Changes to Child Support 2018: Part 1- amended tax assessments


Posted By on 10/09/18 at 10:30 AM

This is part one in a three-part series about changes to child support in 2018.  This article deals with amended tax assessments and how they may affect your child support obligations or entitlements. 

How the Child Support Agency assesses Income

In order to calculate the child support payable by a parent, the Child Support Agency relies on both parents’ taxable income as assessed under the Income Tax Assessment Act. They receive information about the parents’ income from the Australian Taxation Office (ATO).

If a parent does not file a tax return (or it is filed late) then the Registrar will determine an appropriate income for that parent to be used in the child support assessment for that child support period. This determination can be based on information provided by the parent themselves or based on a tax assessment from a previous year.

Amendments to Tax Assessments

Often tax returns are amended due to errors, objections, appeal or reviews. In the past, this did not impact retrospectively on a child support assessment that had already been issued.

Recent changes to child support legislation have enabled the Child Support Agency to take amended taxable incomes into account and amend a current child support assessment. These changes apply to amended tax assessments issued by the ATO on or after 23 May 2018, regardless of the financial year to which the amended tax assessment relates.

An amended taxable income will apply retrospectively or prospectively to the relevant child support period, depending on whether the amended taxable income is higher or lower than the person’s previous taxable income.

If the amendment results in a higher taxable income

If a parent’s amended taxable income is higher than their previous taxable income, the amended taxable income will be applied to the child support assessment from the beginning of that child support period (retrospectively).

Example:

Gillian lodges her tax return on time and her taxable income is assessed at $60,000 for that financial year. Her child support assessment is based on this income. Gillian then realises that her accountant has made an error and failed to include income from her second job. Gillian lodges an amendment with the ATO and her taxable income is increased to $70,000.  Gillian’s child support assessment will be amended from the beginning of that child support period.

changes to child support

If the amendment results in a lower taxable income

If a parent’s amended taxable income is lower than their previous taxable income, there are different rules depending on whether the original assessment was lodged on time.

 If the original assessment was lodged on time

  • The amended taxable income will be applied retrospectively if one of the following applies:
  • the parent applied for the amendment to their assessment within the relevant timeframe;
  • the parent applied for the amendment to their assessment within 28 days of receiving the previous tax assessment notice;
  • the parent applied for the amendment to their assessment within 28 days of becoming aware of an error in their previous tax assessment notice; or
  • the Registrar is satisfied that special circumstances exist.

Example:

Brian lodges his tax return on time and his taxable income is assessed at $80,000 for that financial year. His child support assessment is based on this income. The ATO then identifies what they consider to be an error and amends Brian’s taxable income to $100,000. The Child Support Agency applies the higher income to Brian’s child support assessment.

Brian lodges an amendment with the ATO within 28 days and his taxable income is reduced back to $80,000.  Brian’s child support assessment will be amended from the beginning of that child support period.

If the original assessment was NOT lodged on time

If there was no assessment for the Agency to rely upon then the Register will have determined an appropriate income amount for the purposes of calculating child support. Once the assessment is lodged then the impact on the child support assessment will depend on whether the assessment is higher or lower than the amount determined by the Registrar.

Example:

Andrew does not lodge his tax return on time and the Registrar determines his taxable income for the purposes of the child support assessment to be $50,000 for that financial year. When Andrew lodges his tax return one of the following will occur:

  • If his taxable income is less than $50,000 the amendment to the child support assessment will not be retrospective. It will be amended from the day after the Registrar is notified.
  • If his taxable income is greater than $50,000 the amendment to the child support assessment will be retrospective. It will be amended from the beginning of the child support period.

If a parent then lodges an amendment with the ATO (after the late filing of their original assessment) then one of the following will occur:

1.  If the amended taxable income is higher than the original taxable income and higher than the income determined by the Registrar, then the amendment to the child support assessment will substitute the amended income from the beginning of the child support period.

2.  If the amended taxable income is higher than the original taxable income but lower than the income determined by the Registrar, then the amendment to the child support assessment will substitute the amended income for the days which the original taxable income was applied (not for the days prior to the original assessment was lodged).

3.  If the amended taxable income is lower than the original taxable income, then the amendment to the child support assessment will be as follows:

  • the child support assessment will substitute the amended income for the days which the original taxable income was applied (not for the days prior to the original assessment was lodged) if one of the following applies:(i) the parent applied for the amendment to their tax assessment within 28 days of receiving the original tax assessment notice;
    (ii) the parent applied for the amendment to their tax assessment within 28 days of becoming aware of an error in the original tax assessment; or
    (iii) the Registrar is satisfied that special circumstances exist, or
  • If none of the above applies, then the amended income will be applied the day after the Registrar is notified of the new income amount.

Example:

The Registrar has determined Andrew’s taxable income for the purposes of the child support assessment to be $50,000 for a financial year. Andrew lodges his tax return and his taxable income is assessed at $40,000 for that financial year.

Andrew then realises that his accountant made an error and failed to include a portion of his income so that his taxable income was understated by $6,000. Andrew lodges an amendment with the ATO and his taxable income is increased to $46,000.

Andrew’s amended taxable income is higher than the original taxable income but lower than the amount determined by the Registrar. The amended income ($46,000) will be substituted for the days which the original taxable income ($40,000) was applied but not for the days prior to the original assessment was lodged. The Registrar’s determined amount of $50,000 will still apply for the period prior to the lodgement of the original tax return.

Next steps

These changes to child support legislation should encourage more parents to lodge their tax returns on time (and ensure that they are accurate) so that their child support assessments can be calculated correctly.

Please contact our Family and Relationship Law team if you require assistance with issues surrounding child support.

 

 

Chloe McGuinness

Senior Associate

Chloe graduated from Notre Dame University in 2008 with a Bachelor of Laws and a Bachelor of Commerce (Accounting).  She worked as a superannuation accountant prior to completing her Graduate Diploma... Read More