Receivables include general taxes, Working for Families Tax Credits, KiwiSaver and any penalties and interest associated with these activities. These are non-contractual sovereign receivables. The interest and penalties charged on receivables are presented as revenue in the Schedule of non-departmental revenue. Receivables for child support, the Small Business Cashflow (loan) Scheme and student loans are reported separately in notes 5, 6 and 7 respectively.
Receivables are initially recognised at face value as the fair value is not materially different from the face value and are subsequently tested for impairment at year end.
Allowances for amounts that Inland Revenue does not expect to recover are recognised when there is objective evidence that the asset is impaired. Impairments are included in the Schedule of non-departmental expenditure. Impairment losses can be reversed where there is evidence that the impaired value of the asset has increased.
At the end of the year, receivables are valued by an independent external valuer using predictive models. Inland Revenue provides data to the valuer on receivable balances and repayments. The data is up to 30 June 2021.
To calculate the impairment of receivables, assumptions are applied to future repayment behaviour, as well as economic factors such as discount rates.
Key assumptions are explained below.
- The recoverable amount of receivables is calculated by forecasting the expected repayments based on analysis of historical debt data, deducting an estimate of collection costs and then discounting using an appropriate rate. If the recoverable amount of the portfolio is less than the carrying amount, the carrying amount is reduced to the recoverable amount. Alternatively, if the recoverable amount is more, the carrying amount is increased.
- Tax pooling funds held in the Crown bank accounts have been netted off against receivables. These funds have been deposited by commercial intermediaries and allow customers to pool tax payments to reduce their exposure to use-of-money interest. Under-payments and over-payments are offset within the same pool.
The gross value of tax receivables at 30 June 2021 is $20.043 billion, an increase of $3.146 billion (18.62%). The main driver of the increase is a $3.009 billion (23.79%) increase in not yet due receivables reflecting stronger recent revenue streams.
Inland Revenue’s approach is to prevent customers getting into debt and having penalties and interest added to what they owe. In response to COVID-19, we have increased our support to ensure customers know what help and options are available to them. We have also deferred debt activities where that would be the best outcome for the customer.
During 2019-20, Inland Revenue made prioritisation decisions to redeploy staff from debt collection to other functions, to manage the large and complex requirements involved in successfully delivering Release 4 of our transformation and support our customers as they continued to familiarise themselves with our new systems and processes. This prioritisation and the impacts of COVID-19 on our customers resulted in increased levels of debt and reduced levels of debt repayments up to 30 June 2020. This resulted in an increase in debt impairment, reflecting decreased expected recoverability.
In 2020-21, Inland Revenue has continued to focus on supporting customers through COVID-19, including working with those in debt to set up instalment arrangements and applying new legislative powers to remit penalties and interest where possible. Despite an increase in past due debt, we have seen stronger collectability of debt this year, which has resulted in a reduction in the average impairment of tax debt.
As noted by the independent external valuer, it is not possible to assess with any certainty the implications of COVID-19 on the value of tax receivables or the economy as a whole, in terms of length or the degree of impact. The uncertain and volatile nature of future debt repayments means that there may be significant uncertainty in the estimated value of these receivables. The valuation reflects the increased levels of debt observed in the data up to 30 June 2021. Future repayments of debt will be dependent on the economic impacts of COVID-19 on our customers and on the effectiveness of our compliance activities and relief mechanisms, such as instalment arrangements.
Past due debt
| $million | June 2020 | June 2021 | Change % |
|---|---|---|---|
| Working for Families Tax Credits | $167.2 | $198.5 | 19% |
| GST | $1,550.0 | $1,523.0 | (2%) |
| Income tax | $1,742.6 | $1,585.0 | (9%) |
| Employment activities | $741.3 | $919.6 | 24% |
| Other tax | $45.8 | $157.7 | 244% |
| Total debt | $4,246.9 | $4,383.8 | 3% |
The fair value of tax receivables at 30 June 2021 is $16.719 billion, an increase of $3.077 billion (22.6%).
|
Actual 2020 ($000) |
Actual 2021 ($000) |
|
|---|---|---|
| Receivables | ||
| $16,897,048 | Gross receivables | $20,043,302 |
| $(3,255,109) | Impairment | $(3,323,992) |
| $13,641,939 | Carrying value receivables | $16,719,310 |
| Current and non-current apportionment | ||
| $13,273,939 | Receivables - current | $16,393,310 |
| $368,000 | Receivables - non-current | $326,000 |
| $13,641,939 | Carrying value receivables | $16,719,310 |
| Ageing profile of gross receivables | ||
| $12,650,126 | Not due1 | $15,659,517 |
| Past due2 | ||
| $1,217,073 | Less than 6 months | $1,004,639 |
| $381,458 | 6-12 months | $432,057 |
| $747,808 | 1-2 years | $903,243 |
| $1,900,583 | Greater than 2 years | $2,043,846 |
| $4,246,922 | Total past due | $4,383,785 |
| $16,897,048 | Total gross receivables | $20,043,302 |
| 25% | % Past due | 22% |
| Receivables - impairment | ||
| $2,310,000 | Opening balance | $3,255,109 |
| $1,356,750 | Impairment losses recognised | $881,659 |
| $(411,641) | Amounts written off as uncollectable | $(812,776) |
| $3,255,109 | Closing balance | $3,323,992 |
1 Not due receivables comprise estimations or assessments for tax where the tax has been earned, but is not yet due to be paid, and returns that have been filed before due date.
2 Receivables are classified as past due when they are not received from customers by their due date. Due dates will vary, depending on the type of revenue owing (for example, income tax, GST, KiwiSaver) and the customer’s balance date. Past due debt includes debts collected under instalment, debts under dispute, default assessments and debts of customers who are bankrupt, in receivership or in liquidation. Inland Revenue has debt management policies and procedures in place to actively manage the collection of past due debt.
The estimated recoverable amount of this portfolio and the significant assumptions underpinning the valuation of carrying value receivables are shown below.
| Actual 2020 | Actual 2021 | |
|---|---|---|
| $12,590,190 | Recoverable amount of receivables not due ($000) | $15,602,854 |
| $1,051,749 | Recoverable amount of receivables past due ($000) | $1,116,456 |
| $13,641,939 | Total carrying value ($000) | $16,719,310 |
| 7.00% | Use-of-money-interest rate | 7.00% |
| 5.00% | Discount rate | 5.00% |
| $(20,200) | Impact on the recoverable amount of a 2% increase in discount rate ($000) | $(17,700) |
| $18,800 | Impact on the recoverable amount of a 2% decrease in discount rate ($000) | $19,000 |
The fair value of receivables is not materially different from the carrying value.
Credit risk
In determining the recoverability of receivables, Inland Revenue uses information about disputes and past experience of the outcomes of such disputes, together with trends of payment timeliness and other information obtained from credit collection.
Under the Tax Administration Act 1994, Inland Revenue has broad powers to ensure that people meet their obligations. Part 10 of the Act sets out the powers of the Commissioner to recover unpaid tax.
The Crown does not hold any collateral or any other credit enhancements over receivables which are past due.
Receivables are widely dispersed over a number of customers and as a result the Crown does not have any material individual concentrations of credit risk.