Student Loan Scheme Amendment Bill (No 3)

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Explanatory note

General policy statement

The Bill gives effect to reforms announced in the Budget 2013 that focus on improving repayments from overseas-based borrowers and increasing personal responsibility for debt repayment.

The Bill amends the Student Loan Scheme Act 2011 (the Act) to—

  • create a strong sanction against defaulters by allowing Inland Revenue to request an arrest warrant for persistent defaulters; and

  • speed up repayments from compliant overseas-based borrowers; and

  • allow Inland Revenue to obtain from third parties the contact details of any borrower, not just a borrower who is in default; and

  • technical and remedial amendments that clarify the original intent of the legislation and align the treatment of student loans with the treatment of other tax types.

Offence and power of arrest

The Bill proposes to enable Inland Revenue to request an arrest warrant for borrowers who persistently default on their student loan obligations. This power will send a strong signal to borrowers that non-compliance is unacceptable and create a strong sanction against persistent defaulters.

The Bill contains an amendment making it a criminal offence for borrowers who are in default of their overseas-based repayment obligations and who, having been notified by the Commissioner of Inland Revenue that they are in default, knowingly fail, or refuse, to make reasonable efforts to pay or to make arrangements with Inland Revenue to pay. This is a necessary provision because an arrest warrant is usually only requested in connection with a suspected criminal offence.

If the District Court is satisfied that a person has committed this offence, it may issue an arrest warrant. The arrested person must be brought as soon as possible before a District Court, which may make a range of orders if it is satisfied that the person is about to leave or attempt to leave New Zealand without making reasonable efforts to pay or making arrangements to pay. These orders could prevent the person from leaving until he or she makes payment or arrangements to pay.

Repayment thresholds

The Bill also contains amendments to speed up repayments from compliant overseas-based borrowers. At present, overseas-based borrowers’ payment obligations decrease as their loan balance decreases even though it is likely that their income is increasing. The Bill contains an amendment to ensure that an overseas-based borrower’s repayment obligation does not decrease as his or her loan balance decreases.

For approximately 14% of borrowers (those who have a student loan balance over $50,847), the amount due per year will not exceed the interest charged on their loan. These 14 581 borrowers will continue to see their student loan balance increasing even if they are compliant. The Bill contains an amendment that will increase the repayment obligation of borrowers with loan balances greater than $45,000. This amendment will reduce the percentage of borrowers whose obligation does not cover their interest from 14% to 3.5%.

Contact details for borrowers

Correct contact details for borrowers are crucial in ensuring the continued compliance of overseas-based borrowers. An information-sharing agreement was announced as part of the Budget 2013 to allow the Department of Internal Affairs to provide Inland Revenue with borrowers’ contact details that it receives as part of the passport renewal process. This sharing is to be limited to contact details of borrowers who are in default of their loan and not those who are compliant. The Bill contains an amendment to allow this.

Other amendments

The Bill also contains remedial amendments that align the student loan scheme with the treatment of other tax types and ensure that the Act works as intended.

Departmental disclosure statement

The Inland Revenue Department is required to prepare a disclosure statement to assist with the scrutiny of this Bill. It provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

A copy of the statement can be found at http://legislation.govt.nz/disclosure.aspx?type=bill&subtype=government&year=2013&no=147&

Regulatory impact statement

The Ministry of Education produced a regulatory impact statement on 22 March 2013 to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

A copy of this regulatory impact statement can be found at—

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 is the commencement clause. Clause 2 provides for—

  • clause 4 , which relates to borrowers' deductions, to come into force with retrospective effect on 1 April 2012:

  • clause 6, which relates to overseas-based repayment thresholds, to come into force on 1 April 2014:

  • clause 7, which relates to late payment penalty fees, to come into force with retrospective effect on 1 April 2013:

  • the rest of the Bill to come into force on the day after the date on which it receives the Royal assent.

Clause 3 provides that Part 1 of the Bill amends the Student Loan Scheme Act 2011 (the principal Act).

Part 1
Amendments to Student Loan Scheme Act 2011

Clause 4 amends section 4(1) to revise the definition of borrower deduction to include the amount of any standard deduction that exceeds the borrower's loan balance.

Clause 5 amends section 84(2)(d), which prescribes due dates for borrowers who pay provisional tax on a 6-monthly basis, so that the provision also applies to tax years after the 2012–2013 tax year.

Clause 6 replaces section 110—

  • to prescribe repayment obligations for overseas-based borrowers, who will be required to pay—

    • $1,000 per year, if their relevant loan balance is less than or equal to $15,000:

    • $2,000 per year, if their relevant loan balance is more than $15,000 but less than or equal to $30,000:

    • $3,000 per year, if their relevant loan balance is more than $30,000 but less than or equal to $45,000:

    • $4,000 per year, if their relevant loan balance is more than $45,000 but less than or equal to $60,000:

    • $5,000 per year, if their relevant loan balance is more than $60,000:

  • to define the relevant loan balance in relation to the borrower's consolidated loan balance.

Clause 7 inserts a new section 141A to reduce the late payment penalty fee for a borrower who is in default where the Commissioner of Inland Revenue has exercised his or her powers under section 157 of the Tax Administration Act 1994 to require another person to deduct any amount from moneys payable by that other person to the borrower.

Clause 8 inserts new sections 162A and 162B. New section 162A creates a new offence for borrowers who are in default of their overseas-based repayment obligations. New section 162B allows a District Court Judge to issue an arrest warrant for a borrower who is in default of his or her overseas-based repayment obligation and is temporarily in New Zealand. The provision allows the court to make orders—

  • requiring the borrower to provide security (before leaving New Zealand):

  • preventing the borrower from leaving New Zealand without the court's permission:

  • requiring the borrower to surrender his or her travel documents or tickets.

Clause 9 makes consequential amendments to sections 164, 165, and 166, which are general provisions relating to offences, to reflect the insertion by clause 8 of a new offence in new clause 162A.

Clause 10 amends section 193A to make a minor amendment to the definition of address details so that the definition also applies in the new section 193C(2) being inserted by clause 11.

Clause 11 inserts new subsection (2) in section 193C to signpost the Commissioner of Inland Revenue's ability to receive the borrower's address details in accordance with other information-sharing provisions.

Clause 12 amends section 207 to allow information sharing for the purposes of verifying any declaration made by an applicant for a student loan as to any unpaid amounts owed by the applicant where the declaration is a condition of obtaining the loan.

Part 2
Amendments to Student Loan Scheme Amendment Act 2013

Clause 13 provides that Part 2 of the Bill amends the Student Loan Scheme Amendment Act 2013, which inserts a new Schedule 3 of the principal Act that will come into force on 1 April 2014.

Clause 14 amends the new Schedule 3, which will provide for various adjustments to a borrower's net income. The amendments in this Bill—

  • replace clause 8 of new Schedule 3 to make provision for dividends attributable to the borrower to be deducted from the borrower's adjusted net income; and

  • amend clause 11 of new Schedule 3 to clarify that only living settlors should be counted when determining the number of settlors for a borrower's trust.