Definition of "income" for student loan purposes

Schedule 3 of the Student Loan Scheme Act 2011

This amendment aligns the definition of "income" for student loan purposes with that used for Working for Families tax credits.

Background

The definition of "income" for student loan purposes is largely based on the definition used for Working for Families tax credits.

The definition for student loans includes income from close companies of which the borrower is a major shareholder. Income from close companies is allocated to borrowers based on the share of the interest the borrower has in the company.

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 makes changes to the formula used to calculate company income for Working for Families purposes. It also makes amendments to ensure the wording and formulas used in the calculation of a borrower's interest in a company are consistent with the wording and formula used to calculate a borrower's interest in a trust and trust-owned companies.

Key features

The Student Loan Scheme Amendment Act 2014 makes the changes to the formula in the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 apply to the definition of "adjusted net income" for calculating student loan repayment obligations.

The changes will:

• simplify the formula used to calculate company income so that dividend income is subtracted as part of the formula rather than subtracted in a separate section. This ensures that dividend income from a close company is not counted twice as income of the borrower;
• clarify that income from the formula used to calculate company income cannot be a negative amount;
• clarify that only living settlors should be counted when determining the numbers of settlors for a borrower's trust;
• 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 own (consistent with the method used to determine a borrower's interest in a trust and trust-owned company);
• provide that the date the voting interest is measured is calculated on the last day of the income year;
• provide that the references to "market value interests if there is a market value circumstance" are removed, as they seldom occur; and
• ensure formulas that determine income from companies, and trusts or trust-owned companies are aligned.

For more information on these amendments, see the relevant section of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 commentary in this Tax Information Bulletin.

Application date

The amendments apply from 1 April 2014.