By Nashi Ali and Melissa Perkin.
The child support scheme 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 was penalties, which meant only $558 million was unpaid child support.
The Child Support Amendment Act 2021, which came into force on 1 April 2021, simplifies penalty rules, changes the way child support penalties are charged and introduces payment of financial support by compulsory deduction.
Child support penalties before 1 April 2021
Penalties for late payments were imposed on parents if they did not meet their child support obligations. Penalties in the first month were called initial penalties and were charged 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 another 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.
A report by Inland Revenue showed that some parents did not understand the penalty rules, which they found overly confusing. Parents felt the penalties sent their child support debt spiraling out of control, making it unmanageable to keep on top of payments.
What’s changed to penalties?
Under the new law, incremental penalties have been removed and will no longer be charged. Liable parents will only be charged an initial penalty of 2% of the amount of financial support unpaid at the expiry of the due date.
What does this mean for parents already paying child support?
From 1 April 2021, liable parents will not be charged any further incremental penalties on their existing, unpaid child support debts. While incremental penalties imposed before 1 April 2021 will not automatically be removed, liable parents may apply to Inland Revenue to have some or all of their pre 1 April 2021 penalties waived using any one of the three new reasons Inland Revenue has introduced under the new law. These new reasons are:
If a liable parent requests for some or all of their penalties to be written off, Inland Revenue may do so for any of the following reasons:
- the parent is experiencing severe hardship;
- it is not a good use of Inland Revenue’s resources to collect the penalty; or
- Inland Revenue is satisfied that it would be fair and reasonable to write off part, or all of the penalties.
Requests to have penalties waived can be started by contacting Inland Revenue. Further details are available here.
What does this mean for parents who are new to paying child support?
Parents who start paying child support on or after 1 April 2021 will not be charged incremental penalties on late payments.
From 1 April 2022, the grace period provides parents who are new to the child support scheme, with 60 days from the first due date of support payments, to work with Inland Revenue to understand the process and their obligations.
In addition, there are also changes which require compulsory child support deductions by employers for newly liable parents, and the introduction of a timeframe to allow parents, time to advise Inland Revenue about their existing childcare arrangements.
To learn more about these changes and how they affect you, please click here.
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