Extending pay-period assessments to the salaries and wages of all borrowers

Sections 4, 42(1), 54(1), 90, 91, 119(2), and section 125 (repealed)

Background

Pay-period assessments were introduced in the Student Loan Scheme Act 2011 and are a significant simplification measure, removing the need for the annual square-up assessment for most borrowers' salary and wage earnings. Pay-period assessments focus on ensuring correct repayment deductions are made at source.

Previously, borrowers with salary and wages who also had business income would continue to receive an annual square-up because they could offset losses against their salary and wages.

As a consequence of denying the ability to offset losses in the new legislation, there is no longer the need to "ring fence" borrowers with sources of income other than salary and wages from the pay-period assessment policy. Therefore, extending the pay-period assessment to salary and wage deductions of all borrowers, regardless of the income they derive, required a number of consequential amendments to the 2011 Act.

Application date

These amendments apply from 1 April 2012.

Detailed analysis

Sections 90 and 91 have been repealed and replaced with new sections 90 and 91. The new sections change the way the repayment obligation is calculated for borrowers with "other income" so that salary and wage earnings are excluded.

Section 90 applies when a borrower has other income and any salary or wages are below the annual repayment threshold. The formula calculates the borrower's repayment obligation by applying the repayment percentage to however much of the person's other income is over the annual repayment threshold after taking their salary or wages into account.

Section 91 applies when a borrower has other income and any salary or wages are equal to or above the annual repayment threshold. The formula calculates the repayment obligation by applying the repayment percentage to the borrower's other income as their salary or wages are already above the annual repayment threshold. The borrower's salary or wages and student loan repayment deductions are excluded from the formula, reflecting that student loan repayment deductions are based on a pay-period assessment.

Section 42 has been amended to give borrowers with "other income" access to the procedure by which any unused repayment threshold from a borrower's primary employment earnings can be allocated to the borrower's secondary employment earnings. Borrowers with "other income" were denied the ability to apply for any unused repayment threshold to be allocated to secondary employment earnings because these borrowers could rely on the annual end-of-year square-up to address any over- or under-deductions with their secondary employment earnings.

Section 54 ensures that full-time students who earn income over the threshold for a short period of time are exempted from salary or wage deductions, as their annual income would be below the repayment threshold. The amendment gives borrowers with "other income" access to this process by notifying the Commissioner in a declaration. Previously borrowers with "other income" could rely on the end-of-year square-up to ensure that deductions were made only on income earned over the threshold.

Section 125 ensures that borrowers who would have been eligible for the excess repayment bonus of 10% but for an error made by their employer, are not disadvantaged. As a borrower's repayment deductions are now based on a pay-period assessment, employer errors will no longer have this effect. Therefore this section is no longer necessary and has been repealed. Sections 118 and 129(2) have been amended as a consequence of repealing section 125.

The definition of "significant over-deduction" has been amended to ensure that over-deductions can be refunded to borrowers with other income. Previously, borrowers with other income could rely on the end-of-year square-up to receive any refund due to a significant over-deduction.

As a consequence of extending the pay-period assessment policy to all salary and wage earnings, section 119(2)(a)(ii) has been repealed. Borrowers who earn "other income" no longer need to have their salary and wage deductions treated differently when determining if a borrower has made an excess repayment for a tax year.