2.4.10: Incomes used in a child support assessment

Context

CSA determines a child support income amount by reference to a parent's taxable income and supplementary amount as assessed by the Australian Taxation Office (ATO). If the ATO has not assessed a parent's taxable income, CSA can decide on an appropriate child support income amount.

Legislative references

Subdivision A of Division 3 of Part 5, sections 56 to 58 Child Support (Assessment) Act 1989

Regulation 7 Child Support (Assessment) Regulations 1989

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Explanation

CSA must use a parent's taxable income and supplementary amount to decide their child support income amount where a taxable income has been assessed.

The Assessment Act also covers situations where a parent's taxable income:

• is amended,
• is nil,
• is not able to be ascertained.

A taxable income has been assessed

Where the ATO has assessed a parent's taxable income for the last relevant year of income CSA will use that income to make a child support assessment (section 56(1)). If the ATO issued an amended assessment of a parent's taxable income for the last relevant year of income before CSA makes the assessment, CSA will use the income shown in the amended assessment.

If ATO amends a parent's taxable income after CSA makes a child support assessment

Once CSA has made a child support assessment it will disregard any subsequent changes to the person's taxable income (section 56(2) and (4)) except where the Commissioner amended the person's assessment because of tax avoidance or under a prescribed provision of the Income Tax Assessment Act (section 56(3) of the Assessment Act, regulation 7 of the Assessment Regulations).

If the ATO issues an amendment that increases a parent's taxable income this is taken to be an avoidance of tax, whether the avoidance was intentional or not. CSA will amend the child support assessment from the start of the child support period to reflect the amended taxable income.

On 14 February 2002, the Commissioner of Taxation announced that taxpayers whose tax assessments were amended because of their investment in a mass-marketed scheme could claim a deduction for certain actual cash outlays. The Commissioner wrote to the affected people and subsequently amended the assessments for any taxpayer who accepted the proposal. Despite the fact that these amendments result in a decrease of tax payable, CSA can also take them into account (regulation 7(1A)).

Example

The ATO issues a tax assessment for M. M's taxable income is assessed as $38,000. Before CSA makes a child support assessment, the ATO amends M's taxable income to $45,000. M lodges an objection to the amendment with the ATO. CSA makes a child support assessment and uses the last taxable income assessed, $45,000. One month later the ATO allows M's objection and reduces M's taxable income to $38,000. The child support assessment is not affected. M could apply for a change of assessment. (See chapter 2.6).

Example

The ATO issues a tax assessment for F. F's taxable income is assessed as $38,000. CSA makes a child support assessment and uses the last taxable income assessed, $38,000. The ATO then amends F's taxable income to remove the tax benefits from a tax avoidance scheme, increasing F's taxable income to $68,000. CSA will amend F's child support assessment from the start of the child support period to reflect the amended taxable income.

A nil taxable income

Where a parent has a nil taxable income determined under the tax legislation their taxable income is taken to be nil for child support purposes unless they have a supplementary amount for that year of income (section 57).

Taxable income and supplementary amount can't be ascertained

If a taxable income is not available, CSA can decide on an appropriate income to use in a child support assessment (section 58). The income used is also described as a default income.

Where a parent's taxable income and or supplementary income cannot be readily ascertained and CSA or ATO has:

• been provided with information, CSA can act on the basis of that information to decide the person's taxable and/or supplementary income (sec 58(1A)).
• required the person to provide a return or information or documents for the purpose of ascertaining those incomes, and the person has not complied, CSA can act on the basis that the person's taxable and/or supplementary income is an amount that CSA considers appropriate (sec 58(1)).

Information provided

If a parent has not lodged an income tax return for the relevant year but has provided CSA or the ATO with details of their taxable income and/or supplementary amount (either orally or in writing) CSA will generally act on the basis of that information.

CSA will not use the information to make an assessment if it has other evidence to the contrary and cannot rely on the information provided to ascertain a parent's taxable income.

Ascertaining an income if information is not provided

If CSA cannot readily ascertain a parent's taxable income and/or supplementary amounts, it will decide on an income to be used in an assessment (a default income).

A parent who receives an assessment based on a default income can give CSA their income details. CSA will amend an assessment made using a default income if it receives or obtains better information at any time after the assessment is made.

CSA will decide on an appropriate income in the following way:

Firstly, CSA will seek information about the person's taxable income and supplementary amount from sources such as Centrelink, ATO employment and audit information, an employer, change of assessment information or an estimate election.

If the ATO has decided that it is not necessary for a parent to lodge an income tax return for the last relevant year of income, the ATO may have information about the parent's income.

CSA will take into account taxable income from all sources. Where CSA has information for part of a year, it will base a default income on that information and a pro rata amount of median income. A median income is the mid-range income of child support customers.

Example

CSA only has information about F's income for 3 months from 1 August to 31 October 2001. A default income can be calculated on: 3 months income + 9 months median income.

However, if a parent received a Centrelink pension or benefit for at least 10 months of the relevant year, and CSA is unable to identify any additional income, CSA will use the amount of pension or benefit received for that year as the income.

CSA will use all available income information to ensure that the amount of income used reflects the parent's taxable income and supplementary amount for the last year of income as closely as possible.

If necessary CSA will use income information for prior years (for a maximum of 3 years), e.g., if a parent lodged an income tax return for the 1995-1996 financial year or provided income tax details for that year CSA can use that information to decide on an appropriate amount for the 1998-1999 year. CSA will inflate an income from a previous year by using the appropriate inflation factor.

CSA can also use statistical information about the average wage for the parent's occupation to determine an appropriate amount. The Australian Bureau of Statistics publishes tables of average weekly earnings for major occupations and industries.

In the absence of any other information, CSA will use the specified median income for child support customers for the last relevant year of income as the default income.

If a payer has made no payments (either to CSA or to the payee) by the end of a child support period for which the assessment was based on a median default income CSA will consider amending the assessment to a nil default income. CSA will not amend a default income to nil without contacting the payee and giving them the opportunity to provide any relevant information. If the payee has no information CSA will reduce the income to nil.

If CSA has reduced a default income to nil, it will review the assessment every 6 months to see whether any further information is available.

Subsequent information

If CSA has based a parent's child support assessment on a default income, and the parent's income taxable and/or supplementary income is later ascertained, then CSA must immediately amend the child support assessment on the basis that the taxable and/or supplementary income is and always has been the taxable income (section 58(2)).

CSA can ascertain a taxable income in this situation even if the ATO has not made an income tax assessment. It can act on information that provides a better basis for a default assessment.

However, CSA will not amend an assessment if a parent provides details of income and supplementary amounts and CSA has other evidence that suggests that the information provided is incorrect.

Example

M's taxable and supplementary incomes cannot be ascertained because M hasn't lodged a tax return for the relevant year. CSA has asked M to provide details of taxable and supplementary incomes for the relevant year but M doesn't provide the details requested. CSA can make a child support assessment using an income amount it considers appropriate. CSA decides to use an amount of $32,000 based on M's past income history. M later lodges a tax return. CSA is advised that M's taxable income is $38,000 and that there is no supplementary income. CSA must amend the child support assessment to reflect M's taxable income of $38,000.

---

Version 1.4

Issued 23 December 2003

Feedback

<<< Previous | Next >>>