House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Family and Community Services, Senator the Honourable Jocelyn Newman)

Schedule 2 - Student financial supplement scheme

1. Summary of proposed changes

This Schedule amends the Social Security Act 1991 (the Social Security Act) to incorporate the student financial supplement provisions currently contained in the Social Security Student Financial Supplement Scheme 1998 (the Financial Supplement Scheme). That Scheme will lapse on the repeal by this Schedule of the present enabling provision.

2. Background

As a general principle, the financial supplement provisions are to be moved in this way without making any change in their effect. Those provisions themselves were originally set up with the intention of preserving the effect of the pre-existing AUSTUDY provisions so that students did not suffer any disruption to their payments because of the youth allowance changes, which happened half way through the academic year.

However, the new financial supplement provisions have been drafted on the basis that:

•

the drafting style and structure of the new provisions be more in keeping with the rest of the Social Security Act, including the standard provisions already set up there;

•

modifications be made to certain of the provisions to improve their structure and clarify their intent; and

•

certain technical and other minor changes be made to ensure that the original AUSTUDY provisions are correctly reflected and to refine certain aspects of the provisions, as outlined in detail below.

For the most part, there is no change in effect between the provisions of the Financial Supplement Scheme and those of the new Chapter 2B. Only the following technical and minor departures have been made:

1

The tax file number provisions have been put into the standard Social Security Act form. It had previously been necessary to split these provisions between the Social Security Act and the Financial Supplement Scheme because of restrictions imposed by the Privacy Commissioners Tax File Number Guidelines.

2

An incorrect provision has been eliminated that allowed a student to apply for financial supplement after the eligibility period (the change is in line with the pre-existing AUSTUDY provisions).

3

It has been clarified that the minimum amount of financial supplement of $500 applies in respect of the full year. This will take account of a persons eligibility as either a category 1 student (a current student payment recipient) or a category 2 student (a person excluded from youth allowance on the grounds of the parental income test or family actual means test) or both categories at different times in the year. Thus, a person who becomes a category 2 student part way through the year, with a consequent lesser amount of eligibility, will not have to establish $500 worth of eligibility anew - the previous category 1 eligibility will be counted. (This is in line with the pre-existing AUSTUDY provisions.)

4

The payment rules have been relaxed to allow financial supplement to be paid into a nominated bank account and not necessarily the same account into which the student payment was or is paid.

5

The requirement has been omitted to Gazette the minimum, intermediate and maximum prescribed amounts for debt recovery purposes. This requirement is superfluous because existing provisions already clearly establish how those amounts are calculated relative to AWE.

6

The separate confidentiality provisions that currently exist for officers acting under the recovery phase of the scheme undertaken by the Australian Taxation Office have been omitted. The mainstream Act confidentiality provisions will apply.

7

A special rule has been included relating to the status as evidentiary certificates of certain documents relating to financial supplement (in line with the pre-existing AUSTUDY provisions).

3. Clauses and Schedule involved in the changes

4. Explanation of the changes

Background

The Student Financial Supplement Scheme is a loan scheme that gives tertiary students the option of borrowing money to help cover their living expenses while studying. Financial supplement is paid fortnightly in instalments by a participating financial corporation, under a formal contract, to a person who is eligible to obtain financial supplement. To be eligible, a person must be a full-time tertiary student to whom youth allowance is payable or to whom youth allowance would be payable if not for the parental income test or family actual means test. Alternatively, the person must be a full-time or concessional study-load tertiary student to whom austudy payment or pensioner education supplement is payable.

If an eligible person takes up the option of obtaining an amount of financial supplement within the allowable limits and enters into a contract for that purpose with a participating corporation, the person may vary the amount of financial supplement obtained at any time during the year or part of the year as long as it is within the limits specified on the supplement entitlement notice given to the person when his or her eligibility was determined.

The financial supplement instalments are paid to a person by a participating corporation in accordance with an agreement with the Commonwealth. The person is not liable to the corporation for interest, but the Commonwealth pays to the corporation a subsidy that includes an amount for interest. At the end of the contract period, the Commonwealth pays to the corporation any amount outstanding under the contract and is assigned the further rights - repayments will eventually be made by the person to the Commonwealth. The amount of financial supplement that will eventually have to be repaid is indexed each 1 June and the increase flowing from the indexation will be added to the person's debt to the Commonwealth.

Repayments of financial supplement are not required before the fifth year after 1 June in the calendar year following the year in which the contract was entered into, eg, a person who entered into a contract on 1 March 1994 will not have to start repayments until at least June 1999; a person whose contract date was 1 July 1994 will have the same prospective repayment date. Even so, the loan repayment actually commences only when the person's taxable income exceeds average earnings, at which point recovery through the tax system commences (along the lines of the Higher Education Contribution Scheme). However, the person may choose to make repayments earlier, whether within the period of the contract, or after that period but before repayments must commence. If the financial supplement debt is repaid in full within the period of the contract, the person has to pay only 85% of the debt.

Part 1 - Amendments commencing on Royal Assent

New section 19AB - Student financial supplement definitions

Item 2 sets up a new section 19AB containing the definitions used in new Chapter 2B, which is substituted by item 6 .

The definitions contained in new subsection 19AB(2) are generally drawn from the Dictionary at the end of the Financial Supplement Scheme.

New subsections 19AB(3) and (4) define a persons austudy payment general rate and youth allowance general rate respectively. Under the former AUSTUDY, the living allowance formed the basis of financial supplement eligibility, and amounts such as pharmaceutical allowance were paid as separate components. However, for youth allowance and austudy payment, the separate components (pharmaceutical allowance, remote area allowance and, for youth allowance, rent assistance) are included in a persons rate of payment along with the maximum basic rate, which is the social security equivalent of the living allowance. Therefore, to achieve the AUSTUDY effect, those components are notionally excluded from the persons rate for the purposes of financial supplement eligibility.

Accordingly, a persons youth allowance or austudy payment general rate is the rate that would be payable to the person if no amount were included under the Rate Calculator as one of the separate components. This rule will apply in working out the persons eligibility to obtain financial supplement under Division 2 and in working out the maximum amount available under Division 6.

New subsection 19AB(5) makes it clear that the question of whether a person is intending to undertake a course or undertaking a course is to be worked out as far as possible as it would be under section 541B in working out whether a person is undertaking study.

New Chapter 2B - Student Financial Supplement Scheme

Item 6 repeals the old Chapter 2B, under which the Financial Supplement Scheme was made, and substitutes a new Chapter 2B. Accordingly, the Scheme will lapse and will be replaced with the substantive provisions contained in the new Chapter.

Part 2B.1 - Establishment of scheme

Division 1 - Preliminary

This Division records that the object of the Chapter is to establish a Student Financial Supplement Scheme and outlines the provisions of the scheme.

Division 2 - Eligibility to obtain financial supplement

This Division sets down the eligibility criteria for a person to obtain financial supplement for the persons eligibility period.

First, the person must be undertaking or intending to undertake a tertiary course at an educational institutional throughout the eligibility period.

Second, the person must not also at that time be undertaking a primary or secondary course.

Third, the person must fall within the description of either a category 1 student or a category 2 student in respect of the eligibility period. A category 1 student is a person to whom either youth allowance, austudy payment or pensioner education supplement is payable throughout the eligibility period. For youth allowance and austudy payment, the concept of payable means payable at a notional general rate described in new subsection 19AB(3) or (4) of more than zero (if the allowance or payment were payable at a rate that constituted only one or more of the additional payment components, then this would not be sufficient for financial supplement eligibility). Furthermore, for youth allowance, it must be payable because the person is undertaking full-time study (this excludes people who are receiving youth allowance on other grounds).

A category 2 student is a person to whom youth allowance is not payable, but would be payable if not for the operation of either the parental income test or the family actual means test. Furthermore, the persons combined parental income under the Youth Allowance Rate Calculator, or the persons family actual means under the Social Security (Family Actual Means Test) Regulations 1998, as applicable, must be less than the threshold amount. The threshold amount is worked out in a similar way to the parental income free area (although starting with a much higher basic amount of $54,949, subject to indexation) and is increased by additional amounts for any children in the family other than the category 2 student. Also, the person must be undertaking full-time study.

The fourth eligibility criterion is that the amount of financial supplement that the person is eligible to obtain for the year (ie, the calendar year that is or includes the eligibility period) is not less than the minimum amount prescribed in new Division 6 ($500). Thus, a person who changes status from category 1 to category 2 part way through the year will not have to achieve $500 worth of eligibility all over again in the new category, but may build on the credit of the category 1 eligibility.

Under this Division, a person who is a category 2 student must also, to be eligible, satisfy the standard Social Security Act provisions that relate to a request for a tax file number in respect of the person or a parent. Category 1 students, including those with partners, are already covered by the standard tax file number requirements under their substantive student payment.

Division 3 - Decision and notice about eligibility to obtain financial supplement

This Division explains how a finding that a person is eligible to obtain financial supplement is given effect.

There is no claim as such for financial supplement. The process commences with a claim by the person for one of the three target substantive payments (youth allowance, austudy payment and pensioner education supplement). In the process of determining that claim, the Secretary will also decide whether the person is eligible to obtain financial supplement for the eligibility period, whether as a category 1 student or a category 2 student.

Furthermore, the Secretary must make a new decision about the eligibility of a person who is continuing his or her tertiary course into a new calendar year.

If the decision in either case is that the person is eligible, the Secretary must give the person a supplement entitlement notice to that effect. The notice must include a statement of the minimum and maximum amounts that the person may obtain.

If a decision that a person is eligible, or that certain minimum or maximum amounts apply, is varied or revoked under the review of decisions provisions of the Social Security Act after the person has been given a supplement entitlement notice, then that notice is also revoked and may not be used to apply for financial supplement. Similarly, a decision about a persons eligibility, or amounts, must lead to the Secretary giving the person a statement to that effect and, if appropriate, a new supplement entitlement notice, including the amounts available.

This Division includes a transitional rule to make it clear that, if a person held a supplement eligibility notice under the Financial Supplement and had not used the notice to apply for financial supplement, then the notice is taken to be a supplement entitlement notice under this instrument and the person is eligible under this instrument. Also, whether or not the notice had been used in an application, it is taken to be a supplement entitlement notice given under this Division.

Division 4 - Agreements between Commonwealth and financial corporations

This Division makes it clear that financial supplement is available to a person only from a financial corporation that has entered into an agreement with the Commonwealth to pay the supplement in accordance with this instrument. Having entered into such an agreement, the corporation will be a participating corporation for new Chapter 2B. The Division lays down certain formal rules for the agreement. A special rule is included to make sure that any financial supplement contract entered into under an agreement under the Financial Supplement Scheme remains valid despite the change in arrangements.

Division 5 - Application for financial supplement

This Division establishes how and when to apply for financial supplement. A person who is eligible to obtain financial supplement may apply to a participating financial corporation during the persons eligibility period.

The only way of applying for financial supplement is by completing an application form approved by the Secretary (which will be available from the participating corporation) and lodging the form with the supplement entitlement notice at a branch office of the corporation.

Once a person has applied for financial supplement of a particular amount, he or she may lodge another application to increase or decrease the amount of financial supplement obtained (within the limits of his or her minimum and maximum amounts).

Division 6 - Amount of financial supplement

Subdivision A - Category 1 students

This Subdivision sets down the maximum amount of financial supplement available to an eligible person who is a category 1 student.

If the person has an eligibility period of one year, the maximum amount is either $7,000 or a proportion of that amount worked out as specified, whichever is less.

The proportional amount is worked out by establishing the total amount of the persons substantive payment (based on the youth allowance or austudy payment general rate if applicable) that would be payable for the eligibility period if no financial supplement were to be sought. Then certain amounts are deducted: any amount of advance payment deductions to be made in the period; any amount of overpayments recoverable for the period; any amount of compulsory tax deductions to be made for the period; and any amount of the substantive payment already paid to the person for the period. The result of this equation is then doubled (since the amount of financial supplement available is double the amount by which a persons payment is to be reduced) and rounded up to the nearest dollar.

Before applying this calculation, it is necessary to work out the persons eligibility period. This is the period for which the person satisfies the eligibility criteria (see Division 2), ie, generally, the period for which the substantive payment is payable and the study requirement satisfied.

If the persons eligibility period is less than one year, then the maximum amount of financial supplement is the lesser of the proportional amount worked out as above and an amount worked out as a proportion of the $7,000 relative to the length of the persons eligibility period.

Subdivision B - Category 2 students

This Subdivision sets down the maximum amount of financial supplement available to an eligible person who is a category 2 student.

If the person is not undertaking, or intending to undertake, a short course, and has an eligibility period of one year, the maximum amount of financial supplement is $2,000.

If the person is undertaking, or intending to undertake, a short course, or if the person is not undertaking, or intending to undertake, a short course and has an eligibility period of less than a year, then the maximum amount of financial supplement is the amount worked out as a proportion of the $2,000 relative to the length of the persons eligibility period.

Once again, as for a category 1 student, it is first necessary to work out the persons eligibility period. This is generally the period for which the person satisfies the eligibility criteria (see Division 2), ie, generally, the period for which the substantive payment is payable and the study requirement satisfied.

However, for a category 2 student who is not undertaking, or intending to undertake, a short course, a different, shorter eligibility period will be used if the person applied for financial supplement after 31 May in a year but before 1 October. Consistently, an even shorter eligibility period will be used if the person applied on or after 1 October. However, in each case, the Secretary may decide not to change the original eligibility period if satisfied that the person took reasonable steps to apply within 4 weeks of being given a supplement entitlement notice, but could not do so for reasons beyond his or her control, and applied as soon as possible after that.

A category 2 student who is undertaking, or intending to undertake, a short course has a similar modification imposed, although it is imposed if the person applied for financial supplement more than 4 weeks after being given the supplement entitlement notice and after the usual eligibility period would have started. The Secretary has the same discretion to waive this rule.

Subdivision C - Provisions applying to both category 1 and category 2 students

The minimum amount of financial supplement in respect of a person is $500. In keeping with Division 2, this figure applies to a person in respect of any tertiary study undertaken during the year, whether in category 1 or category 2. If the persons eligible amount is not at least $500 overall, then the person is not eligible for financial supplement.

Also under this Subdivision, if a person undertakes, or intends to undertake, more than one tertiary course in the same period in a year, the persons maximum amount of financial supplement is the maximum amount worked out under the Division for one of the courses.

Division 7 - Trading in youth allowance, austudy payment or pensioner education supplement for financial supplement

Financial supplement is generally made available to a person in exchange for a reduction in the rate of the persons substantive payment. This is called trading in the payment.

This Division provides that the amount by which the persons rate of payment is reduced is half the amount of financial supplement paid for the same instalment period.

Because a category 2 student does not have a substantive payment to trade in, this Part applies only to category 1 students.

Division 8 - Obtaining or increasing financial supplement by trading back youth allowance, austudy payment or pensioner education supplement

This Division provides for a person who is eligible to obtain financial supplement to repay some or all of the substantive payment already paid to the person, in order to obtain, or to obtain a higher amount of, financial supplement. This is called trading back the payment.

Once again, since a category 2 student will not have been paid any substantive payment that could be traded back, this Part applies only to category 1 students. It is quite likely that such a student will both trade in future payments under Division 7 and trade back past payments under this Division to obtain the required amount of financial supplement.

The payment that may be traded back must have been payable to the person originally during the payment period (ie, the period 1 January to 31 May in a year or the period 1 July to 30 September in a year). The trade back, for a person who is not currently obtaining financial supplement, must generally also be made within that payment period, although it may be made after that period if the person took reasonable steps to make it on time but could not do so for reasons beyond his or her control and makes it as soon as practicable after the period and within the year.

If an amount is traded back, it is taken never to have been paid to the person. This ensures that the amount of financial supplement calculated under Division 6 to be available to the person is not limited by the original payment of the amount. In effect, the person is put in the same position as a person who is only trading in his or her payment.

However, it is made clear that trade back does not affect the operation of the debt recovery provisions of the Social Security Act in respect of the substantive payment.

Division 9 - Financial supplement contracts

This Division describes the legal relationship between the participating corporation and the person.

If a person who is eligible to obtain financial supplement applies to the corporation under Division 5 for the supplement, the corporation must accept the application in writing - this forms the contract. A special transitional rule ensures that contracts entered into under the former AUSTUDY arrangements or under the Financial Supplement Scheme remain valid and are covered by the new provisions.

There are certain requirements that the contract must meet. It must: be for the making of a loan under this Division; be for the amount for which the person asks (within the limits of his or her entitlement); allow but not compel early repayments; and name a termination date (which is the last day of the contract period, which in turn is the period starting when the contract is made and ending on 31 May in the fifth year after the year in which the contract was made).

This Division gives the corporation the right to rely on advice given by the Commonwealth so that any amount paid by the corporation under the contract on the basis of advice from the Commonwealth constitutes financial supplement, regardless of the persons actual eligibility or otherwise. However, Part 2B.2 (which authorises the early recovery of certain amounts if there has been a specified contravention of the rules, or similar) may override this.

The Division also deals with the relationship between the contract and certain other laws (eg, relating to bankruptcy). It also makes it clear that the contract is valid on its own terms regardless of the persons not having been eligible to obtain financial supplement when the contract was made, or later becoming ineligible. However, Part 2B.2 may have certain related effects in some of these cases.

The Division also includes provisions relating to the cooling off period under the scheme.

A person has a right to cancel a financial supplement contract if he or she lodges written notice to this effect at a branch office of the corporation, within 14 days of the contracts having been made. Generally, the corporation is not to make any payments to the person within the cooling off period. However, if it does so, or if it makes any payments after the period and if the person has exercised the right to cancel the contract, then the payments are taken not to be financial supplement if repaid within 7 days by the person. Otherwise, the payments will proceed to eventual recovery through the usual five or so year process.

Alternatively, the person may waive the right to cancel the contract by specified written notice given to the corporation immediately after the contract is made.

The last rules in this Division are that State or Territory credit type laws do not apply to a financial supplement contract, and that the contract or application is generally not affected by State or Territory tax laws.

Division 10 - Payment of financial supplement

This Division comprises machinery provisions about the payment of financial supplement, modelled on sections 559A and 559C to 559F of the Social Security Act for youth allowance.

Financial supplement is to be paid by instalments for periods, and at times, determined by the Secretary. An instalment is to be rounded off as described. Then, it is to be paid to the person specified. For a category 1 student, this will be to whomever the young persons substantive payment is, or was, being paid. Generally, this will be the young person himself or herself. However, for non-independent under 18 year old youth allowance recipients, this will usually be the young persons parent. Alternatively, the Secretary might have decided to make the payment to someone else on the young persons behalf.

Financial supplement for a category 2 student is to be paid to the person to whom the young persons youth allowance would have been paid had youth allowance been payable.

However, even if the payments of financial supplement are made to someone other than the young person, the liability eventually to make repayments under the scheme will still be the young persons.

Financial supplement is to be paid into a bank account nominated and maintained by the person to whom it is to be paid.

Division 11 - Protection of financial supplement

This Division constitutes relevant equivalents of youth allowance sections 560 and 560A.

It is made clear that financial supplement, in common with social security payments, is absolutely inalienable.

Also, a certain protection from garnishment is given to financial supplement paid into an account. The amount protected is, in keeping with the usual social security payment arrangement, the amount of financial supplement paid into the account within the 4 weeks before the order came into force, minus any amount withdrawn from the account in that time.

Division 12 - Obligations of category 2 students

Subdivision A - Statements about tax file numbers

This Subdivision provides the standard social security tax file number provisions under which the Secretary may request a person who is obtaining financial supplement to give a statement of the persons or the parents tax file number.

As indicated under Division 2 above, these provisions are applicable only to category 2 students because category 1 students are already subject to such rules under their substantive payments. It should also be noted that, apart from a category 2 students own TFN, it would be relevant to the Commonwealth to seek the TFN of only the students parent and not his or her partner - a category 2 student will never have a partner because he or she must be precluded from youth allowance on the basis of the parental income test or the family actual means test, and this can only happen if he or she is not independent; having a partner would make him or her independent.

Subdivision B - Notice of events or changes in circumstances

On a similar basis to Subdivision A, it is necessary to provide the standard social security range of information gathering powers for category 2 students only. Category 1 students will already be adequately covered by the equivalent provisions for their substantive payments, since the factors that govern financial supplement eligibility and entitlement are the same as those that govern the payment of their substantive payments.

Accordingly, this Subdivision provides for the Secretary to give a category 2 student a notice that requires the person to notify a stated event or change of circumstances, or to notify becoming aware that such an event or change is likely to happen (this is the recipient notification notice).

Similarly, a notice may be given to the person requiring a statement about a matter that might affect the payment of financial supplement (the recipient statement notice).

These provisions are based on sections 561B and 561C of the Social Security Act for youth allowance.

Division 13 - Early repayments of financial supplement

The rules for this Division are taken from Part 13 of the Financial Supplement Scheme. They provide for a person to make voluntary repayments of financial supplement before the end of the contract period. If the person takes up this option, there are certain discounts given on the total debt.

The first part of the process is to calculate the amount outstanding under the contract at any particular time. This is basically done by adding together the amount of the repayments and the discounts and subtracting the result from the principal sum. After the first year, the effect of indexation on the debt is built into the equation.

The person must be given each 1 June a notice recording what the amount outstanding is at that date.

Should the person accidentally pay more than the amount outstanding, the balance must be repaid by the corporation to the person.

There is provision to work out the amount to be repaid by the person, taking into account the amount repaid, the discount and the effects of indexation.

The discount is worked out using two separate formulae which provide a lower rate of discount if less than the full amount outstanding is repaid, and a higher rate if the full amount is repaid.

If the whole debt is repaid in this way, the corporations rights and liabilities are transferred to the Commonwealth immediately after the repayment. Otherwise, the standard end of contract arrangements apply which are also provided by this Division.

These are that, at the end of the contract period, the Commonwealth assumes the corporations rights under the contract and pays to the corporation any outstanding amount of the principal sum. The Commonwealth then proceeds with the recovery process directly with the person. A termination notice is to be given to the person, stating certain formal matters, including what FS debt or FS debts the person now owes to the Commonwealth, that the person is entitled to make repayments of those amounts at any time and that any balance will be recovered through the taxation system.

Since the notice forms the basis of the recovery of the debt, it is important, and provisions are made, to ensure that both parties agree about the details.

Part 2B.2 - Payments of financial supplement under scheme to stop in certain circumstances

This extensive Part is taken from Part 14 of the Financial Supplement Scheme. Ordinarily, payments of financial supplement will continue during the course of the contract and recovery will occur some five years or more into the future. However, this Part deals with when payments of financial supplement should stop during the course of the contract and when payments should be subject to immediate recovery action.

There are five circumstances in which payments should stop. The corporation will be bound in accordance with its agreement with the Commonwealth to stop making payments accordingly.

Then there are certain further provisions, in respect of three of these cessation provisions, which call for recovery of certain amounts paid. These recovery provisions will operate if there has been some kind of contravention (either a failure to comply with an information gathering notice or the provision of false or misleading information) that had caused payments to be made, or to be made for too high an amount.

The three Divisions that contain recovery provisions, and the recovery provisions that they contain, are:

Division 2 - Payments to stop if the maximum amount of financial supplement is reduced to the amount already paid or a lesser amount

Subdivision A - Notice that payments are to stop

Subdivision B - Original amount paid because person failed to notify change of circumstances

Subdivision C - Original amount paid because of false or misleading information

Division 3 - Payments to stop if person ceases to be eligible to obtain financial supplement

Subdivision A - Notice that payments are to stop

Subdivision B - Financial supplement paid because person failed to notify change of circumstances

Division 4 - Payments to stop if person is found never to have been eligible for financial supplement

Subdivision A - Notice that payments are to stop

Subdivision B - Financial supplement paid because of false or misleading information

In each of the discrete circumstances addressed by these three Divisions, the process is similar. First, the Secretary must give the person and the corporation a notice about stopping the payments. The corporation is discharged from having to make further payments but, if it should continue to make payments, the payments are taken not to be financial supplement and are recoverable between the person and the corporation. In the normal course of events, the FS debt will be recovered eventually through the tax system.

However, should one of the recovery provisions operate because of a specified contravention (including under the Financial Supplement Scheme mentioned by the special transitional rules), then a further notice must be given to the person and the corporation. The effect of this second notice is that the Commonwealth assumes the corporations rights under the contract, the Commonwealth must pay to the corporation the amount of financial supplement paid that is attributable to the contravention (in the case of Division 4, this is the whole amount of financial supplement paid), and the person becomes liable to the Commonwealth for that amount plus interest. Any remaining legitimate FS debt will be recovered in the usual longer term way.

In addition, there are two provisions to stop the payment of financial supplement, but where recovery provisions are not appropriate - these apply when the person asks for the payments to stop and when the person dies.

In the first of these two cases, the person may simply give a notice to the corporation in order to stop the payments and the corporation is discharged from having to make any further payments (although, as above, if it does so, it may recover the amounts directly from the person).

In the second case, the Secretary must give notice to the corporation if he or she becomes aware that the person has died. The corporations liability to make further payments is discharged as usual and any excess payments are recoverable by it from the persons estate. The Commonwealth assumes the corporations rights and, in return, must pay the corporation a representative amount. Lastly, the liability of the person under the contract is discharged.

Part 2B.3 - Repayment of financial supplement through taxation system after termination date

This Part is based on Part 15 of the Financial Supplement Scheme. It provides for the recovery through the tax system of a persons financial supplement debt at the end of 4 years beginning on 1 June in the year following the year the contract was made.

Division 2 establishes what an FS debt and an accumulated FS debt are. An FS debt is the outstanding amount at the termination date, indexed as applicable. An accumulated FS debt is incurred on 1 June in a year if the person had or has an FS debt, or FS debts, at that date that was/is not, or did/do not include, an FS debt that existed on the previous 1 June. If the person had or has an FS debt on 1 June that did/does include a previous FS debt, then the accumulated FS debt is incurred on the later 1 June.

Division 3 requires the Secretary to give notice to the Commissioner of Taxation, as soon as practicable after a termination date, about a person who has an FS debt. The information contained in the notice will allow the Commissioner to proceed with the recovery of the debt through the tax system. The notice must be updated if believed not to be correct in any way and the Secretary must give a written certificate further to the information required in the statement if the Commissioner so requires.

Division 4 continues the option available throughout the scheme for a person to make voluntary payments to reduce the debt. However, by this stage, the payments must be made to the Commissioner.

Division 5 sets down in detail when and by how much a person must make payments to reduce his or her debt. It is compulsory for the person to make such payments only if his or her taxable income for a tax year is more than the minimum prescribed amount ($29,307 for the year ending 30 June 1998 and indexed by AWE for subsequent years) and if the person had an accumulated FS debt on 1 June immediately before his or her income is assessed for that tax year.

The amount required to be repaid is 2% of taxable income if the persons income is no more than the intermediate prescribed amount for that year ($33,305 for the year ending 30 June 1998 and indexed by AWE for subsequent years). The amount required is 3% if taxable income is more than the intermediate amount but not more than the maximum prescribed amount ($46,629 for the year ending 30 June 1998 and also indexed for subsequent years). The amount required is 4% if taxable income is more than the maximum prescribed amount.

Division 6 records the application of certain pieces of related taxation legislation. It is these pieces of legislation that provide the process of recovery. Division 7 gives the Commissioner the power to make assessments for the purposes of this Part and to serve notice about these assessments along with a persons normal income assessment notice. Division 8 sets down the powers of the Commissioner to delay making an assessment under this Part, or amend an assessment, in response to a written application by a person, if hardship would otherwise be caused to the person, or for other special reasons. There are also formal notice and review requirements attached to decisions under Division 8. Division 9 provides that there is an avenue of appeal to the Administrative Appeals Tribunal in relation to a decision of the Commissioner.

Division 10 records that financial supplement payments are generally not taxable, although the corporation may be liable to taxation for certain amounts paid to it under this instrument. Other formal matters are dealt with, including to make it clear that the death of a person who owes a debt, other than an FS assessment debt, under this Part discharges the debt.

Part 2B.4 - Miscellaneous

This Part deals with general matters, namely: how the Bankruptcy Act 1966 applies; how the setting aside or variation of a decision under Chapter 6 of the Social Security Act affects this instrument; that there is a general requirement to give written notice when the rights of a participating financial corporation are transferred to the Commonwealth and that such a transfer or anything else done under the instrument is not subject to State or Territory tax.

Item 3 provides a new definition of financial supplement so that provisions in the new Chapter and elsewhere in the Social Security Act operate correctly in view of the transition between the Financial Supplement Scheme and the new Chapter.

Items 4 and 5 make minor consequential amendments to reflect the new category 2 student information gathering provisions in the definitions of recipient notification notice and recipient statement notice in subsection 23(1).

Item 7 inserts a new section 1361A relating to the status as evidentiary certificates of certain documents relating to financial supplement (in line with subsection 51(2) of the Student Assistance Act 1973 for the identical student financial supplement scheme that operates in that Act).

Part 2 - Amendments commencing on 1 July 1999

Part 2 of the Schedule makes minor amendments commencing on 1 July 1999 to reflect the changes made by the Social Security and Veterans Affairs Legislation Amendment (Payment Processing) Act 1998 . Those changes introduced a 14 day fortnight basis (instead of 10 day) for social security payments. The same change needs to be reflected for financial supplement so that, in working out the maximum amount that a person is eligible to obtain, the correct result is achieved. Accordingly, the current weekday basis to the calculation is to be eliminated.

5. Commencement

This Schedule will commence on Royal Assent, except for the amendments made by Part 2, which will commence on 1 July 1999.