House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Minister for Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP

Schedule 1 - Child support income estimates

Summary

This Schedule introduces amendments to the income estimate provisions in the Child Support Assessment Act to align estimate periods with financial years rather than child support periods. These amendments will make it easier for parents to estimate their income and for reconciliation to be done through an automated process. These amendments do not affect the length of the child support period, which remains at 15 months. These amendments only change the period over which income estimates are reconciled from 15 months, to a financial year. The reconciliation process checks a parent's estimate of their income against their actual income, so that the correct income is used in child support calculations. This will help improve the accuracy of child support calculations to make sure that the correct information is used.

Background

In order to make a child support assessment, the Registrar must determine a parent's child support income. Division 7 of Part 5 of the Child Support Assessment Act provides rules for determining a parent's adjusted taxable income based on reference to taxable income for last relevant year of income and reference to estimate of adjusted taxable income for the rest of the current child support period.

Currently, for parents who elect to estimate their adjusted taxable income for the child support period (or remainder of the period), the estimate applies until the end of the child support period which can be up to 15 months. Reconciliation for the child support period can only occur when the parent's actual adjusted taxable income is known for all of the child support period.

The practical effect of the current rules is that parents may have a child support period that covers three financial years. This means that their estimate cannot be reconciled until tax returns for the three financial years have been assessed and the parent's actual adjusted taxable income for those years has been provided to the Registrar. This can and does lead to long delays before the reconciliation process can occur.

This Schedule amends the current provisions in Subdivision C of Division 7 of Part 5 of the Child Support Assessment Act such that the estimate period will only be for an income year. This will align the estimate period with the income year and simplify and reduce delays in the reconciliation process.

Explanation of the changes

Part 1 - Amendments

Amendments to the Child Support Assessment Act

Item 1 makes a consequential amendment to the definition of adjusted taxable income in subsection 5(1) of the Child Support Assessment Act so that it also refers to the new rules regarding adjusted taxable income in subsections 61(1) and 63(1).

Items 2 to 8 inserts new definitions into subsection 5(1) for applicable YTD income amount, application period, determined ATI, estimated ATI amount, income component amounts, income election and partial year income amount. Each of these definitions is used in the new estimate rules set out in Schedule 1 to the bill.

Item 9 repeals the definition of remaining period and substitutes a new definition that reflects the two different remaining periods that are applicable under the new rules.

Item 10 to 11 inserts new definitions into subsection 5(1) for start day and underestimated an income amount.

Item 12 makes a technical amendment to subsection 43(1), which allows subsection 43(1) to be subject to any other reference to adjusted taxable income within Part 5 of the Child Support Assessment Act.

Item 13 amends paragraph 44(1)(d) to reflect the changes that are being made to section 60 of the Child Support Assessment Act.

Item 14 amends the simplified outline for Division 7 of Part 5 of the Child Support Assessment Act as set out in section 55J to reflect that, where a parent estimates his or her adjusted taxable income, this is for a year of income rather than a child support period.

Item 15 omits existing references to subsection 60(3) in paragraphs 56(2)(d) and 57(7)(b) of the Child Support Assessment Act and substitutes a reference to new paragraph 60(1)(b).

Item 16 amends the heading for Subdivision C of Division 7 of Part 5 to reflect that an estimate will no longer be for the remainder of the current child support period.

Item 17 repeals sections 60 to 60B and substitutes a new section 60. New section 60 sets out how a parent can elect to use an estimate of their adjusted taxable income in assessing the costs of the child to the parent for the whole income year or remaining days in an income year. This amends the previous requirement that the estimate would apply for the remainder of a child support period, which can be up to 15 months.

New section 60 applies to the first election of an estimate that a parent makes for a year of income. New subsection 60(1) provides that, where a parent is to be assessed in respect of the costs of a child of the parent for a day in a child support period, the parent may elect that the year of income is to be the amount that applies under new subsection 60(2) or (3). New paragraph 60(1)(b) is similar to existing subsection 60(3), with some minor changes in the language used. This provision sets out when a parent can make a first election of an income estimate for an income year. This can only occur if the election is not more than 85 per cent of the parent's adjusted taxable income determined in accordance with section 43 for the last relevant year of income, or an amount the parent declares is their adjusted taxable income for the last relevant year of income where the Registrar is satisfied that this is correct.

New subsection 60(2) provides that, if a parent makes the election before the start of, or on the first day of, the year of income, the total of the income component amounts, as estimated by the parent, is their adjusted taxable income for that year of income.

New subsection 60(3) provides that, if a parent makes the election during the year of income but not the first day of the year of income, they must work out the amount that is to be their income for each day in the remaining period, using the method statement in subsection 60(4). The parent must also provide an estimate of each income component amount for the period starting on the first day of the year of income and ending on the day immediately before the election was made. This amount is the parent's year to date amount. Although the year to date amount is not used to calculate a parent's child support liability, it is used in the reconciliation process in new Division 7A of Part 5 to ensure that the correct income is used to determine a parent's child support liability.

New subsection 60(4) provides a method statement that must be followed where a parent makes a partial year first election during an income year, rather than on the first day of the income year.

Step 1 of the method statement in new subsection 60(4) requires the parent to estimate each income component for the remaining period, starting on the day the parent makes the election and ending on the last day of the year of income. In step 2, the amounts in step 1 are added together to get the partial year income amount. Steps 3 and 4 annualise the parent's estimate for the remainder of the year so that an annual amount is used to determine the parent's child support income for a day in the child support period for the remainder of the income year that the estimate applies.

Example

Alex provided a first income election on 4 September 2010. This included a year to date amount of $3,000 and a remaining period estimate of $40,000. This amount includes Alex's income for each component amount set out in new subsection 60(2).

The amount estimated is annualised by dividing $40,000 by the number of days in the application period ($40,000 divided by 300 days for the period 4 September to 30 June inclusive), and multiplying the result ($133.33) by 365 days.

The annualised amount under subsection 60(4) is $48,667 ($133.33 x 365 days).

New subsection 60(5) sets out the start day if the parent makes their first income election during the income year to which the estimate is to apply. New paragraphs 60(5)(a) and (b) provide two options for when the election must start. These are that the election must start either on the day the election is made or the first day of a child support period if this day is after the day the election is made and before the end of the current income year.

New subsection 60(6) prevents a parent from making a first election under new section 60 for any part of the application period that an income amount order is in force in relation to the parent.

New subsections 60(7) and (8) set out how an election under new section 60 must be made. New subsection 60(7) provides that the parent must give the Registrar notice of the election in the manner specified by the Registrar. New subsection 60(8) sets out what the notice must specify. The notice must provide the amount determined under new subsection 60(2) or (3). It also must include each of the income component amounts estimated by the parent if new subsection 60(2) applies. If new subsection 60(3) applies, the notice must include the start day for the partial year election along with each of the income component amounts for the year to date amount and for the remaining period.

Item 18 repeals subsection 61(1) and substitutes new subsections 61(1) and (1A). New subsection 61(1) sets out that the effect of the election under new subsection 60(1), for the application period, is that the parent's adjusted taxable income is the amount that the parent elected to be their adjusted taxable income under new subsection 60(2) or (3). New subsection 61(1A) specifies when an application period starts and ends for an election made under new subsection 60(1).

Item 19 omits the reference to 'child support period' and substitutes 'application period for the election' in subsection 61(2) to ensure that any impact is only for the application period to which the election applies.

Item 20 omits the reference to the child support period in subsections 61(3) and (4).

Item 21 repeals subsection 62(1) and substitutes new subsection 62(1). New subsection 62(1) allows a parent to revoke an income election at any time, which may be before or after an application period has started.

The note after new subsection 62(1) provides that, if an application period has started, then, following the revocation under new subsection 62(1), a new election must be made under new subsection 62A(1). If the application period has not started, for example, the election was made before the year of income and therefore the start day of the application period has not occurred, no further action is required by the parent unless they want to make another new election for the income year.

Item 22 repeals subsection 62(3) to allow a parent to provide new elections for periods where there is an income amount order. This ensures that, when the income amount order ceases to apply, the parent's estimate reflects their actual circumstances. Changes to elections where there is an income amount order can only occur if the first election occurred when an income amount order did not apply.

Item 23 inserts after section 62 new section 62A, which sets out the method that must be followed for second and subsequent estimates within a year of income. New subsection 62A(1) sets out the method statement that must apply if the parent revokes an income election (made under new section 60 or 62A) after the application period for the income election has started during an income year and provides a new income estimate. Step 1 of the method statement in new subsection 62A(1) requires the parent to estimate each income component for the remaining period starting on the day the parent makes the election and ending on the last day of the year of income, 30 June. In step 2, the amounts in step 1 are added together to get the partial year income amount. Steps 3 and 4 apply to annualise the parent's estimate for the remainder of the year so that an annual amount is used to determine the parent's child support income for a day in the child support period for the remainder of the income year that the estimate applies.

New subsection 62A(2) provides that, subject to new subsection 62A(3), the start day for the election is the day the election is made. New subsection 62A(3) provides that, if an event occurred before the election was made that resulted in a parent's income being higher than the estimated amount previously provided, then the start day for the new election is from the date that the event occurred. It is intended that this will assist in preventing a payer who estimates their income from having a debt, if their estimate does not accurately reflect their income, following the reconciliation process.

Example

Alex provided an estimate of $40,000 that applied from 1 July. On 7 September, Alex got a pay rise to $50,000. Alex did not notify the Registrar of this pay rise until 1 December. As the later election is greater than the original election, it is applied from the date of the event, being the pay rise, which is 7 September.

New subsection 62A(4) provides that the parent must give the Registrar notice of the election under new section 62A in the manner specified by the Registrar. New subsection 62A(5) sets out what the notice must specify, which is the annualised amount determined under subsection 62A(1), the start day for the election and the income component amounts, estimated under the method statement in new subsection 62A(1), for the partial year income amount.

Item 24 repeals subsections 63(1) and (2) and substitutes new subsections 63(1), (2) and (2A). New subsection 63(1) provides that, where new subsection 62A(1) applies for an application period, the parent's adjusted taxable income is the amount that the parent elected under new subsection 62A(1). The application period for an election under new subsection 62A(1) is set out in new subsection 63(2). New subsection 63(2A) has the same effect as subsection 63(2) prior to these amendments, with minor amendments that clarify the provision, with the effect that changes to an election will not affect a parent's ongoing child support liability while an income amount order applies.

The note to new subsection 63(2A) provides that the heading of section 63 is amended.

Items 25 to 27 make minor amendments to subsections 63(3) and (4) to reflect changes to the estimate period and estimate provisions.

Item 28 inserts new subsections 63AA, 63AB, 63AC, 63AD, 63E and 63AF after section 63.

New section 63AA sets out when a Registrar may refuse to accept an income election. New subsection 63AA(1) provides that, where a parent makes an estimate for the entire year of income under subsection 60(2) and the Registrar is satisfied that the amount worked out is less than the amount the Registrar considers likely to be the parent's actual adjusted taxable income, the Registrar may refuse to accept the income election.

New subsection 63AA(2) applies to income estimate elections made under subsection 60(3) where the parent provides a partial year income amount and a year to date amount. Where the Registrar is satisfied that the partial year income amount is likely to be less than the parent's actual adjusted taxable income for the remaining period in relation to the income election, the Registrar may refuse to accept the income election. Where the Registrar is satisfied that the year to date income amount for the year of income, estimated under new paragraph 60(3)(b), to which the income election relates is likely to be more than the actual year to date amount for the year, the Registrar may refuse to accept the income election.

New subsection 63AA(3) applies to subsequent income estimates made under new subsection 62A(1). As with subsection 63AA(1), where a parent provides an estimate for partial year under subsection 62A(1) and the Registrar is satisfied that the amount worked out is less than the amount the Registrar considers likely to be the parent's actual adjusted taxable income, the Registrar may refuse to accept the income election.

New subsections 63AA(4) and (5) are the same as existing subsections 60A(2) and (3). New subsection 63AA(4) provides that, in making a decision to refuse an income election, the Registrar may use information he or she has obtained and may conduct an inquiry into the matter. New subsection 63AA(5) provides that, subject to the objection provisions in the Registration and Collection Act, if the Registrar refuses to accept an income election, it is taken never to have been made.

New section 63AB is a renumbered version of existing section 60B and sets out the notice requirements where the Registrar refuses to accept an income election.

New sections 63AC, 63AD and 63AE allow a parent or the Registrar to amend a year to date amount that has been provided under new section 60.

New section 63AC allows a parent to provide a new estimate of their year to date income amount. New subsection 63AC(1) may apply if a parent has made an election under new subsection 60(1), which includes a year to date income amount, or the parent has made a new election for a year to date income amount under new subsection 63AC(1). If the parent is satisfied that the year to date income amount that they provided is incorrect, they may elect a new year to date amount to replace the year to date income amount that they previously provided. This is subject to the reconciliation provisions under new sections 64, 64A, 64AC or 64AD having not applied.

New subsection 63AC(2) provides that a parent makes an election under new subsection 63AC(1) by giving a notice to the Registrar in the manner specified by the Registrar. New subsection 63AC(3) sets out that the notice must specify the amount that the parent elects to be their new year to date amount for the year of income and the estimate of each income component amount for the year to date amount.

New subsection 63AD(1) provides that, if the Registrar is satisfied that the amended year to date income amount for the year of income to which the election relates is likely to be more than the actual year to date amount for the year, the Registrar may refuse to accept the election. Although the year to date income amount is not used to calculate the parent's new child support liability for the estimate period, it will be used to reconcile the estimate when actual ATI for that financial year becomes known.

When the Registrar reconciles the estimate(s) of a year of income in which an estimate has been made under new subsection 60(3), the Registrar compares the parent's actual income for the partial year period, less the year to date amount, with the amount a parent estimated for a year of income. If the parent's actual income, less the year to date income, is greater than the estimate, then the parent's income is taken always to have been the actual income less the year to date income. If a parent has provided a year to date amount that is too high, this will provide an inaccurate picture of the parent's actual income for the year of income. This provision will assist in ensuring that an accurate year to date amount is provided because the Registrar has the power to refuse an election.

New subsection 63AD(2) provides that, in making a decision to refuse an income election, the Registrar may use information he or she has obtained and may conduct an inquiry into the matter. New subsection 63AD(3) provides that, subject to the objection provisions in the Registration and Collection Act, if the Registrar refuses to accept an income election, it is taken never to have been made.

New subsection 63AD(4) provides that, if the Registrar refuses to accept the election under new subsection 63AC(1), he or she must give written notice of the decision to the parent. New subsection 63AD(5) sets out that the notice must set out a parent's review rights. New subsection 63AD(6) provides that a contravention of subsection 63AD(5) does not affect the validity of the decision.

New section 63AE provides for the Registrar to determine a new estimate of a parent's year to date income amount where he or she is satisfied that the amount is incorrect. New subsection 63AE(1) may apply if a parent has made an election under new subsection 60(1), which includes a year to date income amount, or the parent has made a new election for a year to date income amount under new subsection 63AC(1). If the Registrar is satisfied that the year to date income amount that the parent provided is incorrect, the Registrar may determine a new year to date amount to replace the year to date income amount previously provided.

New subsection 63AE(2) provides that, if the Registrar makes a determination under new subsection 63AE(1) the Registrar must give written notice of the determination to the parent. New subsection 63AE(3) sets out that the notice must set out a parent's review rights. New subsection 63AE(4) provides that a contravention of new subsection 63AE(3) does not affect the validity of the decision.

New section 63AF sets out the amount that is a parent's applicable year to date income amount that is used in the reconciliation process. If the parent has provided a year to date income amount under section 60, this amount will be their applicable YTD income amount unless the parent or the Registrar has changed the year to date income amount under either new section 63AC or 63AE. If the year to date income amount has been amended, the amount specified in the last notice provided by the parent or the determination given by the Registrar is the applicable YTD income amount.

Items 29 to 44 make minor consequential amendments to paragraph 63A(1)(a), subsections 63A(2) and (3), paragraph 63B(1)(a), subsections 63B(2) and (3), paragraph 63B(3)(a), subparagraph 63B(3)(b)(i), paragraphs 63C(1)(a), (b) and (c) and subsection 63C(2).

Item 45 repeals sections 64 and 64A and substitutes new Division 7A of Part 5 of the Child Support Assessment Act.

New Subdivision A of Division 7A of Part 5 sets out the rules for reconciliation where actual adjusted taxable income is known. New section 64 sets out the reconciliation process where there has only been one income estimate election for an income year. New subsection 64(1) sets out when new section 64 is to be applied in assessing a parent in relation to the costs of a child of the parent for a day in a child support period. The following conditions must be met for reconciliation to occur: new paragraph 64(1)(a) requires that the days that are being reconciled occur in the application period for an income election relating to a year of income; new paragraph 64(1)(b) requires that the parent has only made one income election for the income year; and new paragraph 64(1)(c) requires that the parent's actual adjusted taxable income has been ascertained by the Registrar (for example, the information has been made available by the Commissioner of Taxation following assessment of a parent's income tax).

New paragraph 64(1)(d) provides that, if there has been a determination under new subsection 64AB(1) in relation to the parent, then reconciliation can only occur if the actual adjusted taxable income is greater than the determined adjusted taxable income for the income year. New paragraph 64(1)(e) provides that, if the Registrar has made an amendment to a parent's assessment of child support payable under section 63A, 63B or 63C, then, in order for reconciliation to occur, the Registrar must determine that new section 64 should apply in relation to the parent. This has a similar application as existing subsection 64(2A) of the Child Support Assessment Act.

New subsections 64(2) and (3) set out the reconciliation process that must be followed if the conditions for reconciliation are met.

New subsection 64(2) applies where a parent has provided an income election that applies for the entire income year. If the parent's actual adjusted taxable income for the year of income is greater than the amount the parent elected, the parent's adjusted taxable income for that year is taken to be, and always to have been, the parent's actual adjusted taxable income for that year.

New subsection 64(3) applies when there has been an election for part of a year of income under new subsection 60(3). In these situations, if the difference between the parent's actual adjusted taxable income and the applicable year to date amount for that income year is greater than the partial year income amount, the parent's adjusted taxable income for that year is taken to be, and always to have been, the amount worked out under new subsection 64(4). New subsection 64(4) requires that the amount that is worked out under new paragraph 64(3)(b) must be annualised in order to compare it with the annualised election determined under the method statement in new subsection 60(3A).

Example

Alex provided an first income election on 4 September 2010. This included a year to date amount of $3,000 and a remaining period estimate of $40,000. This amount is annualised under new subsection 60(3A) to be $48,829.

In August 2011, the Registrar becomes aware that Alex's actual adjusted taxable income for the 2010-2011 income year was $55,000. Therefore Alex's actual adjusted taxable income for the remaining period of 4 September 2010 to 30 June 2011 is $52,000 ($55,000 less $3,000). This is annualised to be $63,267. In this case, reconciliation must occur because $63,267 is greater than Alex's election of $48,667. Therefore the annualised amount of $63,267 is taken to have been Alex's adjusted taxable income for the period 4 September 2010 to 30 June 2011.

New subsection 64(5) provides that, if an income amount order has applied in relation to a parent for any part of the application period for the income election, then reconciliation must not occur for the entire income year. This is because, if an income amount order is in place during an application period, the child support assessment is changed to reflect the income amount order. The reconciliation provisions cannot be applied as they do not allow for a comparison between the actual adjusted taxable income of a parent against the income amount used in the child support assessment based on an income amount order. This is consistent with the position that the level of child support specified in an income amount order (either a court order or departure order) should not be retrospectively reconciled by the Registrar.

New section 64A sets out the reconciliation process where there are multiple estimates within the year of income to which the elections apply. New subsection 64A(1) sets out when new section 64A is to be applied in assessing a parent in relation to the costs of a child of the parent for a day in a child support period. The following conditions must be met for reconciliation to occur. New paragraph 64A(1)(a) requires that the days that are being reconciled occur in the application period for an income election relating to a year of income. New paragraph 64A(1)(b) requires that the parent has made more than one income election for the income year, and new paragraph 64A(1)(c) requires that the parent's actual adjusted taxable income has been ascertained by the Registrar (for example, the information has been made available by the Commissioner of Taxation following assessment of a parent's income tax).

New paragraph 64A(1)(d) provides that, if there has been a determination under subsection 64AB(1) in relation to the parent, then reconciliation can only occur if the actual adjusted taxable income is greater than the determined adjusted taxable income for the income year. New paragraph 64A(1)(e) provides that, if the Registrar has amended a parent's assessment of child support payable under section 63A, 63B or 63C, then, in order for reconciliation to occur, the Registrar must determine that new section 64A should apply in relation to the parent. This has a similar application as the existing subsection 64(2A) of the Child Support Assessment Act.

New subsection 64A(2) provides that, if a parent's actual adjusted taxable income less their applicable year to date income amount is greater then the estimated ATI amount, then the amount for each application period of an income election is taken to be, and always to have been, the amount worked out for that income election using the method in new subsection 64A(4).

New subsection 64A(3) sets out the method statement that must be applied in order to work out the parent's estimated ATI amount for the year of income. Step 1 of the method statement requires working out the daily rate for each income election, during the year of income that has an application period that ended before the last day before the end of the income year. If the parent provides a first estimate that applies from 1 July of an income year, step 1(a) applies to that estimate. If the parent's first estimate was a partial year estimate under new subsection 60(3), then step 1(b) applies. For any subsequent estimates made under new subsection 62A(1) that end before the end of the income year, step 1(b) also applies.

Example

Jess provides an income estimate to start on 1 July 2010 of $50,000. Jess subsequently changes this election on 1 December 2010 to be $10,000 for the remainder of the income year. A further change is made on 1 April 2011 and for the remaining period until 30 June 2011, when Jess estimates an income of $7,000 for the remaining part of the income year.

Applying step 1(a) of the method statement, Jess's daily rate for the first estimate is $50,000 divided by 365 which amounts to $136.99 per day.

For the period 1 December 2010 to 30 June 2011, applying step 1(b), the daily rate is $10,000 divided by 212, which amounts $47.17 per day.

For the period 1 April 2011 to 30 June 2011, there is no requirement to determine a daily rate under step 1 of the method statement.

Step 2 requires multiplication of each amount determined under step one, by the number of days in the application period to determine the actual estimate for each of these periods.

Continuing with Jess's example, for the period 1 July 2010 to 30 November 2010, the daily rate is $136.99 and the number of days in the period is 153. Therefore the amount for this application period in step 2 is $136.99 multiplied by 153, which equals $20,959.

For the second period of 1 December 2010 to 31 March 2011, the daily rate in step 1 was $47.17 and the number of days in the application period is 121. Therefore, the amount for this application period in step 2 is $47.17 multiplied by 121, which equals $5,708.

Step 3 requires that the amounts in step 2 be added together.

For Jess, the two amounts of $20,959 and $5,708 are then added to give a total for step 4 of $26,667.

For step 4, add the amounts in step 3 to the partial year income amount worked out under new subsection 62A(1), where the application period ends on the last day of the income year.

In this example, the partial year income amount is the $7,000 that Jess estimated for the period 1 April 2011 to 30 June 2011.

Adding this to the step 3 amount of $26,667 gives an estimated ATI amount of $33,667.

New subsection 64A(4) provides the method statement that must be applied in order to determine, for the purpose of new subsection 64A(2), the amount for each income election. As set out in new subsection 64A(1), this can only be applied when actual adjusted taxable income has been ascertained by the Registrar.

Step 1 of the method statement is finding the difference between the estimated ATI amount and the actual ATI amount. Step 2 then requires that the result in step 1 be divided by the total number of days in the application periods for each income election relating to the year of income that was made by the parent. The result is the additional daily rate.

Example

The Registrar ascertains that Jess's actual adjusted taxable income for 2010-11 is $40,000.

The difference between $40,000 and the amount that Jess estimated of $33,667 is $6,333.

The total number of days in the application periods for which income elections were applied in the year of income is 365 and therefore the additional daily rate is $17.35.

Step 3 provides that, for each income election, multiply the additional daily rate by the number of days in each application period for that income election to produce the underestimated amount.

For Jess, there were three income elections made:

Income election 1 - 1 July 2010 to 30 November 2010, which is 153 days.

Income election 2 - 1 December 2010 to 31 March 2011, which is 121 days.

Income election 3 - 1 April 2011 to 30 June 2011, which is 91 days.

For income election 1, the underestimated amount is $17.35 multiplied by 153 days, which equals $2,655; for income election 2, $17.35 multiplied by 121 days, which equals $2,099; and for income election 3, $17.35 multiplied by 91 days which equals $1,579.

Step 4 provides that, for each income election, add the underestimated amount determined in step 3 to the relevant amount worked out in step 2 of the method statement in new subsection 64A(3) or the partial year of income amount worked out under new subsection 62A(1).

Income election 1 is $20,959 plus $2,655 = $23,614

Income election 2 is $5,708 plus $2,099 = $7,807

Income election 3 is $7,000 plus $1,579 = $8,579

Step 5 requires that each of the income elections in step 4 must be annualised.

In the example above, the annualised amount for income election 1 is $23, 614 divided by 153 days and multiplied by 365, which is $56,334.

For income election 2, the annualised amount is $7,807 divided by 121 days and multiplied by 365, which is $23,220.

For income election 3, the result is $8,579 divided by 91 and multiplied by 365, resulting in and annualised amount of $34,410.

New subsection 64A(5) provides that, if an income amount order has applied in relation to a parent for any part of the application period for the income election, then reconciliation must not occur for the entire income year. This is because, if an income amount order is in place during an application period, the child support assessment is changed to reflect the income amount order. The reconciliation provisions cannot be applied as they do not allow for a comparison between the actual adjusted taxable income of a parent against the income amount used in the child support assessment based on an income amount order. This is consistent with the policy that the level of child support specified in an income amount order (either a court order or departure order) should not be retrospectively reconciled by the Registrar.

New section 64AA is similar to existing subsection 64(5) in the Child Support Assessment Act and provides that the Registrar must give effect to the application of new section 64 or 64A in relation to the parent.

New Subdivision B of Division 7A of Part 5 sets out the circumstances when a parent's income election can be reconciled based on ATI determined by the Registrar.

New subsection 64AB(1) provides that the Registrar may determine an amount that he or she considers appropriate to be the parent's adjusted taxable income for that year, where actual adjusted taxable income is not known within 12 months from the end of the income year to which the election(s) apply. New subsection 64AB(2) provides that, if a determination is made under new subsection 64AB(1), then, in relation to the parent, the amount determined is the parent's determined ATI for the year of income and the Registrar must give notice of the determination to the parent. New subsection 64AB(3) sets out that the notice in new subsection 64AB(2) must set out the parent's review rights. New subsection 64AB(4) provides that a contravention of new subsection 64AB(3) does not affect the validity of the determination.

New section 64AC is similar in form to new section 64, with the difference being that the Registrar applies a determined ATI in new section 64AC rather than the actual adjusted taxable income. Similarly, new section 64AD is similar in form to new section 64A, with, again, the difference being that the Registrar applies a determined ATI in new section 64AD rather than the actual adjusted taxable income.

New section 64AE is similar in form to new section 64AA, with the reference being to decision made under new section 64AC and 64AD rather than new sections 64 or 64A.

New Subdivision C of Division 7A of Part 5 of the Child Support Assessment Act sets out the penalty provisions for this Division. New section 64AF sets out when a parent is liable to pay a penalty.

New subsection 64AF(1) provides the general requirements that must be met for a penalty to apply. That is, the parent made an income election, the parent's actual adjusted taxable income has been ascertained by the Registrar and the parent has underestimated an income amount in making the income election.

New subsections 64AF(2) and (3) set out the specific requirements that must be met, depending on the number of elections and when the elections were made. New subsection 64AF(2) applies to parents who only make one election during an income year. New paragraph 64AF(2)(a) sets out when a penalty applies if the parent made an income election for a whole income year under new subsection 60(2). New paragraph 64AF(2)(b) sets out when a penalty applies if the parent made a partial year income election under new subsection 60(3). In each of these cases, if the parent's actual adjusted taxable income is at least 10 per cent greater than the amount that the parent elected, then the parent is liable to pay a penalty to the Registrar.

New subsection 64AF(3) applies to parents who have made more than one income election during the income year. In these situations, if the parent's actual adjusted taxable income is at least 10 per cent greater than the parent's estimated ATI amount, as determined under subsection 64A(3), then the parent is liable to pay a penalty to the Registrar.

New section 64AG provides for the amount of the penalty under new subsection 64AF(1).

New subsection 64AG(1) applies to each income election made by the parent relating to the year of income where a parent is liable to pay a penalty under new subsection 64AF(1). The amount of the penalty is 10 per cent of the difference between the administrative assessment based on the income election and the administrative assessment of child support made following reconciliation.

New subsection 64AG(2) provides that the penalty is a debt due to the Commonwealth by the parent. The debt becomes due and payable when the administrative assessment of child support is made under new section 64AA in relation to the parent.

New section 64AH provides that the Registrar may remit the whole or part of a penalty if the parent has underestimated an income amount because there has been an amendment of an Income Tax Assessment Act, or because of a ruling or determination under that Act. The Registrar may also remit whole or part of the penalty for some other reason if the Registrar thinks that it is fair or reasonable to do so. This provision allows the Registrar to make concessions for parents where it can be seen that there was no intention to misuse the estimates provisions to defer payment. This is consistent with current policy in relation to estimates penalty remissions.

New subsection 64AH(2) provides that, if the Registrar decides to remit only part of the penalty or not to remit any part of the penalty, then he or she must give written notice to the parent who is liable to pay the penalty. New subsection 64AH(3) provides that the notice must give a statement of the parent's review rights. New subsection 64AH(4) provides that a contravention of new subsection 64AH(3) does not affect the validity of the decision.

Item 46 repeals and substitutes subparagraphs 65A(1)(b)(i) and (ii). This is a minor amendment to ensure that regard is had to the new provisions in this section.

Item 47 repeals and substitutes paragraph 146BA(1)(d). This is a minor amendment to ensure that regard is had to the new provisions in this section.

Amendments to the Child Support Registration and Collection Act

Item 48 makes amendments to the table in section 80. The amendment ensures that a parent can object to a decision that is made concerning a change to an applicable year to date amount under new sections 63AD and 63AE.

Items 49 and 50 make minor consequential amendments to subsections 80(1) and 110U(1).

Part 2 - Transitional provision

Item 51 sets out the transitional arrangements for income elections made for the period 1 April 2008 to 30 June 2010. For parents to whom an income election applies in this period, the rules in force in the Child Support Assessment Act prior to these amendments will continue to apply. However , subitem 51(4) provides that the current section 64 will only apply for income elections made in this period at the discretion of the Registrar, or if the parent requests that reconciliation be considered. As estimates must be manually reconciled during the transitional period, the Registrar requires discretion to prioritise resources to cases of most need. If a parent requests that reconciliation be considered, the Registrar must review the parent's circumstances and, if reconciliation can occur under the rules in section 64, the current rules must be applied.

As a consequence , subitem 51(6) gives the Registrar the discretion to determine that existing section 64 may apply in these circumstances. This means that the Registrar has the discretion to reconcile parents who are more likely to underestimate their income or where parents initiate reconciliation. This ensures that the Registrar prioritises resources to cases of most need.

Item 52 provides an application provision for Western Australian exnuptial children. In order for child support provisions to be applied in Western Australia they must be adopted by the Parliament of Western Australia . Subitem 52(2) provides that the transitional provisions in item 51 continue to apply from 1 April 2008 until the day before the new provisions are adopted.