The big tax news in the past week has to be the first arrest at the border of an overseas based student loan borrower for failing to make repayments. The arrest has been made under legislation introduced in 2014 which allows an arrest warrant to be issued for overseas-based borrowers who persistently avoid making their student loan repayments and which will stop them leaving the country.
Whilst an extreme response and a last resort for IRD, the arrest really shouldn’t come as a surprise as the government has signalled several times in the past 6 months that it means to target overseas defaulters.
In July last year, the Government said it was planning to collect $100,000,000 per year from overseas student loan repayments and this would be met by targeting first-time defaulters, tracking and tracing more borrowers overseas and using legal action if necessary. It also notified Ministers that it was watching 20 serial defaulters.
Current interest rates for overseas borrowers are 5.3%, but interest on late payments is a whopping 9.3% per annum so it’s easy to see how those loan balances can quickly escalate.
In mid-2016 a new information sharing agreement with the ATO in respect of student loans will come into place and this will give IRD easy access to contact information of borrowers living in Australia.
The message from all this seems to be clear – as with any debt with the IRD, ignoring it will not make it go away. The best course of action is to make contact with IRD and come to a payment arrangement. It is possible to apply for a repayment holiday for student loans of up to a year, but this won’t stop interest accruing.
Ultimately, the arrest has become a big talking point at the moment and if this brings in the defaulters that IRD are looking for there’ll be some people in Wellington patting themselves on the back for a job well done.