Repayment obligations for first-time borrowers

2013 amendments mean students who become 'new borrowers' during a tax year will not have an end-of-year assessment for non-salary and wage income.

Sections 4, 72 and schedule 6, clause 2A

Changes have been made so that students who become a "new borrower" in the period from 1 January to 31 March of a tax year will not have an end-of-year student loan assessment for any non-salary and wage income they derive, such as business income, rental income, interest and dividends.

Background

Before 1 January 2012, the annual loan transfer from StudyLink to Inland Revenue occurred in February each year. This was replaced with a near real-time transfer, which allowed StudyLink to transfer loan information to Inland Revenue daily.

This near real-time transfer had an unintended consequence that means a "new borrower" would receive an end-of-year student loan assessment that would not have been issued were it not for the near real-time transfer. In effect, borrowers who have student loans for as little as two or three weeks in a tax year will be sent assessments based on their income for the whole tax year.

The Student Loan Scheme Act 2011 (Transitional Provisions) Regulations 2012 provided relief from repayment obligations for borrowers affected in this way for the 2011-12 tax year. The regulation expires on 1 April 2015.

Key features

Students who become a "new borrower" after 31 December will not have an end-of-year repayment obligation assessment for their non-salary and wage income derived in the tax year they become a borrower. Repayment deductions will continue to be made from the salary and wages of borrowers, but only from the date they first draw down a loan. This will provide similar treatment to that provided under the previous annual loan transfer process.

Relief from repayment obligations provided under the Student Loan Scheme Act 2011 (Transitional Provisions) Regulations 2012 for similarly affected borrowers for the 2011-12 tax year is provided for in the Student Loan Scheme Act 2011 and continues to be available in relation to the 2011-12 tax year assessment after 1 April 2015.

Application date

The amendments relating to the repayment obligation of a "new borrower" applies from 1 April 2012, for the 2012-13 and later tax years.

The amendments relating to continuing the relief provided by transitional regulations for the 2011-12 tax year apply from the day after Royal assent, being 30 March 2013.

Detailed analysis

First-time borrowers who draw down a loan after 31 December

For the 2012-13 and future tax years, students who become a "new borrower" on or after 1 January in a tax year will not be subject to the end-of-year assessment. Borrowers who draw down a loan on or after 1 January will not face an end-of-year repayment obligation for any income that comes from sources other than salary and wages, such as business, rental or interest income they earn in that tax year.

New borrowers who draw down loans on or after 1 January will continue, as before the near real-time loan-transfer changes, to have deductions made from any salary and wage income they earn after the first draw-down.

A "new borrower" is defined as:

  • a person who becomes a borrower for the first time under the student loan scheme in the period starting on 1 January of the tax year and ending on the close of the last day of the tax year, or
  • a person to whom all of the following apply:
    • the person had been a borrower under the student loan scheme before the tax year, and
    • the person fully repaid his or her loan before the start of the tax year, and
    • in the period starting on 1 January of the tax year and ending on the close of the last day of the tax year, the person again became a borrower under the student loan scheme.

Borrowers who draw down a loan before 31 December

Since the start of the student loan scheme in 1992 new borrowers who drew down loans before 31 December generally had their loans transferred to Inland Revenue in the next February transfer. Their end-of-year repayment obligations were assessed on the basis of their income from that tax year, which may have included income earned prior to their borrowing.

As these borrowers are not affected by the earlier transfer of student loans from StudyLink to Inland Revenue, the treatment of these borrowers does not change. They will continue to have an end-of-year repayment obligation for the tax year based on all their non-salary and wage income for that tax year. They will continue to have deductions made from any salary and wage income they earn after the first draw-down.

Continuing relief provided for the 2011-12 tax year

Transitional regulations introduced to address a similar situation for the 2011-12 tax year will expire on 1 April 2015. However to ensure that relief continues to be available for that tax year, the relief from repayment obligations provided under those regulations is now included in schedule 6 so that it continues to be available in relation to assessments for the 2011-12 tax year after 1 April 2015 if necessary.