7.3.3 Interest Charge on Debts
From 1 January 2017, an interest charge will be applied to outstanding social security, family assistance, student assistance and PPL payment debts of former recipients who have failed to enter into, or have not complied with, an acceptable payment arrangement.
An interest charge will be applied to a person's debt from the day after the debt is due and payable, i.e. on the 29th day after the date of the debt notice, where the outstanding debt has not been paid in full or the person has not entered into or is not complying with, a payment arrangement.
Exemptions apply where a person is in receipt of a social security or FTB payment. These recipients are required to repay their debts through deductions from their ongoing payments.
Exemption from interest charge
The following people are exempt from the interest charge:
- a person receiving a social security payment
- a person receiving instalments of FTB at a rate above nil
- a person receiving a veterans' pension or allowance
- a person receiving ABSTUDY instalments that includes living allowance
- a person receiving instalments under the Assistance for Isolated Children Scheme.
Exemptions are not available for those individuals with outstanding debts who only receive child care assistance and/or payments under the PPLAct. This is because automatic deductions are not able to be made from these payments to repay existing debts.
People on a nil rate of payment (e.g. families who defer their FTB payments) are not automatically exempt from the interest charge.
Centrelink has the discretion to determine that an interest charge is not payable in special circumstances. This may include (but is not limited to) where Centrelink is satisfied the person has a reasonable excuse for failing to enter into, or for failing to make a payment under, a payment arrangement.
Act reference: PPLAct section 178 Exemption from interest charge-general, section 179 Exemption from interest charge-Secretary's determination
An interest charge will not be applied to a debt where a person has, within 28 days of the date on the debt notice:
- paid the debt in full,
- continued to make payments under an existing payment arrangement (where one is in place), or
- contacted Centrelink to enter into an acceptable payment arrangement, made a payment under that arrangement and is continuing to comply with the arrangement.
The rate of the repayment instalment will be negotiated with Centrelink, and will be determined by the size of the debt and the time it would take to repay the debt as quickly as possible without causing severe financial hardship.
A debt may be written off for a specified period of time where recovery would result in the person being in severe financial hardship. The test for severe financial hardship is based on individual circumstances. The interest charge would not be applied during the period of the write-off.
Act reference: PPLAct section 190 Payment of debts by arrangement, section 193 When debts can be written off, section 174 Interest charge-no debt payment arrangement in effect
Failure to comply with a payment arrangement
Where a person has entered into a payment arrangement and fails to make a scheduled payment under that arrangement, the interest charge will be applied to the debt until:
- the debt is paid in full (including any interest charged), or
- any outstanding amounts due under the arrangement have been paid, or
- the arrangement is terminated by Centrelink.
Act reference: PPLAct section 175 Interest charge-failure to comply with or termination of debt payment arrangement
Termination of the payment arrangement
A payment arrangement may be terminated by Centrelink:
- at the person's request, or
- after giving 28 days' notice to the person of the proposed termination, or
- without notice, if Centrelink is satisfied that the person has failed to disclose material information about their true capacity to repay the debt.
Where a payment arrangement is terminated, to avoid the interest charge being applied to a person's debt/s, they will have 14 days to either repay the debt and any interest charged or enter into an acceptable payment arrangement, make a payment under that arrangement and continue to comply with the arrangement.
Act reference: PPLAct section 190 Payment of debts by arrangement, section 175 Interest charge-failure to comply with or termination of debt payment arrangement
Calculation of an interest charge
The rate of the interest charge is the 90‑day Bank Accepted Bill rate published by the Reserve Bank of Australia (Interest Rates and Yields - Money Market - Monthly - F1.1), plus an additional 7%, as is applied by the ATO for tax debts (General interest charge (GIC) rates). The interest charge will be updated quarterly.
The interest charge is compounded on a daily basis and is applied to the debt monthly, during the period that the debt remains unpaid or until an acceptable payment arrangement is entered into, a payment is made under that arrangement and the arrangement continues to be complied with.
Act reference: PPLAct section 177 What is the interest charge rate?