Child Support and Penalties – What the 2021 Changes Mean By Nashi Ali*
The child support regime affects approximately 135,000 carers, 166,000 liable parents, and 185,000 qualifying children. In 2019 it was reported that there was $2.2 billion in child support debt. A crippling $1.6 billion of this debt consisted of compounded penalties, which meant only $558 million was unpaid child support.
Penalties on late payments have been an area of contention for many years. A recent report by Inland Revenue demonstrated that many parents were unable to understand the penalty rules. The report also highlighted that liable parents felt the penalties increased their outstanding child support debts to an unmanageable amount, resulting in them no longer being motivated to repay their debt or meet their ongoing child support obligations.
Changes made by the Child Support Amendment Act 2021 simplify the child support penalties regime and encourage liable parents to meet their obligations. The changes take effect in two stages. The first stage was implemented on 1 April 2021, which made changes to the way in which penalties are imposed and written off.
In Commissioner of Inland Revenue v Horsey, Mr Horsey sought to have his child support liability reduced by the Court. Mr Horsey owed Inland Revenue in excess of $140,000 in child support arrears and penalties. Mr Horsey had made no payments since the date of assessment. While Mr Horsey’s child support obligations totaled just over $46,000, penalties charged reached a staggering $94,222. Mr Horsey submitted that he found the child support process distressing and felt victimised by Inland Revenue’s attempts to seek payment. The Family Court directed Mr Horsey to pay $500 per month towards his child support arrears, noting that Inland Revenue had the discretion to waive the penalties accrued if the child support assessed was paid in full.
The second stage takes effect from 1 April 2022, introducing timeframes for parents to establish paternity and advise Inland Revenue of their existing childcare arrangements. The kinds of income that are considered when child support is calculated will also be changed, and paying of child support through mandatory automatic employer deductions will be introduced for parents who are new to paying child support. The consequence of compounding penalties Historically, if liable parents did not meet their child support obligations, they were charged initial and incremental penalties. Initial penalties charged in the first month were done so in two stages. The first stage was the greater of 2% of the outstanding amount, or $5 the day after the due date. The second stage was the addition of a further 8% of the outstanding amount eight days after the due date. If the initial penalties were not paid, incremental penalties were added to the outstanding balance, each month the amount remained outstanding. The incremental penalties were 2% of the outstanding amount, including penalties, from one month after the due date for the next 12 months and 1% of the outstanding amount including penalties each month from 13 months after the due date. 1
Commissioner of Inland Revenue v Horsey [2019] NZFC 2925
www.nzbar.org.nz
Examples of significant penalty debt are seen in Commissioner of Inland Revenue v Horsey1, and Inland Revenue Department v Codling2.
In Inland Revenue Department v Codling, Mr Codling was required to pay child support for three children from 1992. In 1999, Inland Revenue commenced proceedings against Mr Codling for his outstanding child support debt and penalties. Mr Codling was summoned for an oral examination, and a warrant for his arrest was issued, but he could not be located. Subsequently, Inland Revenue applied for a charging order over a property owned by Mr Codling, which was sold at auction in 2003. In December 2003, Mr Codling received a letter from Inland Revenue regarding the outstanding child support debt and penalties which equated to $249,879. Mr Codling had been involved in a serious car accident, resulting in significant longterm physical and psychological implications.
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Inland Revenue Department v Codling [2009] NZFLR 19
