Receivables include general taxes, Working for Families Tax Credits and COVID-19 debt (excluding the Small Business Cashflow Scheme) 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 4, 5 and 6 respectively.
Receivables are initially recognised at face value as the fair value is not materially different from the face value. Receivables are subsequently tested for impairment at year end in accordance with PBE IPSAS 26 Impairment of Cash-Generating Assets.
Allowances for amounts that IR 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.
As a result of new information this year we have made a change which has resulted in the reclassification of $867 million of receivables, from not due to past due receivables. Overall, total gross receivables have remained the same. As a result of the reclassification, there has been an increase in impairment because past due receivables are impaired at a higher rate. In accordance with PBE IPSAS 3, the change in reporting has been made in the current year. Details of the reclassifications and the associated impact on impairment is included below:
- $366 million of provisional tax relating to the 2023 tax year and earlier that remains unpaid, and where the customer also has an overdue annual tax return for the period, has been reclassified as past due. The impairment expense related to this reclassification was $221 million.
- $357 million of mostly income tax debt from customers who are using tax pooling for the current tax period, but who have overdue tax debt from previous periods not covered by tax pooling, has been reclassified as past due. The impairment expense related to this was $254 million.
- $144 million of overdue tax receivables that was previously omitted from past due reporting (most of which was due to customers being deceased, undischarged bankrupts or in liquidation). The impairment expense related to this reclassification was $116 million.
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 2024.
To calculate the impairment of receivables, assumptions are applied to future repayment behaviour, as well as economic factors such as discount rates. The 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 receivables at 30 June 2024 is $28.485 billion, an increase of $4.844 billion (20.5%) from 2022–23.
Not due receivables debt has increased by $2.690 billion (15.1%). However, excluding the reclassification adjustments the increase is $3.557 billion (20.0%). $2.144 billion of the increase relates to changes in payment due dates as a result of the Matariki public holiday i.e. the GST payment date for returns for the period ended 31 May 2024 and the provisional tax due date fell on 1 July 2024, rather than 28 June 2024. The remainder of the increase mainly relates to higher income tax revenue this year.
Past due receivables have increased in 2023–24 by $2.154 billion (37.0%) to $7.974 billion. Excluding the reclassification adjustment, the increase is $1.287 billion (22.1%). This growth is larger than in 2022–23 when the past due receivables increased by $974 million (20.1%). The increase in past due receivables this year is mainly due to increases in GST, income tax and employer activities debt balances. These debt balances are $596 million, $1.001 billion and $499 million higher respectively than in 2022–23.
We have seen notable net growth in the past due debt for all tax types as the ongoing impacts from COVID-19, domestic weather events, high inflation and global economic uncertainty have caused significant strain on businesses. As a result, many businesses are not up to date with their tax payments and we have seen an increase in customers setting up instalment arrangements to manage their tax debt.
Despite the increase in past due receivables over the last year, the amount of debt collected has been higher than projected in previous valuations. For the valuation assumptions, the valuer has used a weighted average of the previous 5 years of repayments and the most recent discount rates. Overall, the average impairment ratio for past due receivables has remained relatively constant at 68.2% (June 2023: 68.3%): impairment ratios have decreased for Working for Families Tax Credits and income tax debt, but increased for GST and employer activities.
The valuer has noted that it is not possible to fully assess the implications of global economic uncertainty on the fair value of the balances or the economy as a whole (both in terms of length and 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 2024. Future repayments of debt will be dependent on the economic conditions our customers face and on the impact of our compliance activities and relief mechanisms such as instalment arrangements.
The valuation resulted in an impairment of $1.486 billion for 2023–24.
Write-offs including COVID-19 remissions for the year totalled $890 million, $136 million higher than the prior year. Standard write-offs were $171 million higher than the previous year. COVID-19 remissions ceased in April 2024, and were $35 million lower than the prior year. The expense for this year included $137 million additional remissions related to 2020–21 to 2022–23 which had not previously been reported.
Overall, impairment of debt and debt write-offs totalled $2.376 billion for the year ended 30 June 2024, of which $728 million relates to the impairment associated with the reclassifications and late remissions noted above.
The fair value of receivables at 30 June 2024 is $22.988 billion, an increase of $3.358 billion (17.1%) from 2022–23.
| Receivables | Actual ($000) | Actual 2024 ($000) |
|---|---|---|
| Receivables | ||
| Gross receivables | $23,641,222 | $28,485,397 |
| Impairment | $(4,011,065) | $(5,497,021) |
| Fair value receivables | $19,630,157 | $22,988,376 |
| Current and non-current apportionment | ||
| Receivables–current | $18,950,657 | $22,045,776 |
| Receivables–non-current | $679,500 | $942,600 |
| Fair value receivables | $19,630,157 | $22,988,376 |
| Ageing profile of gross receivables | ||
| Not due1 | $17,821,047 | $20,510,982 |
| Past due2 | ||
| Less than 6 months | $1,531,330 |
$1,886,308 |
| 6 to 12 months | $591,526 | $873,641 |
| 1 to 2 years | $996,408 | $1,668,453 |
| Greater than 2 years | $2,700,911 | $3,546,013 |
| Total past due | $5,820,175 | $7,974,415 |
| Total gross receivables | $23,641,222 |
$28,485,397 |
| % Past due | 25% | 28% |
| Receivables–impairment | ||
| Opening balance | $3,297,830 | $4,011,065 |
| Impairment losses recognised | $1,467,609 | $2,375,843 |
| Amounts written off as uncollectable | $(754,374) | $(889,887) |
| Closing balance | $4,011,065 | $5,497,021 |
1Not 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. It also comprises social policy receivables not yet due to be paid.
2Receivables 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. IR 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 2023 ($000) | Actual 2024 ($000) | |
|---|---|---|
| GST | $2,239,800 | $2,836,207 |
| Income tax | $2,143,300 | $3,144,080 |
| Employment activities | $1,015,900 | $1,514,498 |
| Other |
$153,900 | $175,687 |
| Total tax debt | $5,552,900 | $7,670,472 |
| Working for Families Tax Credits | $245,600 | $273,454 |
| Total tax debt and Working for Families debt |
$5,798,500 |
$7,943,926 |
| COVID-19–Resurgence Support Payment and COVID-19 Support Payment |
$21,700 | $30,489 |
| Total past due debt | $5,820,200 | $7,974,415 |
The estimated recoverable amount of this portfolio, and the significant assumptions underpinning the valuation of receivables, are shown below:
| Estimates and assumptions | Actual 2023 | Actual 2024 |
|---|---|---|
| Recoverable amount of receivables not due ($000) | $17,785,260 | $20,455,226 |
| Recoverable amount of receivables past due ($000) | $1,844,897 | $2,533,150 |
| Total fair value ($000) | $19,630,157 | $22,988,376 |
| Use-of-money-interest rate | 10.39% | 10.91% |
| Discount rate | 6.50% | 5.50% |
| Impact on the recoverable amount of a 2% increase in discount rate ($000) | $(31,000) | $(44,000) |
| Impact on the recoverable amount of a 2% decrease in discount rate ($000) | $33,000 | $47,000 |
Credit risk
Under the Tax Administration Act 1994, IR 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.