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Exclude losses from the calculation of net income for student loan repayment purposes

(Clauses 5, 9, 13, 14, 15, 16, 26, 27, 30 and 31)

Summary of proposed amendments

The bill contains amendments to exclude investment and business losses such as rental losses from the calculation of net income for student loan repayment purposes. The change was signalled in Budget 2011 and is intended to increase personal responsibility for debt repayment, maximise repayments from New Zealand-based borrowers and ensure fairness across the student loan scheme.

Application date

The amendments will apply from 1 April 2012.

Key features

When a borrower has one or more business or investment activities, the income and expenditure from an activity which results in a net loss should be ignored when calculating the net amount earned from both “other income” (business income) and pre-taxed income (for example, interest and dividends). A borrower’s repayment obligation is currently based on net income.

Clause 14 replaces the definition of “net income” with a new definition of “adjusted net income”. The definition alters the concept of net income to recognise that a net loss from one activity can no longer be offset against income from another activity in order to reduce a borrower’s repayment obligation.

Clause 15 then ensures the adjusted net income figure is used in the formula for calculating a borrower’s other income repayment obligation.

Clause 13 ensures that losses are excluded from the calculation of “net pre-taxed income”.

Excluding losses from the calculation of net income will mean that some borrowers will have an increased repayment obligation.


The current definition of “income” for student loan repayment purposes is based on a “net income” approach. In calculating net income, a borrower may subtract annual total deductions (expenses and losses) from annual gross income. The calculation allows for example, a net loss generated from a rental property to be offset against income from other activities, effectively reducing a borrower’s repayment obligation.