7.1.4 FA debts - interest charge on debts
An interest charge can be applied to outstanding social security, FA (1.1.F.02), student assistance, PPL payment debts of individuals (1.1.I.90) or CCS and ACCS debts (1.1.D.60) of approved providers (1.1.A.90) who have failed to enter into, or have not complied with, an acceptable payment arrangement.
An interest charge will be applied to an individual or approved provider 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 individual or approved provider has not entered into or is not complying with, a payment arrangement.
Exemptions apply where an individual remains in receipt of FTB by instalments or a social security payment. Debts for these individuals are recovered through deductions from their ongoing payments.
Exemption from interest charge
The following individuals are exempt from the interest charge:
- an individual receiving a social security payment
- an individual receiving instalments of FTB at a rate above nil
- an individual receiving a veterans' pension or allowance
- an individual receiving ABSTUDY instalments that includes living allowance
- an individual receiving instalments under the AIC 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.
Individuals 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 individual has a reasonable excuse for failing to enter into, or for failing to make a payment under, a payment arrangement.
Act reference: FA(Admin)Act section 78D Exemption from interest charge-general, section 78E Exemption from interest charge-Secretary's determination
An interest charge will not be applied to a debt where an individual or approved provider 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
- entered into an acceptable payment arrangement, made a payment under that arrangement and is continuing to comply with the arrangement.
For individuals, 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.
For approved providers, the rate of the repayment instalment will need to be negotiated with the Department of Education, Skills and Employment.
A debt may be written off for a specified period of time where recovery would result in an individual 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: FA(Admin)Act section 91 Arrangement for payment of debt by instalments, section 95 Secretary may write off debt, section 78 Interest charge-no repayment arrangement in effect
Failure to comply with a payment arrangement
Where an individual or approved provider 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 the appropriate department.
Act reference: FA(Admin)Act section 78A Interest charge-failure to comply with or termination of repayment arrangement
Termination of the payment arrangement
A payment arrangement for an individual may be terminated by Centrelink, or an approved provider by the Department of Education, Skills and Employment:
- at the debtor's request, or
- after giving 28 days' notice to the debtor of the proposed termination, or
- without notice, if the relevant department is satisfied that the debtor 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 debtor'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.
Centrelink has discretion not to terminate an arrangement at the request of an individual if Centrelink considers this appropriate.
Act reference: FA(Admin)Act section 91 Arrangement for payment of debt by instalments, section 78A Interest charge-failure to comply with or termination of repayment 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: FA(Admin)Act section 78C What is the interest charge rate?