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 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.
Schedule of non departmental expenditure 2022
At the end of the year, receivables are valued by an independent external valuer using predictive models. We provide data to the valuer on receivable balances and repayments. The data is up to 30 June 2022.
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. Underpayments and overpayments are offset within the same pool.
The gross value of tax receivables at 30 June 2022 is $22.256 billion, an increase of $2.212 billion (11.04%). The main driver of the increase is a $1.750 billion (11.18%) increase in not yet due receivables reflecting higher income tax revenue this year.
Past due debt has increased in 2021–22 by $462 million (10.54%) to $4.846 billion. This growth is larger than in 2020–21, when the past due debt increased by $126 million (3.2%).
| $million | June 2021 | June 2022 | Change |
|---|---|---|---|
| GST | $1,523.0 | $1,824.5 | 19.8% |
| Income tax | $1,585.0 | $1,791.1 | 13.0% |
| Employment activities | $919.6 | $822.3 | (10.6)% |
| Working for Families Tax Credits | $198.5 | $250.8 | 26.3% |
| Other tax | $157.7 | $157.3 | (0.2)% |
| Total debt | $4,383.8 | $4,846.0 | 10.5% |
Despite an increase in past due debt over the last year, the amount of debt collected in the past 6 months has been higher than projected at the previous valuation as the impact of COVID-19 on employment and the general economy has been much less than expected.
The independent external valuer has now increased the repayment assumptions for debt less than 5 years old to be closer to the average experience over the last 4 to 5 years. This is consistent with the approach taken before COVID-19. The most significant assumptions changes are for debt that is under 1 year old which are also impacted by the changes in processing debt following Inland Revenue's business transformation. The repayments on this debt have recently been significantly higher than the COVID-19 impact previously assumed.
However, as noted by the 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 2022. 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.
Overall, the valuation resulted in an impairment reversal of $26 million for 2021-22 and a reduction in the average impairment of overdue tax debt from 74.53% to 67.63%.
The fair value of tax receivables at 30 June 2022 is $18.958 billion, an increase of $2.238 billion (13.39%).
| Actual 2021 ($000) | Receivables | Actual 2022 ($000) |
|---|---|---|
| Receivables | ||
| $20,043,302 | Gross receivables | $22,255,521 |
| $(3,323,992) | Impairment | $(3,297,830) |
| $16,719,310 | Carrying value receivables | $18,957,691 |
| Current and non-current apportionment | ||
| $16,393,310 | Receivables-current | $18,465,691 |
| $326,000 | Receivables-non-current | $492,000 |
| $16,719,310 | Carrying value receivables | $18,957,691 |
| Ageing profile of gross receivables | ||
| $15,659,517 | Not due[1] | $17,409,521 |
| Past due[2] | ||
| $1,004,639 | Less than 6 months | $1,229,500 |
| $432,057 | 6 to 12 months | $443,200 |
| $903,243 | 1 to 2 years | $678,100 |
| $2,043,846 | Greater than 2 years | $2,495,200 |
| $4,383,785 | Total past due | $4,846,000 |
| $20,043,302 | Total gross receivables | $22,255,521 |
| 22% | % Past due | 22% |
| Receivables-impairment | ||
| $3,255,109 | Opening balance | $3,323,992 |
| $881,659 | Impairment losses recognised | $662,497 |
| $(812,776) | Amounts written off as uncollectable | $(688,659) |
| $3,323,992 | Closing balance | $3,297,830 |
[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 or 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 2021 | Estimates and assumptions | Actual 2022 |
|---|---|---|
| $15,602,854 | Recoverable amount of receivables not due ($000) | $17,389,080 |
| $1,116,456 | Recoverable amount of receivables past due ($000) | $1,568,611 |
| $16,719,310 | Total carrying value ($000) | $18,957,691 |
| 7.00% | Use-of-money-interest rate | 7.28% |
| 5.00% | Discount rate | 6.00% |
| $(17,700) | Impact on the recoverable amount of a 2% increase in discount rate ($000) | $(24,100) |
| $19,000 | Impact on the recoverable amount of a 2% decrease in discount rate ($000) | $25,600 |
The fair value of receivables is not materially different from the carrying value.
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.