The Child Support Scheme is managed by the Inland Revenue Department (“IRD”) and operates under the Child Support Act 1991 (“the Act”).
Child Support is financial support paid by parents who either do not live with their children or who share the care of their children with another person.
The Act provides a formula to work out the amount of child support payable. In a nutshell, it uses the adjusted taxable income of both parents and subtracts standard amounts for personal living costs and the parent’s other children, while taking into account the care each parent provides for the children and the costs of raising them. A care cost percentage is then determined by the IRD.
Child support is not mandatory for parents or carers who do not receive a sole parent or unsupported child benefit from Work and Income New Zealand, as those parents or carers can make arrangements between themselves. However, if an arrangement cannot be agreed, those parents and carers can seek the assistance of the IRD to determine the amount of child support payable.
On 1 April 2015 the first set of major changes were introduced to the 20-year-old formula used to calculate child support. We summarise the major changes as follows:
- Both parents now receive assessments that take into account both of their respective incomes and it provides allowances for any other children of their own who live with them (taking into account the age of those children and the defined current cost of raising children in New Zealand).
- The parent’s assessments no longer provide allowances for partners or children living with that parent who are not their own.
- The threshold of the amount of care recognised by the IRD has been reduced. Previously the child support formula only took into account if a parent cared for a child 40% of the time; however, this has now been reduced to 28% of the time or 103 nights or more a year, or two nights a week.
- From 1 April 2016, further changes will be incorporated. We summarise the major changes as follows:
- The qualifying age for children eligible for child support will reduce from under 19 years to under 18 years, unless the 18 year old child is still enrolled in and attending school.
- Changes to penalties and write off rules for child support. These include the replacing of the current 10% initial late payment penalty with a two stage late penalty payment of 2% on the day after due date and a further 8% eight days after the due date, reduction in incremental penalty charges, and relaxing the rules pertaining to writing off penalties and interest in particular events.
- Introducing two further grounds for administrative review of IRD decisions to the current 10 grounds, which take into account re-establishment costs and debt offsetting.
It is estimated that of the approximate 137,000 parents paying child support, 33,000 will have their amount increased under the new changes and a further 46,000 will pay less, with 58,000 being unaffected. If you are unsure as to how these changes may impact on you, we suggest that you contact us to discuss your situation in more detail.