Minor technical matters
MINOR TECHNICAL MATTERS
Issue: The order in which deductions and payments are offset against the consolidated loan balance
Submission
(Matter raised by officials)
Two corrections are proposed to the provisions in the Student Loan Scheme Act 2011 that deal with the order in which payments are to be offset against a borrower’s consolidated loan balance.
The first correction relates to a legislative oversight whereby the section that deals with overseas-based borrower deductions satisfying their repayment obligations (section 117) incorrectly overrides the general ordering rules (section 194) from 1 April 2012.
The second correction relates to an error whereby from 1 April 2013 section 117 incorrectly overrides sections 194 to 194D instead of only overriding section 194A(1) and (2). Officials recommend that amendments be included in the bill to correct these two errors.
Recommendation
That the submission be accepted.
Issue: How interest is calculated, charged and compounded
Submission
(Matter raised by officials)
The Student Loan Scheme Act 2011 provides that for the 2012–13 tax year, interest on outstanding loan balances is calculated each day, charged and compounded annually. Although interest is only charged annually, the current administrative practice is for statements issued to borrowers to show the amount of interest that has been calculated and accrued up to the date of the statements. This practice is not reflected in the legislation and officials recommend that for the 2012–13 tax year, the Act be amended to provide that interest be accrued on a daily basis.
The way interest on outstanding loan balances is charged and compounded will change from the 2013–14 tax year onwards. Therefore there will be no need to accrue interest from that point.
Recommendation
That the submission be accepted.
Issue: Student loan repayment codes
Submission
(Matter raised by officials)
There are two problems relating to student loan repayment codes.
The first is that the Student Loan Scheme Act 2011 incorrectly refers to a tax code instead of a repayment code. Although the Tax Administration Act refers to tax codes, the Student Loan Scheme Act refers to a repayment code. This error occurs in three places, sections 38 and 39, and clause 1 of schedule 2. Officials recommend that this error be corrected in the bill and that the amendments apply from 1 April 2012.
The second problem relates to income-tested beneficiaries who do not have to have repayment deductions made from their benefit. The Student Loan Scheme Act requires these borrowers to apply the “SL” repayment code even though they do not have student loan deductions made from their benefit. To ensure that both the Ministry of Social Development and beneficiaries do not incur costs in complying with this requirement, officials recommend that the legislation be amended to remove the requirement for income-tested beneficiaries to advise the Ministry of Social Development to apply the “SL” tax code. The amendment should apply from 1 April 2012.
Recommendation
That these submissions be accepted.
Issue: Notification period for significant over-deductions
Submission
(Matter raised by officials)
The Student Loan Scheme Act 2011 provides that where a borrower considers that a significant over-deduction has been made, the borrower can ask the Commissioner to investigate within six months of the date the borrower identifies the significant over-deduction. This gives the borrower an unduly long period to seek an investigation. What was intended was that the borrower would have six months from the date on which the significant over-deduction occurred to request the Commissioner to investigate the over-deduction.
Officials recommend that the bill be amended accordingly and that the amendment apply from 1 April 2012.
Recommendation
That the submission be accepted.
Issue: Repayment obligations of overseas-based borrowers
Submission
(Matter raised by officials)
An overseas-based borrower’s repayment obligation for a year is based on the size of their consolidated loan balance at the end of the previous income year, increased by the annual administration fee and reduced by the amount of the excess repayment bonus.
Because of the way the legislation is drafted it could be construed that the excess repayment bonus is added to the borrower’s loan balance instead of being subtracted from it as intended. Officials recommend that an amendment be included in the bill to ensure that the excess repayment bonus is subtracted from these loan balances for the purpose of calculating the repayment obligation for overseas-based borrowers.
Recommendation
That the submission be accepted.
Issue: Information to be provided by the loan manager
Submission
(Matter raised by officials)
Section 16 of the Student Loan Scheme Act 2011 requires the loan manager (StudyLink) to notify Inland Revenue of all persons who become borrowers and to provide the information set out in the section and any further information specified in subsequent regulations. The bill inserts a new section 16A, requiring the loan manager to notify Inland Revenue of the contact details of an alternative contact person provided by the borrower. There is no requirement to provide Inland Revenue with any further information specified in regulations. This appears to be a drafting oversight. Therefore, officials recommend that a similar requirement be included.
Recommendation
That the submission be accepted.
Issue: Issuing an additional deduction rate or a special assessment to collect a significant under-deduction
Submission
(Matter raised by officials)
Where a significant under-deduction has occurred because of an employer error or an error or omission on the part of a borrower, the Commissioner can issue an additional deduction rate for the recovery of the under-deducted amount. If the Commissioner cannot obtain the additional deductions the Commissioner can issue a special assessment to the borrower.
In implementing the reforms, Inland Revenue has identified a risk that the additional deduction rate and special assessment provisions would not apply in situations when the employer omitted or deliberately intended not to make a deduction, as this is not an employer “error”. This was not the policy intent as the special assessment provisions should be available for all situations when significant under-deduction occurs.
Officials therefore recommend that an amendment be incorporated into the bill to enable the additional deduction and special assessment provisions to apply to significant under-deductions when an employer has omitted or deliberately intended not to make a deduction.
Officials also recommend that a minor amendment be made to the provision for issuing an additional deduction rate notice to clarify that when the Commissioner issues an additional deduction rate notice, that notice replaces all previous notices issued to that employer in relation to a borrower. This amendment would overcome the situation where a notice issued to one employer could replace all previous notices issued to all employers of the borrower, which was not intended.
Recommendation
That the submission be accepted.
Issue: Transitional provision for small amounts of unpaid and uncollected repayments obligations
Submission
(Matter raised by officials)
When changes were made to the Student Loan Scheme Act 2011 to defer the application date of some of the reforms for a year, a legislative oversight resulted in the transitional provision relating to small amounts of unpaid repayment obligations applying from 31 March 2012 instead of 31 March 2013. Also, the provision incorrectly referred to one of two legislative references, omitting the reference to section 139(1) of the Student Loan Scheme Act which applies to small amounts of late payment interest.
Officials recommend that the bill be amended accordingly and that the amendments apply from the date of assent of the bill.
Recommendation
That the submission be accepted.