Further policy issues raised by officails
Issue: Orders that can be made
Submission
Proposed section 106(1) of the Act should be amended to allow a court to either vary specific components of the formula, the liability produced by the formula by a certain amount, or alternatively, set another child support liability.
Comment
Proposed section 106(1) sets out the orders that a court may make following an application under section 104 seeking a departure from a formula assessment.
The proposed section allows the court to make an order varying any component, or the application of any component, of an assessment of child support under a formula assessment.
Officials recommend that this section be expanded, given the complexity of the proposed formula and the fact that it may be difficult for the courts to work out specifically what components of the formula should best be varied to achieve an intended result. The proposed change will allow a court to:
- vary any of the following components of the formula:
- adjusted taxable income;
- living allowance;
- dependent child allowance;
- child support income;
- child expenditure amount.
- vary the liability produced by the formula by a certain amount; or
- set a new, alternative, child support liability.
Recommendation
That the submission be accepted.
Issue: Entitlement of parents to be a receiving carer
Submission
Although care should still be recognised for formula calculations when care by a parent is between 28 and 34 percent, a carer should not be able to be a receiving carer until their care levels reach 35 percent or more.
Comment
A receiving carer is defined in proposed section 2 of the bill as a carer of a child in respect of whom child support payments are payable under the Child Support Act by a liable parent.
Proposed new section 17(b) states that a parent carer whose income percentage is less than their care cost percentage is a receiving carer. Proposed section 17(c) states that a non-parent carer who provides at least 28 percent of care is a receiving carer.
The effect is that it is possible to have up to three receiving carers entitled to child support. However, it also means that it is possible, in certain specific circumstances (for example, when there is a wide disparity in income between parents) for a parent who has only 28 percent of care to be entitled to receive child support from another parent who has the remaining 72 percent of care. This appears to overly compensate the parent who is not the main caregiver in such circumstances.
Officials therefore recommend that, although care should still be recognised for formula calculations when care by a parent is between 28 and 34 percent, a carer should not be able to be a receiving carer until their care levels reach 35 percent or more. This is consistent with the approach taken in Australia, which has a formula similar to the proposed new formula in the bill.
Recommendation
That the submission be accepted.
Issue: Social security beneficiaries must apply for a formula assessment
Submission
New section 9 and other relevant sections in the Child Support Act should be amended to clarify when a social security beneficiary must apply for a formula assessment.
Comment
New section 9 proposed in the bill states that a social security beneficiary who provides at least 28 percent of care and does not have an existing child support arrangement with or involving all the liable parents of the child must apply for a formula assessment in relation to every parent of the child. A "child support arrangement" is not, however, defined in the bill or the Child Support Act.
The intention of this part of the provision is to remove the need for a person going onto a benefit from having to reapply for a formula assessment when a formula assessment, voluntary agreement or court order was already being administered by the Commissioner of Inland Revenue.
The following potential problems arise with the current wording:
- It is not clear whether private agreements not administered by the Commissioner of Inland Revenue are included within a “child support arrangement”.
- Voluntary agreement administered by the Commissioner of Inland Revenue for amounts in excess of the formula outcome may be replaced.
- If an application for a formula assessment is made when an existing overseas court order is being administered by the Commissioner of Inland Revenue, a dual liability would be generated.
Officials recommend the bill should be amended to clarify that private arrangements should be excluded from the meaning of “child support arrangement” in this context. Further, it should be made clear in the Child Support Act that any such agreement should be administered by the Commissioner of Inland Revenue in relation to the liable parents of the child.
Officials also recommend that the Child Support Act be amended to clarify that voluntary agreements administered by the Commissioner of Inland Revenue for amounts in excess of the formula outcome can be used instead of a formula assessment. In such cases, however, the Crown recapture of the benefit element should remain in place.
The current section 71 of the Child Support Act should be amended to provide that an overseas order is suspended, from the date a formula assessment commences in respect of the same parties and children until the date the receiving parent ceases to be a social security beneficiary. This will ensure consistency between domestic and overseas parents, when the receiving parent is a New Zealand beneficiary.
Recommendation
That the submission be accepted.
Issue: Form of application – third-party carers
Submission
Proposed new section 10 should be amended to require applications from third-party carers to be made against all the parents of the child, unless there are specific circumstances not to.
Comment
Officials recommend that proposed new section 10 should be amended to require applications from third-party carers to be made against all the parents of the child, unless there are specific circumstances not to. This ensures that all of the parents’ income is taken into account when calculating their liabilities. For existing third-party carers who are part of the child support scheme currently, this application should be deemed to have been made (on the basis of information available to the Commissioner of Inland Revenue).
If carers do not wish to receive entitlements from a parent, however, this should not be enforced. Accordingly, existing section 180 of the Child Support Act should be amended to allow for a revocable uplift of future entitlements.
Where exceptional circumstances exist whereby third-party carers will not want to apply against all the parents – for example, if there is risk of domestic violence or if Child Youth and Family considers it inappropriate to apply against the other parent, the carer should not be required to apply against both parents. Inland Revenue will publish guidelines and examples on when such circumstances may arise.
Recommendation
That the submission be accepted.
Issue: Identity information required
Submission
Consideration should be given to amending the type of identity information that can be disclosed to Inland Revenue under schedule 1A of the Births, Deaths, Marriages and Relationships Regulations Act 1995.
Comment
Schedule 1A of the Births, Deaths, Marriages and Relationships Regulations Act 1995 lists what information can be disclosed by the Department of Internal Affairs to specified agencies. The following table shows the information (and its purpose) that is currently disclosed to Inland Revenue:
| The type of information that can be disclosed to: | Purpose | |
| IRD | Birth information, marriage information, civil union information, and name change | To verify the identity of a person to establish— (a) the tax file number of the person: (b) the details of an applicant for child support |
| IRD | Death information | To identify deceased taxpayers and verify their details |
Officials recommend that the type of information that can be disclosed by the Department of Internal Affairs be widened for child support purposes, to also include:
- the parentage and dates of birth of qualifying children and dependent children; and
- death information for qualifying children and dependent children.
This will allow the Commissioner of Inland Revenue to confirm the identity of children for which child support or a dependent children deduction are being claimed (and their relationship to the parties claiming the deduction). From an administrative and compliance point of view this is much simpler, for both Inland Revenue and parents, than contacting parents individually and requiring that they provide such information directly.
The Department of Internal Affairs has been consulted and agrees with this submission.
Recommendation
That the submission be accepted.
Issue: Dependent child allowance
Submission
Proposed new section 35(2) should be amended to ensure that the formula is calculated on the basis of the number of dependent children the parent maintains as a member of their family.
Comment
Proposed new section 35 sets out the dependent child allowance that a parent is entitled to. It provides for the dependent child allowance to be calculated for each child in the dependent child’s child support group. The policy intent was for it to be calculated on the basis of the number of dependent children the parent is responsible for, which can be wider than just children with the same biological parents. For example, the definition of “dependent child” includes an adopted child.
Officials therefore recommend that proposed new section 35(2) be amended to ensure that all other dependent children that a parent maintains as a member of their family are taken into account in the dependent child allowance calculation.
Recommendation
That the submission be accepted.
Issue: Child support income amount
Submission
Proposed new section 32(2), which sets out child support income when the adjusted taxable income of the parent cannot reasonably be ascertained, be removed to allow for the use of existing default provisions.
Comment
Proposed new section 32 sets out how a person’s child support income amount for a child is determined. Subsection 2 states that if the adjusted taxable income of a parent cannot reasonably be ascertained, then:
- if one parent’s adjusted taxable income is known, that is also used for the other parent; and
- if there is more than one parent whose adjusted taxable income is known, an average is used.
The effect is that existing default assessments could only be used when both parents’ income cannot reasonably be ascertained. Officials recommend that the existing default assessment process used to find an appropriate income to assess a parent is preferable to the proposed provision in new section 32(2).
It is also recommended, however, that the provisions in new section 32(2) are retained as a fall-back if the Commissioner of Inland Revenue is satisfied that there are exceptional circumstances that dictate that the existing default assessment process should not be used.
Recommendation
That the submission be accepted.
Issue: Estimation provisions
Submission
As existing estimation provisions in the bill or Child Support Act do not adequately deal with the fact that the new formula takes into account both parents’ income (and therefore both parents can now estimate their income), new updated estimation provisions should be included in the bill.
Comment
Proposed new section 41, together with other existing provisions in the Child Support Act relating to elections that can be made for child support income to be based on estimated taxable income for the current year (as compared with the lagged income used in the formula), do not adequately deal with the new formula. In particular, the new formula now takes into account both parents’ income, so therefore both parents can now estimate their income. It is also now potentially possible for liable parents to become receiving carers, and vice versa, depending on their respective incomes.
Estimation provisions should ideally apply for those periods after re-estimates of income have been made, to encourage timely re-estimates and remove the possibility of debt arising on the receiving carer. The current provisions require a re-assessment of the whole year which can mean a receiving parent has a debt when the paying parent’s income has reduced significantly and the paying parent makes the reconciliation late in the year.
To address these issues, and other matters of consistency, officials recommend that the bill be amended to ensure that, for parents wishing to estimate their income based on current year information:
- Parents need to advise Inland Revenue of their income earned in the year-to-date at the time of their estimate. This information needs to be accurate as it will be used to determine if the estimate will be accepted, and for reconciliation purposes.
- The estimated figure for the balance of the year must be for the period from the 1st of the month of the estimation, through to the end of the child support year.
- The sum of the estimated figure and the year to date figure must be 85 percent or less of the lagged income to qualify for estimation purposes.
It is considered fairer to use the whole year’s income, rather than just income from the date the estimate takes effect to the end of the child support year, as for many people income streams can be uneven throughout the year.
Officials also recommend that income estimated for the balance of the year should be annualised in order to calculate remaining liabilities for the child support year being estimated.
For parents wanting to subsequently revoke an estimate, this should be permitted but doing so would revoke all previous estimates made during that year, with the result that a parent is assessed on the income that was used prior to the original estimate being accepted.
Parents who have estimated their income should continue to be able to have their child support liabilities reconciled to ensure that revised income levels are taken into account. However, this reconciliation should only occur for the future periods that the customer has estimated their income for, not for the whole year as is currently the case. This will help to ensure surety and consistency of payments for all parties.
It is recommended that underestimation penalties should apply to both liable parents and receiving parents who estimate their income, with the manner in which the penalty is charged being based on the parents’ own estimates. However, it should be clarified that additional late payment penalties will not be applied to underestimation penalties.
Recommendation
That the submissions be accepted.
Issue: Living allowance
Submission
Proposed new section 34, that sets out the living allowance that applies to every person’s child support income amount should be amended to allow for an increased allowance to be available to parents who are in receipt of an invalid’s benefit under section 40 of the Social Security Act 1964.
Comment
Proposed new section 34 sets out the living allowance that applies to every person’s child support income amount. Under this section, an increased allowance is made available for someone who is in receipt of a domestic purposes benefit payable to a person under section 27G of the Social Security Act 1964 because that person is caring at home for someone who is sick or infirm.
This increased allowance should also be available to parents who are in receipt of an invalid’s benefit under section 40 of the Social Security Act 1964, which is currently paid at the same rate.
Recommendation
That the submission be accepted.
Issue: Offsetting liabilities
Submission
A provision to allow offset of a liable parent’s current liability against entitlements already owing to them by a receiving carer should be included in the bill.
Comment
Currently, it is not possible to offset a liable parent’s current liability against entitlements already owing to them by the other parent. This can happen in both a domestic and international context.
For example, one parent may be owed a significant arrears of entitlement in respect of a child, but then incur a liability if the other parent now instead cares for that child. There is no ability, currently, to offset such liabilities.
Officials recommend that the bill include provision to allow offsetting in such circumstances, both for New Zealand domestic cases and also when the liabilities arise in countries that are subject to a reciprocal child support agreement with New Zealand.
Recommendation
That the submission be accepted.
Issue: Write-off when one party dies
Submission
Proposed new section 180A should be expanded to give the Commissioner of Inland Revenue the discretion to write off financial support owing when a receiving carer or liable parent dies.
Comment
Currently, the Commissioner of Inland Revenue cannot write off child support debt in circumstances when a liable parent or receiving carer is deceased. As a result, child support debts may remain payable in circumstances where repayment is extremely unlikely – for example:
- a liable parent has died with an insolvent estate; or
- a deceased payee is owed financial support from a liable parent who is considered unlikely ever to pay (for example, if they have permanently left New Zealand).
Under the current rules, such debts will remain payable indefinitely.
Officials therefore recommend that new section 180A be expanded to give the Commissioner of Inland Revenue the discretion to write off financial support owed when a receiving carer dies, or to write off the debts of a liable parent if the Commissioner of Inland Revenue is satisfied there are insufficient funds in the estate to satisfy the liability.
Recommendation
That the submission be accepted.
Issue: Payment arrangements and relief from incremental penalties
Submission
Section 135J of the bill should continue to apply to payment arrangements entered into on or after 1 April 2014.
Comment
The bill amends section 135J of the Child Support Act. This section gives the Commissioner of Inland Revenue the ability to provide relief from incremental penalties by writing them off when a payment agreement has been complied with during a review period. The bill proposes that this ability will no longer apply to payment arrangements entered into on or after 1 April 2014.
Officials recommend that this relief should continue to be available on or after 1 April 2014, in addition to the other penalty write-off provisions in the bill. Doing so will provide additional incentive for parents to continue to enter into and commit to payment agreements where they may not meet the criteria for write-off under serious hardship.
Recommendation
That the submission be accepted.
Issue: Overpayments to payees
Submission
Section 151(2) of the Child Support Act should be amended to make the charging of penalties arising from overpayments to payees discretionary.
Comment
Proposed new section 134C in the bill has the effect that if a payee has been overpaid child support, the Commissioner of Inland Revenue must assess the amount that is repayable and penalties will apply as if that amount was financial support and the payee was a liable person.
In many circumstances, receiving carer overpayments are outside a payee’s control. It is therefore, in many circumstances inappropriate for a payee to be charged penalties. Officials therefore recommend that section 151(2) of the Child Support Act should be amended to make the charging of such penalties discretionary, rather than compulsory as it is currently.
Recommendation
That the submission be accepted.
Issue: Qualifying payments
Submission
In order for the qualifying payments process to be made more effective and efficient, proposed sections 131 and 131A should be amended to extend the criteria for its use. This includes, for example, extending who can qualify and reducing certain limitations on when qualifying payments can be recognised.
Comment
Proposed new sections 131 and 131A provide for a new payment method for some of the child support for a child. It allows the Commissioner of Inland Revenue to provide recognition for qualifying payments made for a child’s benefit.
In the interests of making the process more effective and efficient, officials recommend sections 131 and 131A be amended to extend the criteria of its use – for example, extending who can qualify and reducing certain limitations on when qualifying payments can be recognised.
A number of mostly administrative changes to the way qualifying payments are to operate, in order to make this method of payments available to more parents who agree to its use, are recommended. These include the following main proposed changes (together with other associated consequential changes):
- Agreement should be in writing between a liable parent and a receiving carer (and not just between parents).
- Qualifying payment needs to be for 10 percent or more of their liability for the relevant child for the child support year at the time of the application.
- Agreement can be made at any time during a child support year, rather than only before.
- A qualifying payment will come into force in the month following the acceptance of application.
- Recognition will not be granted until the qualifying payments have been made.
- Payments need to have been made within the last 12 months.
- No parent or third-party carer of the child can have any child support debt, as a receiving carer or liable parent, at the time of application (however a debt caused by a reassessment, subsequent to acceptance of the application to recognise the qualifying payment, will not disqualify the payments from continuing to qualify).
- If a reassessment, subsequent to acceptance of the application to recognise the qualifying payment, causes the total qualifying payment to be less than 10 percent of the liability for the relevant child for the child support year, the total qualifying payment still qualifies (that is, the acceptance should not be revoked).
Officials also recommend that current section 206 of the Child Support Act, that concerns direct payments to payees, be amended to reflect the existence of qualifying payments.
Recommendation
That the submission be accepted.
Issue: Discretion to write off certain child support debt
Submission
Proposed new section 180A should be expanded to allow the Commissioner of Inland Revenue to write off some or all of the benefit component of an amount of child support that is payable if collecting it would represent an inefficient use of Inland Revenue’s resources.
Comment
Proposed new section 180A enables the Commissioner of Inland Revenue to write off some or all of the benefit component of an amount of child support that is payable by the liable person to the Crown if recovery would place the liable parent in serious hardship.
Officials recommend that this should be expanded to allow the Commissioner of Inland Revenue to also write off some or all of the benefit component if collecting it would represent an inefficient use of Inland Revenue’s resources.
Recommendation
That the submission be accepted.