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 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. We provide data to the valuer on receivable balances and repayments. The data is up to 30 June 2023.
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 tax receivables at 30 June 2023 is $23.641 billion, an increase of $1.386 billion (6.2%).
Not yet due debt has increased by $433 million (2.4%), reflecting higher income tax revenue this year. However, the main driver of the increase in tax receivables is past due debt which has increased in 2022–23 by $974 million (20.1%) to $5.820 billion. This growth is larger than in 2021–22, when the past due debt increased by $462 million (10.5%).
The increase in overdue tax debt is mainly due to increases in GST, income tax and employer activities debt balances. These debt balances are $415.3 million and $352.2 million and $193.6 million higher respectively than in 2021–22.
| Actual 2022 $000 | Actual 2023 $000 | |
|---|---|---|
| $1,824,500 | GST | $2,239,800 |
| $1,791,100 | Income tax | $2,143,400 |
| $822,300 | Employment activities | $1,015,900 |
| $152,600 |
Other |
$153,900 |
| $4,590,500 |
Total general tax debt | $5,552,900 |
| $250,800 | Working for Families Tax Credits | $245,600 |
| $4,841,300 |
Total general tax and Working for Families debt |
$5,798,500 |
| $4,700 |
COVID-19—Resurgence Support Payment and COVID-19 Support Payment |
$21,700 |
| $4,846,000 | Total past due debt | $5,820,200 |
We are seeing a growing number of customers getting into debt, most likely as a result of the current global economic environment and the unpredictable economic influence of adverse weather events seen earlier in the year.
Despite the increase in past due debt over the last year, the amount of debt collected has been higher than projected in previous valuations. However, this is not expected to continue in 2023–24 and it is expected that defaults on tax debt may increase in the near future. The recent increase in employer activities debt support this, as employer activities debt is typically the first tax type to be repaid by businesses. There has also been an increase in the number of businesses opting to set up instalment arrangements to manage their tax debt. As a result, the valuer has decreased the repayment ratios across all tax types for the 30 June 2023 valuation. For the valuation assumptions, the valuer has used a weighted average of the previous 5 years of repayments.
However, as noted by the valuer, it is not possible to fully assess the implications of global economic uncertainty on the fair value of the tax 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 2023. 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.
Overall, the valuation resulted in an impairment of $713 million for 2022–23 and an increase in the average impairment of overdue tax debt from 67.63% to 68.30%.
The fair value of tax receivables at 30 June 2023 is $19.630 billion, an increase of $672 million (3.5%) from 2021–22.
| Actual 2022 ($000) | Receivables | Actual 2023 ($000) |
|---|---|---|
| Receivables | ||
| $22,255,521 | Gross receivables | $23,641,222 |
| $(3,297,830) | Impairment | $(4,011,065) |
| $18,957,691 | Carrying value receivables | $19,630,157 |
| Current and non-current apportionment | ||
| $18,465,691 | Receivables–current | $18,950,657 |
| $492,000 | Receivables–non-current | $679,500 |
| $18,957,691 | Carrying value receivables | $19,630,157 |
| Ageing profile of gross receivables | ||
| $17,409,521 | Not due1 | $17,821,047 |
| Past due2 | ||
| $1,229,500 | Less than 6 months | $1,531,330 |
| $443,200 | 6 to 12 months | $591,526 |
| $678,100 | 1 to 2 years | $996,408 |
| $2,495,200 | Greater than 2 years | $2,700,911 |
| $4,846,000 | Total past due | $5,820,175 |
| $22,255,521 | Total gross receivables | $23,641,222 |
| 22% | % Past due | 25% |
| Receivables–impairment | ||
| $3,323,992 | Opening balance | $3,297,830 |
| $662,497 | Impairment losses recognised | $1,467,609 |
| $(688,659) | Amounts written off as uncollectable | $(754,374) |
| $3,297,830 | Closing balance | $4,011,065 |
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. It also comprises social policy receivables not yet due to be paid.
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 2022 | Estimates and assumptions | Actual 2023 |
|---|---|---|
| $17,389,080 | Recoverable amount of receivables not due ($000) | $17,785,260 |
| $1,568,611 | Recoverable amount of receivables past due ($000) | $1,844,897 |
| $18,957,691 | Total carrying value ($000) | $19,630,157 |
| 7.28% | Use-of-money-interest rate | 10.39% |
| 6.00% | Discount rate | 6.50% |
| $(24,100) | Impact on the recoverable amount of a 2% increase in discount rate ($000) | $(31,000) |
| $25,600 | Impact on the recoverable amount of a 2% decrease in discount rate ($000) | $33,000 |
The fair value of receivables is not materially different from the carrying value.
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.