Excess repayment bonus

Clause 118(2)

Submission

(Matter raised by officials)

The excess repayment bonus is currently credited on 1 April, following the date the excess repayment was made. However, this may not be appropriate in all cases – for example, if the loan is repaid part-way through the year or the borrower dies or becomes bankrupt. Officials therefore recommend that the bill be amended to enable the bonus to be credited during the year in these circumstances. Amendments are also required to clearly define a borrower’s repayment obligation for calculating a finalising bonus when the loan is repaid during the year.

Officials have earlier recommended that when a borrower dies or becomes bankrupt, the Commissioner should be given the discretion to apply the excess repayment bonus on a date other than 1 April. In the case of the death of a borrower, the excess repayment bonus would be credited on the date of death, or if the person is missing and presumed dead, on the date that the Commissioner reasonably believes the person to be dead.

In the case of a bankrupt borrower, the excess repayment bonus should be credited on the date the borrower becomes bankrupt, which will enable the loan to be finalised following the crediting of any bonus.

The discretion to apply the bonus at a date other than 1 April should apply from the date of assent of the bill.

The second change recommended relates to which compulsory repayments should be taken into account in calculating the bonus if the loan is finalised part-way through the year. Officials recommend that only compulsory repayments that are due on or before the date the loan is paid off should be included in the excess repayment bonus calculation.

The final change recommended relates to the adjustment once the finalising bonus has been applied to the loan. If the loan has been repaid and the finalising bonus applied for that year, any subsequent assessments or reassessments, or other information becoming available should not affect the finalising bonus. This will provide certainty for borrowers that their loan will not be reopened. However, to protect the revenue, there are two exceptions. The first is that the bonus calculation would be reopened if the borrower has purposefully withheld information or if fraud is involved. The second is when a loan is paid off part-way through the year but a borrower has a drawdown during the year, or when the Commissioner considers there is a risk that the borrower may have a drawdown before the end of the year. Officials recommend that the calculation of the bonus, and the closing of the loan account, be delayed until the end of the year.

These changes will provide certainty to borrowers and reduce compliance costs. However, if at the end of the year the borrower has a reduced repayment obligation, they could notify the Commissioner and have their repayment obligation and bonus recalculated, based on their actual repayments due before the final payment or on an annual basis.

Officials recommend that these amendments be made to the bill and apply with effect from 1 April 2012.

Recommendation

That the submission be accepted.