Child support is money paid by parents who do not live with their child or who share care with someone else. The money is to help with the cost of raising a child.
Liable parents can manage their child support payments through IR by using a formula assessment or voluntary agreement, or they can be arranged through a private agreement with the other parent or non-parent carer.
Prior to 1 July 2023, for child support managed by IR, liable parent payments were passed to receiving carers to the extent that the receiving carer had not received a benefit from the Ministry of Social Development Te Manatū Whakahiato Ora (MSD). From 1 July 2023, receiving carers receive the total liable parent payment unless the carer has received an Unsupported Child’s Benefit from the MSD; then that portion is withheld as Crown entitlement.
Any withheld amount is the Crown entitlement, and this is legally enforceable. Receiving carer entitlements are not recognised as revenue, and any funds yet to be passed to the receiving carers are recorded in the Child Support Trust Account as presented in the Schedule of Non-departmental Trust Money.
Penalties are imposed when there are defaults on child support payments.
Child support receivables include the Crown entitlement and penalties. The Crown entitlement and penalties are presented as revenue in the Schedule of Non-departmental Revenue. Receivables are initially recognised at fair value and 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.
Child support valuation model, significant assumptions and uncertainties
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 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 recoverable amount of receivables is calculated by forecasting the expected repayments based on analysis of historical debt data and then discounting it 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.
As noted by the valuer, the uncertain and volatile nature of future repayments means that there is significant uncertainty in the estimate of value.
The fair value of child support receivables at 30 June 2024 is $196 million, a decrease of $42 million from last year.
| Receivables | Actual 2023 ($000) | Actual 2024 ($000) |
|---|---|---|
| Receivables–child support |
||
| Gross receivables | $885,762 | $755,072 |
| Impairment | $(647,295) | $(558,828) |
| Fair value receivables | $238,467 | $196,244 |
| Current and non–current apportionment | ||
| Receivables–current | $50,000 | $31,420 |
| Receivables–non-current | $188,467 | $164,824 |
| Fair value receivables | $238,467 | $196,244 |
| Ageing profile of gross receivables Past due |
||
| Less than 12 months | $91,978 | $77,140 |
| 1 to 2 years | $40,138 | $35,178 |
| Greater than 2 years | $753,646 | $642,754 |
| Total past due | $885,762 | $755,072 |
| Total gross receivables | $885,762 | $755,072 |
| % Past due | 100% | 100% |
| Receivables–impairment | ||
| Opening balance | $657,364 | $647,295 |
| Impairment losses/(gains) recognised | $68,796 | $(3,023) |
| Amounts written off as uncollectable | $(78,865) | $(85,444) |
| Closing balance | $647,295 | $558,828 |
The estimated recoverable amount of this portfolio, and the significant assumptions underpinning the valuation of the fair value of receivables, are shown below:
| Estimates and assumptions | Actual 2023 | Actual 2024 |
|---|---|---|
| Recoverable amount of receivables past due–Crown entitlement ($000) | $184,531 | $160,391 |
| Recoverable amount of receivables past due - penalties ($000) | $53,936 | $35,853 |
| Total fair value ($000) | $238,467 | $196,244 |
| Discount rate | 6.00% | 6.00% |
| Impact on the recoverable amount of a 1% increase in discount rate ($000) | $(7,300) | $(7,600) |
| Impact on the recoverable amount of a 1% decrease in discount rate ($000) | $7,800 | $8,300 |
Credit risk
The Crown does not hold any collateral or any other credit enhancements over receivables for child support that are past due.
Receivables for child support are widely dispersed over a number of customers, and as a result, the Crown does not have any material individual concentrations of credit risk.