This chapter deals with a range of issues which are not directly raised by the Terms of Reference, but which are part of the context of the formula’s operation in practice. These need to be addressed if public confidence in the Scheme is to be increased, and sources of discontent with its operation reduced.
10.1 Enforcement by the Child Support Agency
The Child Support Agency (CSA) provides the fundamental operative basis and service delivery of the Child Support Scheme. It is now part of the Department of Human Services.
Under the child support legislation, the Child Support Registrar is currently responsible for both the assessment and enforcement of child support. CSA has administrative links to tax return lodgment information from the Australian Taxation Offi ce (ATO). This provides the information on taxable income, which is the basis for the assessment of child support. Automated information exchange, at least for parents who lodge timely tax returns, enables a streamlined child support assessment process to operate with minimal administrative intervention required by CSA offi cers.
10.1.1 The options for collection
Once an assessment has been made, the payee parent has the right to choose either to arrange transfer of the liability privately directly with the payer, or to ask CSA to collect the child support on their behalf. If the payee chooses private collection, CSA retains a role in updating assessments for each new child support period, and in some cases modifying an assessment in the light of information provided by one of the parents (for example, where a payer’s income falls significantly as a result of losing a job). However, in private collect cases, CSA has no role in actual transfers. The payee has the option of being able to apply for CSA collection if private collection arrangements are not working. If the payee chooses CSA collection, CSA will work with the payer parent as to their preferred means of payment of the liability, or enforce payments using available administrative mechanisms if the payer is not prepared to make voluntary payments.
10.1.2 Enforcement powers
Enforcement powers akin to those available to the ATO together with further specifi c powers directed to collection of ongoing liabilities are available to CSA. Where payers are in ongoing employment, they or CSA may ask their employer to make regular deductions from their wages and forward them to CSA in satisfaction of their child support obligations. If a payer does not pay voluntarily, CSA can impose collection from wages and intercept tax refunds from the ATO. CSA can also collect from social security pensions or benefits, including from Family Tax Benefit (FTB) in limited circumstances, give notices to third parties to garnishee money of the payer, and prohibit the payer from leaving Australia or seek bankruptcy of the payer. CSA has significant powers to require provision of information to assist in locating monies against which enforcement can occur. CSA can also seek a court judgment for the debt, and undertake court enforcement of the judgment.
10.1.3 Accurate assessment of capacity to pay
Reliance upon taxable income may be problematic in some parents’ cases, despite its administrative convenience. The assumption justifying using tax return information is that such information will fairly reflect a parent’s financial circumstances and capacity to support his or her child.
The purposes of taxation laws and child support laws are not the same. The tax treatment of particular types of income may be designed to encourage particular types of business activity or investment, or to improve competitiveness or economic or fi scal balance. Where a parent is engaged in a small business, runs his or her own company, or is self employed, a tax return that provides an accurate statement of taxable income for the purposes of taxation laws may in some cases understate the fi nancial resources actually available to that parent to support a child. The parent may be allowed signifi cant concessions and rebates because of the field in which he or she is conducting business. A parent who directs his or her own company may choose to draw little from the company in terms of income, but have access to significant resources and benefi ts that raise his or her standard of living. If the parents of the child were living together, the child would be sharing in the higher standard of living of that parent drawn from his or her business activities.
The Parliamentary Committee received a number of submissions highlighting the inequity between the position of PAYG wage earners within the Scheme compared with self-employed people or business people.
209 At present, the CSA has a range of methods by which it can assess the real capacity to pay of a self-employed person who has structured his or her financial affairs so as to minimise taxable income. It also has methods of estimating the real income of those who fraudulently conceal income derived from cash transactions. However, it normally relies on individual parents to initiate a change of assessment process on the basis that the other parent has a higher capacity to pay than is reflected in his or her taxable income.
Since 1999, the CSA has had the power to initiate changes of assessment of its own motion. This can be very useful in enabling the CSA to look at categories of child support cases that have shared characteristics and where a closer examination of the payer’s finances is warranted. The Taskforce recommends increased resources for this work.
Recommendation 2
The CSA should be given increased resources to investigate the capacity to pay of those who are self employed, or who otherwise reduce their taxable income by organising their financial affairs through companies or trusts, and those who operate partially or wholly by using cash payments to avoid taxation.
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10.1.4 Effective enforcement
Making an appropriate assessment must be backed up by effective enforcement in circumstances where parents will not comply voluntarily. The Taskforce considers that the proper enforcement of child support obligations in relation to all child support payers is essential for popular acceptance of the Scheme. As has been recognised for many years, self-employed non-resident parents who do not meet their obligations to their children represent a particular challenge for the CSA, both in assessment and enforcement. The inequities between the way the Scheme applies to PAYG wage earners compared to the self employed or business people were noted by the House of Representatives Committee
210, and the Committee concluded that the CSA required extended enforcement powers to enable it to effectively address accumulating debt within the Scheme.
211 The Taskforce recommends that any enhancement of the CSA’s enforcement powers should be focussed on increasing its enforcement options in relation to self-employed parents who are defaulting on their obligations. CSA’s powers in this area are currently directed at debt, once a parent has failed to pay and is accumulating arrears. This contrasts with the situation of a wage-earning parent, where collection of future liabilities can effectively be enforced before arrears have accumulated, when it is clear that this is the best method of ensuring the obligation is paid in a timely way. In many cases, self-employed people will have ongoing sources of revenue, despite not having an employment relationship with the provider of that income source. Appropriate powers need to be available to maintain ongoing collection in such cases.
In many cases, even payers with a minimum liability who are on income support accumulate arrears until CSA sets up ongoing collection of the liability from their income support entitlements. CSA currently has very limited ability to address collection of arrears while the ongoing liability remains, with the result that the debts of such payers are increased by legislatively imposed late payment penalties over time. It would be preferable for the children who have not received that support, and in order to avoid debt for the payer, that greater opportunities were available to CSA to collect such arrears from Centrelink benefi ts.
Many types of government payments cannot be intercepted to recover debts, including various veterans’ entitlements, many superannuation funds and parliamentary pensions. This general prohibition may be for very valid reasons, including ensuring that the individuals can support themselves, as well as recognising the service to the public or the nation that such individuals have provided. However, a parent’s obligation to their children should not be treated as reduced by the fact that the parent has performed such service, and such parents placed in a different position from recipients of other sorts of government payments.
Such parents will generally meet their obligation to their children voluntarily. However, there have been instances of failure both by former parliamentarians and by veterans to pay their child support. When recipients of such payments do not comply, there should be means available to CSA to enforce their obligation against their government payments. Everyone should be in the same position before the law. No one who has the capacity to pay should be exempted from child support obligations or shielded from provisions designed to enforce those obligations when they fail to meet them voluntarily.
One recommendation made by the House of Representatives Committee was that there should be the power to cancel driving licences for the non-payment of child support. The Reference Group counselled against this particular enforcement option, as it may impair a payer’s earning capacity and therefore be self-defeating in terms of ongoing collection.
Recommendation 3
3.1 The CSA should be given increased enforcement powers to the extent necessary to be able to improve enforcement in relation to people who are self employed or who otherwise reduce their taxable income by organising their financial affairs through companies or trusts, in particular by:
- broadening the powers available to the CSA to make ongoing deductions from bank accounts to align enforcement measures for non salary and wage earners with those for salary and wage earners;
- aligning CSA powers with Centrelink powers to make additional deductions from Centrelink benefits to cover arrears; and providing the power to garnishee other government payments such as Department of Veterans’Affairs pensions.
3.2 Enforcement powers should not be extended to the cancellation of driving licences for failure to pay child support, as this might reduce parents’ capacity to earn income.
10.2 Court enforcement by payees
Escalating debt in individual child support cases is a frequent cause of complaints and Ministerial correspondence from payee parents. Currently, a payee who has registered a child support liability for collection with CSA assigns responsibility for the debt entirely. Such a payee has no continuing right to enforce the liability. If such a payee is involved in court action to resolve the division of property, or other proceedings where the opportunity to seek enforcement of outstanding child support exists, they must ask the Child Support Registrar to become involved in the proceedings. Delays or difficulties in persuading the CSA to intervene can hinder opportunities for collection when they arise in this way.
Such a payee has no power to require the Registrar to take any particular step. If such a payee is prepared to undertake all enforcement themselves, they may opt to collect the liability privately and cease to have the debt registered with the CSA for collection. However, there is currently no middle ground, where the payee may take action to enforce a debt while the ongoing obligation is registered with the CSA for collection.
The Taskforce concluded, on the basis of its consultations with judicial offi cers and professionals practising in family law, that payees ought to be given concurrent enforcement powers as long as this did not conflict with action being taken by the CSA. This benefits payees, is efficient in terms of court time, and saves administrative costs for the CSA.
The Taskforce proposes that payees should be able to give the Registrar notice that they will pursue a one-off court opportunity of enforcing arrears themselves, whilst maintaining CSA collection of the ongoing liability. The only issue is then ensuring that CSA is aware of the action being taken, the correct level of debt recorded and maintained and that no overlapping activity occurs to collect the same debt. A suffi cient period of notice should generally be given, although with opportunity to abridge the period should the urgency of the circumstances require it.
Recommendation 4
Payees should be given all the same powers of application to a court as the Child Support Registrar has for orders in relation to the enforcement of child support, provided either that the payee gives 14 days notice to the Registrar of the application, or the notice requirement is otherwise reduced or varied by the court, and that any money recovered under a payee enforcement action be payable to the Commonwealth for distribution to the payee.
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10.3 Powers of courts determining child support matters
10.3.1 Powers in relation to information and discovery
The Federal Magistrates Court, in which many parents will determine their family law proceedings, has only limited powers to make orders requiring disclosure of information by one party to another. This was deliberate, in order to ensure that this court would provide a simpler and more accessible means of resolving disputes than the superior Federal courts. Formal information-determining processes such as discovery and interrogatories were seen as aspects of the procedure of superior courts that ought not generally to be replicated in the Federal Magistrates Court.
While this is generally appropriate, it is necessary, if payee enforcement is going to be effective, that the Federal Magistrates Court should have at least the same powers to obtain information and require evidence to be produced as the CSA has when enforcing a liability.
Recommendation 5
A court hearing an application for enforcement of child support by a payee parent should have the same powers to obtain information and evidence in relation to either parent as the Child Support Registrar has when enforcing a child support liability.
10.3.2 Powers of case management
Systems for the resolution of family disputes and child support issues should be designed as far as possible to keep matters out of court, and to provide opportunities for the resolution of disputes without recourse to litigation.
However, if these diversion and dispute resolution strategies do not resolve the dispute, cases may have to be determined by a court. Once a matter is in the court, it is best that the court manage the case according to its best judgment of the circumstances of the parents. The process of litigation allows for individualised determinations of the issues in dispute.
One important power that courts need to have, in relation to any dispute, is to maintain the financial position of the parties, pending the court’s final decision. In the context of child support, this needs to be balanced against the need of the children for ongoing financial transfers. Section 140 of the
Child Support (Assessment) Act 1989 gives the court such powers in relation to change of assessment applications, but s.140 is not currently broad enough to deal with all the situations where it may be desirable to make orders staying or otherwise affecting the operation of the child support legislation pending final resolution of the case.
212 In particular, the court has very few powers in relation to registration and enforcement, particularly in relation to debt and the accrual of late payment penalties. Courts should have all necessary powers to maintain the status quo, or to balance the interests of the parties appropriately, pending the outcome of the case.
Recommendation 6
Pending the final outcomes of any application or appeal under child support legislation, whether in relation to assessment, registration or collection, the court should have a wide discretion to make orders staying any aspect of assessment, collection or enforcement, including:
- implementing a departure from the formula on an interim basis;
- excluding formula components or administrative changes which might otherwise be available;
- suspending the accrual of debt, and/or late payment penalties, without necessarily having to substitute a different liability for a past period;
- discharging or reducing debt without needing to specify the changes to the assessment to effect this result;
- limiting the range of discretionary enforcement measures available to the CSA, or staying enforcement altogether; and
- suspending or substituting a different amount of available disbursement to the payee.
10.4 Rights to seek CSA collection
Payee parents currently have limited rights to make a choice as to whether to use the CSA to collect child support. Initially, upon the raising of the liability, such parents have the right to ask CSA to collect on their behalf. However, CSA can require parents to collect child support privately, despite the parents not having made an election for CSA to end collection of child support, where it is satisfied that the parents involved can make their own sustainable private collection arrangements.
213 This provision was inserted into the legislation on the recommendation of the Joint Select Committee on Certain Family Law Issues, which reported in 1994.
214 While the Taskforce accepts the rationale for the Joint Select Committee’s recommendation, concern was expressed about the operation of this provision in the Reference Group, and the Taskforce considers that the legislative enactment of this recommendation does not find the right balance between payer and payee interests. Unlike an application for registration, CSA is not obliged to accept a payee’s application to resume CSA collection.
215 CSA is only obliged to grant the payee’s application when the criteria in the Act are satisfied, namely that:
- the payer has an unsatisfactory payment record; or
- the Registrar is satisfied that special circumstances exist in relation to the liability which make it appropriate to grant the application.
The onus is thus placed upon the payee to justify a return to CSA collection. CSA’s policy is that ‘collection will be appropriate if there are exceptional difficulties in the relationship between the parents or between the payer and the children that may make private collection difficult to sustain’.
216 The Taskforce is concerned that there is a potential conflict between the interests of the CSA and payees in the administration of this discretion, for while the CSA’s mission is about collection of child support, resourcing constraints might lead it to seek to limit the numbers for whom it has a collection responsibility. The Taskforce considers that payees are in the best position to know whether, given the overall context of their relationship with the other parent, CSA collection is the better option for them. While this must be balanced with the interests of paying parents, the Taskforce proposes that the legislative position should be reversed. Instead of stating when the Registrar must accept a payee’s application to resume collection, the legislation should set out the circumstances in which the application should be refused.
Recommendation 7
Section 39(5) of the Child Support (Registration and Collection) Act 1988 should be amended to provide that a payee’s application to opt for agency collection after a period of private collection should not be refused unless it would be unjust to the payer because:
- the payer has been in compliance with his or her child support obligations;
- a failure in compliance has been satisfactorily explained and rectifi ed; or
- there are special circumstances that exist in relation to the liability that make it appropriate to refuse the application.
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10.5 Overpayments
Payers naturally have a keen interest in ensuring that overpaid amounts are ultimately repaid. Cases of disputed parentage are the most highly emotive, but overpayments can arise in many circumstances due to the general operation of the Act and administrative payment system.
10.5.1 Overpayments through CSA error
The situation sometimes arises where a carer is credited with an amount of child support to which he or she is entitled, but it is subsequently discovered that the payment was made in error, because no corresponding payment had been received from the payer. The CSA may recover the amount from the payer, but until then it is an overpayment, to be repaid by the carer. The carer may not have had any knowledge of the fact that the payment was made in error. Indeed, the parent may have spent the funds before being made aware of the overpayment. Such errors may cause stress to the carer, and adversely impact on the relationship between the payer and the carer and children. The CSA should carry the debt until it is recovered, as an outstanding payment, and not involve the carer in rectifying the error.
Recommendation 8.1
Where, as a result of administrative error, a payee has been paid an amount not paid by the payer as the result of administrative error, for example, as the result of the payer’s cheque not being met, or as the result of an incorrect allocation of employer garnishee amounts, the Child Support Registrar should not require repayment by the payee.
10.5.2 Payees affected by payers’ non-compliance
Currently, child support payers are required to lodge tax returns to provide a basis for administrative assessment. If there is no return, the Child Support Registrar will use available information to calculate an income as close as possible to the payer’s actual income or, as a last resort, set it at a default level. This process is outlined further in Chapter 3. If the payer lodges his or her return, the assessment must be revised. This has the potential to result in an overpayment that the resident parent must repay unless he or she successfully applies for a retrospective change of assessment.
The payee parent has no control over the payer’s compliance with tax laws. Hence, the responsibility for seeking adjustment to the assessment should be shifted from the resident parent to the payer. The Registrar should vary the payer’s income from the time the income tax information was lodged, but the payer must demonstrate reasons why it should be changed for the whole period. One of the factors the Registrar should take into account is the effect on the resident parent of any overpayment.
Recommendation 8.2
Where a payer lodges a late tax return for a child support period, and that return shows a taxable income lower than that used in the assessment, the Child Support Registrar shall vary that payer’s income from the date the return was lodged, but not for the intervening period unless the payer can show good reason for not providing income information at the time the assessment was made. In making a decision whether to vary the payer’s assessment, the Registrar will consider the effect on the resident parent of having to repay any overpayment thereby created.
10.5.3 Paternity disputes
While a paternity challenge is pending, the Registrar may currently make a suspension determination under s.79A of the
Child Support (Registration and Collection) Act 1988, under which the father would continue to pay child support, but the Registrar would pay nothing out to the resident parent until the dispute is fi nalised. A suspension determination will always be made unless the resident parent would not be able to provide day-to-day necessities for herself and the child.
217 In the light of the research by the Taskforce on the costs of children in relation to the levels of family payments and ancillary benefits, it is difficult to imagine a situation under the current family payments regime in which a carer would experience such serious hardship. Consequently, the Taskforce considers it appropriate to legislate a default rule, subject to a court order to the contrary, rather than reposing a general discretion in the Registrar. Since the matter will be before the court in any event, it is in a good position to make a determination after hearing from both parents, if the payee parent makes an application that the money be disbursed before the case is resolved.
The effect of the default rule is to minimise the risk of unjustified payments. At least from the time the issue comes before a court until it is decided, child support payments should be held by the Registrar, to be repaid to the payer if the application is ultimately successful. This recommendation is consistent with the original recommendation made by the Joint Select Committee on Certain Family Law Issues.
218
Recommendation 8.3
Where a parent has made an application (under s.107 of the Child Support (Assessment) Act 1989) disputing an assessment on the basis that he is not the parent of the child, and informs the CSA of the application, the Child Support Registrar shall suspend payments of collected amounts to the payee until the application is finalised, unless the court orders otherwise.
Once a court makes a declaration that a man is not a child’s father under s.107, it is as if the child support assessment had never been made. Any child support paid under the assessment must be recovered from the carer by the payer. Currently, the former payer must separately ask the court to make that order for repayment. The Taskforce proposes that the decision about repayment should be part of the court’s deliberation on the question of paternity, minimising court costs and uncertainty for both parties.
Courts considering cases in which paternity has been challenged successfully have varied in their approaches to determining the amount of repayment due to the former payer. Relevant factors are set out in the decision of Federal Magistrate Riethmuller in the case of
DRP & AJL.
219 These should be codified in child support legislation to assist in the clarity of the law. They allow the court to consider the situations of all parties, including the biological father, and to consider all aspects of the relationship between the former payer and the child in determining whether the ‘child support’ mistakenly paid should be repaid.
Recommendations 8.4 and 8.5
8.4 Where a court has considered a s.107 application, and has made a declaration that the assessment should not have been made, it should immediately proceed to consider whether an order should be made for repayment of any amount under s.143 of the Child Support (Assessment) Act.
8.5 When considering how much of the balance of money paid under a child support assessment should be repaid to a payer who has successfully disputed paternity, the court should have regard to:
- the knowledge of the parties about the issue of paternity;
- any acquiescence or delay by the payer after he had reason to doubt his paternity;
- the relationship between the payer and the child;
- the present financial circumstances of both parties; and
- the capacity of the biological father (if known) to provide child support in the future.
Even once a former payer has an order that support paid be repaid, their position in terms of enforcement of the order is subject to the resources of the payer. In contrast, the Registrar intervenes to recover debts from a payer under a child support assessment using powers to access bank accounts, tax returns and wages. The former payer should be put in the same position as a payee, where they are owed repayment of child support related debt.
Recommendation 8.6
Where a court makes an order for repayment of an overpaid amount under s.143 of the Act, the amount of such payment may be registered with the Child Support Registrar as a registrable maintenance liability, for enforcement.
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10.6 Designated payments
The Child Support Scheme should be designed so that it encourages appropriate agreements between the parents about how child support should be paid, and the sorts of expenses it will be intended to cover. The Family Relationship Centres will play a significant role here (see Chapter 15).
However, there will always be a need for some facility for paying parents to pay amounts towards designated costs, for credit against their child support obligation, where both parents cannot agree that the amounts should be so credited. Some Non-Agency Payments have been prescribed in Regulations, and are able to be credited against up to 25% of child support liabilities, regardless of the wishes of the payee parent. These payments clearly benefit the child or the household in which the child principally resides. They can be for:
- childcare costs for the child who is the subject of the enforceable maintenance liability;
- fees charged by a school or preschool for that child;
- amounts payable for uniforms and books prescribed by a school or preschool for that child;
- fees for essential medical and dental services for that child;
- the payee’s share of amounts payable for rent or a security bond for the payee’s home;
- the payee’s share of amounts payable for utilities, rates or body corporate charges for the payee’s home;
- the payee’s share of repayments on a loan that financed the payee’s home; and
- costs to the payee of obtaining and running a motor vehicle, including repairs and standing costs.
Importantly, a credit against each periodic monthly obligation as it arises is only available if the paying parent pays the remaining portion of the liability directly to CSA. Such payments allow the paying parent to be confident that the children are benefi ting and to have some sense of control over how his or her child support is used, without impinging upon the payee’s discretion about how most of the payment is applied. For those parents who make prescribed payments as part of satisfying their child support obligation, there is frustration with the 25% limit on credit of the payments. The limit on credit is a balance between ensuring that the carer has sufficient ongoing cash-fl ow to cover the everyday requirements of the children and adequately maintaining the paying parent’s sense that he or she has an involvement in how his or her child support payments are expended.
Given the generous nature of the government contribution to children through FTB, there is less need now for a substantial majority of child support to be paid in cash. However, these are situations where parents cannot agree that the payments are to be credited as child support. If the parents agree, the payments may be credited for up to 100% of the periodic liability. On balance, the Taskforce is persuaded that the House of Representatives Committee’s recommendation of an increase in credit limit from 25% to 30% provides sufficient rebalancing of the rights of the parents in such cases.
220 However, there is a risk that in particular situations, the payee parent may be left with insufficient cash flow if prescribed payments are credited against their wishes, perhaps where a significant amount of the child support payment has already been transferred in a lump sum, or for other reasons. The Registrar should have a discretion to consider an application by the payee parent not to credit a prescribed payment, or to credit it only to a reduced extent, to allow individual adjustment in these situations.
Under the Taskforce proposals for a new formula in Chapter 9, the paying parent with regular contact will already have a credit of 24% of the costs of the child expended on the child whilst the child is in their care. The Reference Group advised that a further reduction in ongoing cash flow by allowing credit for in-kind payments otherwise than by consent in such cases, together with the aggravation of any conflict in parenting arrangements, would have a very negative impact. In such cases, the Taskforce believes it is undesirable to allow a further credit for in-kind payments otherwise than by consent, as this would reduce to an unacceptable level the discretionary funds in the hands of the payee to meet expenses such as rent and utility bills.
Recommendation 20
20.1 The limit on Prescribed Non-Agency Payments should be raised from 25% to 30%.
20.2 Prescribed Non-Agency Payments should not apply to parents whose child support liability reflects regular contact or shared care.
20.3 Section 71D of the Child Support (Registration and Collection) Act 1988 should be clarified so that the Child Support Registrar’s discretion not to credit a Non-Agency Payment or to reduce the level of credit should apply in circumstances where the payee would be left without sufficient funds to meet the reasonable needs of the child if the Non-Agency Payments were credited, or credited in the normal manner.