Child support remedials

Issue:   Definition of income in the child support formula

Clause 14

Submission

(William Somerville)

Clause 14, which repeals section 35(1) to (5) of the Child Support Act 1991, should be deleted.  This would have the effect of preserving the reforms made in 2013, which included indirect sources of income in the child support formula.

Comment

The submitter has asked that the wider definition of “adjusted taxable income” be kept in the Child Support Act 1991 and used in the child support formula assessment.

“Adjusted taxable income” is used in the child support formula assessment to determine a parent’s child support income[7] and is defined in new section 35(1) as “taxable income with adjustments”. “Taxable income” is a defined term in the Income Tax Act 2007 and the adjustments include those set out in subpart MB when calculating family scheme income and Working for Families entitlements.  The adjustments include attributing income in trusts and close companies to the parent in proportion to their interest in those entities.

While the law change came into effect on 1 April 2015, section 35(2) of the Child Support Act 1991 states that for the first child support year only (1 April 2015 to 31 March 2016), “adjusted taxable income” is to be treated as if it were taxable income only.  The adjustments are to apply from 1 April 2016 onwards.

The bill seeks to amend the Child Support Act 1991 so that “adjusted taxable income” no longer includes those adjustments under subpart MB of the Income Tax Act 2007 that are used to calculate family scheme income.  The result would be that “adjusted taxable income” would now refer to taxable income for the relevant tax year that is adjusted by either inflation, based on a calendar-year of employment income if the parent only has income from which withholding tax applies, or as estimated by the parent.

A broader definition of “income” that includes adjustments in subpart MB could result in a fairer income measure and would reduce the need for parents to avail themselves of the departure[8] process.  However, the drawbacks would be:

  • potentially higher administration and compliance costs;
  • a high implementation cost to receive, store and use the income information; and
  • parents may not understand the wider definition.

Recent analysis of the size of the potential benefit of the change found a very limited number of child support parents are expected to be affected (less than 0.5 percent of possible parents).  However, all parents would be required to complete the disclosure forms.

Ultimately, the costs of implementing the change now outweigh any benefits derived from the broader definition of “income” for child support purposes.  However, the implementation costs are expected to be reduced following the Business transformation programme.

In the meantime, there are other avenues that might be available to parents should they wish for a broader definition of income to be taken into consideration in relation to their child support relationship.

Where the parents agree, and the receiving carer is not a social security beneficiary, the parents can agree to a private arrangement or to a voluntary agreement that reflects a broader definition of income.

Alternatively, a mechanism for parents to seek a change in their entitlement or payment outside of the formula is through the departure process.  The departure process provides an appropriate way of dealing with special situations when the formula set out in the Child Support Act produces an unfair result due to the income, earning capacity, property or financial resources of either of the parents or the qualifying child.  The approach enables each child support relationship to be scrutinised on an individual basis by an Administrative Review Officer or the Family Court, according to its merits, and then an order made that is just and equitable as for the child, the receiving carer and the liable parent.  The process can be initiated by a parent or by the Commissioner.

For the period 1 July 2012 to 30 June 2013, there were around 2,900 administrative reviews initiated by parents on grounds relating to income, earning capacity, property or financial resources.

Recommendation

That the submission be declined, but that a broader definition of income for use in the calculation of the child support formula will be reviewed again as part of the work Inland Revenue is undertaking on its Business transformation programme.


Issue:  Off-setting child support debt

Clause 41

Submission

(Matter raised by officials)

Section 106B(3)(c) of the Child Support Act should be changed so that it clarifies that offsetting child support debt through the departure process cannot apply when the liability has already been offset by virtue of repealed sections 34 and 35 of the Act (when parents have a current liability to each other because they both care for a different child of the relationship).

Officials further propose that section 106B(3)(c) be amended to clarify that when offsetting has previously taken place – for example, for a particular month – further offsetting in that month cannot apply, even if there are still amounts outstanding over and above what has been previously offset.

Comment

In order to still provide some ability to recognise situations when a person with a current liability is owed child support payments in the past from the other parent, the bill proposes that a new departure ground to the formula assessment be established in section 105(2) of the Child Support Act 1991.

Proposed section 106B(3)(c) in this bill clearly indicates that a departure for offsetting cannot apply if a child support liability has already been offset under section 152B (when parents have a current liability to each other because they both care for a different child of the relationship).

As offsetting under the new departure ground can affect assessments raised before the 2013 reforms, officials propose that section 106B(3)(c) be clarified to state that offsetting cannot apply when offsetting has taken place by virtue of repealed sections 34 and 35 of the Child Support Act.  These sections had been repealed and replaced by section 152B.

Officials further propose that section 106B(3)(c) be amended to clarify that when offsetting has previously taken place – for example, in relation to a particular month – further offsetting in that month cannot apply, even if there is a remaining liability in that month.  Applying an automatic section 152B offsetting and a section 105(2) offsetting in the same month is administratively complex.

Recommendation

That the submission be accepted.


Issue:   Objections to child support assessments

Clause 29

Submission

(Matter raised by officials)

To meet fairness requirements, receiving carers should be given the right to object to child support assessments from 1 April 2015 rather than the date of enactment of this bill.

Comment

The bill proposes to amend the Child Support Act to give receiving carers and other payees the same objection rights to an assessment as liable parents.[9]

Although the proposed amendment is to apply from the date of enactment, and therefore the right to object only becomes available to receiving carers after this date, liable parents can avail themselves of the objection right already as it is in existing law.

A person should be able to object to their assessment if their liability or entitlement has increased, decreased or has not changed (but a component within the formula has – for example, a new income amount has been used that does not affect the liability or entitlement amount but is otherwise objected to).  The legislation states that an objection has to be given within 28 days after the date on which notice of the decision or assessment objected to was given by the Commissioner.

The child support year beginning 1 April 2015 is the first year under the new formula assessment and a number of receiving carers have made objections.  To meet fairness requirements, and in recognition of the time restrictions for making objections, receiving carers should be given the right to object to child support assessments from 1 April 2015 rather than the date of enactment.  

Recommendation

That the submission be accepted.


Issue:   Commencement date for sole-parent students claiming benefit during university breaks

Clause 2

Submission

(Matter raised by officials)

To avoid a retrospective administrative change, there should be an alternative commencement date in relation to the proposed amendment to the definition of “social security beneficiary” in the bill.

Comment

The proposal is for an amendment to the definition of “social security beneficiary” in section 2 of the Child Support Act to exclude from the scope of that definition full-time students who are in receipt of jobseeker student hardship support between academic years.  The proposed change would allow sole–parent students who are on the student hardship benefit over the summer break to be treated as “off benefit” for child support purposes.  This will significantly simplify compliance costs for these students and remove a potential discouragement to continuing study.

While the proposed change is expected to come into force on the day after the date of enactment, it would apply to benefits granted on or after 1 October 2015.  When the bill was drafted, the rationale for a fixed future date was to provide the Ministry of Social Development time after the law had changed to make changes to the benefit data exchange between the Ministry and Inland Revenue.  However, it is possible that the bill will be enacted after this date.

Officials recommend that to avoid retrospective administrative changes, that the law change apply to benefits granted on or after the first day of the month following enactment.

Recommendation

That the submission be accepted.


Issue:   Definition of “child support debt”

Clause 61

Submission

(Matter raised by officials)

Officials recommend that the Child Support Amendment Act 2013 be amended to ensure that the legislation reflects the policy intent that the Commissioner may write off some or all of an amount of assessed child support and related penalties payable by:

  • the estate of a liable person if the liable person has died and the Commissioner is satisfied that the liable person’s estate is insufficient to pay the amount (section 180B);
  • a liable person if the receiving carer has died and the Commissioner is satisfied that the amount is likely to be unable to be recovered (section 180C).

Comment

The Child Support Amendment Act 2013 introduced sections 180B and 180C with the intention of enabling the Commissioner of Inland Revenue to write off assessment and penalty debt when either the liable parent or receiving carer in a child support relationship is deceased and the debt is uncollectable.  Both of these sections refer to writing off “child support debt”, although this term is not defined.

“Child support” is defined in section 2 of the Child Support Act 1991 to mean “any payment required to be made under this Act by any person towards the support of a qualifying child, whether under a formula assessment or a voluntary agreement or an order of the court”.  This definition clearly does not include penalties.

The use of the term “child support debt” in sections 180B and 180C of the Child Support Amendment Act 2013 could be interpreted as relating to assessment amounts only rather than these amounts and penalties as the policy intended.

If the legislation is not amended, situations could arise where penalty debt cannot be written off despite the fact that the Commissioner has determined that the debt is uncollectable and has already written off the associated assessment debt.  The remaining penalty debt would simply continue to accrue further penalties on a monthly basis unless the Commissioner could find some basis to write the debt off under an alternative provision at a later date.

Officials recommend that the Child Support Amendment Act 2013 be amended to ensure that the legislation reflects the policy intent that the Commissioner has the discretion to write off some or all of an amount of assessed child support and related penalties payable by:

  • the estate of a liable person, if the liable person has died and the Commissioner is satisfied that the liable person’s estate is insufficient to pay the amount (section 180B of the CSAA 2013 refers);
  • a liable person, if the receiving carer has died and the Commissioner is satisfied that the amount is likely to be unable to be recovered from the liable person (section 180C of the CSAA 2013 refers).

Recommendation

That the submission be accepted.

 

 

[7] Section 12 of the Child Support Amendment Act 2013 inserting new section 34 in the Child Support Act 1991.

[8] In certain circumstances, the Commissioner of Inland Revenue or the court may make an order allowing a departure from the formula assessment for calculating child support to reflect matters outside of the standard formula.

[9]“Payees” is a term that covers domestic maintenance as well as formula assessments but there is a need to specifically refer to receiving carers because some receiving carers are not “payees” as their entitlement is nil.