Digest No. 1957
Background
The Bill amends the child support scheme which was introduced in 1992 and which helps to provide financial support for over 210,000 children, by making provision for:
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a new child support calculation formula;
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secondary changes to update the child support scheme more generally;
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amendments to the payment, penalty, and debt rules for child support
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Child support formula
The main change provided for by the Bill is the introduction of “a comprehensive new child support formula” with the aim of providing “a more equitable system of financial support in a variety of circumstances” and to “increase incentives for parents to meet their child support obligations”.
“The new formula bases child support payments on:
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a wider recognition of shared care; and
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the income of both parents; and
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the estimated average expenditures for raising children in New Zealand”
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Lower levels of shared care
“To deal with concerns about insufficient recognition of regular shared care of children and the costs associated with that care, the revised formula will accommodate lower levels of shared care by way of tiered thresholds, commencing with 28% of the ongoing daily care provided. The current formula recognises shared care only if it amounts to at least 40% of nights”
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Total income of both parents
“To deal with concerns about the capacity to pay, both parents’ income (less a living allowance for each parent) will be included in the formula, with the costs of raising children being apportioned according to each parent’s share of total net income. When a parent has other dependent children or is paying child support for children in other relationships, the parent’s income will be reduced for the assumed expenditure on those children, based on the same method of calculation as for other children, before the parent's child support contribution is calculated”
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Expenditures for raising children
“The formula will use a new scale of costs (expressed as income percentages) that reflects more up-to-date information on the expenditure involved in raising children (after allowing for likely tax credits). These percentages vary with the number of children, the age of the children (the percentage being higher for children over 12 years), and the total income of the parents. As income rises, the percentages progressively decline to reflect that the proportion of income spent on children declines. Given that the additional expenditure becomes increasingly discretionary as income rises, the new formula will, as currently, also include a cap on the amount of child support payable”
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Context
“While the current child support scheme provides a relatively straightforward way of calculating child support liability for the majority of parents, there are concerns that the scheme is now, in many cases, out of date. The primary assumption under the current child support scheme is that the paying parent is the sole income earner and that the receiving parent is the main care provider. However, patterns of parenting have changed since the introduction of the scheme, and it is now more common for both parents to be actively involved in raising their children. Since the scheme’s introduction, there has also been greater participation in the workforce by both parents, meaning that the principal carers of children are now more likely to be in paid work.
“More specifically, some liable parents are concerned that the scheme does not take into account their particular circumstances. For example, parents may share the care and costs of their children, but have arrangements that do not qualify as shared care for the purposes of the current child support formula. Equally, receiving parents are concerned about the non-payment of child support on the part of some paying parents, or the instability of payments. Some consider current payments to be insufficient to meet the costs of sharing their children and do not feel that they accurately reflect the true expenditure involved in raising children in New Zealand. The amendments in the Bill aim to reduce these concerns”
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Main Provisions
Children for whom child support under a formula assessment may be payable
At present, children under the age of 19 (and who meet the other elements of the definition) are qualifying children for whom child support under a formula assessment may be payable.
The Bill reduces the age to apply to children under the age of 18. However a child of 18 may be a qualifying child, but only if they are also enrolled at a registered school. This change will not be brought into effect 01 April 2014 which is one year after the commencement of the Bill (01 April 2013) (Part 1, Clause 8, amending Section 5 of the Act).
Liability to pay child support
The Bill introduces new provisions relating to applications for formula assessments of child support and the determination of who is liable to pay child support and provide, in particular, that:
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the Commissioner of Inland Revenue may assume that a qualifying child has two parents but must take account of the true situation if he or she forms the view, on reasonable grounds, that that assumption is not correct (Part 1, Clause 9, inserting New Section 7B into the Act; cf. Section 7, definition of “parent”; Section 99 (“Declarations in respect of step-parents”));
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in relation to who can apply for a formula assessment of child support, the present provision that only the sole or principal provider of ongoing daily care of a qualifying child may apply is expanded to refer to any carer of the child (who may be a parent or a non-parent) who is not living with a parent of the child in a marriage, civil union, or de facto relationship (Part 1, Clause 9, substituting Section 8 of the Act; cf. Section 363 of the Children, Young Persons, and Their Families Act 1989 (“Payment to person or organisation providing care”) continues to apply);
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in relation to formula assessments, the Bill mostly carries over existing provisions, but does change the date when legal liability to pay child support is triggered from when a “properly complete” form is received by the Commissioner to the point when the Commissioner’s assessment of liability to pay child support is completed; however the date when the form is received still marks the day on which any assessed liability begins (Part 1, Clause 9, substituting Section 10 of the Act);
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in relation to the proportion of ongoing daily care that each carer of a child provides to the child, a person who provides at least 28% of ongoing daily care is entitled under new Section 16 to a care cost percentage in relation to the child (Part 1, Clause 9, substituting Sections 14 and 15 of the Act; inserting New Section 16 of the Act; Schedule 1 of the Bill, inserting New Schedule 1 into the Act);
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in relation to identifying the liable parents and receiving carers of qualifying children, the Commissioner must determine the care cost percentages of every carer, and the income percentage of every parent, be determined; a parent whose income percentage exceeds their care cost percentage will be a liable parent; a parent whose income percentage is less than their care cost percentage will be a receiving carer; a non-parent carer who provides at least 28% of ongoing daily care, and therefore has a care cost percentage, will also be a receiving carer (Part 1, Clause 9, substituting Section 17; cf. Part 2 of the Act);
Assessment of amounts
The Bill sets out how to determine the quantum of child support liability under a formula assessment. The new formula is intended to base child support payments on a wider recognition of shared care; the income of both parents; and the estimated average expenditure for raising children in New Zealand
(Part 1, Clause 11, inserting New Sections 28A-36D in Part 2 of the Act; inserting New Schedule 2 into the Act (“Expenditure on children”).
Payments and administration
The Bill resets the minimum rates of child support and domestic maintenance paid by a liable person per child support year at $848 which is adjusted each year by the “applicable inflation percentage” (Part 1, Clause 13, amending Section 72(1) of the Act (Part 5 of the Act)). The Bill also makes amendments relating to objections (Part 1, Clause 13, amending Sections 90-92 of the Act (Part 6 of the Act)). The Bill makes amendments to the power of the Commissioner, on his or her own initiative, to depart from some or all aspects of a formula assessment following an administrative review of a liable parent (Part 1, Clause 19, amending Section 96Q of the Act (Part 6B of the Act)). Appeal rights to the Family Court are widened to apply to orders varying any component, or the application of any component, of an assessment of child support under a formula assessment” (Part 1, Clauses 20 and 21, repealing Sections 100 and 101 and amending Section 106 of the Act (Part 7 of the Act)). The Bill allows the Commissioner to offset payments of child support under a formula assessment to one parent from any payments payable by the other parent (Part 1, Clause 22, inserting New Section 152B into the Act (Part 9 of the Act)).
Grounds for the Commissioner to grant a Departure from a formula assessment
The Bill makes amendments in relation to the grounds for a departure from a formula assessment where a receiving carer or liable parent asks the Commissioner to make a determination that the Act's provisions on the formula assessment of child support be departed from in relation to a child. The Bill provides for a new ground. This ground for departure is that, at any time within three years starting on the date on which the child's parents ceased to live together in a marriage, civil union, or de facto relationship, the application to the child of the Act's provisions on formula assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because a re-establishment costs situation exists. Such a situation exists if, and only if:
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the adjusted taxable income of a parent of the child for the child support year concerned includes a proportion that is no more than 30% of that income and income from work done by that parent and that, in quantity or nature or both, is additional to work that he or she did before the child's parents ceased to live together in a marriage, civil union, or de facto relationship; and
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some or all of that proportion of that income is used, or needs to be used, by a parent of the child in that child support year to meet, wholly or partly, actual and reasonable costs incurred to re-establish himself or herself, and any child or other person that he or she has a duty to maintain, after the child's parents ceased to live together in a marriage, civil union, or de facto relationship (Part 2, Clause 26 , amending Section 105 of the Act (Part 7 of the Act)).
Collection of financial support and penalties, and relief
The Bill amends the provisions relating to the automatic deduction of financial support as required by the Commissioner (Part 2, Clause 27, substituting Sections 129 to 131 and inserting New Section 131A). The Bill also makes amendments in relating to the charging of penalties for the non-payment of financial support or its late payment and in relation to the Commissioner’s discretionary power (the discretionary nature of which is re-emphasised) to refuse to enter into a payment agreement (sufficient reason for the Commissioner to so decline is stated to be “that the liable parent has not complied with one or more earlier payment agreements” and that no reasonable cause existed for that non-compliance) (Part 2, Clause 28, substituting 134 and inserting New Sections 134A-134C; Clauses 29; Clause 30, inserting New Section 135AA into the Act; (Part 8 of the Act)). In relation to mandatory relief, the Bill provides that the Commissioner is required to give relief from an initial late payment penalty (by writing it off) if a payment arrangement is entered into or made on or after 1 April 2014 and if the arrangement has operated for a reasonable period and to date there has been no default, or only default to an extent, or arising from a cause, that is reasonable (Part 2, Clause 35, inserting New Section 135GB and substituting Section 135H into the Act (Part 8 of the Act)). The Bill reforms the provisions applying to the write-off of incremental penalties (Part 2, Clauses 36-39, amending Sections 135J, 135K, 135M and 135N of the Act (Part 8 of the Act)). The Bill 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 arrear, if the receiving carer is or was a social security beneficiary 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 (Part 2, Clause 42, inserting New Section 180A into the Act (Part 11 of the Act))
