5.1.6: Late payment penalties

Context

Late payment penalties apply whenever a payer fails to pay their child support debt by the due date. CSA can remit late payment penalties in certain circumstances.

Legislative references

Sections 66, 67, 67A, 68, 69, 80 and 89 Child Support (Registration and Collection) Act 1988

Section 204(3) Income Tax Assessment Act 1936

Explanation

CSA imposes a late payment penalty on a payer whenever they fail to pay their child support debt by the due date (section 67). The purpose of a late payment penalty is to encourage payers to comply voluntarily with their obligation to pay child support and discourage late payment.

A late payment penalty is a debt due and payable to the Commonwealth (section 67(2)). Any late payment penalties CSA collects are paid into consolidated revenue. They are not paid to the payee.

CSA calculates late payment penalties on the unpaid balance of a payer's child support debt after the due date for each payment period. The rate of the penalty is linked to the rate that is the general interest charge rate under subsection 8AAD(1) of the Taxation Administration Act 1953 (section 67(3)).

Prior to 1 January 2008 late payment penalties were linked to the annual rate of the penalty for unpaid income tax under the Income Tax Assessment Act 1936 and were calculated as follows:

• Late payment penalty for a weekly payment period is 1/52 of the annual rate of penalty for unpaid income tax.
• Late payment penalty for a fortnightly payment period is 1/26 of the annual rate of penalty for unpaid income tax.
• Late payment penalty for a 4-week payment period is 4/52 of the annual rate of penalty for unpaid income tax.

Before 1 July 1992, late payment penalties were calculated monthly at the rate of 20% per annum, with a minimum penalty of $20 per month imposed whenever an amount of child support remained unpaid after the due date.

CSA will vary the Register to remove any late payment penalties applied because a payer failed to pay an amount of child support that is no longer due. Examples of situations where late payment penalty may be removed include instances where the payer's debt is adjusted to take into account:

• a variation to the liability because of a retrospective court order, or an amended child support assessment,
• a payment made directly to the payee on or before the due date, or
• the correction of an administrative error.

Situations where a late payment penalty should be removed in part or in full are not limited to these examples.

Remitting a late payment penalty

CSA has discretion to remit a late payment penalty in part or in full (section 68). CSA will use this discretion in a way that will further the objectives of the child support scheme, according to the particular circumstances of each case.

There is no particular form for a payer to request CSA to remit late payment penalties. CSA can remit late payment penalties without a payer requesting that it do so, if there is sufficient information available to make a decision.

CSA can remit late payment penalties in any of the following 3 situations:

• The payer did not pay on time because of circumstances beyond their control, and they have taken reasonable action to mitigate those circumstances or their effects (section 68(1)(a)).
• The payer did not pay on time because of circumstances within their control, and they have taken reasonable action to mitigate those circumstances or their effects: and it would be fair and reasonable to remit the penalty having regard to those circumstances (section 68(1)(b)).
• There are special circumstances in the case which make it fair and reasonable to remit the penalty.

Circumstances beyond the payer's control

Some examples of circumstances that may be beyond a payer's control:

• the payer's employer failing to remit deductions to CSA
• short-term unemployment
• unpredictable adverse business conditions
• industrial accidents
• a debtor's failure to pay
• natural disasters.

Circumstances beyond the payer's control are not limited to these examples.

CSA will take into account the circumstances that applied at the time each payment was due and when each penalty accrued when deciding whether to remit penalties that accrued over a number of payment periods. It may be appropriate to remit the late payment penalty for one payment period but inappropriate to remit the penalty for another payment period.

CSA will remit the penalty in full if satisfied that the circumstances leading to the late payment were beyond the control of the liable parent if it is satisfied that the payer has taken reasonable action to mitigate the circumstances that contributed to late payment or the effects of those circumstances.

Circumstances within a payer's control

Some examples of circumstances that may be within a payer's control:

• financial difficulties due to a number of debts, such as rates and electricity, becoming due at the same time, or
• voluntary unemployment during which the payer takes no action to vary the liability.

Circumstances within the payer's control are not limited to these examples.

CSA will take into account the circumstances that applied at the time each payment was due and when each penalty accrued when deciding whether to remit penalties that accrued over a number of payment periods. It may be appropriate to remit the late payment penalty for one payment period but inappropriate to remit the penalty for another payment period.

CSA must consider whether the nature of the circumstances would make it fair and reasonable for CSA to remit the late payment penalty attributable to those circumstances. If so, CSA can remit the late payment penalty in part or in full but only if the payer can demonstrate that they have taken reasonable action to mitigate the circumstances that contributed to late payment or the effects of those circumstances.

Reasonable action to mitigate the circumstances that led to late payment, or the effect of those circumstances

CSA will consider any steps the payer has taken to reduce the effects of the circumstances that led to late payment. A payer's payment history may be sufficient to demonstrate the efforts they have made to meet their child support liability, in spite of the circumstances that led to the late payment.

Some examples of attempts to mitigate the circumstances that led to late payment, or to mitigate the effects of those circumstances:

• part payment of the liability
• attempting to or succeeding in borrowing to pay some or all of the liability
• negotiating with creditors or debtors or both
• paying in full following resolution of a dispute (e.g. over arrears or a payment made directly to the payee)
• making and meeting an acceptable arrangement for payment.

Attempts to mitigate the circumstances that contributed to the delay in payment, or mitigate the effects of those circumstances are not limited to these examples.

Payment following the commencement of legal action to obtain payment, or from intercepting an income tax refund, is unlikely to be a mitigating circumstance by itself. It will, however, depend on the circumstances of the case. For example, action may prompt the liable parent to make an acceptable arrangement for payment, or the liable parent may draw CSA's attention to an expected refund.

Special circumstances

CSA can remit part or all of a late payment penalty if satisfied that there are special circumstances in the case that would make it fair and reasonable to do so. Special circumstances include those all parents face regardless of whether or not they separated. If the parents had not separated, the children would have had to bear their share of the changed financial circumstances.

Examples of special circumstances may include:

• a serious accident,
• being unaware of the registration of the liability while being traced,
• an unexpected and unavoidable expense,
• serious health problems, or
• the payer acting on incorrect advice.

Special circumstances are not limited to these examples.

It may also be appropriate for CSA to remit a late payment penalty if it is satisfied that a payer made their first payment late because they did not understand the operation of the child support scheme. This would not be an acceptable reason for CSA to remit a penalty on more than one occasion.

Where CSA is satisfied that special circumstances exist that would make it fair and reasonable to remit a late payment penalty, it does not have to consider whether a payer has taken reasonable steps to mitigate the circumstances that led to late payment, or the effect of those circumstances.

Fair and reasonable to remit the penalty

CSA must be satisfied that it is fair and reasonable to remit a late payment penalty if the late payment was cause by circumstances within the payer's control, or because of special circumstances. CSA will take into account the payer's payment history, current income and necessary commitments, as well as the nature of the circumstances that led to late payment. It would not usually be fair and reasonable to pay other debts or acquire assets in preference to paying child support debts, although this depends on the predictability and nature of the expense.

Notification of decision

If CSA refuses a payer's request that it remit a late payment penalty in part or in full, it must provide the payer with notice of that decision in writing (section 68(2)). CSA's notice must also state that the payer can object to CSA's decision (sections 68(3)(a) and 80) and apply to the Social Security Appeals Tribunal for a review of CSA's objection decision if dissatisfied with it (sections 68(3)(b) and 89).

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Version 1.7

Issued 1 January 2008

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