Do you, your children or business partners have a student loan?
Important if you have a student loan and/or:
- Receive distributions from a trust.
- Are a major shareholder in a company.
- Have a company car for personal use.
- Live overseas.
Recently the IRD have issued a new definition for the types of income, which are taken into consideration when calculating student loan repayment obligations.
Included below is some additional information + why these changes matter.
Currently you are required if you are resident in New Zealand to repay your student loan @ 12% of all income over $19,084.
Example: If your income is $50,000, then your student loan repayment obligation is $50,000 -19,084 = $30,916 @12% = $3,709.92
From 1st April 2014, under the new definition, some additional income types will also be taken into consideration for the purposes of student loan repayment calculations. Some examples of these are below:
1. Income held in a company in which you are a major shareholder.
Example: If a company you are a major shareholder in makes a profit of $20,000 and this profit is not allocated to shareholders. Then $20,000 will be added to your income for the purposes of your student loan repayment obligation and increasing your obligation by $2,400 ($20,000 @12%).
2. Distributions from a trust that isn't beneficiary income, and you're not the settlor of the trust.
3. The amount of salary you gave up in exchange for the private use of a company car.
4. There are also other income types, such as certain payments from retirement schemes.
Overseas Borrower Changes
There have also been changes for those overseas with a student loan. If you need more information on these please get in touch.
Importantly, Inland Revenue have warned that people ignoring their student obligations whilst overseas, may be prevented from leaving New Zealand, if they have re-entered the country for a visit.
Why these changes matter
The majority of the additional income sources, now taken considered under the new income definition, are not normally recorded on your income tax return.
This means that they will need to be added as an adjustment on your student loan obligation calculation.
Failure to do this could result in additional interest and penalties further down the track.
It is also worth noting, that due to the changes your repayment obligations may go up, despite there being no change in your normal income. This is important, as it may influence decisions around company profit and trust income distribution.
IMPORTANT: If you believe you are effected by any of the changes outlined above or would like to review your company or trust income distribution, please get in touch to book a meeting.