Changes to Student Loans - 1 April 2012
- 5 – 6 new tax codes are being introduced affecting your PAYE tax and your student loan deductions
- Current interest rate for student loans is 6.6%, locked in for the next 3 years
- If your credit is not asked for within six months of filing your return it will be applied to the loan and you cannot get it refunded.
- Introduction of annual $40 administration fee which is added to the loan balance
- Losses are no longer included for Student Loan repayment deduction calculations
- You now have to apply for the repayment holiday and you only get one year – no longer three
- Loan transactions from StudyLink will be transferred daily to IRD
- Borrowers will be able to see their total loan balance both online and on statement.
- Borrowers don’t need to contact two agencies to work out their balance
- Borrowers have three months to notify IRD of changes or they can have their total loan recalled.
Student Loans Changes 1st April 2012
All Student Loan borrowers are required to have a student loan (SL repayment code).
There is a new IR330 Tax Code Declaration form which will need to be completed.
Exceptions: A special tax code (STC) or a repayment deduction exemption (RDE) has been granted by Inland Revenue Department
An exemption certificate from Inland Revenue must be supplied to the employer
Student Loan Tax Codes
M SL - Main Income with Student Loan
ML SL - Main Income under $9,880 with Student Loan (NEW)
ME SL - Main Income with Student Loan and IETC (Independent Earner Tax Credit for gross annual earnings between $24,000 and $48,000)
S SL - Secondary Income (being the total of all employment income from all sources) $14,001 to $48,000 with a Student Loan (NEW)
SB SL - Secondary income under $14,000 with a Student Loan (NEW)
SH SL - Secondary income $48,001 to $70,000 with a Student Loan
ST SL - Secondary Income over $70,000 with a Student Loan
SLCIR - This will occur where IRD wish to recover a significant under deduction and is in addition to the SL code being used. Advise will be received from IRD to borrower and employer advising the amount to be repaid and the time period involved. You will need to follow the instructions in the notification from IRD (NEW).
Eg. The CIR has requested the employer to adopt the SLCIR tax code at the rate of 5% and the borrower’s gross primary employment earnings are $800 a week. The SLCIR Commission deductions would be $21.65 a week (5% of the income above the threshold of $367 per week).
On secondary income, if the CIR has requested SLCIR deductions at the rate of 5%. The borrower’s secondary income is $100 a week. Then the SLCIR would be $5.00 a week (5% of $100).
New SLBOR - If a borrower chooses to made additional deductions from their salary or wages, then this tax code is used. It is in addition to the SL code being used and may be a percentage of earnings or a fixed amount. The borrower must advise the employer in writing before this tax code can be used.
Changes to Parental Income Test for Student Allowance - Applications 1 January 2012
Will your children still be eligible for Student Allowance? If you have children who are tertiary students under 24 years old and are currently studying or looking to study, the recent changes to the calculation of Parental Income may affect how much Student Allowance they could receive.
The Student Allowance is a weekly payment to help with living expenses during study. A Student Allowance is separate from a Student Loan and does not have to be paid back. Students under 24 years old who study full-time, and who have no children of their own, are considered by StudyLink to be dependent on their parents. This is regardless of whether they are living in the family home, a hall of residence or out flatting. To qualify for a Student Allowance both parents income will be tested.
Recently the scope has been widened for StudyLink’s definition of ‘Parental Income’. The changes apply for any application for a Student Allowance where study is starting on or after 1 January 2012. It will mean that now not only just the parents ‘taxable income’ will be considered, but an adjustment will be made to account for all of the family’s income sources, whether taxable or not.
The following adjustments need to be made to your taxable income in order to work out what the ‘parental income’ is:
Wages or Salary: This includes Accident Insurance payments and Overseas NZ tax- exempt Wages, Salaries and Pensions.
Business Income: In the situation where there were business losses, they will be added back to the parents taxable income.
Rent or Income from Boarders: This is the actual taxable income figure.
Pensions and Annuities: If any pension or annuity is received from a life insurance policy or private superannuation fund only half of the payments received will be included, but it does include all distributions from a retirement savings scheme when the parent has retired early.
Attributable Trustee Income: This is all the net income from a Trust that was settled by the parents, which hasn't been distributed as beneficiary income. It includes also the net income of a company controlled by the Trust.
Attributable Fringe Benefits: Fringe benefits received will be accounted for if the parents hold a voting interest of 50% or more in a company.
PIE Income: Income attributed by a portfolio investment entity, except if the PIE is a superannuation fund or a retirement savings scheme (eg KiwiSaver).
Income Equalisation Deposits: This includes any deposits made by the parent, a company controlled by the parent or the parent’s trust.
Income held in a Close Company: Income not attributed to shareholders will be included on the basis of the parents shareholding.
Any other payments that exceed $5,000 per year: This is payments received from any other person or entities that are used for the family's day-to-day living expenses.
As a guide, currently the Parental Income test will be met if the annual combined Parental Income works out to be less than:
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$82,953.82 |
If the student lives in a parental home to study |
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$89,936.68 |
If the student lives away from a parental home to study |
Note that how much of the Parental Income will be tested will depend on individual circumstances such as if the parents live together or in separate households, or if the parents support other full-time dependent students aged 16-23 years.
The changes will mean that some students who were previously entitled to a Student Allowance may no longer meet the Parental Income Test, and will have to find alternatives for funding their living costs during study.
To check if your student is entitled to any Allowance, check out the Student Allowance Calculator on www.studylink.govt.nz. For any help in working out your annual Parental Income contact our tax team here at CooperAitken.
