This chapter explains systematically the current operation of the formula in the Child Support Scheme.
3.1 The process
Under the
Child Support (Assessment) Act 1989, any eligible separated parent or carer for a child may make an application to the Child Support Agency (CSA) for a child support assessment.43 The previous system of court-ordered maintenance continues to apply to parents not eligible for a child support assessment. This group now represents only 2.3% of CSA’s active caseload.
44
3.2 Primacy of a parent’s responsibility to their own children
The basic child support formula gives priority to a parent’s duty to support their own biological or adopted child over other obligations, such as those to a new partner, step-children, or aged parents, where there is no duty to maintain. Thus only a ‘parent’ of a child within this limited definition is liable to support that child.
45 The Scheme draws a clear distinction between the legal obligation of a parent to share their income with their own or adopted child or children, and any assumed obligations of the parent.
46 Where a parent has children in successive families, the formula attempts to draw a balance:
the duty of a parent to maintain a child:
- is not of lower priority than the duty of the parent to maintain any other child or another person; and
- has priority over all commitments of the parent other than commitments necessary to enable the parent to support:
- himself or herself; and
- any other child or another person that the parent has a duty to maintain; and
- is not affected by:
- the duty of any other person to maintain the child; or
- any entitlement of the child or another person to an income tested pension, allowance or benefit.47
3.3 The basic formula
The principal object of the Act is to ensure that children receive a proper level of financial support from their parents.
48 The current Australian child support formula is based upon a flat percentage of payer income.
The basic formula takes into account the income of each of the parents, the time each spends caring for the child support child or children, and the payer’s obligations to additional children for whom he or she is legally responsible.
The particular objects of the Scheme as set out in the Act include ensuring:
- that the level of financial support to be provided by parents for their children is determined according to their capacity to provide financial support and, in particular, that parents with a like capacity to provide financial support for their children should provide like amounts of financial support; and
- that the level of financial support to be provided by parents for their children should be determined in accordance with the legislatively fixed standards; and
- that persons who provide ongoing daily care for children should be able to have the level of financial support to be provided for the children readily determined without the need to resort to court proceedings; and
- that children share in changes in the standard of living of both their parents, whether or not they are living with both or either of them.49
The care of children determines whether a parent is a paying or receiving parent, except for those situations where both parents have signifi cant care.
3.4 Definition of income
Income for child support purposes is taxable income with various deductions added back (net rental property losses) and other amounts included (reportable fringe benefi ts and exempt foreign income).
50 This is identical for the payee and payer.
51
3.4.1 Self-support component
Payer parents The formula percentages are not applied to income for child support purposes in its entirety, since an amount of the payer’s income is first exempted for the self-support of the individual parent. The exempt income amount is 110% of the unpartnered annual rate of Social Security pension.
52 For 2005, the exempt amount is $13,462.
Carer parents The income of the carer parent is also taken into account in the current formula. The amount of payee income disregarded
53 is the annual rate of All Employee Average Weekly Earnings as published by the Australian Bureau of Statistics, which includes full-time and part-time employees’ ordinary earnings and ordinary overtime earnings.
54 For 2005, the disregarded amount is $39,312.
Payee income above the disregarded amount (excess income) reduces payer income by 50 cents per dollar of excess income. This has the result that the child support percentage for the payer is applied to a lesser income, and so the obligation is reduced. However, payee income cannot reduce the resulting assessment below 25% of the assessment that would be made without incorporating payee income.
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3.4.2 Child support liabilities as percentage of income
Because of the exempt income allowed under the formula for the payer’s self-support, the actual percentage of a payer’s before-tax income paid in child support is lower than the percentages applicable in the formula.
Tables 3.1, 3.2 and 3.3 show the actual percentage of income before and after tax that is taken in child support for one, two and three children respectively, using the current basic formula (payer has no other dependants and any shared care is below 30%) at intervals up to nearly $50,000. $50,000 is about average full-time ordinary earnings in 2004.
Table 3.1: Child support for one child, basic formula, no new dependent children, per year
| Child Support Income |
Liability p.a. |
Liability as a % of
net income |
Liability as a % of
before-tax income |
| $14,820.00 |
$260.00 |
1.9519% |
1.7544% |
| $20,020.00 |
$1,180.44 |
6.6931% |
5.8963% |
| $25,220.00 |
$2,116.44 |
9.8522% |
8.3919% |
| $27,560.00 |
$2,537.64 |
10.9760% |
9.2077% |
| $30,160.00 |
$3,005.64 |
12.0515% |
9.9656% |
| $32,240.00 |
$3,380.04 |
12.8051% |
10.4840% |
| $35,100.00 |
$3,894.84 |
13.7152% |
11.0964% |
| $37,440.00 |
$4,316.04 |
14.3696% |
11.5279% |
| $40,040.00 |
$4,784.04 |
15.0177% |
11.9482% |
| $45,240.00 |
$5,720.04 |
16.1146% |
12.6438% |
| $49,140.00 |
$6,422.04 |
16.8002% |
13.0689% |
Table 3.2: Child support for two children, basic formula, no new dependent children, per year
| Child Support Income |
|
Liability as a % of
net income |
Liability as a % of
before-tax income |
| $14,820.00 |
$366.66 |
2.7527% |
2.4741% |
| $20,020.00 |
$1,770.66 |
10.0397% |
8.8445% |
| $25,220.00 |
$3,174.66 |
14.7782% |
12.5879% |
| $27,560.00 |
$3,806.46 |
16.4639% |
13.8115% |
| $30,160.00 |
$4,508.46 |
18.0772% |
14.9485% |
| $32,240.00 |
$5,070.06 |
19.2077% |
15.7260% |
| $35,100.00 |
$5,842.26 |
20.5728% |
16.6446% |
| $37,440.00 |
$6,474.06 |
21.5543% |
17.2918% |
| $40,040.00 |
$7,176.06 |
22.5266% |
17.9222% |
| $45,240.00 |
$8,580.06 |
24.1719% |
18.9656% |
| $49,140.00 |
$9,633.06 |
25.2003% |
19.6033% |
Table 3.3: Child support for three children, basic formula, no new dependent children, per year
| Child Support Income |
Liability p.a. |
Liability as a % of
net income |
Liability as a % of
before-tax income |
| $14,820.00 |
$434.56 |
3.2625% |
2.9323% |
| $20,020.00 |
$2,090.56 |
11.8535% |
10.4424% |
| $25,220.00 |
$3,762.56 |
17.5149% |
14.9190% |
| $27,560.00 |
$4,511.36 |
19.5128% |
16.3692% |
| $30,160.00 |
$5,343.36 |
21.4249% |
17.7167% |
| $32,240.00 |
$6,008.96 |
22.7647% |
18.6382% |
| $35,100.00 |
$6,294.16 |
22.1641% |
17.9321% |
| $37,440.00 |
$7,672.96 |
25.5459% |
20.4940% |
| $40,040.00 |
$8,504.96 |
26.6981% |
21.2412% |
| $45,240.00 |
$10,168.96 |
28.6482% |
22.4778% |
| $49,140.00 |
$11,416.96 |
29.8670% |
23.2335% |
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3.4.3 Child support periods
A parent’s capacity to pay is determined by their adjusted taxable income. In order to reflect new taxable income information when it becomes available, child support assessments apply for a ‘child support period’. This period starts when a parent’s tax assessment is available and ends when the next tax assessment is made.
On average, such periods are intended to run for approximately 12 months. However, the 12-month period is not related to the financial year nor to any other period used for other purposes, such as the assessment of eligibility for Family Tax Benefi t (FTB). The assessment is based upon past income year information. If a parent’s circumstances have changed significantly since that year, an application for variation must be made.
The trigger for the new period is the lodgment of a tax return, generally by the paying parent.
55 However, a large minority of child support payers do not lodge tax returns, at least in sufficient time for the child support period to be triggered by the resulting tax assessment. Approximately 44% of child support payers as at June 2004 had not lodged tax returns for the relevant financial year, and so had assessments based on income information other than that shown by the relevant tax assessment.
56 For the four fi nancial years to 2002–03, by 3 December 2004, approximately 52% of payers had lodged all four tax returns.
57 In the absence of a timely tax return, a maximum period of 15 months applies, so that a new period will start in any case, using an income that the Child Support Registrar thinks is appropriate.
58
3.5 Care of children
3.5.1 Care by an entitled carer
The Scheme assumes that a child under the age of 18 is dependent. Where the child is married, or living in a de facto marriage, the child is no longer regarded as requiring support from his or her parents.
59 However, this is the only situation in which the child is defined as independent.
60 Only a person with care of a child may be the entitled carer under a child support assessment against the parent or parents of the child. The formula takes as a default that the carer is the sole or principal provider of care for the child.
61 However, a parent is entitled to claim child support once they have care of a child amounting to 30% of the nights per year.
3.5.2 Dependants of the liable parent
Care of the child support children by the liable parent, and care of any further biological or adopted children, or step-children for whom there is a legal responsibility, is factored into the assessment. Where the liable parent has responsibility for care of either the child support children or new children, an increased exempt amount is allowed to take account of this. The amount makes no explicit reference to whether the liable parent has a new partner or otherwise. However, the amount allowed implicitly assumes a new dependent spouse. The exempt amount does not take into account the income of any other members of the parent’s household.
For the exempt amount to be increased to reflect a dependent child, the liable parent must have care of the child for 60% or more nights annually. In this case, the exempt amount increases to 220% of the partnered rate of Social Security pension, ($22,480 for 2005) plus additional amounts for children based upon their age
62:
| Child under 13 years |
$2,362 |
| Between 13 and 15 years |
$3,296 |
| 16 years and over |
$5,109 |
The carer’s disregarded income does not vary with the number of children for whom that parent is caring.
3.5.3 Non-parent carers
Eligibility may be affected where a person is the carer for a child and is not the parent or guardian of that child. Where a parent or guardian lives with the child, although care is provided jointly with another person, the application for support must be made by or on behalf of the parent or guardian.
63 If the carer is not a parent or guardian, the carer is eligible to have child support assessed in their favour unless the parents object to the carer providing such care.
64 Despite parental objection, the carer may still be eligible if it would be unreasonable for the child to live at home.
The incidence of non-parents caring for children has increased, with approximately 1% of families with children now being grandparent families, and 52,100 children living with people who are not their biological or adopted parents.
65 Whilst small in number, the impact of this increasing group within the child support population warrants more consistent treatment by the formula in terms of the treatment of income and refl ection of care by the liable parent.
66
3.6 Minimum and maximum amounts
3.6.1 Minimum liabilities
Since 1999, a minimum liability (of $260 annually, or $5 per week) applies to all liable parents who do not have at least 30% care of a child (that is, to the level acknowledged by the formula). Where the application of the formula results in an annual child support liability that is less than $260, $260 is substituted as the annual rate. The minimum rate can only be reduced to nil by application to the Registrar. The payer must establish that they have access to total financial resources during the child support period of less than $260 in order to have the minimum liability waived.
The minimum liability applies per payer, regardless of the number of children. If the payer pays child support to more than one carer, the $5 rate is apportioned between the carers according to the number of children in their care.
3.6.2 Maximum liabilities
The maximum income on which a liability may be calculated is capped at an annual rate of 2.5 times full-time adult average weekly total earnings, as published by the Australian Bureau of Statistics. Income beyond this level is not subject to the formula. The self-support amount for the individual payer is deducted from the capped income prior to application of the formula. As the level of the cap is related to average weekly earnings, it is automatically updated. The cap for 2005 is $130,767. This produces a maximum child support liability of $21,115 for one child, $31,672 for two children, $37,538 for three children, $39,884 for four children, and $42,230 for fi ve children.
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3.7 The basic formula in operation
In the simplest of cases, where the child support child lives with one parent, the non-resident parent will be required to pay child support. The liability is a percentage of the liable parent’s taxable income after a self-support component is deducted ($13,462 for a non-resident parent with no dependants in 2005). The percentages are 18% for one child, 27% for two children, 32% for three children, 34% for four children, and 36% for five or more children. The formula reduces the liability of the non-resident parent where the income of the resident parent exceeds the level of average weekly earnings for all employees ($39,312 in 2005).
The formula involves the following steps:
Step 1—Calculate the income for child support purposes of the payer and of the payee.
Step 2—Deduct the applicable exempt amount from the payer’s income, and the disregarded amount from the payee’s income.
Step 3—Subtract 50% of any excess amount of payee income (above the payee disregarded amount) from the payer’s income.
67 Step 4—Take the applicable child support percentage of the remaining portion of payer income. The child support percentages are:
| One child |
18% |
| Two children |
27% |
| Three children |
32% |
| Four children |
34% |
| Five or more children |
36% |
Step 5—If the resulting liability is less than either of the following, substitute the higher of:
- an assessment amount which is 25% of the amount which would result if payer income was not reduced by payee income with the result of step 3, or
- an annual rate of $260 if the resulting amount is less than $260.
The result of this formula application is the annual rate of child support liability for the child support period.
3.8 When the payer has other children to support
Whenever a payer has new biological or adopted children in a second family (or care of child support children), the parent is allowed an increased self-support amount. The child support percentage is then applied to only income exceeding the self-support amount. The result is still checked against the legislated minimum rates.
3.9 Payer with children with different carers
Where a paying parent is liable to pay child support to more than one carer, the percentage applied in each assessment is worked out according to the proportion of care each payee has of the total number of children. For example, a payer liable for two children to two different payees will pay 13.5% (half of the 27% applicable to two children) to each payee, not the 18% (applicable to one child) to each payee.
68 The liability to each payee is then calculated separately under the standard formula, using this percentage.
3.10 Carers with children of different liable parents
Where a carer has children with different non-resident parents, the liability of each paying parent is calculated separately.
69
3.11 When the child is not being cared for by either parent
Where a child is living with someone who is not their parent, the liability of each parent is calculated separately, subject only to a cap on the combined amounts.
70
3.12 Treatment where both parents have care of their children
Where some of the children live with one parent, but others live with the other parent, the formula treats each parent in turn as liable to the other.
71 The liabilities are offset so that one parent becomes the overall payer.
3.13 Shared care
The child support formula changes where there is contact of more than 30%. Where a child’s care is shared between both parents, or each parent has a child living with them, each parent has an entitlement to child support from the other. The calculation of how much each parent has to pay is according to how much care the other parent has. The liabilities are then offset so that only one parent overall is the payer.
Levels of care are generally based on the number of nights each year that a child spends with the parent. Care levels are based on bands, as follows:
Table 3.4: Assessed care levels
| Percentage of care |
Nights per year |
Assessed care level |
| 0–30% |
0–109 |
0% |
| 30–40% |
110–145 |
35% |
| 40–60% |
146–219 |
50% |
| 60–70% |
220–255 |
65% |
| 70%+ |
256+ |
100% | |
Parents may agree that the non-resident parent should be considered to provide 35% of care even when the threshold of nights is not reached.
Each parent’s
total level of care is calculated by adding together the assessed care percentage for each child support child. For example, a parent caring for one child 35% of the time and another child 55% (treated as 50%) of the time will be assessed as caring for 0.85 children. The other parent’s liability is then calculated by fi nding the relevant child support percentage for this amount of care and applying this to his or her Child Support Income (see below). Where a parent is liable for a ‘part’ of a child, the percentage of income payable is taken from a sliding scale between the percentages for whole numbers of children.
72 For example, a parent liable for 1.15 children has a child support percentage of 20%, which is between 18% for one child and 27% for two. The process is reversed to calculate the second parent’s level of care and the fi rst parent’s liability. The dollar amounts are offset and the balance is payable.
Care of children also determines the exempt amount for each parent, which is subtracted from their total income to give their Child Support Income. The parent’s care of new biological children and of child support children is relevant for this calculation. In these cases, the same rules apply to both parents. In situations where there are different care arrangements for different children, the child for whom the parent has the
highest level of care determines the base exempt amount.
Table 3.5: Assessed care levels and self-support amounts
| Assessed % of care: |
Self-support amount |
| 0 (that is, not shared) |
110% of the unpartnered rate of income support |
| 35 |
110% of the unpartnered rate of income support |
| 50 |
110% of the unpartnered rate of income support plus an allowance for each child |
| 65 |
220% of the partnered rate of income support plus an allowance for each child |
| 100 |
220% of the partnered rate of income support plus an allowance for each child |
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The formula steps then become:
Step 1—Calculate the Child Support Income of each parent. If either parent’s income exceeds the cap, the cap is substituted.
Step 2—First, treat one parent as the liable parent, and the other as the payee parent. Deduct the paying parent’s exempt amount from that parent’s income.
Step 3—This step is omitted, that is, the income of the parent being treated as the payee is not applied to reduce the income of the parent being treated as the liable parent.
Step 4—Apply a child support percentage (based upon the care for child support children being provided by the
other parent) to the remaining portion of payer income over their self-support amount.
Step 5—Repeat steps 2 and 4, but reverse the treatment of the parents, that is, treat the parent previously treated as the liable parent as the carer parent, and the parent previously treated as the carer as the liable parent.
Step 6—The parent with the higher liability as the result of the previous steps is the paying parent. The liabilities are offset, and the parent with the higher liability is liable to pay the difference between the higher and lower liabilities.
3.14 When child support ends
A child support assessment will end when particular specified events occur, including the death of one of the parents or the child, the liable parent moving overseas to a country with which Australia has no reciprocal arrangements, and the child ceasing to be in the care of the carer parent, or reaching the age of 18. Reconciliation of the parents does not end the child support assessment.
The carer parent may elect to end the assessment. However, their entitlement to FTB may be affected if they do so.
3.14.1 Children aged 18 and over
The Child Support Scheme does not currently extend to making an initial assessment for liability for the support of a young person aged 18 or over. Maintenance may be ordered in these cases by a court under the Family Law Act, where continuing support for the young person is needed by virtue of continuing education, disability or other compelling reason. The child support formula is not applicable in such court processes, although a court may have regard to likely formula assessment outcomes when making such determinations.
However, where a child has been the subject of a child support assessment, and is completing their secondary education in the year during which they turn 18, there is facility for his or her parent to seek an extension of an existing child support assessment to the end of the school year.
73
3.15 Variation to assessments
3.15.1 Updating of incomes
Where an assessment is formula based, the level is updated approximately annually by the CSA, either upon the receipt of a new income tax assessment for the liable parent or 15 months after the previous assessment was made, whichever is sooner.
74 If a past assessment was made based upon an income determined by the Registrar (because no taxable income was available), this must be replaced retrospectively (to the start date of the assessment based upon the default income) when taxable income information for the relevant period becomes available.
75 By contrast, where the Tax Commissioner makes an amendment to a parent’s tax return upon which their child support assessment is based, the change in income will generally not be reflected by a change to the child support assessment, except where there has been tax avoidance.
76
3.15.2 Estimates of income
The original intention was that the assessment would operate annually, and hence only significant changes would result in a variation of the assessment.
77 However, the original formulation of the Scheme recognised that basing an assessment of liability on a past year’s income could result in significant inequities where current circumstances had changed, and hence there was a need for a mechanism for variation of the assessment in a broader range of circumstances. The current estimation process aims to deal with unexpected changes, such as the loss of a job, and to enable immediate adjustment of the liability to avoid debt. This parallels the way in which the enforcement of court-ordered liabilities for those parents not eligible for child support formula assessment is suspended whilst a parent is in receipt of the full rate of income support.
78 It is not intended to closely track current income and override the use of a past year’s income for standard formula assessments in the way required for income support eligibility.
Estimating income for the purposes of the child support formula now involves a parent applying to have their prospective estimate of current income substituted into the assessment, with the income calculated from the day the estimate is made to the last day of the child support period.
79 The parent’s current income must have decreased by at least 15% from the Child Support Income amount used in the assessment before the parent is eligible to have their assessment based upon their estimate of their current income. However, thereafter a parent may, from time to time, substitute replacement estimates of either decreased or increased income to maintain the currency of the estimate, until the end of the child support period.
Estimates are subject to review by the Registrar where there is information tending to indicate that the estimate may not be correct.
80 The last estimate in a child support period may also be reconciled after the end of the child support period.
81 The estimate mechanism is used only by individual parents who wish to amend their income details for the purposes of an assessment. Where a parent wishes to change the other parent’s income used in the assessment, they must use the change of assessment process.
3.15.3 Change in care
Each approximately annual child support assessment is made on the basis of each parent’s anticipated care of children for the first 12 months of the child support period. Changes may be reflected in a variation to the assessment, but any variation generally only operates from the time the Registrar is advised of the change of care.
82 The only exception from this is where a parent has ceased to care for a child altogether.
83 Where there has been a change, the ongoing level of care is calculated by taking into account care provided by the parents since the start of the child support period to the date of the change, along with the care anticipated to be provided up to the end of the period. Consequently, only increasingly large variations in care arrangements as the child support period progresses will necessitate an amendment to the assessment, and changes late in the period (particularly towards the end of the child support period) may not result in any amendment.
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3.16 Agreements
Parents may prefer to substitute their own individualised child support assessment, reflected in a written child support agreement. What an agreement is, how it may be registered and factors relating to variations of agreements are set out in Chapter 13 of this Report.
3.17 Changes of assessment
Where a parent believes the formula does not operate fairly in his or her individual case, based upon a limited range of reasons, he or she may apply for a departure from the formula, or change of assessment. Details and some analysis of the reasons, or grounds, upon which departure may be sought are set out in Chapter 12, alongside an explanation of process.
3.18 Appeal and review
3.18.1 Internal review
Most decisions of the Registrar are subject to internal review by the CSA (except most decisions about enforcement of child support obligations). A parent seeks internal review by lodging a written objection against a decision, which is then considered by an objections officer (who did not make the original decision). The decision on the objection substitutes for the original decision.
A parent who is dissatisfied with the outcome of the decision on their written objection may then appeal the decision to a court with family law jurisdiction.
3.18.2 External review
Courts with family law jurisdiction may review most child support decisions once they have been reconsidered internally by the CSA. Courts also have original jurisdiction to make orders departing from a formula assessment in some instances.
The parties to an appeal against a CSA decision, and to an application for departure from a formula assessment, are the payer and payee parents. The Registrar is not a party and is not required to justify their decision. However, the Registrar may choose to intervene in a case.
3.18.3 Role of tribunals
Administrative tribunals have only a limited role in the Child Support Scheme. The Administrative Appeals Tribunal (AAT) has a limited role to review decisions about the time within which a parent is permitted to seek internal review by the Registrar of a decision, and about the Registrar’s decisions as to remission of late payment penalties, and penalties for inaccurate parental estimates of income. The respondent to such application is the Registrar, although the AAT will invite the other parent to seek to be a party to the proceedings if the other parent’s rights may be affected by the outcome.