2.6.13: Reason 7 - necessary commitments of self-support

Context

A payer or payee can apply for a change of assessment in special circumstances if a parent's necessary expenses significantly affect their capacity to support the child.

Legislative references

Sections 4(2)(a) and 117(2)(a)(iii)(A) Child Support (Assessment) Act 1989

Explanation

There can be a reason to change an assessment if there are special circumstances because the capacity of either parent to provide financial support for their child is significantly reduced because of their commitments which are necessary to enable them to support themselves (section 117(2)(a)(iii)(A)).

Parents can make an application to change the child support assessment if they can show that their capacity to provide child support is significantly affected by the cost of supporting themselves.

There are 3 criteria that must be established before CSA can be satisfied that an assessment should be changed for this reason:

• Are there special circumstances of the case?
• Are the commitments necessary and reasonable to enable the parent to support themselves?
• Do the commitments significantly affect the parent's ability to meet the assessment?

What are 'special circumstances' under this reason?

The phrase 'special circumstances of the case' is not defined in the Assessment Act. The Family Court has held that 'it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary' (Gyselman and Gyselman (1992) FLC 92-279).

The Assessment Act is based on the assumption that parents on similar incomes can pay the same amount of child support for the same number of children (section 4(2)(a)).

A parent must show that there is something special or unusual about their case. The mere fact that a payee's or a payer's expenses exceed their income is unlikely to amount to a special circumstance.

The desire for expenditure on hobbies, entertainment, and holidays do not amount to a special circumstance.

The effect of a property settlement or agreement

An order or agreement relating to a property settlement which requires one parent to assume liability for a debt is unlikely to amount to a special circumstance. However, the responsibility of one parent for debts pending property settlement may amount to a special circumstance.

Where property settlement has not been made, CSA will consider:

• who exercises control of the relevant assets, e.g. it is less likely to be fair to change the assessment where the parent retains control of the asset.
• Whether a property settlement is likely to occur within a short period. If so, it may be appropriate to change the rate for a short time pending property settlement and/or disposal of the asset.

What are necessary commitments for self-support?

A parent must have necessary commitments or expenses for self-support for the reason to be established. CSA must:

• examine the nature of the expenditure to decide whether it is a 'necessary commitment' by looking at the kind of expenditure and the reasons for the expenditure, and
• decide if the amount of the expenditure is 'necessary'.

The word 'necessary' is not intended to produce an unrealistically low standard of living for parents (Gyselman and Gyselman (1992) FLC 92-279).

When families separate, it is likely that there will be insufficient income to support two households at the same standard or even at a reasonable standard of living. CSA must balance competing values, the obligation of the absent parent to continue to support their child against the need for that parent to maintain themselves at a reasonable level. The court has held that the objects of the Assessment Act were intended to reverse what was seen to be the undesirable lack of emphasis upon a parent's commitments. However, on the other hand, it is not intended to completely reverse the situation. It is a question of balance in each case.

Expenditure which may be considered necessary includes:

• reasonable costs of food,
• reasonable costs of accommodation,
• household essentials,
• clothing, and
• necessary transport.

It should be noted that expenses incurred during contact with the children are not included under this reason. Where those costs are necessary to enable contact with the children, they can form the basis of an application under reason 1.

All expenses should be substantiated with appropriate documentary evidence. In some cases the necessity of the cost will depend on the facts of the case, e.g. a person can provide evidence from their treating doctor to show that certain expenses are necessary because they suffer from a medical condition.

The costs of setting up a household or servicing a debt immediately after separation may also be a necessary commitment. A parent leaving a former marital home will often incur costs in establishing a new residence or obtaining new accommodation. There may also be a variety of debts and obligations incurred during the former relationship which must be paid in spite of separation, and which continue to be paid by a parent.

These costs are considered necessary subject to:

• proof of the expense and that it is being paid;
• the necessity of the expense;
• the expense being reasonable (i.e. no more than the minimum payment required if a periodic payment);
• the possibility of rearranging the commitment by refinancing, reducing payment, sale of the asset etc.;
• the period over which the expense will be incurred.

Payments such as contributions to compulsory superannuation or trade unions will generally be accepted as necessary. Voluntary contributions to superannuation may not be necessary unless the applicant can establish that they are in an occupation where retirement takes place comparatively early and where compulsory contributions would be insufficient to provide a reasonable retirement income. Where the applicant is self employed and not entitled to employer contributions under the superannuation levy it may be appropriate to allow superannuation payments at the rate of the levy applicable to the income.

Private health insurance contributions will not generally be considered necessary. However, the expense may be taken into account where the parent would have to pay a higher Medicare levy if they did not have private health insurance. Private health insurance may also be necessary if a parent has a medical condition.

Not every kind of compulsory contractual obligation will be 'necessary'. The onus is on a parent to rearrange their affairs to financially support their child.

The Family Court has held that the proper approach is to take into account unavoidable or compulsory expenses (such as taxation, Medicare levy and compulsory superannuation) together with necessary living expenses (Mee and Ferguson (1986) FLC 91-716).

In all cases the test is:

• is the expense necessary for a reasonable standard of living, and
• is the expense unavoidable or compulsory.

'Reasonable' costs and expenses

There are no definitive rules to help decide if expenses are reasonable. Each case must be considered on its individual circumstances. What is reasonable in one case may be an excessive expenditure in other circumstances. However, a parent will need to show that:

• reasonable measures have been taken to reduce expenditure;
• items related to setting up a new household relate to basic furniture and whitegoods rather than to optional items such as a television, video or CD player;
• the cost of the necessary item, such as a motor vehicle or accommodation, is what is required to meet the need rather than extravagant or luxurious expenditure; and
• where the cost of the expenditure is tax deductible, this has been taken into account.

Compulsory commitments may not be necessary

A commitment that must be paid such as a mortgage, credit card repayment or personal loan will not automatically be considered to be necessary.

Examples

A commitment related to acquiring an asset or a financial resource (e.g. real property, shares or an insurance policy) for the future will not be 'necessary' (Dwyer and McGuire (1993) FLC 92-420, Bassingthwaite and Leane (1993) FLC 92-410). Child support is intended to assist a payee to meet the recurring, day-to-day and often pressing, expenses of maintaining a child. A child is not required to live in penury now in the hope of a future expectation.

Are the costs of self-support significant?

Once a parent has established that there are special circumstances and that the expenses are reasonable and necessary, the third element is to consider if they significantly reduce the parent's ability to provide financial support.

CSA will compare the expenses with the available income (and any other benefits or relevant financial resources). Where a parent's necessary living expenses significantly exceed the funds available to them their capacity to provide financial support is likely to be significantly affected, and the reason will be established.

What period should a decision to change an assessment cover?

In most cases, short-term adjustments to the annual rate of child support will be appropriate to enable a parent to refinance debts, reorganise their financial affairs, or dispose of assets.

Examples

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Version 1.2

Issued 30 August 2004

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