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Policy Changes

Writing off child support penalties and debt

(Clauses 29 to 42)

Summary of proposed amendments

The bill proposes changing the circumstances in which child support penalties can be written-off. These circumstances include when a paying parent enters into a payment arrangement or cases of serious hardship, when debt recovery is a demonstrably inefficient use of Inland Revenue’s resources, or when only a low level of penalty debt is outstanding.

The bill also proposes that Inland Revenue should also be able to write off assessed debt owed to the Crown, in relation to a receiving carer who is on a benefit, on serious hardship grounds.

Application date

The amendments will apply from 1 April 2014.

Key features

Clause 32 inserts a new section 135FA. New section 135FA gives the Commissioner a discretion to give write off, in whole or in part, incremental penalties of a liable person that were unpaid when a payment agreement is entered into on or after 1 April 2014. The discretion is exercisable if the Commissioner is satisfied that recovery of those incremental penalties would do either or both of the following:

  • place the liable person in serious hardship (as defined in section 135G(3));
  • involve an inefficient use of the Commissioner’s resources.

Clause 33 amends section 135G, which enables the Commissioner, if specified preconditions are met, to grant relief to a liable person from the payment of incremental penalties. The change relaxes the precondition that requires the liable person to have paid all of the financial support debt and initial late payment penalties to which the incremental penalties relate. It is proposed that relief may be granted under section 135G even if the liable person has paid only some, and not all, of the financial support debt and initial late payment penalties to which the incremental penalties relate.

Clause 34 inserts a new section 135GA, which enables the Commissioner to grant discretionary relief for low-level residual penalty-only debt (initial late payment penalties or incremental penalties or both) if:

  • the liable person has paid all of the liable person’s financial support debt; and
  • the Commissioner is satisfied that recovery of those penalties would involve an inefficient use of the Commissioner’s resources.

Clause 35 repeals section 135H and substitutes new sections 135GB and 135H. New section 135GB requires the Commissioner to write off an initial late payment penalty if a payment arrangement is entered into or made on or after 1 April 2014. The Commissioner’s duty under new section 135GB to write off the initial payment penalty is not subject to a precondition that the Commissioner be satisfied that the arrangement has been fully complied with.

Clauses 38 and 39 amend sections 135M and 135N on the availability of relief from ongoing incremental penalties if a payment arrangement or deduction notice is in force. They remove the precondition that every instalment is paid in full in accordance with the payment arrangement. That precondition currently prevents ongoing incremental penalties from being written off if any sum or instalment payable under the agreement is not paid in full in accordance with the agreement. The proposed changes, by contrast, require an incremental penalty imposed at the expiry of a one month period to be written off if a payment agreement or deduction notice is in force, and has been complied with fully, during that period.

Clause 42 inserts a new section 180A, which enables the Commissioner 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, and that is unpaid and in arrears, if:

  • the receiving carer is or was a social security beneficiary (as defined in section 2(1)) at the time the child support is or was payable; and
  • the Commissioner is satisfied that recovery of that amount would place the liable person in serious hardship (as defined in section 135G(3)).

The benefit component of the amount of child support, as defined in new section 180A(2), means so much of that amount as is not payable to the receiving carer under section 142(1)(g).

Background

Although the primary objective of any changes to the penalty rules should be to recover progressively any existing assessed debt and re-establish the regular payment of child support liabilities, writing off penalties in certain circumstances may help facilitate regular payment or, alternatively, be justifiable on hardship grounds.

A wider range of options to write off penalties is proposed for circumstances in which payment would result in the paying parent being placed in significant hardship or it would be a demonstrably inefficient use of Inland Revenue’s resources to collect the debt because the chances of collection are very low.

Likewise, the starting position for writing off penalties should recognise that a paying parent who comes to Inland Revenue to arrange the payment of a debt is trying to comply. Therefore, if an agreed amount is to be written off, it ought to be able to be written off at the start of an instalment arrangement rather than after a significant period of positive compliance, as is currently the case. If the paying parent defaults again, new late payment penalties should be applied.

Allowing Inland Revenue to write off low levels of penalty-only debt would allow Inland Revenue, once all assessed child support debt has been paid, to write off all penalty-only debt where recovery of those penalties would involve an inefficient use of the Commissioner’s resources.

Inland Revenue cannot currently write off assessed debt because, in many cases, the debt is owed to the receiving parent for the care of the child. When a receiving parent is not on a sole-parent benefit, however, that parent can instruct Inland Revenue to waive the assessed debt. Inland Revenue does not have an equivalent discretion to waive assessed debt owed to and retained by the Crown when a receiving parent receives a sole-parent benefit. The courts can order a debt to be written off, but this is costly and time-consuming. Allowing assessed debt relating to beneficiaries to be written off by Inland Revenue on serious hardship grounds would avoid the need to take this course of action.