Explanatory Memorandum
(Circulated by the authority of the Treasurer,the Hon. John Dawkins M.P.)CHAPTER 5
THE CHILD SUPPORT ASSESSMENT ACT 1989
INCOME ESTIMATES
Enables a change in the way income estimates operate from 1 July 1993
THE CHILD SUPPORT (ASSESSMENT) ACT 1989
DIVISION 3 - CHILD SUPPORT INCOME AMOUNT
Subdivision B - Child support income amount determined by reference to an estimate of taxable income
Summary of proposed amendments
5.1 This amendment proposes the following changes:
- (1)
- Modifies the circumstances in which a second or subsequent estimate of income in a child support year may be made compared with the first,
- (2)
- Reduces the minimum life of an estimate from 3 months to 2 for more flexibility,
- (3)
- Removes the effect and revocation provisions of estimates from the Act and allows Regulations to be made which specify their effect,
- (4)
- Provides transitional arrangements for the change.
5.2 It is a necessary and fundamental requirement that persons who are named in child support assessments have the facility to have an assessment amended quickly based upon the fact that the historic income amount used in the assessment now bears no relationship to current income, from or under which child support is actually paid or received. The facility is similar in principle to the process of varying provisional tax in a tax assessment and is a popular mechanism in the Scheme.
5.3 The present provisions do not however work well and can disadvantage both parties in different circumstances. The fundamental problem is that an estimate is retrospective in effect back to the start of the child support year. The Child Support Evaluation and Advisory Group reported on this matter in their final report at Chapter 11 under "Changes in Income" and recommended that any reassessment made because of a change in income should only have effect from the next month after making the estimate. This is generally what the Regulations will ultimately prescribe and final details are being carefully examined to minimise any possible unintended outcomes.
5.4 The effect of revocation of an income estimate will also be shifted from the Act to the Regulations for similar reasons and for consistency.
5.5 The existing provisions which specify the effect of estimates and later revocation will remain in the Act but be amended to state that they have effect only for assessments which end before 1 July 1993. This will ensure that any late estimates can still be processed under the appropriate provisions and this effectively provides the transition provisions.
5.6 The Act also needs to be amended to ensure that a person who elects to use an estimate must stay with estimates for the rest of that child support year. As a consequence and, because of the penalty provisions to be introduced simultaneously (see Chapter 11) , a fresh estimate may now be lodged after 2 months rather than 3, and, as a necessary flow on, the rules for making second and subsequent estimates in a child support year are to be relaxed to provide greater flexibility.
5.7 The law presently requires that an assessment reverts to one based on the historic child support income amount after revocation but in reality this can be a nonsense in these cases. If a person's income has changed at some stage during the year it is in principle improper to return to the earlier amount (unless of course it is really going to be the current income and then it may be used in the new estimate) as it is most unlikely that the income will be what is was 2 years earlier. Some people are using this mechanism to delay payment into the next year and otherwise distort outcomes.
5.8 A by-product of this amendment will be to close off a loophole where a person who elects to use an estimate during the year revokes that estimate immediately before the end of the year does not have the reconciliation provisions apply. By being required to stay with an estimate those provisions will apply.
5.9 The outcome being sought is a fair process for estimate cases so that child support payments are properly made in accordance with current income and neither party is disadvantaged and thereafter given every opportunity to get the income amount correct.
Explanation of the proposed amendments
5.10 Section 60(1)(b) is amended to differentiate between the first or only estimate and any second or subsequent estimate lodged in a child support year [Clause 13(a)]. Section 60(3)(b) is amended by substituting "2" for "3" [Clause 13(b)] .
5.11 Section 61 is to be amended by modifying its application only to assessments that end before 1 July 1993 [Clause 14] and a new section 61A is inserted specifying the effect of estimates on assessments that start on and after 1 July 1993. The effect of the estimate will be determined in accordance with Regulations made for that purpose [Clause 15]. The new subsection (1A) will allow the law to prescribe that different child support income amounts apply to different parts of the child support year and eliminate retrospectivity. All other parts of the existing section 61 are repeated in section in the new section 61A [Clause 15].
5.12 Subsection 62(1) is amended by inserting the requirement at the end of the section to have to lodge another estimate at the time a previous estimate is revoked otherwise the revocation has no effect and to distinguish between estimates revoked for assessments before and after 1 July 1993 [Clauses 16(a) and (b)].
5.13 Section 63 is amended by modifying its application to assessments that end before 1 July 1993 [Clause 17] and a new section 63A is inserted specifying the effect of revocations on assessments that start on and after 1 July 1993 [Clause 18]. The effect of the revocation will be determined in accordance with Regulations made for that purpose. The new subsection (1A) will allow the law to prescribe that different child support income amounts apply to different parts of the child support year and eliminate retrospectivity. All other parts of the existing section 63 are repeated in the new section 63A.
5.14 The amendment will apply to all assessments based on estimates of taxable income that commence on and after 1 July 1993, regardless of when the estimate is made.
Clauses involved in the proposed amendments
Clause 2 proposes that the amendment will apply to all child support assessments for the years starting on and after 1 July 1993.
Clause 13 amends section 60
Clause 14 amends section 61
Clause 15 inserts the new section 61A
Clause 16 amends section 62 by requiring a fresh election to be made when an existing estimate is revoked, otherwise the revocation has no effect
Clauses 17 amends section 63
Clause 18 inserts the new section 63A for revocations of estimates in assessments on and after 1 July 1993.