Including income from employment benefits in "adjusted net income"

Schedule 3 of the Student Loan Scheme Act 2011

The amendment aligns the definition of "income" for student loan purposes with that used for Working for Families tax credits by requiring employees who receive certain non-cash benefits to include them in their income calculations.

Background

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 Working for Families 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.

When a non-cash benefit is provided as a substitute for salary or wages, if it is not included in "adjusted net income" for student loans 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.

Key features

The amendment in the Student Loan Scheme Amendment Act 2014 aligns the definition of income for student loans to include income from employer-provided motor vehicles and short-term charge facilities.

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 benefit.

Employees who are student loan borrowers will also be required to include short-term charge facilities (for example, vouchers) they have received in "adjusted net income" when the value of the facility is above a certain threshold. 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.

For more information on these amendments refer to Tax Information Bulletin Vol 25, No 9, "Family scheme income from employment benefits".

Application date

The amendment applies from 1 April 2014.