5.2.7: Collection from third parties

Context

CSA can issue a notice to someone who owes a child support debtor money requiring that the money be paid to CSA in satisfaction of child support related debts (section 72A). This power is separate from CSA's power to intercept tax refunds or deduct amounts from a social security entitlement.

Additionally, where a person within Australia is controlling money on a child support debtor's behalf, while the child support debtor is overseas, CSA may issue a notice requiring the money be paid to CSA (section 72B).

Legislative references

Sections 62, 72A and 72B Child Support (Registration and Collection) Act 1988

Regulations 14 to 16 Child Support (Registration and Collection) Regulations 1988

Section 85 Defence Forces Retirement Benefit Act 1948

Section 129 Defence Forces Retirement and Death Benefits Act 1973

Social Security Act 1991

Section 118 Superannuation Act 1976

Section 41 of the Superannuation Act 1990

Section 10 Superannuation Industry (Supervision) Act 1993

Section 125 Veteran Entitlements Act 1986

Explanation

CSA can issue a notice to any person who holds money for, or on behalf of, a child support debtor, or to any person who may hold money for the child support debtor in the future. A notice issued to a person under section 72A requires that person to pay the money to CSA. Notices are commonly used to collect money held in bank accounts and for the proceeds of property settlements (i.e. house sale) which become due to the debtor.

A section 72A notice is similar to a garnishee order obtained from a court by a creditor who has obtained judgment against a debtor. However, CSA does not need the approval of a court or to have obtained judgment prior to issuing a notice under section 72A. Notices under section 72A should not be issued on a speculative or 'fishing' basis.

A section 72A notice will require a third party to pay to CSA, until the debt is satisfied:

• an amount equal to the maximum notified deduction total (if a person holds more than the maximum notified deduction total specified in the notice (section 72A(1)(e))
• the amount of money being held (if the person holds an amount equal to, or less than, the maximum notified deduction total (section 72A(1)(f))
• specified ongoing payments (if the person becomes liable, from time to time, to make payments to the debtor - that amount until the maximum notified deduction is satisfied (section 72A(1)(g)).

For the purposes of section 72A(1) the maximum notified deduction total is an amount specified in the notice that does not exceed the support debt of the child support debtor.

CSA can also issue a section 72A notice requiring a person who makes regular payments to a child support debtor to deduct a part of each payment and pay it to CSA. This allows CSA to collect from contractors who make payments to a subcontractor in a manner similar to a garnishee order made by a court.

Which debts can be recovered?

What funds can be attached?

Effect of compliance or non-compliance

Requirements of a section 72A notice

Service of notices

Payment made by payer

Collection within Australia where payer is outside Australia

Which debts can be recovered?

CSA can issue a section 72A notice to recover:

• an overdue child support debt, including an amount equivalent to any child support that CSA has already paid to the payee from consolidated revenue because it was expected to have been remitted by the payer's employer, but was not in fact deducted from the payer's salary; (i.e. a 'top-up' debt);
• arrears of child support that CSA has assessed for a prior period, but which are payable in the future;
• a payer's late payment penalties;
• an employer's late payment penalties;
• an employer's penalty for failure to make a deduction;
• court-ordered costs or other amounts payable to the Commonwealth or CSA in relation to an offence committed by the debtor under the Act.

CSA can also use a section 72A notice to recover any child support due for the current month although not yet payable, however, it will only do so in special circumstances.

A section 72A notice cannot be used to recover other types of debts, such as:

• a payee's estimate penalty;
• a payee's child support overpayment (other than a parentage overpayment order, which CSA has registered for collection as a child support debt)
• court-ordered costs payable to the Commonwealth or CSA in relation to proceedings to collect child support debts from payers;
• amounts of child support that may become due in the future (other than those amounts for the portion of the current month that has already passed); and
• employer penalties for unexplained remittances.

What funds can be attached?

A notice under section 72A is only effective where funds can be identified as owed to a child support debtor and there is nothing that prevents the operation of the notice.

Is a notice effective against a joint bank account?

A notice under section 72A cannot be effective against a joint bank account because it is not possible to identify any portion as belonging solely to one owner (DFC of T v Westpac Savings Bank Ltd 87 ATC 4346).

Is a notice effective in relation to partnership funds?

Funds held by a partnership are held jointly by the members of the partnership. However, it is possible to serve a section 72A notice on a partner in relation to any distribution that they may make to the other partner/debtor.

Is a notice effective against an account held in trust?

If a payer is a trustee of funds held in a bank account, a section 72A notice to the bank in relation to those funds will not be effective. A trustee holds the trust funds for the benefit of others and does not own the funds for their own use.

CSA can issue a section 72A notice to a trustee who holds money in trust for a payer. That notice will only be effective when the trust deed authorises the trustee to make a distribution or payment to the child support debtor from the trust funds.

Is a notice immediately effective against funds in a term deposit?

CSA can require payment from a term deposit upon receipt of a section 72A notice where the terms and conditions of the term deposit allow for the customer to be paid the monies prior to the maturity date (i.e., they are repayable upon demand) (section 72A(12) and Macquarie Health Corp Ltd v Commissioner of Taxation [1999] FCA 1819).

Is a notice effective against superannuation funds?

A section 72A notice may not be effective against pensions or lump sums paid by a superannuation fund or in relation to funds held. It will depend on the particular fund and the status of the money held.

Does the fund have a specific exemption from compliance?
Some superannuation funds were established by legislation which provides a specific exemption from compliance with garnishee notices.

Examples

• Section 118 of the Superannuation Act 1976 and section 41 of the Superannuation Act 1990 specifically preclude garnishee action on any type of pension or other benefit under those Acts (CSS and PSS pensions paid to former Commonwealth Public Servants).
• Section 85 of the Defence Forces Retirement Benefit Act 1948 and section 129 of the Defence Forces Retirement and Death Benefits Act 1973 will not allow section 72A notices to be attached to benefits payable by the Defence Forces Retirement Benefit Board.

Funds that are not specifically exempt from compliance
A superannuation fund holds superannuation money on trust for the benefit of its members (i.e. the contributors) (section 10, Superannuation Industry (Supervision) Act 1993).

As a general rule a superannuation fund will be required to comply with a section 72A notice where the member has access to the funds (i.e. when the funds are 'due and payable' to the child support debtor).

Are the benefits payable to the member?
The rules which apply to all superannuation funds when determining whether or not the benefits are actually payable to the member are as follows:

Unrestricted non-preserved amounts
If a member has access to 'unrestricted non-preserved amounts' (e.g. where they have an option of receiving an immediate payment or rolling funds over) these funds are 'due and payable'. Therefore, a section 72A notice will be effective against any superannuation funds held as an 'unrestricted non-preserved amount'. It is not necessary for the contributor to actually make a request for payment or decide whether to roll over the funds in order for the section 72A notice to be effective (subsection 72A(12)).

Other amounts
Where the funds are not available (preserved amounts) or other conditions are not met (restricted non-preserved amounts), a section 72A notice will not be effective. In such cases, section 72A(12) cannot overcome the legal requirement for the contributor to qualify to access those funds (for example by age or retirement). The notice will not be effective unless and until the debtor-member's benefits are payable to the debtor under the rules of the fund (e.g. by retirement).

Deceased member benefits
A superannuation fund holds superannuation money on trust for the benefit of its members (the beneficiary) (section 10 Superannuation Industry (Supervision) Act 1993). If the member dies, the superannuation fund no longer holds the money on trust for the member. If the money is preserved it is usually paid as a death benefit to the member's dependants or legal personal representative, in accordance with superannuation law and the superannuation trust deed.

If the superannuation trustee decides to pay the death benefit to the deceased person's dependants, the beneficial ownership of the money passes to the dependants from the time of the member's death (even though the decision about the person(s) to whom the money will be paid may not be made until after this date). The superannuation fund will no longer hold money for, or on account of, a child support debtor and a section 72A notice will not be effective.

If the superannuation trustee decides to pay the death benefit to the member's legal personal representative, the superannuation becomes an asset of the deceased person's estate from the time of the member's death (even though the decision about the person(s) to whom the money will be paid may not be made until after this date). The superannuation fund will no longer be holding money for, or on account of, a child support debtor; the money is 'not due and payable' to the child support debtor and a section 72A notice will not be effective. However, CSA will seek to recover any outstanding debt from the person's estate.

Employer withholding of superannuation funds

If a section 72A notice can be effective against a pension paid by a superannuation fund, it may be possible to apply employer withholding as an alternative. See chapter 5.2.3 for details.

What if a solicitor claims they have a lien over the funds?

CSA can issue a section 72A notice to a solicitor for funds held in trust for a child support debtor who is that solicitor's client. The notice will not be effective against any portion of the funds that are subject to a solicitor's lien for work performed and disbursements paid on behalf of their client. A solicitor's lien creates a charge over the funds once the solicitor has delivered their bill of costs to the client (or if the client objects to the bill, when the costs are taxed) (Gilshenan & Luton v FC of T, 83 ATC 4758).

Can a notice be issued against a Court if it holds money for the payer?

CSA cannot issue a section 72A notice to a court, as a court is not a 'person' (Clyne v DFC of T, 83 ATC 4007). CSA cannot therefore require a court to pay any amounts lodged by the payer for bail moneys, etc.

Can CSA obtain money from Veterans' Affairs pensions?

The Department of Veterans' Affairs cannot comply with a section 72A notice requiring it to deduct an amount from a person's Veterans' Affairs pensions, as these pensions are 'absolutely inalienable' (Sub-section 125(1) Veteran Entitlements Act 1986).

Can a notice be issued to Centrelink?

The Social Security Act 1991 prevents Centrelink from withholding their customers' entitlement to a pension, allowance or benefit paid under that Act for the purposes of child support except where section 72AA applies.

However, section 72A notices may be served on Centrelink requiring deductions to be made from Abstudy payments. CSA has undertaken to limit deductions from Abstudy payments to the amount prescribed for the purposes of section 72AA.

Notices issued against inalienable benefits in a bank account
Once inalienable benefits (such as Department of Veterans' Affairs pensions or Centrelink pensions, benefits or allowances) are deposited in an account the funds cease to be inalienable. Therefore a section 72A notice issued to a financial institution that holds money on account of a child support debtor will be effective, provided those amounts are due and payable to the child support debtor, regardless of the original source of those funds.

Can CSA intercept payments to taxi drivers?

CSA can issue a section 72A notice to a taxi owner requiring them to deduct amounts from payments they make to a contracted or employed driver. However, a section 72A notice will not be effective against a taxi cooperative from which a taxi driver hires their cab. A cooperative does not usually pay wages, fees or contract payments to a driver.

Can CSA issue a notice in relation to Commonwealth Inscribed Stock or Bearer Securities?

Section 72A notices should not be issued to the Registrar of Inscribed Stock as the registrar is not a 'person'.

Can a notice be issued in relation to travellers' cheques, foreign currency, shares or gold?

A section 72A notice cannot be effective against a third party who holds travellers' cheques, foreign currency, shares or gold for a payer. This is because these things are commodities and are not 'money'.

Can CSA issue a notice against Health Insurance Commission payments to a doctor?

CSA is legally able serve notices to the Health Insurance Commission requiring it to deduct amounts from 'pay doctor cheques' but will not do so. 'Pay doctor cheques' are payments made under section 20(2) of the Health Insurance Act 1973 where the practitioner has billed the patient and the patient is entitled to receive a cheque for the amount of Medicare benefit which is drawn in favour of the practitioner who has rendered the service. This is due to the administrative problems involved and the anticipated adverse effects on the patients whose doctors may have had payment stopped on their cheques.

What if a property is mortgaged?

A section 72A notice creates a fixed charge on all money due from the third party to the payer to the extent of the liability. However, the charge created by the service of a notice does not rank ahead of any existing fixed charges, e.g. mortgages.

A notice will rank ahead of floating charges which have not yet crystallised at the time the notices were served (Tricontinental Corporation Limited and Anor. v FCT, 87 ATC 4454). A floating charge is a security over a class of assets which change from time to time until they are fixed by an event or act such as liquidation.

A section 72A notice issued in respect of the sale of property that is subject to an existing mortgage will not be effective against that part of the purchase price necessary to pay out the mortgage.

What if the payer is bankrupt?

A section 72A notice issued in respect of money payable by a third party to a bankrupt person will only be effective if the amount claimed does not come within the scope of the bankrupt's estate managed by the trustee. For more information on the effect of bankruptcy, see chapter 5.4.5 Bankruptcy.

Is a notice effective against a life insurance policy?

Section 205 of the Life Insurance Act 1995 applies upon the death of an insured person. It protects money that would be payable under a life insurance policy to that person's estate preventing it from being applied to pay the insured person's debts. Without the express direction of the deceased person any order, judgment, or process of any court, executor or administrator, etc. is ineffective against the funds.

In any event, the beneficiary of a life insurance policy is often not the insured person's estate, but a nominated person, e.g. the person's spouse. When the insured person dies the funds are payable directly to the nominated person.

Effect of compliance or non-compliance

Any person who pays money to CSA as required by a notice under section 72A is taken to be acting under the authority of the payer and is indemnified for any moneys paid to CSA (section 72A(9)).

A person who refuses or fails to comply with a notice without reasonable excuse is guilty of an offence (section 72A(2)) and can be prosecuted. A fine up to $1,000 can be imposed on prosecution. 'Refuses or fails' simply means that a prosecution can commence if the person did not comply with the requirement after being served (or deemed to be served in the case of postal service). The offence occurs regardless of the intention of the person.

If a person is convicted of an offence under section 72A(2), the court may also order the person convicted to pay the amount which the person refused or failed to pay under the notice (section 72A(8)). This has the dual purpose of encouraging compliance and protecting the interests of the payee entitled to child support.

CSA will credit to the payer's child support account any amount it receives from a third party in restitution for that third party's failure to comply with a section 72A notice. It will do so regardless of whether the third party makes this payment voluntarily, or in accordance with a court order. CSA will disburse to the payee any amount of that restitution payment that represents unpaid child support (but not late payment penalties or court costs) as if the amount were paid by the payer.

Requirements of a section 72A notice

The formal requirements of a section 72A notice are outlined in section 72A(3). The notice must be in writing, and specify a day by which the payment is to be made. The due date cannot be a date before the person holds money for a child support debtor. This is a common sense limitation on the power although CSA can issue a notice to a person before they hold money for the debtor, it cannot require the person to pay it to CSA before they actually hold it.

A notice is valid even if, at the time it is issued, no funds are held by the third party.

Example

If CSA wants to extend the date by which payment is to be made, the old notice should be withdrawn in writing and a new notice issued showing the new date, and an update of the amount payable if necessary.

A section 72A notice for wages or contract payments must not require deductions to the extent that they prevent the payer from meeting reasonable living expenses (Edelsten v Wilcox 88 ATC 4484). CSA must consider the whole of the debtor's financial position. The debtor must be allowed ordinary living expenses unless there are extraordinary circumstances.

CSA must give a copy of a section 72A notice to the child support debtor (section 72A(5)). CSA will do this by posting a copy of the notice to the payer at their last known address (section 72A(6)). CSA will generally do this when it serves the notice on the third party.

Service of notices

CSA must serve the notice on the third party. The requirements for service are discussed in chapter 6.7 Service of documents.

Payment made by payer

If a payer pays their child support debt after CSA serves a section 72A notice upon a person, CSA must give immediate written notice of the payment to the person it served with the notice (section 72A(10)).

Collection within Australia where payer is outside Australia

CSA can serve a section 72A notice upon a person within Australia who controls money for a payer outside Australia. However, section 72A notices are restricted in their operation and only apply to amounts already due to the CSA.

CSA also can issue a notice under section 72B upon a person within Australia who controls money for a payer outside Australia. However, a section 72B notice can be used to collect current amounts of child support, before they become overdue.

A section 72B notice can be used when the debtor is not physically present in Australia (s.72B(1)(a) and:

• derives income, profit or capital gains from a source in Australia (s.72B(1)(b)(i); or
• is a shareholder, debenture holder or depositor in a company that derives income, profit or capital gains from a source in Australia (s.72B(1)(b)(ii).

If these criteria apply, CSA can serve a section 72B notice upon any third person who receives, controls or disposes of any of the debtor's money (s.72B(c)).

A section 72B notice is not effective against money derived from certain natural resource payments or royalty payments (s.72B(4)(b)).

Like a section 72A notice, a section 72B notice must specify the amount the person is required to retain and send to CSA; the amount of the debt, and the due date for payment.

---

Version 1.6

Issued 1 January 2008

Feedback

<<< Previous | Next >>>