Explanatory Memorandum
(Circulated by the authority of the Assistant Treasurer,Senator the Hon Jim Short)Chapter 2 Use of election where income changed
Overview
2.1 Items 21 to 25 of Schedule 1 of the Bill propose to amend the Child Support (Assessment) Act 1989 ( the Assessment Act ) to modify the effect of making an income estimate election on a child support liability. The proposed amendments will generally leave undisturbed the amounts payable prior to making the income estimate election and only affect future amounts payable.
Summary of the amendments
2.2 The proposed amendments will :
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- reduce the incidence of overpayments to persons receiving child support which currently arise because of the retrospective effect of an income estimate election;
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- better reflect a payer's future capacity to pay because the amount payable will only be changed for the months remaining after the estimate has been lodged;
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- reduce the level of child support arrears that may arise when payers spend amounts refunded to them as overpayments, but later do not have the funds to meet their revised ongoing child support liability.
2.3 The amendments are proposed to commence on a day to be fixed by Proclamation. If Proclamation has not occurred within six months from the day the amending Act receives Royal Assent, the commencement day will be the day after that six month period. Regulations are essential to the operation of this measure. The Regulations will provide for the date of effect of the election and will change how the annual rate of child support is converted into a new rate for the remaining period.
Background to the legislation
2.4 Child support assessments are based on each parent's relevant income for the child support year. This income is arrived at by starting with the amount of taxable income shown in a person's return two years prior to the child support year in question and then adjusting it for the movement in average weekly earnings in the intervening period. Section 60 of the Assessment Act provides that, where either before or during a child support year a parent's current income is estimated to have reduced by at least 15% of this figure, a person may elect for a child support assessment to be based on an estimate of his or her current annual income.
2.5 The Assessment Act was amended in 1992 to provide for the regulations to determine a person's child support income amount in respect of an election made after 30 June 1993. Section 61A specifies the effect of such an election, whereas section 61 specifies the effect of an election made on or before 30 June 1993. An election to use an estimate of income currently amends the child support assessment from the beginning of the child support year. Subsections 62(1) and 62(1A) provide for the circumstances where an income estimate election (before and after 1 July 1983 respectively) may be revoked. The current sections 63 and 63A specify the effect of revoking an income estimate election for an election (before and after 1 July 1993 respectively).
2.6 Both a paying parent and parent receiving child support may make an election as to their income estimate for the year. The majority of income estimate elections are made by parents who pay child support and often result in overpayments. Where the parent paying child support has made the election, the person receiving child support is often put in the difficult position of having to repay money which they have spent to support the child. Frequently, some of this money is returned to them as child support payments over the remaining period.
2.7 The Joint Select Committee on Certain Family Law Issues (the Committee), which carried out an examination of the Child Support Scheme recognised this difficulty. The Committee's recommendation 124 proposed that an income estimate election should only take effect from the month following the person's application for reassessment.
Explanation of the amendments
2.8 The proposed amendments will give effect to the thrust of the Committee's Recommendation 124. However, the proposed amendment will generally take effect from the date of lodgment of the election, rather than than one month after the election, as proposed by the Committee. Under the proposed amendments, the parent paying child support will still pay the correct amount for the year based on the income estimate. However, any overpayment to the person receiving child support up to the date of lodgment of the estimate will serve to reduce the remaining future liability for the year. Similarly, any underpayment arising from an income election by a parent receiving child support will be offset evenly over the rest of the year. The only time an estimate of income will have effect earlier than the date of lodgment, is where the parent paying child support has already paid more than the amount payable for the whole year. When this occurs, an overpayment will still occur.
How often can an income estimate be made?
2.9 The proposed amendments will retain the two month restriction between elections but it will run from the date of effect of an election rather than the date from which election is made. In most cases the date of effect will be the same as the date of lodgment of an election. [Item 21 - repealed paragraph 60(3)(b) and substituted new paragraph 60(3)(b)]
What is the effect of making an election?
2.10 The current section 61 applies only to elections made on or before 30 June 1993. Since an election cannot be made after the close of a child support year, this provision is no longer necessary and will be repealed. The provision which will govern all income elections will now be an amended version of section 61A re-enacted as section 61. [Item 22 repeals sections 61 and 61A and substitutes a new section 61. The new subsections 61(2) to (5) retain the provisions of the current subsections 61(2) to (5)]
2.11 The new subsection 61(1) will specify that the person's child support income amount is the amount of the person's estimate and applies from a date determined in accordance with the regulations. The date will ordinarily be the date on which the election was made. However, the regulations will prescribe the circumstances where an earlier date will apply.
What is the effect of revoking an election?
2.12 The current subsection 62(1) applies only to elections made before 1 July 1993. Since a person cannot revoke an election after the close of a child support year, this provision is no longer necessary and will be repealed. The reference in subsection 62(1A) to child support assessments beginning after 30June1993 is removed to enable this provision to apply to all revocations. [Item 23 - repealed subsection 62(1); Item 24 - amended subsection 62(1A)]
2.13 The current section 63 applies only to revocations made before 1July 1993. Since a revocation cannot be made after the close of a child support year, this provision is no longer necessary and will be repealed. The provision which will govern the revocation of income elections will now be an amended version of section 63A re-enacted as section 63. [Item 25 - repealed sections 63 and 63A and substituted new section 63. The proposed new subsections 63(2) to (5) will re-enact the existing provisions contained in subsection 63A(2) to (5).]