Bills Digest No. 174   1997-98 Child Support Legislation Amendment Bill 1998

Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details

Passage History

Date Introduced: 12 March 1998

House: House of Representatives

Portfolio: Treasury

Commencement: The Bill implements a range of matters that have various commencement and application dates. These are described in the Main Provisions section of this Digest.

Purpose

The Bill implements a wide range of changes to the Child Support Scheme, a number of which while important to those involved, do not implement substantial new policy. Matters dealt with in the Bill include:

• a marginal increase in exempt income for payers of child support;
• changes to the amount of a carer's income that is to be disregarded;
• the introduction of a minimum income of $260 in calculating the amount of child care payable in respect of a day;
• allowing payers and payees greater flexibility to reach agreements relating to child care payments;
• addressing the situation where child care arrangements have changed from that specified in various orders;
• allowing child support to continue until the end of a school year where a relevant child turns 18 during that year;
• the introduction of an internal review mechanism as the first step in a review process;
• enabling the Registrar to initiate a departure from an administrative assessment of child support;
• the inclusion of exempt foreign income and rental property losses in the calculation of income;
• allowing determinations to be based on more recent years of income;
• enabling a relevant payer to seek an administrative assessment of child support; and
• allowing 50 per cent of child care expenditure to be excluded from a person's income for the purpose of the family allowance.

Background

The Child Support Scheme aims to ensure that parents capable of doing so contribute to the financial support of their children after a couple has separated. The Scheme was introduced in two stages; the first commenced in June 1988 and enables the Child Support Agency (CSA) to collect maintenance payable under court orders or registered court agreements. The second stage commenced on 1 October 1989 and enables CSA to assess child support payments according to the formula contained in the Child Support (Assessment) Act 1989 (the Principal Act). CSA is part of the Australian Taxation Office and the principal means of collection is through deductions from a person's assessable income. While the Scheme is based on the power to compulsorily deduct amounts from a person's assessable income, CSA encourages voluntary agreements between parents rather than compulsory collection.

The proportion of child support collected privately has risen from less than 10 per cent in 1991 to approximately 41 per cent in 1997(1), and the number of cases dealt with by CSA in 1996-97 increased to 447 729 (note that this includes cases where CSA is not involved in collection due to private arrangements). The amount collected and distributed by CSA in 1996-97 was approximately $418 million and when private payments are included a total of $991.5 million was transferred. There was a consequential reduction of $318.3 million in social security payments in 1996-97-an increase of 12 per cent compared with 1995-96.(2)

CSA has completed a number of surveys on the attitudes of its clients. As examples of the results of the surveys, it states:

The operation of the Scheme was reviewed by the Joint Select Committee on Certain Family Law Issues which reported in November 1994. The Committee made 163 recommendations addressing most aspects of the Scheme, including the formula used to assess payments under stage 2 of the Scheme. A number of the accepted recommendations were implemented by the Child Support Legislation Amendment Act (No. 1) 1997. Further response to the recommendations was contained in the Government Response to the report dated November 1997. This Bill will implement a number of the recommendations accepted in the Government Response to the Report. The amendments cover a wide range of areas and there is no central policy implemented by the Bill.

Main Provisions

Currently section 39 of the Principal Act provides that an amount equal to the relevant social security pension will be exempt income for a person contributing to child support The exempt amount is adjusted according to the whether the payer also has a dependant child. Items 2 and 3 of Schedule 1 will increase the exempt amount to 110 per cent of the relevant pension where the payer has no dependant children and to 220 per cent where there is a dependant child.

Section 44 of the Principal Act provides for a reduction in the amount of child support payments where the income of the recipient exceeds a certain amount (their adjusted income). Where an adjustment is made, section 44 currently provides for the amount of payment to be reduced by the amount of the access. Item 4 of Schedule 1 provides that the rate of the adjustment is to be reduced to 50 per cent, rather than 100 per cent, of the excess.

Section 46 of the Principal Act contains the definition of the amount of the carer's income that is to be disregarded for the calculation of the amount of child support payable. Currently this is based on the rate of average weekly earnings (AWE) with an additional proportion of AWE added for children depending on their age (eg 11.5 per cent for a first child under the age of 6). This will be changed by item 5 which provides that the disregarded amount will be the estimate of the all employees average weekly total earnings for the last period in which the Australian Statistician made such an estimate. As the new definition does not contain an additional amount depending on the number and age of dependant children, it may result in a lower amount of the carer's income being disregarded.

Current paragraph 48(d) provides that when determining the exempt amount any child who is a 'shared child' (ie. the parents have substantially equal care of the child) is to be disregarded. Item 6 of Schedule 1 proposes that in regard to a shared child the exempt income of each parent is to be increased by an amount equal to the additional amount allowed as exempt income where the person has care of the child (this amount is calculated under section 39 of the Principal Act which refers to additional amounts payable under social security benefits).

Division 4 of the Principal Act provides for orders to be made to depart from administrative assessment (ie use of the formula) of child support payments where there are special circumstances. Items 10 and 11 of Schedule 1 will allow high child care costs to be taken into account where the child is under 12 at the start of the year, the liable parent is not a carer for any of the children of the relationship and child care costs are more than 5 per cent of the carer's child support income for the year.

Application: From the 1998-99 year of income.

Section 66 of the Principal Act provides that if, in relation to a day in which child support is payable, the amount payable assessed per year would be less than $260 then the amount payable for that day, or days, will be nil. Item 4 of Schedule 3 provides, subject to certain conditions to be discussed below, that if such an assessment is made the amount of payment will be based on an income of $260 rather than nil. The Registrar will have power to reduce the assessment to nil under proposed section 66A if a payer makes an application for such a decision. The conditions where the minimum rate of $260 will not apply are contained in proposed section 66B and are:

• both parents are eligible carers in respect of one or more of the children of the relationship; or
• an order, or voluntary agreement to the same effect, has been made to depart from an administrative assessment of the amount of child support payable.

The Child Support (Registration and Collection) Act 1988 (CSRCA) provides, as its name implies, for methods of collection of amounts due under the Principal Act. Methods of collection include direct deductions from the wages or salary of the person liable to pay the amount and the recovery of an amount due as a debt to the Commonwealth. In the latter case this also includes recovery from a third person who owes a debt to the person liable to make the payment.

Item 10 of Schedule 3 will introduce proposed section 72AA into SCRCA, which will allow amounts to be recovered from social security pensions and benefits. This will not apply where the amount is due under a maintenance order or agreement and so applies only where a child support assessment has been made.

Application: From the 1998-99 year of income.

A liability under the CSRCA will not be enforceable under that Act where an election is made under proposed section 38A, which will be inserted by item 4 of Schedule 4. The proposed section allows a payer and payee to elect that the order is not enforceable. Proposed section 39B will allow the Registrar to determine that an order is not enforceable where the payer has a satisfactory payment record, as determined according to the regulations, for the previous 6 months and the Registrar is of the opinion that the payment record is likely to continue to be satisfactory and that such a determination is appropriate. A payee may apply to have an election/determination under proposed section 38A or 38B repealed and the Registrar will have to make such a decision within 28 days. The application must be granted if the payer has an unsatisfactory payment record under the regulations or the Registrar is satisfied that there are special circumstances to warrant granting the application.

Commencement: 1 July 1998.

Item 1 of Schedule 5 will alter the definition of a 'relevant dependent child' contained in the Principal Act to include step-children were the child is a step-child under a Family Court order. Schedule 5 also contains provisions that will apply where parents have varied a child care arrangement contained in a court order or a registered parenting plan. Proposed section 8A of the Principal Act applies where a couple has altered the arrangements and the Registrar is satisfied that there is not a reasonable excuse for the changed arrangements. If a parent has greater care than that provided for under the order/registered plan they will be deemed to have care for only the time specified in the order/registered plan and if they have less time caring than specified, they will be deemed to be a carer only for their actual time spent caring. If the carer of the child has care of a child for between 40 per cent and 60 per cent of the nights in a year they will be taken to have shared care of the child; for 30 per cent to 40 per cent they will be deemed to have control for 35 per cent and have substantial contact with the child; and for between 60 per cent and 70 per cent they will be deemed to have 65 per cent control and have major contact with the child (the determination of the amount of contact is important for determining if a person is eligible to apply for child support and the rate of payment). Amendments to section 8 of the Principal Act contained in item 6 provide that where one person has care for less than 30 per cent of the time, an agreement may be reached with the principal provider of care that the person has substantial contact, and so be eligible for child support.

Proposed subdivision H will apply where one parent is, because of proposed section 8A, taken not to be an eligible carer as defined in the Principal Act (and so not eligible for child support), while the other parent is taken to be a shared carer (or to have substantial or major contact with the child). If the parents are shared carers under proposed section 8A, the exempt income of the payer is to be increased by an amount calculated by reference to additional payments under the Social Security Act 1991. In determining the exempt amount, a child with whom the parent has substantial contact is to be disregarded and the relevant percentage is to be used to determine the amount of child support payable. The relevant percentages are contained in the Table contained in proposed section 54B and provide for the amount payable to reflect the amount of actual care where this is less than under the court order or parenting agreement. There is no provision for an increase in the amount payable to the parent who has increased care, but the decrease in the amount of child support they have to pay will mean the parent with greater care should have a higher disposable income.

Application: From the 1998-99 child support year.

Current subsection 151(4) of the Principal Act provides that a person may not elect not to receive child support if they are in receipt of an income-tested pension, allowance or benefit. Schedule 7 will substitute a new subsection that provides that if a person is in receipt of family allowance at higher than the basic rate, they may make such an election but it will have to be approved by the Secretary. The provision will allow such an election to be approved where the recipient is at risk and reflects provisions of the Social Security Act 1991.

Commencement: 1 July 1998.

Child support now ceases when a child turns 18. Schedule 8 provides that an application may be made to the Registrar for child support to continue to the end of the school year in which the child turns 18. The Registrar must accept the application if an administrative assessment is in force or there is a child support agreement; the child is likely to be in full-time secondary education on their 18^th birthday; the child's birthday will occur before the end of the secondary school year; and either the application is made before the child's 18^th birthday or the Registrar is satisfied that there are exceptional circumstances justifying the extension of child support.

Application: From the 1998-99 child support year.

Where an amount of payment is due to the CSA, which will then forward it to the payee, it is a debt due to the Commonwealth. In cases where both parents of a child have sufficient care of the child, it is possible for both to have a debt due. Proposed section 71AA of CSRCA will allow the Registrar to offset the debts against each other, so that only the larger debt, reduced by the amount of the smaller debt, will be recoverable. (Schedule 11).

Commencement: 1 July 1998.

Schedule 12 will insert an internal review mechanism whereby a person may request the Registrar to review a decision of the Registrar. The mechanism is fairly common in decisions made by government agencies, with the normal review procedure being: internal review (as proposed by Schedule 12); review by the Administrative Appeals Tribunal (AAT); and final review on questions of law by the Federal or High Courts. Proposed section 98X deals with the decisions subject to internal review, which are:

• whether to accept an application for the administrative assessment of child support;
• whether to refuse to accept such an application;
• the particulars of an assessment;
• whether or not to change an assessment; and
• whether to remit a penalty payable for underestimating assessable income.

An objection against such a decision must be made within 28 days of the service of notice of the decision and must fully state the grounds for the objection (proposed sections 98Z and 98ZA).

The other party to the objection must be served with a copy of the objection and may lodge grounds of objection to the objection, and the Register must consider such a reply (proposed sections 98ZB and 98ZC).

Decisions of the internal review may be appealed to the AAT under current provisions.

Application: From the 1998-99 child support year.

Part 6A of the Principal Act, which deals with departure from administrative assessment of the amount of child support payable, will be repealed and a new Part 6A, dealing with the same matter, substituted by Schedule 13. The main differences between the current and proposed Parts are:

• proposed section 98E will allow the Registrar to refuse to make a determination when satisfied that the matter is too complex to be dealt with under Part 6A. In such a case, the Registrar is to recommend that the matter be referred to a court; and
• proposed Division 3 will allow the Registrar to initiate a departure from an administrative assessment. Such a departure may be made where the Registrar is satisfied that due to special circumstances an administrative assessment would result in an unjust or inequitable determination due to the income, earning capacity, property and financial resources of either parent and that it would be equitable and just as regards the child and the parents and otherwise proper. The parties to the case must be notified that the Registrar is considering making such a departure and will have the opportunity to reply. The parties may jointly elect that such a departure not be made so long as the carer is not in receipt of an income-tested pension, benefit or allowance. The Registrar may, but is not required to, conduct an inquiry or investigation into the matter, and may refuse to make a departure if the matter is too complex.

Application: From the 1998-99 child support year.

One of the more contentious matters in the Child Support Scheme is that assessment is based on assessable income determined under income tax legislation. Carers and payers complain that the other parent uses a number of methods to reduce assessable income, for example, salary packaging, negative gearing and the use of an interposed entity. Schedule 14 will adjust the calculation of the income of the relevant people to include a supplementary amount. This will be the person's exempt foreign income and rental property loss. These terms are defined by reference to the income tax legislation.

Application: From the 1999-2000 child support year.

Under the current definition of last relevant year of income, which is used to ascertain the income of a parent for assessment, the year used is that which occurred two years before the time of assessment. Schedule 15 will alter the definition to the year of income before the start of the child support period. Child support period is defined in proposed section 7A. Basically, the period will start when an application for child support is made, the commencement of a child care agreement or immediately after the end of a previous period. The period will end at the sooner of 15 months after it commenced, the end of the month where the Registrar makes an assessment under proposed section 34A (see below), immediately before the commencement of a child care agreement, or where a new assessment is made under proposed section 34B (see below).

Proposed section 34A provides that the Registrar must generally make a new assessment as soon as practicable after a new assessable income for the liable parent is made (this will generally be at the end of the relevant taxpayer's year of income). This will not apply where the Registrar calculates that a change in the carer's assessable income would not effect amounts payable or if the amount payable is not assessed using the administrative formula.

Section 95 of the Principal Act provides that amounts payable under an administrative assessment are to be reduced by amounts payable under a child care agreement. Proposed section 34B provides that a new administrative assessment must be made by the Registrar when a new child care agreement is made.

There will also be amendments to the provisions of the Principal Act that relate to a person being able to apply to have an estimated income used for the remainder of a year when their estimated income falls by at least 15 per cent. These amendments reflect the change of assessment from a year to period basis. Proposed section 60A provides that the Registrar may refuse to accept such an estimate if satisfied that the actual income will be higher than the estimated amount.

The amendments will enable assessments to be based on more recent assessments of income than currently prevail.

Application: From the 1999-2000 child support year.

Under section 25 of the Principal Act an eligible carer of a child may apply for a child support assessment (basically a sole or principal care provider, a person who has major or substantive contact with the child or who has ongoing daily care substantially equal with another. This excludes people who have no or little contact with the child from applying for an assessment). Proposed section 25A, which will be inserted into the Principal Act by Schedule 18, will allow a parent seeking to pay child support to an eligible carer of their child to also seek an administrative assessment of their child support liability. Proposed section 106A provides that if the Registrar refuses to accept such an application, the unsuccessful applicant may appeal against the decision to an appropriate court.

Application: To assessments made on or after 1 July 1998.

Schedule 19 will amend the Social Security Act 1991 to allow 50 per cent of a person's child support expenditure to be disregarded when calculating the amount of family allowance payable to the person (if family allowance is payable to the person). The amount of child maintenance expenditure will be that estimated by the person and if at any stage this estimate is more than 110 per cent of the actual amount paid, the amount of family allowance payable is to be recalculated (proposed section 886A).

The method statement for calculating family allowance will be amended to provide that when calculating a person's family payment income the person's 'deductible child maintenance expenditure' for the year is to be deducted. Deductible child maintenance expenditure is 50 per cent of the person's expenditure on child support for the year. The definition of this term includes one-off payments, periodic payments and other benefits provided by one parent for the maintenance of the relevant child. The value of any benefit provided will be that assessed under the Social Security Act 1991 where that Act applies; the value under a child support assessment under the Principal Act if such an assessment has been made; or in other cases, the cost of the benefit to the person who provided it.

Application: For payments made on or after 1 July 1998.

Endnotes

2. Commissioner of Taxation, 1996-97 Annual Report, p. 53.

3. Ibid., p. 51.

4. Ibid., p. 58.

Contact Officer and Copyright Details

Chris Field
7 April 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1998

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Published by the Department of the Parliamentary Library, 1998.

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