New Zealand-based borrowers who are non-resident

While New Zealand-based borrowers who reside here are able to apply for an extension of time to file their income tax return, no similar extension of time applies to the provision of income and deduction information of New Zealand-based borrowers who are non-resident.

Due date for payment of remaining payments

Once a New Zealand based borrower who is non-resident provides information on their annual income and deductions to the Commissioner, the Commissioner then assesses the borrower’s repayment obligation for the year. The policy intent was that the borrower’s repayment obligation would be payable on the same dates that New Zealand resident borrowers with other income pay their remaining repayments.

However, a legislative oversight has resulted in the policy intent not being reflected in legislation.

Recommendation

That the two submissions be accepted.

USE OF THE SPECIAL REPAYMENT CODE (STC)

Submission

(Matter raised by officials)

A change is required to reflect the current administrative practice of using the standard income tax and student loan repayment codes, for example “M SL”, when only student loan repayments are at a non-standard rate.

The use of the “STC” repayment code should be reserved for situations when there is a special deduction rate for both income tax and student loans or only income tax. The amendment should apply from 1 April 2012.

Comment

The Student Loan Scheme Act 2011 enables a borrower to apply for a special deduction rate to take account of an unused repayment threshold on their main source of salary or wages, or to reflect a lower repayment obligation – for example, due to hardship relief.

When a special deduction rate (a rate other than 10%) applies to student loans only, the Student Loan Scheme Act 2011 requires the borrower to use the “STC” repayment code in conjunction with their income tax code, for example “M STC”. This treatment was designed in anticipation of Inland Revenue having a new computer system to deliver student loans. However as the current FIRST computer system will be retained, an amendment is required to reflect current administrative practices.

Recommendation

That the submission be accepted.

DATE STUDYLINK CEASES CHARGING INTEREST

Submission

(Matter raised by officials)

A change is required to the Student Loan Scheme Act 2011 to change the date StudyLink cease charging interest from 1 January 2012 to 1 April 2012.

Comment

Currently, both StudyLink and Inland Revenue charge interest on loan balances. StudyLink charges interest while the borrower is studying and Inland Revenue continues this once the loan is transferred to Inland Revenue for collection. When the borrower is a New Zealand-based borrower, the interest charged is written off by Inland Revenue, leaving interest charged on overseas-based borrowers.

With the introduction of the student loan reforms, the Student Loan Scheme Act 2011 provides that StudyLink will cease charging interest with effect from 1 January 2012, and Inland Revenue will begin charging interest from that date. However, it would be more administratively efficient for both agencies if StudyLink ceased charging interest from 1 April 2012 rather than 1 January 2012. For the three-month period from January to March 2012, StudyLink will continue to charge interest and Inland Revenue will delay charging interest until 1 April 2012. Officials therefore recommend that the Act be amended to delay the date StudyLink will cease charging interest, and Inland Revenue will start charging, from 1 January to 1 April 2012.

The change will not adversely affect borrowers.

As the bill will be enacted after January 2012, this amendment should apply retrospectively from 1 January 2012.

Recommendation

That the submission be accepted.

KEEPING ALTERNATIVE CONTACT DETAILS UP-TO-DATE

Submission

(Matter raised by officials)

The obligation on the borrower to keep details up-to-date should also apply to the alternative contact person details provided to StudyLink and transferred to Inland Revenue as part of the loan application process. The bill currently does not require the borrower to keep the details held by Inland Revenue up-to-date.

Comment

When a borrower applies for a repayment holiday, the bill states that whenever the contact person’s details change, the borrower must notify the Commissioner of the changed details. There is no similar obligation for borrowers to keep contact details up-to-date when Inland Revenue receives contact details from StudyLink through the student loan application process managed by StudyLink.

Recommendation

That the submission be accepted.

COMMUNICATING WITH AN ALTERNATIVE CONTACT PERSON

Submission

(Matter raised by officials)

There should be a provision allowing the Commissioner to notify an individual that they have been nominated as a contact person for a borrower. Inland Revenue can then explain that the department may contact them if the borrower has an unpaid amount and they may be asked to provide a contact address or to ask the borrower to contact Inland Revenue as prescribed by section 193A(2) of the Student Loan Scheme Act 2011.

Comment

Currently, the bill provides that Inland Revenue can only communicate with a contact person when the borrower is in default. There is no ability for Inland Revenue to proactively communicate with the contact person advising them that they have been nominated by the borrower to explain what it means to be a contact person. This ability will assist in ensuring the contact person understands that they will only be called upon for very specific information.

Recommendation

That the submission be accepted.

TRANSITIONAL PROVISIONS FOR DETERMINING DUE DATE FOR PURPOSES OF IMPOSING LATE PAYMENT INTEREST

Submission

(Matter raised by officials)

To ensure that borrowers are not disadvantaged, officials recommend that late payment interest for both interim payments and remaining repayments for the 2012–13 tax year apply from the final instalment date onwards.

Comment

The Student Loan Scheme Act 2011 changes the way late payment interest is imposed from 1 April 2013. However, payments for the 2012–13 tax year (both interim payments and remaining repayments) occur both before and after 1 April 2013. Having different late payment interest rules for repayment obligations that relate to the same tax year depending on when the payment is due will cause confusion and be difficult for borrowers to understand and comply with.

Recommendation

That the submission be accepted.