Notifying “adjusted net income”

(Clauses 4, 5, 10 to 21, 24, 25, 31 and 32)

Summary of proposed amendment

Provisions for prescribed adjustments to net income were introduced to the student loan scheme in 2013 to ensure a borrower’s repayment obligations more accurately reflected their ability to repay that loan.

The proposed amendment will require all borrowers to notify Inland Revenue if they have income of the type specified in schedule 3 of the Student Loan Scheme Act 2011 for adjustments to be made to their income. These types of income are generally not subject to income tax.

Application date

The amendments will come into force on the date of enactment.

Key features

New definitions of “adjusted net income”, “schedule 3 adjustments” and “statement of adjusted net income” will support the proposed changes that will require all borrowers with the relevant types of income to provide the necessary details.

A number of consequential amendments are also proposed, to reflect the new terminology.

The proposed replacement of section 73 introduces new defined terms to clarify that adjusted net income is made up of net income as defined in the Income Tax Act 2007 and any adjustments provided for in schedule 3 of the Student Loan Scheme Act 2011. A borrower may fulfil requirements to make a statement of adjusted net income by filing a return of income only, notifying schedule 3 adjustments only, if they are not required to file a return of income, or filing a return of income and notifying schedule 3 adjustments.

Proposed replacement section 74 sets out when the section applies to New Zealand-based borrowers and the timing of required notification of schedule 3 adjustments.

Sections 75, 76, 79, 82 and 83 are to be amended to reflect the new terminology.

New section 114 deals with the notification of schedule 3 adjustments by New Zealand-based non-resident borrowers, similar to the requirements under section 74.

Sections 114A, 146A, 155, 156, 185, and clauses 1(f) and 2(c) in schedule 4 of the Student Loan Scheme Act 2011 are also amended to reflect the new terminology.

Background

The provisions introduced in 2013 require only borrowers who are not required to file a return of income for income tax purposes to make a declaration of their adjusted net income. However, the use of the term “declaration” places an unreasonable burden on borrowers to meet the requirements of the Oaths and Declarations Act 1957, including having the form witnessed by a person specified in section 9 of that Act.

In addition, the nature of adjusted net income amounts means that they are not required to be included in income tax returns. Borrowers who file income tax returns are effectively excluded from the requirements to provide details of their adjusted net income.