SPS 11/03
Issued
16 Feb 2011

Student Loans - Relief from repayment obligations

SPS 11/03 sets out IR's practice for providing relief from payment of student loan repayment obligations.

This statement also appears in Tax Information Bulletin Vol 23, No 2 (March 2011).

Introduction

  1. This Standard Practice Statement (SPS) sets out Inland Revenue's practice for providing relief from payment of student loan repayment obligations. However, where a student loan borrower has a tax debt or a child support debt, they should refer to SPS 11/01 (Instalment arrangements for payment of tax) or SPS 11/02 (Child Support Debt – Requesting an instalment arrangement).

  2. Unless specified otherwise, all legislative references in this SPS refer to the Student Loan Scheme Act 1992 ("SLSA").

Application

  1. This SPS applies to applications for relief from payment of:
    • overdue student loan repayment obligations;
    • student loan repayment obligations not yet due;
    • student loan repayment deductions for the current tax year;
    • penalties imposed on overdue student loan repayment obligations.

Summary

  1. The SLSA provides very limited discretion for hardship relief where serious or significant financial hardship is experienced by a student loan borrower although the SLSA provides for hardship relief if there are special reasons which would make it fair and reasonable to grant that relief.

  2. Those forms of relief are generally referred to in this SPS as hardship relief. They are:
  • The Commissioner may:
    • refrain from issuing a notice of assessment or collecting and write off any student loan repayment obligation payable by the borrower if the amount in any tax year is $20 or less;
    • refrain from the collection of any student loan repayment obligation payable by the borrower if the due date for payment has passed and the amount is more than $20 but less than $334 (excluding penalties). The amount not collected will be added back to the loan balance.
    • reduce any amount that must be deducted or paid by a borrower, for example, issue a special repayment deduction rate certificate (formerly "Special Tax Code") to vary a deduction for the current or next year in order to change a borrower's student loan repayment obligation. The amount not collected as a consequence of a reduction will be added back to the loan balance.
    • reduce a repayment obligation for the previous tax year. The amount not collected as a consequence of a reduction will be added back to the loan balance.
    • refund any amount that was deducted or paid to meet a student loan repayment obligation in the previous tax year where he is satisfied the repayment has, or would, cause serious hardship to a borrower.
  1. A borrower can apply for the remission of late payment penalties imposed on any student loan repayment obligation. The Commissioner will look at the circumstances of each case and if the Commissioner thinks it equitable, may grant relief.

Legislation

  1. The relevant legislative provisions of the SLSA are:
51 Power of Commissioner in respect of small amounts
(1) The Commissioner may refrain from refunding any repayment obligation (or part of a repayment obligation) payable to a borrower, or any repayment deduction (or part of a repayment deduction) payable to an employer or a PAYE intermediary, if-
(a) the amount payable to a borrower in any tax year is $5 or less; or
(b) the amount payable to an employer or a PAYE intermediary in any period is $5 or less.
(2) The Commissioner may refrain from issuing a notice of assessment or refrain from collecting and write off any repayment obligation (or part of a repayment obligation) payable by a borrower, or any repayment deduction (or part of a repayment deduction) payable by an employer or a PAYE intermediary, if-
(a) the amount payable by a borrower in any tax year is $20 or less; or
(b) the amount payable by an employer or a PAYE intermediary in any period is $20 or less.
(3) The Commissioner may refrain from collecting payment of a repayment obligation (or part of a repayment obligation) if that repayment obligation (or part of a repayment obligation)-
(a) is more than $20 but less than $334; and
(b) has not been paid by the due date (as that term is defined in section 44).
(4) Any amount that, under subsection (3), the Commissioner does not collect from a borrower is subject to interest at the total interest rate on the daily amount outstanding (except to the extent that this Act otherwise requires).
(5) This section applies despite anything in this Act
53 Relief from penalty
(1) Where any penalty is payable by a person under this Act in relation to any default by that person, on application for relief made by or on behalf of that person, the Commissioner may, having regard to the circumstances of the case and if the Commissioner thinks it equitable to do so, grant relief to the person by remitting such part of the penalty as the Commissioner considers equitable.
(1A) An application for relief may be made-
(a) by telephone; or
(b) in writing; or
(c) in any other manner acceptable to the Commissioner.
(1B) However, the Commissioner may require an application for relief to be made in writing.
(2) The payment of the penalty, in whole or in part, shall not preclude the Commissioner from granting relief from that penalty in accordance with subsection (1) of this section.
(3) If the amount of any penalty is reduced, the Commissioner shall apply any amount overpaid in accordance with section 56 or section 57 of this Act.
(4) This section applies only to borrowers' obligations under this Act.
54 Borrowers may apply for hardship relief
(1) A borrower may apply to the Commissioner for 1 or more of the following:
(a) hardship relief for any tax year prior to the current tax year:
(b) hardship relief for the current tax year:
(c) hardship relief for the next tax year.
(2) An application under subsection (1)(c) must be made on or before 31 March in the tax year that immediately precedes the tax year for which relief is sought.
(3) An application may be made-
(a) by telephone; or
(b) in writing; or
(c) in any other manner acceptable to the Commissioner.
(4) However, the Commissioner may require an application to be made in writing.
55 Hardship relief for any tax year prior to current tax year
(1) If an application is made under section 54(1)(a), the Commissioner may, for any period the Commissioner considers equitable, retrospectively decrease that borrower's repayment obligation for any tax year prior to the current tax year if the Commissioner-
(a) is satisfied that payment of that repayment obligation is causing, or would cause, serious hardship to the borrower; or
(b) considers that there are other special reasons that make it fair and reasonable to do so.
(2) Except as set out in section 55A, the Commissioner must not refund any amount that was deducted or paid (if any) to meet a repayment obligation for any tax year prior to the current tax year.
55A Hardship relief for tax year immediately prior to current tax year may include refund
(1) If an application is made under section 54(1)(a), the Commissioner may, for any period the Commissioner considers equitable, refund any amount that was deducted or paid to meet a repayment obligation in the tax year immediately prior to the current tax year if the Commissioner-
(a) is satisfied that payment of that repayment obligation is causing, or would cause, serious hardship to the borrower; or
(b) considers that there are other special reasons that make it fair and reasonable to do so.
(2) If the Commissioner refunds any amount to a borrower under subsection (1), the Commissioner must-
(a) retrospectively decrease that borrower's repayment obligation for the relevant tax year; and
(b) refund the whole or part of the portion of the repayment obligation that is the difference in assessment amounts.
(3) A refund that is made under this section must be made in the manner required under section 184A of the Tax Administration Act 1994.
55B Hardship relief for current tax year or next tax year
(1) If an application is made under section 54(1)(b) or (c), the Commissioner may, for any period the Commissioner considers equitable, reduce any amount that must be deducted or paid in order to meet the repayment obligation assessed or to be assessed for the current tax year or the next tax year if the Commissioner-
(a) is satisfied that the amount being deducted or paid, or to be deducted or paid, has caused or will cause serious hardship to the borrower; or
(b) considers that there are other special reasons that make it fair and reasonable to do so.
(2) If the Commissioner reduces the amount to be deducted or paid by a borrower under subsection (1), the Commissioner must, as appropriate, do 1 of the following:
(a) issue to that borrower a special repayment deduction rate certificate that varies the standard deduction rate in accordance with the Commissioner's decision under subsection (1) and, when assessed, reduce that borrower's repayment obligation accordingly; or
(b) reduce the percentage payable by that borrower under section 27(1) in accordance with the Commissioner's decision under subsection (1) and, when assessed, reduce that borrower's repayment obligation accordingly; or
(c) reduce that borrower's repayment obligation under section 34 in accordance with the Commissioner's decision under subsection (1).
(3) If the Commissioner reduces the amount to be deducted from, or paid by, a borrower to zero, section 18 does not apply to that borrower for the period for which that reduction applies.
(4) If a borrower has given his or her employer notice in accordance with section 18 and the Commissioner subsequently reduces the amount to be deducted from, or paid by, a borrower to zero, the borrower must give a copy of the special repayment deduction rate certificate to his or her employer as soon as practicable after it is issued.
(5) Section 24F of the Tax Administration Act 1994 applies, with all necessary modifications, to any special repayment deduction rate certificate issued under this section.
55C Effect of Commissioner's decision under section 55, 55A, or 55B
(1) Any amount that, as a result of a decision under section 55, 55A, or 55B, the Commissioner has refunded to, or not collected from, a borrower is subject to interest at the total interest rate on the daily amount outstanding (except to the extent that this Act otherwise requires).
(2) Section 56 or 57, as appropriate, applies to a borrower who, as a result of the Commissioner refraining from deducting or collecting any amount from that borrower, or reducing that borrower's repayment obligation, has had deductions made, or has made payments, in excess of that borrower's repayment obligations as set out in section 56(1)(a) to (e) or section 57(1).
55D Borrowers must inform Commissioner of change of circumstances and Commissioner may review
(1) A borrower who applies for hardship relief under section 54 must inform the Commissioner as soon as practicable if there is a change in the borrower's circumstances that-
(a) means that any information supplied to the Commissioner under section 54 is incorrect or inaccurate; or
(b) may affect whether or not a borrower would have been, or will continue to be, granted hardship relief under section 55, 55A, or 55B.
(2) The Commissioner may, at the end of a tax year, review any decision he or she made during that year to grant hardship relief to a borrower.
(3) If for any reason the Commissioner considers that the circumstances for the grant of that hardship relief have changed, the Commissioner may do either or both of the following:
(a) require the borrower to take any action that is required in order to reverse the effects of the hardship relief that was granted to the borrower:
(b) reinstate all or part of the repayment deduction or repayment obligation that would have applied to the borrower if hardship relief had not been granted to the borrower, and require payment of any amount that would have been due during the relevant tax year.
56 Excess repayments made by borrowers
(1) Where for any tax year a borrower has-
(a) Had repayment deductions made in excess of the repayment obligation for that tax year; or
(b) Paid interim repayments in excess of the repayment obligation for that tax year; or
(c) Paid an amount in excess of the amount of any instalment of an interim repayment; or
(d) Made a voluntary payment in excess of the repayment obligation for that tax year; or
(e) Paid an amount in excess of the amount of any penalty charged,-
the Commissioner shall-
(f) Credit the amount so deducted or paid in excess, so far as it extends, to any repayment obligation or instalment of an interim repayment for any other tax year or any other amount that has become due and payable that the borrower has failed to pay in the order in which that repayment obligation or instalment of an interim repayment obligation or other amount became due and apply any amount not so credited in accordance with either subsection (1A) or (1B)
(g) Repealed.
(1A) A borrower may elect that the whole or part of the amount not credited-
(a) Be refunded; or
(b) Be applied to the loan balance.
(1B) Where a borrower does not make an election, the Commissioner must apply the amount not credited to the loan balance.
(2) Any election under subsection (1A)(b) of this section shall be irrevocable.
(2A) Where a borrower has not made an election, the borrower may request the Commissioner, within 6 months of the date on which the Commissioner issued the notice of assessment that showed the amount applied to the loan balance, to refund, in whole or in part, the amount so credited.
(2B) A refund that is made under this section must comply with section 184A of the Tax Administration Act 1994.
(3) Notwithstanding subsection (1) of this section, no refund shall be made under this section after the expiry of the period of 8 years immediately after the end of the year in which the assessment was made or, in any case where the original assessment has been altered (whether once or more than once) after the end of the year in which the original assessment was made, unless written application for the refund is made by or on behalf of the borrower before the expiry of that period.
57 Election by overseas based borrower to receive refund or to apply overpayment to loan balance
(1) Where any overseas based borrower has paid an amount in excess of the overseas based repayment obligation for any year, the Commissioner shall-
(a) Credit the amount so paid in excess, so far as it extends, to any repayment obligation for any other tax year or any other amount that has become due and payable that the borrower has failed to pay in the order in which that repayment obligation or other amount became due; and
(b) Notify the borrower of any amount so paid in excess that is not credited under paragraph (a) of this subsection.
(2) The borrower may request the Commissioner, within 2 months of the date on which the Commissioner issued the notice, to refund any amount so paid in excess that is not credited under subsection (1)(a) of this section.
(2A) Unless subsection (4) applies, a refund of an amount paid in excess of a borrower's repayment obligation must be made in the manner required under section 184A of the Tax Administration Act 1994.
(3) Any such request shall be irrevocable.
(4) If no such request is made within that time, any amount paid in excess that is not credited under subsection (1)(a) of this section shall be applied in reduction of the loan balance.
57D Commissioner's discretion in cases of significant financial hardship
(1) On the application of a borrower, the Commissioner may exempt part or all of a relevant refund made to that borrower from section 57C.
(2) The Commissioner may only exempt a relevant refund if the Commissioner is satisfied that that refund was necessary to alleviate the borrower's significant financial hardship.
(3) If the Commissioner grants an exemption under subsection (1), the Commissioner must specify the amount of the relevant refund that is exempt from section 57C.
(4) In this section, significant financial hardship includes significant financial difficulties that arise because of-
(a) a borrower's inability to meet minimum living expenses; or
(b) a borrower's inability to carry out his or her usual occupation because of his or her temporary or permanent illness, injury, or disability; or
(c) a borrower's inability to meet mortgage repayments on his or her principal family residence resulting in the mortgagee seeking to enforce the mortgage on the residence; or
(d) the cost of modifying a residence to meet special needs arising from a disability of a borrower or a borrower's dependant; or
(e) the cost of medical treatment for an illness or injury of a borrower or a borrower's dependant; or
(f) the cost of palliative care for a borrower or a borrower's dependant; or
(g) the cost of a funeral for a borrower's deceased dependant.

Discussion

Application for relief

  1. A borrower can make an application to Inland Revenue for hardship relief where they believe that payment of their student loan obligation would cause or has caused "serious hardship". A borrower can also apply for hardship relief if they consider that there are "other special reasons" that would justify relief from their repayment obligations. Each application will be considered on its own merits.

  2. If a borrower anticipates that they will experience serious hardship or serious financial hardship as a consequence of having to meet their student loan repayment obligations for the next year, their application for hardship relief should be sent to Inland Revenue by 31 March of the current tax year. However, the Commissioner will also consider applications on a retrospective basis.

  3. Applications can be made by telephone, in writing or by electronic means using the IR website on-line service.

Available options for relief

  1. Where the Commissioner is satisfied that the repayment of a student loan obligation (and related penalties) will cause the borrower serious hardship or there are other special reasons, the following options are available:
    • refrain to collect a repayment obligation of less than $334;
    • remit a penalty;
    • reduce a student loan repayment obligation;
    • refund repayments for the tax year immediately prior to the current tax year.

When relief will be provided

  1. Although the SLSA does not define the meaning of "serious hardship" or "other special reasons", section 57D (see above) sets out circumstances that would indicate a borrower is experiencing "significant financial hardship". This provides a guide to circumstances where the Commissioner will provide relief, although it is not an exhaustive list.

  2. Applications for hardship relief are considered on a case-by-case basis. The onus is on the borrower to show that payment of their student loan obligations has or will cause hardship, or that there are special reasons why the Commissioner should not pursue full payment for a period.

Timing of applications for future relief

  1. When a borrower anticipates that they will experience financial hardship as a consequence of having to meet their student loan repayment obligations for a future tax year, their application for hardship relief should be sent to Inland Revenue on or before 31 March in the current tax year.

Information to support applications

  1. The application for hardship relief should set out the borrower's circumstances and clearly explain the reason for requesting hardship relief. The Commissioner may require the borrower to provide further information in support of their application.

  2. Resident borrowers may use the IR40 "Statement of financial position" form as a guide for the information required on support of their application for hardship relief.

  3. Overseas-based borrowers are required to apply for hardship relief in writing, providing full details of their financial situation, or by completing an IR219 "Student loan overseas-based repayment application" form.

  4. The IR40 and IR219 forms are available on our website at www.ird.govt.nz/forms-guides.

When relief is provided

Refrain from collection
  1. The Commissioner may refrain from issuing a notice of assessment or may write off any student loan repayment obligation payable by the borrower if the amount payable in any tax year is $20 or less.

  2. The Commissioner may refrain from collecting a student loan repayment obligation of more than $20 and less than $334 if the due date for payment has passed. When the Commissioner refrains from collecting payment of a loan obligation, the unpaid amount is added back to the loan balance and attracts interest (if applicable).
Remit a penalty
  1. Late payment penalties are imposed if a borrower does not meet their student loan repayment obligations in full and on time. Those penalties compound monthly until the arrears are paid.

  2. The Commissioner will consider an application for remission of late payment penalties once the initial arrears have been paid or at any time the borrower requests.

  3. Late payment penalties may be remitted when a payment default was:
    • beyond the control of the borrower or the borrower's agent; or
    • the result of a genuine error; or
    • in any other situation in which the Commissioner deems it equitable to do so.

  4. When considering an application to remit a late payment penalty the Commissioner will take into account the borrower's previous compliance record, including whether they have paid their student loan repayment obligations as soon as practicable. The borrower's overall compliance history; including their other general tax and Child Support obligations (if applicable), will also be a factor in deciding whether or not to remit a late payment penalty.
Reduce a repayment obligation
  1. A borrower's student loan repayment obligation is the amount of their student loan repayable for a particular tax year. That student loan repayment obligation is generally calculated by taking the borrower's income (that exceeds the repayment threshold) and multiplying by the repayment percentage, to establish the amount of the student loan to be repaid for that tax year.

  2. If the Commissioner grants serious hardship relief, or there are other special reasons that would make it fair and reasonable to reduce a borrower's student loan repayment obligation for a tax year, the following will occur:
    • the borrower will be issued with a special repayment deduction rate certificate that varies the deduction rate for a current or future year to reflect a reduced repayment obligation. (The borrower will need to give the certificate to their employer so that the employer can deduct student loan repayment deductions at a reduced rate); or
    • the percentage payable by the borrower (receiving income not subject to PAYE) will be reduced.
    • the amount not collected, as a consequence of a reduction, will be added back to the loan balance.
    • consideration will be given to a borrower who is overseas to see if they are entitled to a repayment holiday or an opt-out period, from their repayment obligations.
Refund repayments for previous tax year
  1. When payments by a borrower exceed their student loan repayment obligations, the overpayment will be offset against any other student loan amounts that are due but remain unpaid. Any remaining overpayment will then be offset against the borrower's loan balance.

  2. Resident borrowers can request that an overpayment be refunded directly to them within six months from the date of issue of the Commissioner's notice of assessment advising of the overpayment. Overseas-based borrowers have two months to make a request.

Change of circumstances

  1. A borrower is are required to advise Inland Revenue of any change to their circumstances that is likely to mean that an earlier decision to provide hardship relief, or their ability to repay their loan obligations, will need to be reviewed.

  2. Should a borrower's financial situation improve, they may make voluntary payments in addition to their amended student loan repayment obligation.

Year-end review

  1. The Commissioner may review any decision to provide hardship relief at the end of the tax year (31 March). Where the borrower's circumstances have materially changed, the Commissioner may review the hardship relief previously agreed too.

Standard Practice

  1. A borrower should contact Inland Revenue at the earliest opportunity if they think repayment of their student loan will cause them serious hardship, or if there are other special reasons for making an application for financial relief.

  2. Applications are generally not required by any specific time, although an application for anticipated hardship for future year's obligations must be received by Inland Revenue on or before 31 March in the current tax year.

  3. An application will be considered on the basis of the borrower's current or future ability to meet their student loan repayment obligation. In considering an application the Commissioner will look at all options available to a borrower to enable them to meet their loan repayment obligations.

  4. A resident borrower may make application in writing, by telephone, or other manner acceptable to the Commissioner. An overseas-based borrower is required to apply in writing or complete an IR219 "Student loan overseas-based repayment application" form.

  5. A borrower will need to show why payment of their loan repayment obligation will cause them serious hardship, or show why they think relief should be given for some other special reason.

  6. If the Commissioner is satisfied that payment of a repayment obligation will cause serious or significant financial hardship to a borrower, or is satisfied that there are special reasons that make it fair and reasonable to provide relief, the Commissioner may:
    • refund1 any amount that was deducted or paid that is more than the Commissioner considers a borrower is able to afford to pay without causing hardship; and/or
    • reduce any amount that must be deducted or paid in order for the borrower to meet their adjusted repayment obligation.

  7. The unpaid balance of the original student loan repayment obligation not recovered as a result of providing hardship relief, will be added back to the loan balance owing and will incur interest (if applicable).

  8. When the Commissioner agrees to provide hardship relief the terms and details of the adjusted student loan repayment obligation and consequential matters (e.g. refunds, changed tax code for PAYE purposes) will be confirmed so that the borrower is advised of the impact on their student loan account for the relevant year.

  9. A borrower who applies for hardship relief must advise the Commissioner, as soon as practicable, of any change in their circumstances that is likely to impact on information previously relied upon in deciding to grant hardship relief, or may impact on the borrower's ability to pay their student loan obligation.

  10. The Commissioner may, at the end of a tax year, review any decision to grant hardship relief. If the Commissioner considers that the circumstances upon which the relief had been agreed to have materially changed, he may reinstate all or part of the repayment deduction or repayment obligation.

 

This Standard Practice Statement is signed on 16 February 2011

 

Rob Wells
LTS Manager, Technical Standards
Legal and Technical Services

 


1 However, any overpayment of a loan repayment obligation for years prior to the year preceding the current year are not refundable to the borrower and will be offset against the student loan balance. [55(2) and 55A(2)]