Matters raised by officials
DEFINITION OF "RELEVANT LOAN BALANCE"
Issue: Calculation of relevant loan balances
Submission
(Matter raised by officials)
Clause 6 of the bill sets fixed repayment obligations for overseas-based borrowers so that their repayment obligation does not decrease as their loan balance decreases.
Due to an oversight, the definition of “relevant loan balance” does not work as intended.
To correct this problem, officials recommend amending the definition of “relevant loan balance” so that it only applies to loan balances before the date that the repayment obligation is assessed.
Comment
The proposed amendment would correct the calculation of a borrower’s relevant loan balance for the purpose of assessing an overseas-based borrower’s repayment obligation.
Recommendation
That the submission be accepted.
DEFINITION OF "INCOME"
Issue: Further amendments to “adjusted net income”
Submission
(Matter raised by officials)
The bill includes an amendment to the definition of “income” for student loan repayment purposes to align it with that used for Working for Families. Further simplifications to the definition of “family scheme income” under the Working for Families tax credit rules have been proposed as part of the Committee’s consideration of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill.
Officials recommend that, if the Committee accepts the proposed amendments to the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, these amendments are also made to the definition of “adjusted net income” for student loan repayment purposes. The definition of “income” used for student loan repayment purposes ensures there is consistency across all social policy initiatives to improve the integrity of the social assistance system.
The amendments should apply from 1 April 2014 for the 2014–15 and later tax years.
Comment
The definition of “adjusted net income” for student loan purposes is largely based on the definition used for Working for Families tax credits. The amendment proposed in this bill aligns the definition of “income” for student loans with proposed changes for the definition of income for “Working for Families”.
A submission made on The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill suggested that Working for Families tax credit legislation could be made simpler and more coherent. If the Committee accepts the proposed amendments to the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill, officials recommend that these simplification measures also be made to the definition of “income” for student loan repayment purposes.
The proposed amendments ensure the wording and formulas used in the calculation of a borrower’s interest in a company are consistent with the wording and formulas used to calculate a borrower’s interest in a trust and trust-owned companies. In particular, the amendments provide that:
- The method to determine a person’s interest in a company is based on the voting interest being held by the major shareholder, rather than the proportion of total shares they earn (consistent with the method used to determine a borrower’s interest in a trust and trust-owned company).
- The dates that these interests are measured is calculated on the last day of the income year.
- The references to “market value interests if there is a market value circumstance” are removed, as they seldom occur.
- Ensure formulas that determine income from companies, and trusts or trust-owned companies are aligned.
Recommendation
That the submission be accepted.
Issue: “Adjusted net income” to include income from employment benefits
Submission
(Matter raised by officials)
The Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 included an amendment to require employees who receive certain non-cash benefits to include them in their family scheme income calculations. The availability of an employer-provided motor vehicle is included as income for Working for Families purposes if it is part of an explicit salary trade-off. That is, if the employee would be entitled to a greater amount of employment income if they chose not to receive the non-cash benefit. An employee who receives short-term charge facilities will also be required to include these if the value of benefits received in a year is more than the specified threshold.
Officials recommend that this amendment to the definition of family scheme income also apply to the definition of “adjusted net income” for calculating student loan repayment obligations.
The amendment should apply from 1 April 2014 for the 2014–15 and later tax years.
Comment
The definition of “adjusted net income” for student loan purposes is largely based on and aligned with, the definition of “income” used for determining entitlement to Working for Families tax credits. This ensures that a borrower’s repayment obligation accurately reflects their ability to pay.
When a non-cash benefit is provided as a substitute for salary or wages, if it is not included in “adjusted net income” in the same way salary or wages would be, inequity arises. Including these types of benefits in the definition of “adjusted net income” ensures greater fairness.
If an employee who is a student loan borrower receives a motor vehicle from their employer, and the employee would be entitled to a greater amount of employment income if they chose not to receive the non-cash benefit, that benefit will be included in the calculation of “adjusted net income”, regardless of its value. The amount which the employee would be required to report would be the amount by which their employment income would be greater in the absence of the above benefit.
Employees who are student loan borrowers will also be required to include short-term charge facilities they have received in “adjusted net income” in certain situations. This will only be when the value of the benefit provided under short-term charge facilities provided in an income year (not including the fringe benefit tax payable on the benefits) is more than the lesser of 5 percent of the employee’s salary or wages for the tax year, or $1,200.
Recommendation
That the submission be accepted.