The new Child Support Scheme

The new Child Support Scheme and changes to Family Assistance

The new formula: Changes to how child support is calculated

Your income

Each parent's income will be considered in exactly the same way and combined to work out the costs of the children. Each parent's share of the total income will show how much of the children's costs they should meet.

In this section:

• Broader range of incomes used
• What income will you use for child support?
• What income will you use for family assistance?
• Do you set aside an amount for self-support?
• Will both parent's incomes be treated the same?
• Your family assistance payments and child support

Broader range of incomes used

A broader, simpler range of income amounts will be used to work out your child support and family assistance payments, for both parents. These amounts are:

Your taxable income will be used
This is the income shown on your tax return. While the new formula will continue to use taxable income, the change to how it's used is reflected in how we work out the costs of children—the impact of tax on your disposable income is taken into account.

Gross reportable fringe benefits total will be included
This is the value of gross reportable fringe benefits total for the income year, which is reported on your payment summary. Or ask your employer to tell you the expected amount for the year.

A fringe benefit is a benefit provided to you because of your employment. Examples may include using a work car privately, low or no interest loans for employees, or a living away from home allowance.

Target foreign income will be included
This is any foreign income you receive that is not taxable income or a fringe benefit.

Net rental property losses will be added back on
A net rental property loss is where you have a rental property and the costs outweigh the income. We will add any loss back on to your taxable income for child support and family assistance purposes.

Some tax-free pensions or benefits will be included
This includes disability support pensions, wife pensions and carer payments. It also includes the following payments from the Department of Veterans' Affairs:

• invalidity service pension
• partner service pension
• income support supplement
• Defence Force income support allowance

 Important information for people receiving family assistance

The family assistance income test
The income test will continue to affect your family assistance in the same way it does now.

• For every dollar you earn over the Income Free Area, currently $41,318, your Family Tax Benefit Part A will reduce by 20 cents until your Family Tax Benefit reduces to the minimum rate.
• For every dollar you earn over the Higher Income Free Area, currently $91,542 plus $3,650 for each child after the first, your rate of Family Tax Benefit Part A will reduce by 30 cents until no Family Tax Benefit Part A is payable.

If your income details change
It's important that you tell the Child Support Agency and Centrelink about changes to your income as soon as it happens, because we may not be able to backdate the change.

What income will you use for child support?

We add up all the amounts listed above to get your adjusted taxable income. For a child support period that starts after 1 July 2008, your adjusted taxable income will be based on the taxable income and other income components from the last completed financial year of income.

If you have a child support period that ends after July 2008, your assessment will be amended and you'll receive a new assessment that starts on 1 July 2008. Your adjusted taxable income will still be based on your 2006–07 taxable income.

Making sure your child support is correct
The best way to ensure your child support is correct is to lodge your tax return on time every year. If you can't lodge a tax return, lodge a Request for Taxable Income Details form available in the Forms section of the Child Support Agency (CSA) website.

If you haven't lodged a tax return or told us your adjusted taxable income, CSA may use a default income for you. This income is based on all available information about your taxable income and any other amounts from a range of sources such as Centrelink, the Australian Taxation Office or an employer. If you lodge your tax return late, we may not be able to backdate a reduction to the default income.

Estimating your income for child support
You can ask us to base your child support assessment on an estimated adjusted taxable income if:

• you lodged your tax return or advised CSA of your adjusted taxable income for the year used to calculate child support payments and
• your current adjusted taxable income has reduced by 15 per cent or more than the income used in the assessment or
• you already lodged an estimate for this child support period more than two months ago and the new estimate is for a different amount.

You may not be able to lodge an estimate if any part of your assessment is based on:

• an agreement
• a determination made under the CSA change of assessment process or
• a court order.

 Important information for people receiving family assistance

What income will you use for family assistance?

We add up all the amounts listed at the top of this page to get your adjusted taxable income, and deduct any amounts of child support you pay.

Your family assistance payments will be based on an estimate of your family's adjusted taxable income for the current financial year, your personal circumstances, and the amount of time you have care of the children.

You can choose to receive your family assistance annually, when you lodge your tax return, or fortnightly.

To make sure everyone gets the correct amount of family assistance, payments are balanced against your family's adjusted taxable income when you and your partner lodge your tax returns at the end of the financial year.

 Important information for people receiving family assistance

Making sure fortnightly family assistance is correct—estimating income
We realise that estimating your family's income may not be easy, especially if it's not regular. However, you need to be as accurate as possible to reduce the risk of being overpaid.

At the end of the financial year after your (and your partner's if you have one) tax return has been lodged your income will be reconciled.

• If your family's income is more than you estimated and you have been paid too much, you will have to repay any Family Tax Benefit you shouldn't have been paid.
• If your family's income is less than what you estimated and you have been underpaid during the year, your Family Tax Benefit will be topped up to your full entitlement after the end of the financial year.

Do you set aside an amount for self-support?

Yes. Before child support is worked out, we deduct a self-support amount from each parent's adjusted taxable income.

We deduct the self-support amount from your adjusted taxable income to get your child support income. Your child support assessment is based on your child support income.

The self-support amount for 2008 is $18,252. This amount is indexed each year and you will be advised in writing when it changes.

The 2008 self-support amount applies to you if your child support period starts during 2008.

From 1 July, the self-support amount is exactly the same for each parent. This is a significant change.

Note
The new child support formula starting on 1 July 2008 doesn't trigger a new child support period. Therefore, the 2007 self-support amount of $17,358 applies to you if your child support period started during 2007.

In all examples throughout this product, we have used the 2008 self-support amount.

Will both parents' incomes be treated the same?

Yes. Both parents will have the same self-support amount, and under the new formula an ‘income shares' approach will be used to calculate and share the costs of children. That is, the costs of children will be determined by the parents' combined child support incomes.

These costs will be divided between the parents according to each parent's share of the total income. The share of the costs that each parent meets through care will then be taken into account.

If you or the other parent have a new partner, their income will continue not to be counted.

 Important information for people receiving family assistance

Family assistance and income from child support

Any child support you receive for children in your care, even if you arrange it privately with the other parent, can affect your family assistance.

When you apply to receive Family Tax Benefit, you'll have 13 weeks to apply for child support before your Family Tax Benefit is affected. If you don't apply for child support for a child from a previous relationship, you cannot receive more than the base rate of Family Tax Benefit Part A for that child. This requirement is called the Maintenance Action Test.

From 1 July 2008, once you are receiving child support, your Family Tax Benefit will be calculated according to how much child support you receive. Called the Maintenance Income Test, this test reduces the amount of your Family Tax Benefit Part A by 50 cents for every dollar you receive in child support above a certain exempt amount, known as the Maintenance Income Free Area (MIFA).

If you have a child support agreement with a previous partner, your Family Tax Benefit will be worked out the same way, except the calculation may use how much child support would have been paid to you had the agreement not been made. This is referred to as a CSA notional assessment.

Under the current Scheme, the Maintenance Income Test applies to all your children, even if you don't receive child support for some of them. Also under the current Scheme, children who are not child support children are included when working out the MIFA.

From 1 July 2008, the amount your Family Tax Benefit is reduced, under the Maintenance Income Test, cannot exceed the maximum amount of additional Family Tax Benefit you receive for your child support children. Children who are not child support children will not be included when working out the MIFA.

For more information go to www.familyassist.gov.au