SPS 11/02
Issued
16 Feb 2011

Child Support Debt - Requesting an instalment arrangement (WITHDRAWN)

SPS 11/02 sets out IR's practice when considering requests for relief to pay overdue child support obligations by instalment arrangements.

Withdrawn

This statement has been withdrawn and is provided for historical purposes only.

This statement also appears in Tax Information Bulletin Vol 23, No 2 (March 2011).

Introduction

  1. This Standard Practice Statement (SPS) sets out Inland Revenue's practice for providing relief when the immediate payment of an overdue child support obligation is not possible. The relief is provided in the form of an instalment arrangement to pay the debt. However, taxpayers who have a tax debt or Student Loan repayment arrears should refer to SPS 11/01 (Instalment arrangements for payment of tax) or SPS 11/03 (Student Loans - Relief from repayment obligations).
     
  2. For the purpose of this SPS, the term "instalment arrangement" has been used instead of "payment agreement" which is used in the Child Support Act 1991 ("CSA").
     
  3. A debt owing by a custodian will be collected by the Commissioner in the same manner as if it was financial support owing by a liable person. Reference to "liable person" may include a custodian for the purpose of this SPS.
     
  4. Unless specified otherwise, all legislative references in this SPS refer to the CSA.

Application

  1. This SPS applies to the Commissioner's discretion to provide relief when giving consideration to:
    • requests for instalment arrangements to settle child support debt; and
    • write-off of incremental penalty debt when the instalment arrangements are adhered to.

Summary

  1. The CSA provides limited discretion where a liable person is unable to pay their child support debt in full and on time. The Commissioner may:
    • agree to an instalment arrangement to pay child support debt; and
    • write-off incremental penalties when instalment arrangements are adhered to.
       
  2. As a result, the Commissioner will look at the circumstances of a case and may agree to an instalment arrangement to pay child support debt.

Legislation

  1. The relevant legislative provisions of the CSA:
135G Discretionary relief for residual incremental penalty debt
(1) The Commissioner may grant relief to a liable person from the payment of incremental penalties in the manner prescribed by section 135A if-
(a) the liable person has paid all of the financial support debt and initial late payment penalties to which the incremental penalties relate; and
(b) the Commissioner is satisfied that recovery of the incremental penalties-
(i) would involve an inefficient use of the Commissioner's resources; or
(ii) would place the liable person in serious hardship.
(2) Before making a decision under subsection (1)(b), the Commissioner must have regard to the matters referred to in sections 6 and 6A of the Tax Administration Act 1994.
(3) In this section,-
serious hardship, in relation to a liable person,-
(a) includes significant financial difficulties that arise because of-
(i) the liable person's inability to meet minimum living expenses according to normal community standards; or
(ii) the cost of medical treatment for an illness or injury of the liable person or the liable person's dependant; or
(iii) a serious illness suffered by the liable person or the liable person's dependant; or
(iv) the cost of education for the liable person's dependant:
(b) does not include significant financial difficulties that arise because-
(i) the liable person is obligated to pay tax or financial support; or
(ii) the liable person may become bankrupt; or
(iii) the liable person's, or the liable person's dependant's, social activities and entertainment may be limited; or
(iv) the liable person is unable to afford goods or services that are expensive or of a high quality or standard according to normal community standards.
135H Relief from initial late payment penalty if payment arrangement
(1) The Commissioner must write off an initial late payment penalty in relation to a financial support debt if the Commissioner is satisfied that-
(a) the initial late payment penalty relates to the first payment of financial support payable by the liable person; and
(b) within the 3-month period beginning on the date that the Commissioner issues the assessment under which the first payment is payable, either-
(i) the liable person enters into a payment agreement with the Commissioner to pay, in 2 or more instalments,-
(A) the first payment; and
(B) other payments of financial support that are or will become payable by the liable person; or
(ii) the Commissioner gives a person a deduction notice under section 154 in relation to the liable person for the purpose of collecting, in 2 or more deductions and payments,-
(A) the first payment; and
(B) other payments of financial support that are or will become payable by the liable person; and
(c) either,-
(i) in the case of paragraph (b)(i), every one of those instalments is paid in full in accordance with that payment agreement; or
(ii) in the case of paragraph (b)(ii), every one of those deductions and payments is made in accordance with that notice.
(2) If an initial late payment penalty is written off under this section, and that penalty has been paid in whole or in part, the Commissioner must refund to the liable person the whole or part of the initial late payment penalty that has been paid.
(3) For the purposes of this section, first payment means the first amount of financial support that is required to be paid by a liable person under an assessment made by the Commissioner under section 24(1)(a).
135J Relief from incremental penalties unpaid before agreement entered into
(1) For the purposes of this section,-
initial debt, in relation to a payment agreement, means the amount the liable person owes at the time that the agreement is entered into in respect of financial support and related initial late payment penalties
payment agreement means an agreement entered into after the commencement of this section between a liable person and the Commissioner that requires the liable person to pay, in 1 sum or 2 or more instalments of specified amounts,-
  (a) the amount of the initial debt; and
(b) the amount of financial support (if any) that the person will become liable to pay during the term of the payment agreement
review date means-
  (a) the day that is 26 weeks after the date that the liable person enters into the payment agreement; and
(b) each of the days on which there expire periods of 26 weeks that consecutively succeed the first period of 26 weeks described in paragraph (a); and
(c) the day on which the payment agreement expires.
(2) If a liable person has entered into a payment agreement, and the person has complied with the payment agreement up until a particular review date in accordance with subsection (3), the Commissioner must, on that review date,-
(a) review the incremental penalties in relation to the initial debt of the liable person that were unpaid at the time the payment agreement was entered into; and
(b) write off those penalties proportionally in accordance with subsection (4).
(3) For the purposes of subsection (2), a person has complied with the payment agreement up until a particular review date if-
(a) the person has paid every instalment in full that has fallen due in accordance with the agreement; or
(b) in the case of an agreement to pay 1 sum only, the person has paid that sum in accordance with the agreement.
(4) For the purposes of subsection (2), the proportion of incremental penalties that must be written off must be calculated in accordance with the following formula:
r ( a × c )   − d
b
where-
r is the amount of incremental penalty that is to be written off
a is the total amount of the initial debt that has been paid since the payment agreement was entered into
b is the initial debt
c is the total amount of incremental penalties related to the initial debt of the liable person that were unpaid at the time that the payment agreement was entered into
d is the total amount of incremental penalties related to the initial debt of the liable person that have already been written off in accordance with this section since the payment agreement was entered into.
(5) If an incremental penalty that is written off under this section has been paid in whole or in part, the Commissioner must refund to the liable person the whole or part of the incremental penalty that has been paid.
135K Relief from incremental penalties in relation to arrangements entered into or made before commencement
(1) For the purposes of this section,-
initial debt means the amount the liable person owes at the commencement of this section in respect of financial support and related initial late payment penalties
payment agreement means an agreement entered into before the commencement of this section between a liable person and the Commissioner that-
  (a) requires the liable person to pay, in 1 sum or 2 or more instalments of specified amounts,-
(i) the amount of the initial debt; and
(ii) the amount of financial support (if any) that the person will become liable to pay during the term of the payment agreement; and
(b) is still in force immediately before this section comes into force
review date means-
  (a) the day that is 26 weeks after the commencement of this section; and
(b) each of the days on which there expire periods of 26 weeks that consecutively succeed the first period of 26 weeks described in paragraph (a); and
(c) in relation to-
(i) a payment agreement, the day on which the payment agreement expires; and
(ii) a specified deduction notice, the day on which the deduction notice is revoked
specified deduction notice means a deduction notice given by the Commissioner under section 154 in relation to a liable person before the commencement of this section-
  (a) for the purpose of collecting, in 1 sum or 2 or more deductions and payments,-
(i) the amount of the initial debt; and
(ii) the amount of financial support (if any) that the liable person will become liable to pay during the period in which the deduction notice is in force; and
(b) that is still in force immediately before this section comes into force.
(2) If a liable person has entered into a payment agreement, and the person has complied with the payment agreement up until a particular review date in accordance with subsection (3), the Commissioner must, on that review date,-
(a) review the incremental penalties in relation to the initial debt of the liable person that were unpaid at the commencement of this section; and
(b) write off those penalties proportionally in accordance with subsection (6).
(3) For the purposes of subsection (2), a person has complied with the payment agreement up until a particular review date if-
(a) the person has paid every instalment in full that has fallen due in accordance with the agreement; or
(b) in the case of an agreement to pay 1 sum only, the person has paid that sum in accordance with that agreement.
(4) If a specified deduction notice has been given to a person in relation to a liable person, and the person to whom that notice is given has complied with that notice up until a particular review date in accordance with subsection (5), the Commissioner must, on that review date,-
(a) review the incremental penalties in relation to the initial debt of the liable person that were unpaid at the commencement of this section; and
(b) write off those penalties proportionally in accordance with subsection (6).
(5) For the purposes of subsection (4), a person has complied with a specified deduction notice up until a particular review date if all of the deductions and payments required to be made under the specified deduction notice by that date have been made in accordance with that notice.
(6) For the purposes of subsections (2) and (4), the proportion of incremental penalties that must be written off must be calculated in accordance with the following formula:
r ( a × c )   − d
b
where-
r is the amount of incremental penalty that is to be written off
a is the total amount of the initial debt that has been paid since the commencement of this section
b is the initial debt
c is the total amount of incremental penalties in relation to the initial debt of the liable person that were unpaid at the commencement of this section
d is the total amount of incremental penalties related to the initial debt of the liable person that have already been written off in accordance with this section.
(7) If an incremental penalty that is written off under this section has been paid in whole or in part, the Commissioner must refund to the liable person the whole or part of the incremental penalty that has been paid.
135L Writing-off of incremental penalties if non-compliance with arrangement
(1) Subsection (2) applies if,-
(a) at the time of a review date in relation to a payment agreement under section 135J or 135K, the liable person has failed to pay any amount in accordance with the agreement; and
(b) the Commissioner is satisfied, in respect of each failure to make a payment in accordance with the payment agreement, that the circumstances in relation to the failure would, if they were related to the payment of a debt to which a penalty relates, entitle the Commissioner to grant relief under any of the provisions of sections 135B to 135E.
(2) The Commissioner may disregard a failure to make a payment for the purpose of applying section 135J or 135K as the case may be.
(3) Subsection (4) applies if,-
(a) at the time of a review date in relation to a specified deduction notice under section 135K, there has been a failure to make any deduction and payment in accordance with the specified deduction notice; and
(b) the Commissioner is satisfied, in respect of each failure to make a deduction and payment in accordance with the specified deduction notice, that the circumstances in relation to the failure would, if they were related to the payment of a debt to which a penalty relates, entitle the Commissioner to grant relief under section 135B, 135C, or 135E.
(4) The Commissioner may disregard a failure to make a deduction and payment for the purpose of applying section 135K.
135M Relief from ongoing incremental penalties if payment agreement in force
(1) This section applies if-
(a) a person becomes liable for the payment of any incremental penalty; and
(b) at the time liability for the incremental penalty arises, the financial support or the initial late payment penalty or the incremental penalty in relation to which the person becomes so liable is financial support or initial late payment penalty or incremental penalty that is payable in 1 sum, or in 2 or more instalments, in accordance with a payment agreement entered into between the person and the Commissioner; and
(c) that sum or, as the case may be, every one of those instalments is paid in full in accordance with that payment agreement.
(2) The Commissioner must grant relief to the liable person-
(a) by writing off the incremental penalty referred to in subsection (1)(a); or
(b) if that incremental penalty has been paid, in whole or in part, by refunding to that person the whole or the part of that incremental penalty that has been paid, with or without writing off any part of that incremental penalty that has not been paid.
151 Overpayments to payees
(1) Where a payee is paid an amount under any provision of this Part of this Act and-
(a) The payee was not entitled to be paid the amount; or
(b) The amount is, because of a subsequent variation in the liability of the liable person, repayable by the Commissioner to the liable person; or
(c) The amount is, because of a subsequent variation in the entitlement of the payee, in excess of the amount properly payable to the payee under this Act,-
the amount is repayable by the payee to the Commissioner and is a debt due by the payee to the Crown.
(2) The Commissioner shall, as soon as practicable, assess the amount that is so repayable, and the provisions of this Act shall apply to the amount assessed and to the payee as if that amount was financial support and the payee was a liable person.
(3) Where, in any case to which subsection (1) of this section applies, the payee is entitled to receive further payments under any provision of this Part of this Act, the amount of the debt due to the Crown by the payee may be recovered by reducing such of those payments by such amount as is determined in writing by the Commissioner.
152 Relief in cases of serious hardship
In any case where-
(a) A person is required under section 151 of this Act to repay any amount of financial support (including any penalty imposed thereon under this Act) to the Commissioner and the amount is unable to be recovered, either in whole or in part, in the manner prescribed in section 151(3) of this Act; and
(b) It is shown to the satisfaction of the Commissioner-
(i) That the person has suffered such loss or is in such circumstances that the repayment of the amount or part thereof that is unable to be so recovered has entailed or would entail serious hardship; or
(ii) That, owing to the death of the person, the dependents of that person are in such circumstances that the repayment of the full amount has entailed or would entail serious hardship,-
the Commissioner may write-off the debt, wholly or in part, and may make such alterations in the assessment as are necessary for that purpose; and may, if the amount unable to be recovered in the manner prescribed in section 151(3) of this Act or any part thereof has been already paid, refund any amount paid in excess of the amount of the assessment as so altered under this section.

Discussion

  1. A liable person should contact Inland Revenue at the earliest opportunity if they think they are likely to be unable to pay their child support obligations on time and in full so that options for payment, which may include an instalment arrangement, can be discussed. The Commissioner will consider a request for an instalment arrangement on a case-by-case basis.
     
  2. Early contact may also minimise penalties where an instalment arrangement can be entered into.
     
  3. Applications may be made by telephone, in writing or by electronic means.

Available options for relief

  1. The Commissioner may, when satisfied that immediate payment of child support debt is not possible, grant relief to a liable person through the following options:
    • agree to an instalment arrangement;
    • write-off incremental penalties - provided that the instalment arrangement is adhered to.

When will relief be provided?

  1. Requests for instalment arrangements will largely rely on the liable person being able to show that they are not able to make immediate payment of their child support debt.
     
  2. The Commissioner will consider all options available for payment and will look to maximise recovery of child support debt (that is, payment of the debt in the shortest possible time) while ensuring the liable person maintains their current child support obligations.

Instalment arrangements

  1. An instalment arrangement may consist of one or more payments to settle a child support debt. It may also include any current year child support obligation payable during the term of the instalment arrangement. This is to ensure that the liable person meets their current child support obligations.
     
  2. When an instalment arrangement includes current year child support obligations, it must provide for the minimum annual rate of child support payable for a current year, plus a reasonable amount toward reducing the outstanding debt.
     
  3. Consequently, an instalment arrangement must be for more than the minimum annual amount of child support payable.

Information to support application

  1. A decision will be made based on the circumstances of each individual case, with the aim of recovering the child support debt in the shortest possible period. The Commissioner will also consider whether the liable person can reasonably afford to repay their child support debt at the rate detailed in their instalment arrangement application.
     
  2. Information to support a request for an instalment arrangement may be provided by the liable person with their application. Alternatively they may be asked to complete a Child Support - repayment of arrears (IR130) form. The information provided will assist the Commissioner when considering the application, including whether other options are available to the liable person to settle their child support debt. The IR130 form is available on our website at www.ird.govt.nz/forms-guides.

Default with instalments may not undo an instalment arrangement

  1. It is acknowledged that a liable person's circumstances can change for reasons outside their control. For example, an unforeseen household expense or default by debtors can erode their cash flow and their ability to maintain an instalment arrangement.
     
  2. In these circumstances the liable person should contact Inland Revenue promptly to discuss an adjustment to their instalment arrangement. If the Commissioner is satisfied that the liable person is unable to continue to meet their instalment obligation other options to recover the debt will be considered.
     
  3. If a liable person does not comply with the terms of an instalment arrangement, the Commissioner may cancel the instalment arrangement and pursue other remedies to collect the debt. However, before doing so, the reasons for the default will be considered and the Commissioner will take into account the liable person's overall compliance behaviour including:
    • regularity of payments.
    • current financial circumstances.
    • the circumstances under which the payments were missed.

Write-off of penalty

  1. If child support obligations are not paid in full and on time, an initial 10% late payment penalty will be charged on the unpaid amount and a further 2% incremental penalty will be added each month the debt remains unpaid.
     
  2. When a liable person enters into an instalment arrangement to clear their child support debt (which may include current child support payment obligations), the Commissioner will write-off appropriate incremental penalties when the liable person has completed the agreed payments.
     
  3. Instalment arrangements are reviewed every 26 weeks (from the date of commencement) to confirm that the liable person has made the agreed payments. Where that instalment arrangement has been complied with, a proportion of the incremental penalties relative to the overall debt (under the instalment arrangement) paid during that period will be written-off.
     
  4. Where an instalment arrangement has not been complied with and the Commissioner is satisfied that the default was caused by circumstances beyond the control of the liable person the failure to meet their obligations may be disregarded and the incremental penalties may still be remitted.
     
  5. If the liable person does not comply with their repayment obligations and does not contact Inland Revenue to discuss options it is likely that the instalment arrangement will be cancelled. Should an instalment arrangement be cancelled, incremental penalties will accrue on any unpaid child support debt.
     
  6. After the instalment arrangement has been completed, so that all of the financial support debt and initial late payment penalties have been paid, some incremental penalties may still remain. Further relief may be granted in respect of those further penalties. For that further relief to be granted, the Commissioner must be satisfied that:
    • payment of the remaining incremental penalties would cause serious hardship to the liable person; or
    • recovery of the penalties would involve an inefficient use of the Commissioner's resource when considering the circumstances of each individual case.

Standard Practice

  1. A liable person should contact the Inland Revenue at the earliest opportunity if they are not going to be able to pay their child support obligations on time and in full. This is to discuss options for payment which may include an instalment arrangement.
     
  2. Although it is best to contact Inland Revenue before a person gets behind with child support payments, it is never too late to make contact to discuss the options available to resolve child support debt and minimise exposure to related penalties.
     
  3. Requests for an instalment arrangement may be made in writing, by telephone, or any other manner acceptable to the Commissioner. For example, the IR website on-line service.
     
  4. Requests will be considered on a case-by-case basis. A liable person will need to be able to show why they will not able to make immediate payments towards their child support obligation. They may be asked to supply further information about their financial circumstances in support of their application.
     
  5. When the Commissioner is satisfied that a liable person is not able to make immediate payment an instalment arrangement may be agreed to.
     
  6. Instalment arrangements that include current year child support obligations must include the minimum annual rate of child support payable for a current year, plus a reasonable amount toward reducing the child support debt. Consequently, any instalment arrangement must be for more than the minimum annual amount of child support payable.
     
  7. An instalment arrangement will be structured so that the child support debt will be paid in the shortest possible time.
     
  8. When the Commissioner agrees to an instalment arrangement, the terms will be confirmed in writing. That confirmation will set out both the liable person's and the Commissioner's obligations under the instalment arrangement. Confirmation may be made by electronic means if that was the method used by the liable person when making their request.
     
  9. Liable persons who enter into an instalment arrangement must inform the Commissioner as soon as practicable if there is a change in their circumstances that may impact on an earlier decision to provide financial relief, or their ability to repay their child support debt.
     
  10. The Commissioner will review instalment arrangements every 26 weeks (from the date of commencement) to confirm that the liable person has made the agreed payments. So long as the agreement has been complied with, incremental penalties relative to the debt paid during that period will be written-off.
     
  11. Default on payment of an instalment may not undo the overall instalment arrangement. When the Commissioner is satisfied that a liable person is unable to pay their child support debt under an instalment arrangement, the terms of the instalment arrangement may be varied following discussion with the liable person.
     
  12. However, when an instalment arrangement is cancelled because a liable person does not comply with their repayment obligations, the Commissioner will consider whether other options may be available to collect the child support debt. Penalties will accrue on any unpaid amount.

 

This Standard Practice Statement is signed on 16 February 2011.

 

Rob Wells
LTS Manager,Technical Standards
Legal and Technical Services