PART C: Detailed Recommendations

A New Formula for Assessing Child Support 

To address the issues identified in the earlier chapters of this Report, the Taskforce proposes a fundamental change to the formula used in the Child Support Scheme.
 

Overview of the proposed new formula

The essential feature of the proposed new scheme is that the costs of children are fi rst worked out based upon the parents’ combined income, with those costs then distributed between the mother and the father in accordance with their respective shares of that combined income and levels of contact.

The resident parent is expected to incur his or her share of the cost in the course of caring for the child. The non-resident parent pays his or her share in the form of child support. Both parents will have a component for their self support deducted from their income in working out their Child Support Income.

This gives practical expression to the first objective of the Scheme—that parents share in the cost of supporting their children according to their capacity. The proposed scheme is based upon the ‘income shares’ approach used in many other jurisdictions and reflects the notion of shared parental responsibility contained in Part VII of the Family Law Act 1975.

The proposed formula will be based upon Table A: Costs of Children, in this Report. The table expresses the cost of the child as a percentage of the parents’ combined income above their individual self-support amounts in two age groups, 0–12 and 13–17. These percentages are based as far as possible on the estimates of the net costs of children explained in the previous chapter. The costs represent the best estimate the Taskforce can make of the amount that parents on average spend on children in these age groups out of their own incomes.

In settling on the percentages that apply above the self-support amounts, the Taskforce took account of the present operation of the Maintenance Income Test (see Chapter 11).

Another theme of the recommendations in this chapter concerns the importance of having consistency in the approach towards separated families across different areas of government policy. A number of recommendations therefore concern the interface between child support, income support and family payments.

The recommendations in this chapter explain in detail how legislation should be drafted and the Scheme put into operation to give effect to the intentions of the Taskforce. For this reason, many of the recommendations are technical in nature.

Although the formula may be legislatively complex, it will be no more complex to administer than the current formula, nor will there be any greater complexity for the general public. At the present time, people can use a calculator on the Child Support Agency (CSA) website to obtain an estimate of a child support liability if they know the father’s income, the mother’s income, and the number of children. With the addition of the requirement to enter the ages of the children, it will be as simple for a member of the public to obtain an estimate of the new child support liability as it now is.
 

The income-shares approach

The income-shares method has been adopted by a majority of US states. It begins with a figure for the costs of the child based upon combined parental income, and then distributes that cost between the parents in accordance with their respective share of that combined income—in other words, their capacity to pay. The primary caregiver is assumed to meet her or his share of that cost in kind. The non-resident parent’s share becomes the child support obligation.

The major difference between the income-shares approach and the ‘percentage of obligor income’ approach that is now the basis for the Australian Scheme is the explicit inclusion of both parents’ incomes, in a way that parallels likely expenditure by those parents as if in an intact household where both parents have income. In American jurisdictions that use the income-shares approach, the percentage of income required for the calculation of both the cost of children and child support amount declines as combined parental income increases. Although the total combined child support contribution required of the parents increases with combined income, it does not rise proportionately to income.

But for this difference both approaches would yield the same child support requirement for the liable parent. The flat percentage liability, calculated only by reference to the liable parent’s income, will produce the same proportional share of the cost of the child as that parent’s income bears to the total income of the two parents combined.

In principle, the income-shares approach is to be preferred for the following reasons:

• If the purpose of the child support scheme is to ensure that ‘parents share in the cost of supporting their children, according to their capacity’ then the amount of child support payable ought to be referable to some measure of the costs of, or average expenditure on, raising children.
• If the scheme does not generally take into account the income of both parents then it cannot demonstrate that the parties are sharing equitably in the reasonable costs of raising children.
• The income-shares approach is more transparent. It makes clear how much is being contributed by the mother, the father and the community to the child’s support.
• It makes change of assessment processes clearer. If there is a reduction in the liability of one parent, then either the increased costs must be borne by the other parent, or taxpayers must pay more, or the child’s living standards must suffer.

For these reasons, the Taskforce considers that, in principle, the income-shares approach is more appropriate for Australia’s current circumstances, and more in line with community values, than the current system in which the great majority of all child support liabilities are based upon just the non-resident parent’s income.

Recommendation 1, which describes the detail of the proposed new child support formula, is divided into 31 subsections to emphasise that these recommendations constitute a package of interdependent recommendations to be taken together.

Recommendation 1

The existing formula for the assessment of child support should be replaced by a new formula based upon the principle of shared parental responsibility for the costs of children. The new basic formula should involve first working out the costs of children by reference to the combined incomes of the parents, and then distributing those costs in accordance with the parents’ respective capacities to meet those costs, taking into account their share of the care of the children.

The measurement of income

The income basis for the calculation of child support for the current Scheme is taxable income, but with various deductions and exempted amounts added back, and the gross value of the parent’s reportable fringe benefits included. Conceptually, this is similar to the definition of income for Family Tax Benefit (FTB) purposes, except that with FTB the calculation of some of the components is slightly different, and it includes many tax-free pensions or benefits.

The Taskforce considers that it is desirable not to multiply the definitions of income across government policy without a clear basis. It concluded that, in principle, the definition of income for the purposes of the Child Support Scheme should be no different from the definition for the purposes of government benefits paid to families, particularly FTB. It is a matter for the Government how best to align the two defi nitions. Aligning the definitions does not necessarily mean that the period of assessment of income for FTB and child support should also be aligned.

In particular, the Taskforce considers that while the Child Support Scheme is based on taxable income, with such adjustments as are included within the defi nition of supplementary income, the definition of income should include non-taxable forms of income support. An example is the Disability Support Pension. While many of those on this pension are not able to work at all, and therefore will have incomes below the self-support amount, it is possible for a person to do some paid work while on a disability pension. For that reason, it ought to be included in the definition of income for child support purposes.

FTB payments should not however be part of the income base of the parents. The Government’s contribution to the costs of children through FTB Part A has already been factored in to calculate the net cost of the child for distribution between the parents. It would be counted twice if additionally included as income in the hands of either parent. FTB Part B is more problematic. However, it provides additional support for sole parents and families with one main earner, compensating them in some cases for having access to only one tax-free threshold and for the opportunity costs for the parent with reduced work opportunities because of their care for children. The Taskforce considered such compensation should not be treated as available for the support of the children, and so FTB Part B should not be included as income for child support purposes.

Recommendation 1.1

For the purposes of the formula, the current definition of adjusted taxable income should be broadened to include certain non-taxable payments such as certain forms of income support, currently exempt.
 

Recommendation 1.2

The definitions of income for child support and Family Tax Benefit (FTB) should be consistent and the components should be the same.

The self-support amount

The basic self-support component (or exempt amount, as it is known) is an important feature of the existing Scheme, and the Taskforce recommends that it be increased. Concerns have long existed as to the adequacy of the current level of the exempt amount. This was one of the key issues raised with the Parliamentary Inquiry. One argument is that the current level creates serious work disincentives for some non-resident parents. The House of Representatives Committee concluded that the level of the self-support allowance should be raised.

In order to respond to the concerns about work disincentives, the Taskforce took into account the applicable taper rates for income support in setting the self-support component. In keeping with the linkage of other base values for the Scheme to average earnings, and adjustments with changes in such earnings, the Taskforce proposes that the self-support amount be set at one-third of Male Total Average Weekly Earnings (MTAWE).

The Taskforce also recommends that both parents should have the same self-support amount, since the income of the payee is treated differently in the proposed new scheme, and does not operate to reduce the Child Support Income of the payer. It is therefore unnecessary to include the resident parent’s contribution to support of the child by disregarding his or her income below average weekly earnings of all employees. Instead, the resident parent’s contribution by caring for the child is recognised expressly in the assessment of the parents’ respective child support obligations.

The Taskforce’s first approach was to treat the self-support amount as a ‘fl oor’ or minimum, where the relevant percentage is applied to all income, but the child support rate is reduced if this would otherwise result in the payer having income of an amount less than the ‘floor’ for his or her own support. However, this approach has the disadvantage that it creates disincentives to increase income just above the ‘fl oor’ as every dollar in increased income up to a certain level would go towards child support. Instead, the Taskforce decided to adopt the approach under the existing Scheme in which a percentage of income above the self-support amount becomes relevant for child support purposes. Each parent requires a reasonable level of income for their own support in their circumstances of separation, before they have the capacity to support their children for the purposes of the Child Support Scheme. Even once this income level is reached, the proportion of this income not required for the support of the child is available to the parent. If a parent’s taxable income does not exceed the self-support amount, it is deemed to be zero for the purposes of the formula.

Recommendation 1.3

Each parent should have a self-support amount set at the level equivalent to one-third of Male Total Average Weekly Earnings (MTAWE). Their adjusted taxable income less the self-support amount should be their income for child support purposes (the Child Support Income). Their Child Support Income should be zero if their adjusted taxable income does not exceed the self-support amount.

The Costs of Children Table

Two age bands

As indicated in Chapter 6, it is clear from all the available research evidence that expenditure on teenagers is significantly greater than that on preschool- and primary school-aged children.

There is significant community support for the Child Support Scheme to refl ect this difference in the formula. Figure 9.1 shows the level of support for the idea that children’s ages should be taken into account in setting child support liabilities.

Figure 9.1: Do you think the amount of child support should depend on the children’s ages?

Notes: GP nonsep = general population non-separated sub-sample; CFC sep = Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (3) = 17.91, p<.001.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 35.

In making estimates on the best available data of the costs of children, the Taskforce initially used four age groups. The findings for different ages of children in these categories are presented in Chapter 8. The Taskforce then considered that, for the purposes of the formula used in the Scheme, having four groups would be unnecessarily complex. It decided to align the age groups for the Scheme broadly with FTB Part A, by having two age groups, 0–12 and 13–17. (FTB Part A uses three age bands, with the amounts payable for 16 and 17 year olds being lower than for younger teenagers.)

Where there are children in different age bands in the one family, the costs of the children should be the average of the amounts applicable in each band. For this reason, Table A: Costs of Children also has a third set of percentages that apply to combinations of children between the age bands.
 

A Costs of Children Table not based upon fixed percentages of income

Table A: Costs of Children (in this chapter) provides percentages for each portion of income above the self-support threshold of each parent. In order to achieve automatic indexation, each threshold is expressed as a proportion of MTAWE above the self-support amounts.

Since parents spend more on children the more money they have, but spend less as a percentage of their household income in the higher income ranges, the percentages applicable in this formula gradually decline as combined taxable income increases. The proposed percentages map as closely as possible the research evidence on the net costs of children explained in the previous chapter. The rate of decline is greater for one child than for two or three children because of the way FTB interacts with parents’ own expenditure on children.

The applicable percentages operate like the tax system, but in reverse. That is, the costs of children are greater as a percentage of the first portion of income above the self-support threshold than as a percentage of higher portions.

As a consequence, a liable parent with a high income will pay much more in child support than a parent on a low income, but less as a percentage of his or her taxable income above the self-support amount than the parent on a low income.

Similarly, where the resident parent is earning a sufficient amount that the combined Child Support Income of the parents takes them into a higher bracket, then her or his income will reduce the amount that the non-resident parent has to pay. It will do so in a much more graduated way than under the current formula, which reduces liabilities more rapidly than is justified by the research on the costs of children. Under the proposed formula, child support obligations will be based upon the relative difference between the parents’ respective incomes.
 

The costs of childcare

In order to take account of the costs of childcare or income forgone by being out of the workforce to care for young children, the costs of children aged 0–12 have been based upon the research evidence on the costs of 5–12 year-old children. As seen in the previous chapter, these costs are substantially higher than the costs of children aged 0–4 for middle-income families.

In practice, childcare costs can vary enormously depending on the location of the childcare and whether or not the care is being provided by a commercial provider. Where childcare costs are particularly high, as they are in some parts of the country, the parent incurring this cost will be able to apply for a change of assessment to help meet this cost. This is an existing ground for a change of assessment under the Scheme. Parents of young children should also be encouraged to discuss the issue of childcare costs when negotiating financial arrangements following separation through Family Relationship Centres or in other ways.
 

Number of children

The current Scheme has percentages of income for up to five children. As discussed in Chapter 8, the Taskforce found in its research that, because FTB Part A is payable on a per child basis without taking into account any economies of scale within the family, the net costs of four or more children are little different from the costs of three. For this reason, the Taskforce has concluded that it is only necessary to have a percentage of combined income for three or more children in the formula. Where there are more than three children, the age of the eldest three should be the measure of the cost of all the children.

However, for the purposes of calculations, it may be necessary to measure costs of individual children for some situations. These may include situations where a parent has different contact arrangements with different children, or where a change of assessment decision or other variation (such as an agreement) differentiates between the costs of individual children in the same family. As a result, there should be a system for allocating a cost to individual children where necessary, based upon the Taskforce percentages.

Recommendation 1.4

The costs of children for the purposes of calculating child support should refl ect the following:

• expenditure on children rises with age; and
• as income rises, expenditure on children rises in absolute terms, but declines in percentage terms.

Recommendation 1.5

The costs of children shall be expressed in a Costs of Children Table based upon the parents’ combined Child Support Income in two age bands, 0–12 and 13–17, and in combination between the age bands for up to three children. (See Table A: Costs of Children.)
 

Recommendation 1.6

Where there are more than three child support children, the cost of the children shall be the cost of three children, and where the children are in both age brackets the cost of children is based upon the ages of the three eldest children.
 

Recommendation 1.7

Where there is more than one child support child, and the arrangements concerning regular contact or shared care differ between the children, the cost of each individual child is the cost of the total number of children divided by the total number of such children.

1. Calculated by adding the two parents’ Child Support Incomes, that is, adding each parent’s adjusted taxable income minus their self-support amount of $16,883 (1/3 of Male Total Average Weekly Earnings (MTAWE))
2. 0.5 times MTAWE
3. MTAWE
4. 1.5 times MTAWE
5. 2 times MTAWE
6. 2.5 times MTAWE. Costs of children do not increase above this cap. Note that this equates to a cap at a combined adjusted taxable income of $160,386.

A cap on the costs of children

Expenditure on children becomes increasingly discretionary as household income increases. One couple may choose to make extra repayments on the mortgage, another may have regular overseas trips with the children, another may provide personal tuition for a child. The need to place a limit on the income to which the formula applies is recognised in the current Scheme by placing a cap on income at 2.5 times full time adult average weekly earnings for the purposes of applying the child support percentages. The cap for 2005 is $130,767.

As shown in Figure 9.2, most respondents in the four groups in the attitudinal survey conducted by the Australian Institute of Family Studies (AIFS) supported the idea that there should be a cap on the amount of child support a high-earning non-resident father should pay.

Figure 9.2: Should there be a maximum amount of child support payable for high-income fathers?


Notes: GP nonsep = general population non-separated sub-sample; CFC sep = Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (6) = 23.44, p<.01.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 34.

The Taskforce considers that it continues to be appropriate to limit the level of compulsory transfers under the Scheme. There is no obvious cut-off point for child-related expenditure. If a child is attending one of the most expensive private schools in Australia, the fees and additional costs for extra-curricular activities alone may exceed the total level of child support paid by liable parents whose income exceeds the cap under the existing formula.

However, nothing in the Child Support Scheme mandates that money transferred be used for a particular purpose. The formula is applicable whether or not parents choose to educate children privately, and whether or not they take expensive overseas holidays, or engage in any other such activities that involve child-related expenditure.

It follows that there must be mandatory limits on the level of transfers made, based on a generic formula. A parent may choose to pay more. It should also remain possible to exceed the cap through the change of assessment process. The Child Support Registrar already has a discretion to assess mandatory child support contributions in excess of the cap. At present, two reasons for a change of assessment are that:

• It costs extra to cover the children’s special needs.
• It costs extra to care for, educate or train the children in the way that the parents intended.

Only a small number of cases are likely to arise on this ground involving raising the cap.

Consistent with the income-shares approach, the Taskforce proposes that the cap will be on combined income for calculating the costs of the child, whether most of the income is in the hands of one parent or both have well-paid jobs. This would be expressed as a sum above each parent’s self-support amount, so it is a higher cap than now applies; under the present formula, the cap applies to income before the payer’s exempt amount is deducted. The Taskforce proposes that the costs of children be capped at a combined Child Support Income of 2.5 times MTAWE. This equates to a projected maximum combined income for 2005–06 of $160,386.

Recommendation 1.8

Combined parental Child Support Income for the purpose of assessing the costs of children shall not exceed 2.5 times MTAWE.

Determining a parent’s contribution to the costs of children

The formula should operate by first working out the financial needs of the child based upon the combined Child Support Incomes of the parents, that is, the proportion of the income of each of them that exceeds their self-support amount. That calculation would be based on Table A: Costs of Children. That cost is then shared in proportion to the parents’ respective Child Support Incomes.

Recommendation 1.9

The parents of the child or children should contribute to the relevant cost of the child or children in proportions equal to each parent’s proportion of the combined Child Support Income.

Regular contact and shared care

As noted in Chapter 6, one of the concerns about the current Scheme is that the formula is the same whether a non-resident parent is caring for the children for 29% of the nights per year or is not seeing them at all. This is difficult to justify. The House of Representatives Standing Committee on Family and Community Affairs, in its report Every Picture Tells a Story, proposed a number of reforms to the Family Law Act 1975 and a range of other measures to emphasise the desirability of shared parental responsibility and to encourage both parents’ involvement after separation to the maximum extent consistent with the best interests of the child. The Committee also recognised that there were some circumstances where shared parental responsibility was not in the best interests of children, in particular where there is a history of violence, child abuse or entrenched confl ict.
 

The Child Support Scheme and post-separation parenting

It is very important that the Child Support Scheme be aligned with government policy on post-separation parenting.

One aspect of this is that the Scheme ought to recognise the costs of regular contact in a way that is as fair as possible to both parents. The Terms of Reference of the Taskforce required it to provide advice on the recommendations of the House of Representatives Committee concerning changing the link between child support payments and the time children spend with each parent. The Taskforce was required to evaluate the existing formula percentages and associated exempt and disregarded incomes, having regard to data on the costs of children in separated households at different income levels, including the costs for both parents to maintain significant and meaningful contact with their children. It is clear therefore that the connection between the Scheme and the involvement of both parents in their children’s lives was central to the work the Taskforce was asked to undertake.

However, recognising the costs of contact in the Child Support Scheme is not at all straightforward. The Parliamentary Committee noted the findings of research that care of children in two separated households is significantly more expensive than care in an intact household. While a non-resident parent having regular contact with the children will necessarily spend money on the children while they are in that parent’s care, this expenditure may not greatly diminish the costs that the resident parent bears. The central issue is that many fixed costs, in particular housing, are duplicated. Furthermore, the greater the level of care by the non-resident parent, the more likely it is that there will be clothes, toys and other belongings in both households, to minimise the need for the child to carry everything in a suitcase from one house to the other.
 

Recognising regular contact in the formula

The Taskforce considers that when a parent has regular care of a child for at least one night a week, or an equivalent amount of time over the year during school holidays, this involves a parent incurring a level of expenditure that should be recognised in the formula. This level of care equates to care for 14% of nights per year, signifi cantly below the 30% of nights or more required for recognition under the current formula. Many of these costs are infrastructure costs, including appropriate accommodation and bedding. They do not vary much with the level of care involved. Others are consumption costs including expenditure on food, entertainment and transport.
 

Child support, FTB, and conflict about parenting arrangements

The Terms of Reference required the Taskforce to consider how the Child Support Scheme can play a role in encouraging couples to reach agreement about parenting arrangements. There may not be a great deal that the Scheme can do in a positive way to encourage parents to agree on parenting arrangements. The most useful sources of help will naturally come from the new Family Relationship Centres and other government initiatives to extend the services available for counselling and mediation. The CSA will no doubt be able to play a constructive role in supporting these initiatives (see Chapter 15).

There is, however, a way in which the Scheme could hinder parents from reaching agreement about parenting arrangements. One of the dangers of giving recognition to contact arrangements in the Scheme is that arguments about money can get in the way of reaching agreements that are in the best interests of the children. In the current Scheme, if the non-resident parent is caring for the children for at least 110 nights (30% of nights per year), this reduces his or her child support compared to the situation where the contact is for less than 110 nights. There is extensive anecdotal evidence that disputes between parents about contact arrangements have been motivated, at least in part, by the financial considerations arising if the number of nights of contact exceeds the 109-night threshold. The House of Representatives Committee heard evidence to this effect, and research on the Family Law Reform Act 1995 also reported anecdotal evidence of conflict around the 30% threshold for child support purposes. The desire to reduce child support can motivate a non-resident parent to want increased contact, or make the resident parent resist increased contact.

The potential for conflict is greatly exacerbated by the present arrangements for splitting FTB. Entitlement to FTB is based on the number of nights above 10% of the nights per year that each parent is caring for the child. Thus, arguments about whether the children will stay with the non-resident parent for two nights per weekend or three, or have time with him or her in the middle of the week, may have fi nancial implications.
 

Reducing conflict in the best interests of children

The Taskforce considers, on the basis of strong advice emerging from its consultations, that it is in the best interests of children that agreements about parenting arrangements not be affected by financial concerns. The Taskforce considers that the level of confl ict over money can be minimised if the recognised costs of contact in the formula do not vary between 14% and 34% of nights per year. Most non-resident parents who maintain an active involvement in their children’s lives will have a level of contact that exceeds the 14% threshold. Some will have daytime contact only, and this can also be recognised in the formula in some circumstances (see 9.76).

The Taskforce proposes that between 14% and 34% of care, the contact parent will be treated as incurring 24% of the total costs of the child while caring for the child. That means that the parent’s child support liability will be reduced by a fi gure representing 24% of the costs of the child. This is not only the mid-point between 14% and 34%. Evidence from the Budget Standards research (see Volume 2 of this Report) indicates that this reflects the findings of research on the proportions of the increased cost of children in two households that are incurred by each parent in separated families with a modest-but-adequate standard of living when regular contact is occurring.

Recommendation 1.10

Regular face-to-face contact or shared care by a parent should result in the parent providing the contact or care being taken to satisfy some part of their obligation to support the child.
 

Recommendation 1.11

If a non-resident parent has a child in their care overnight for 14% or more of the nights per year and less than 35% of the nights per year, he or she should be taken to be incurring 24% of the child’s total cost through that regular contact, and his or her child support liability should be reduced accordingly; but this should not result in any child support being paid by the resident parent to the non-resident parent.

Shared care

Where care is being shared between the two parents to the extent that each parent has the children for at least five nights per fortnight or 35% of nights per year, the applicable child support should be based upon a ‘shared care’ formula. For this group, it is proposed that the parent with the minority of the care should be treated as incurring 25% of the cost of the child at the 35% care level, rising to an equal sharing of costs at near equal provision of care, with every percentage point of care recognised in the assessment.

It is often the case that even where the care of a child is substantially shared, the parent with the care of the child the majority of the time incurs proportionately greater expenditure than the other parent on non-recurrent items, such as school uniforms and shoes. The Taskforce took the view that a tapered approach was better than treating the costs of the child as being provided pro rata by each parent.

The proportion of the costs of the child incurred by the parent with the fewer number of nights of care would be established by reference to Table B: Shared Care. The other parent incurs the remaining proportion of the costs of the child.
 

By this method, small changes in the levels of contact above the level for regular contact would not result in large changes in the child support arrangements. In other words, there is no cliff effect of crossing a threshold of a certain number of nights per year. Small changes would occur with increases in the level of care provided by the parent with the minority of nights. However, parents who are already in a shared care arrangement are more likely to have a cooperative approach to parenting and this reduces the risk that financial incentives will be a dominant motivation for making parenting arrangements.

In the proposed shared parenting formula, the costs that each parent incurs for the time the child is with him or her is treated as a ‘credit’ and deducted from the higher-income parent’s share of the cost of the child, resulting in that parent making a contribution to the lower-income parent. As at present, this may mean the parent with the care of the child for most of the time will make a contribution to support the child in the care of the other parent. By way of contrast, regular contact may reduce a non-resident parent’s child support obligation, but cannot result in payments from the resident parent to the non-resident parent.

Recommendation 1.12

Where the care provided by one parent is equivalent to 35% or more, the parent with 35% of the care of the child will be taken to be incurring 25% of the cost, rising to equal incurring of costs when the care of the child is shared equally. The way in which the costs incurred by the parent with the fewer number of nights of care per year is calculated is set out in Table B: Shared Care.

Daytime contact

Some parents do not have their children overnight often, and may not do so at all, but have extensive daytime contact. The costs incurred for such daytime contact can vary enormously. For a very young child, if visits occur in the primary caregiver’s home or the parent takes the child out in a pram or to a playground nearby, the costs involved in daytime contact may be quite small. Conversely, entertaining an older child for the day may incur substantial expenditure.

It is reasonable to give the same allowance for regular contact or shared care to parents with daytime contact, or a mixture of daytime and overnight contact falling short of the requisite level of nights, if a parent can establish that they incur a substantial level of expenditure on the child through daytime contact. The applicable test is whether the costs incurred are approximately equivalent to the costs the formula takes as incurred by having the care of the child for at least the minimum number of nights required for regular contact or shared care.

The CSA ought to encourage the parents to reach their own agreement about this, with assistance available from the Family Relationship Centres. The parents are best placed to know what expenditure on the child each typically incurs when the child is residing with them, including matters such as costs of transportation between the two homes, direct expenditure on meals and the costs of entertainment.

If the parents cannot agree, then the Child Support Registrar should be able to determine that the level of expenditure involved for a parent with daytime contact is suffi cient to justify treating the parent as having regular contact or shared care, as the case may be. If there are no infrastructure costs for housing as a consequence of having contact, then typically it would be expected that the daytime contact would need to be substantially in excess of 14% of the days in order to justify the Registrar determining that the parent is incurring costs equivalent to someone with regular contact of one night per week.

The onus will be on the parent seeking such recognition in the formula to make out the case to the Registrar. If the Registrar is not satisfied of that case, then no recognition of the contact will be provided in the formula. Like other discretionary decisions of the Registrar, this decision ought to be reviewable by the Administrative Appeals Tribunal or ultimately by a court.

Recommendation 1.13

A parent may also be treated as having regular contact or shared care if either the Child Support Registrar is satisfied, after consultation with the other parent, or the parents agree, that the parent bears a level of expenditure for the child through daytime contact or a combination of daytime and overnight contact that is equivalent to the cost of the child allowed in the formula for regular contact or shared care.

Splitting FTB

Consideration of the way in which regular contact and shared care are treated in the Child Support Scheme would be incomplete without considering how FTB is split, because each system treats post-separation parenting in a different way. Reforming one system cannot be effective without reforming the other and ensuring that the two systems represent a consistent and coherent policy.

When FTB was introduced, it became possible to split the benefit between parents as long as the non-resident parent had contact with the child at least 10% of the time. FTB Part A and Part B are both split in proportion to the share of the care of the child. Eligibility for FTB is based on each carer’s household income and individual circumstances.
 

Current arrangements for splitting FTB

Currently, separated parents entitled to FTB are able to share the payment for a child if they share the care of their child. The rate of FTB is apportioned between each parent in direct proportion to the caring arrangements in place. A parent must have at least 10% of the care of a child to receive FTB. In that case he or she would receive 10% of the FTB they would be entitled to on the basis of his or her new household income, while the other parent would receive 90% of the FTB they would be entitled to based on his or her new household income.

The level of care provided by each parent is assessed by using either the number of nights in care, or the hours of care for each FTB child. There may be some occasions where only counting the nights in care does not accurately reflect the caring arrangements for the child. In such cases, at the request of a carer, the actual number of hours of care may be calculated for each carer in determining the pattern of care and this is then converted into days in care.
 

The small incidence of FTB splitting

Only a small proportion of FTB customers share their payment. However, the proportion is increasing. In two years, the proportion of FTB shared care customers in the total FTB population has increased from 3.6% in March 2003 to 5.5% of the total population (around 100,000 FTB recipients) in March 2005. That is, about 50,000 parents split the FTB with the other parent.

Although the numbers of parents splitting FTB has increased over the years since the introduction of this option, the numbers remain modest when compared with the number of non-resident parents who have regular contact. Data derived from the Household, Income and Labour Dynamics in Australia (HILDA) Survey in 2001 indicated that 47% of fathers reported having children stay overnight, while a further 17% saw their children only during the day.

There are a number of reasons why eligible parents may have chosen not to split FTB. One is that the eligibility for that percentage share of FTB will depend on the circumstances of the non-resident parent. If that parent has a taxable income that is in excess of the amount giving an entitlement to maximum FTB Part A, while the resident parent does not, then less FTB Part A will be payable in the hands of the non-resident parent than the resident parent. Another reason why people may have chosen not to split FTB is that the non-resident parent does not want to deprive the resident parent of that income.
 

Problems with splitting FTB

There are a number of problems with the current arrangements for splitting FTB. First, the share of FTB is split in proportion to the amount of care that each parent has. While that may appear logical, the costs of children are not necessarily shared in proportion to the amount of time that is spent in each parent’s care. Where, for example, the children spend the great majority of the time with the resident parent, visiting the other parent every other weekend and for a portion of the school holidays, it is likely that the resident parent will still be purchasing the majority of the clothes and toys that the child needs and paying for school supplies and excursions. Other costs are duplicated in both households.

Secondly, the rules for splitting FTB and the rules concerning shared care under the Child Support Scheme are not aligned. Currently, the way in which contact and shared care arrangements affect entitlement to FTB is quite different from the position under the Child Support Scheme. Under the current child support formula, the child support obligation is not affected unless a parent has the child staying with him or her for 30% or more nights per year, or the parents agree that the parent should be treated as providing this amount of care of the child. In contrast, FTB can be split where a non-resident parent has 10% or more of the care. Although the care is normally based upon nights, it may be calculated by reference to hours of care. The FTB split is in direct proportion to the level of care, so that a parent with 20% of the time with the child will be eligible for 20% of both FTB Part A and Part B.

Thirdly, the FTB rules require processes for the resolution of disputes about the level of care provided in each household if the parents cannot agree, and this is an expense to Government that would be greatly reduced if FTB splitting were confined to shared care families. Currently, where the carers do not agree to the percentage of care, a Family Assistance Office decision-maker must determine the care percentage to be applied. This decision is based on the available evidence of what is the actual pattern of care. The carers are asked in writing to detail the level of care they provide. The shared care percentages are then determined on the information provided, even if only one carer responds. If only one carer provides evidence they are informed that the other carer may request a review of the decision.

Fourthly, the Reference Group and others with whom the Taskforce consulted indicated that the regime for splitting FTB based upon every 1% of care produces considerable conflict. It sometimes has the effect that efforts to reach agreement between the parents on the best arrangements for contact with the children are adversely affected by concerns about the financial repercussions of that decision in terms of entitlement to FTB.

Fifthly, the Taskforce is not persuaded by the policy rationale for splitting FTB Part B. In an intact family, FTB Part B is paid where one parent is not in the workforce or has only a low income from paid employment. Where parents are separated, its history suggests it has a different rationale. Single parent households are entitled to claim FTB Part B to compensate them for the loss of having two tax-free thresholds in comparison to intact couples with children. It is not at all clear why this benefit should be split merely because the child has contact with the other parent at least 10% of the time.
 

Offsetting FTB against child support for families with regular contact

In the proposed new methodology for calculating an appropriate level of child support, it is proposed that FTB Part A entitlements should be broadly considered as offset against child support obligations for families with regular contact, and that FTB splitting should be confined to those with shared care arrangements (35%+ nights each).

The non-resident parent’s child support should be calculated taking into account that the resident parent usually has a significant contribution from the Government towards the cost of children through FTB Part A. If the FTB were split between the parents where contact occurs for 10% of the time or more, then the non-resident parent who receives a share of the FTB Part A would also have to pay more child support because less would be in the hands of the other parent. It follows that they cancel one another out.

The Taskforce proposes that the child support and FTB systems be aligned, so that, rather than having two different systems for taking into account regular contact and shared care, there is one consistent approach. Recognition of the costs of regular contact should be dealt with through the Child Support Scheme rather than through FTB splitting, and the level of child support payable should be calculated on the assumption that the resident parent has the benefit of all the FTB Part A where the care is not being shared.

As a result of this reform, the scope for conflict over money, either in relation to child support or FTB, will be minimised; resident parents will have the guaranteed on-time payment of all of the FTB, and non-resident parents will have their child support obligations reduced significantly on account of the costs incurred in regular contact.

Recommendation 1.14

FTB Parts A and B should no longer be split where the non-resident parent is providing care for the child for less than 35% of the nights per year. Where each parent has the child in their care for 35% of the time or more, FTB should be split in accordance with the same methodology as in Table B.

Benefits for low-income parents with regular contact

The Taskforce was mindful of possible disadvantage that this change may produce for low-income non-resident parents, for whom the amount of child support paid is small by comparison with the level of FTB to which they may be entitled. The Taskforce noted that while the child support payer may not get a substantial fi nancial benefit from his or her share of the FTB, the value of the additional benefits flowing from FTB entitlement for low-income parents may be considerable. Such benefits include Rent Assistance, Health Care Card and other Medicare benefits. The Taskforce proposes that for this group who would otherwise be entitled to a share of FTB if the current system were continued, access to such benefits should be maintained.

Income support payments often include a ‘with child’ rate, where the recipient does not qualify for parenting payment but has care of a child to a specified level. Historically, parents were required to have care of 30% of nights annually. There has been some uncertainty about this rate since the introduction of FTB with its qualifying threshold of 10% care, however. Currently, the award of the ‘with child’ rate of Newstart Allowance does not appear to be administered uniformly. The Taskforce proposes that parents with regular contact (14% or more) be given the ‘with child’ rate, to ensure consistency across the country and to align Newstart Allowance with the recognition of regular contact under the Child Support Scheme. The research on the cost of children conducted by the Taskforce could be used to assess the adequacy of this allowance.

Recommendation 1.15

Non-resident parents who have care of a child between 14% and 34% of nights per year should continue to have access to Rent Assistance, the Health Care Card, and the Medicare Safety Net if they meet the other eligibility criteria for FTB Part A at the required rate. They should also be paid the ‘with child’ rate for the relevant income support payments, where they meet the relevant eligibility criteria. The Government should also consider the adequacy of the current level of this rate in the light of the research on the costs of children conducted by the Taskforce.

Determining the parenting arrangements

Currently, the CSA is required to make an administrative finding as to the level of care being provided by a parent in order to make a child support assessment. Where parents are in agreement that a particular level of care on the part of each is occurring, an assessment may be made on the basis of the agreed arrangements. However, in some cases the CSA may be placed in a position of having to determine care levels where there is parental dispute as to the level of care actually provided and anticipated to be provided into the future.

Where parents are in dispute, Family Relationship Centres will be available to assist them to negotiate parenting arrangements for the children, including the time children will spend with each parent. Family Relationship Centres will also have a role to help where such arrangements break down, or require renegotiation. The ultimate arbiter of disputes as to care arrangements remains courts with family law jurisdiction. Hence, parents with an agreed arrangement will have a parenting agreement setting out their mutual understanding. Where parents have had their dispute resolved in a court, the resulting court order will set out care arrangements.

It is problematic for an administrative agency to be required to make a ‘finding’ as to the specific joint care arrangements proposed into the future when the parents themselves do not agree about the arrangements occurring. The terms of a parenting agreement or court order may reliably form the basis for child support assessment on the basis of regular contact or shared care. Under the proposed scheme, if the parents are not in agreement, it will be up to the parent who wants the child support assessment to be calculated on the basis of a different level of care to seek to resolve the dispute about care arrangements with the other parent by seeking a variation to the parenting plan or court orders.

This will have the additional advantage of promoting certainty in parents’ child support arrangements where a parenting dispute has been resolved, and the agreed or court-ordered arrangements set out.

Recommendation 1.16

Child support assessment based upon regular contact or shared care should apply if either the terms of a written parenting plan or court order filed with the Child Support Agency specify that the non-resident parent should have the requisite level of care of the child, or the parents agree about the level of contact or shared care occurring.

However, there needs to be an exception to the general rule of no change, and in particular, no retrospective change. This relates to a complaint of some resident parents in cases where they have received reduced support on the basis of proposed regular contact, and such contact has not been denied, but the non-resident parent has failed to avail themselves of opportunities to see and care for their child.

In this exceptional circumstance, the resident parent should be able to seek a retrospective adjustment to the level of child support assessed. If there was a dispute about whether regular contact had been occurring, or whether the resident parent was to blame when contact did not occur, the matter would probably need to be resolved by a court. It would only be appropriate to justify a change in the child support assessment if there was a clear pattern established of failing to turn up for scheduled contact visits.

Recommendation 1.17

The resident parent may object to an assessment based upon the payer having regular contact if the level of actual contact usually occurring in the current child support period is significantly less than 14% care of the child or children, although the payee is willing to make the child or children available for that contact.

The general rules about adjustments during a child support period not being retrospective should continue to apply. There are often variations between the levels of contact that ought to occur and the levels of contact in practice as a result of everyday events, such as illness. These do not actually constitute a change to the general pattern of care and should not result in requests for variations to the assessment.

It is proposed that there should be a threshold level of change, below which no adjustment is made to the assessment until the next child support period, even where the change in care level would otherwise result in a change to the assessment. Where there has been a change in the care arrangements amounting to a regular change for the future of at least one night per fortnight (or approximately 26 nights a year), then it ought to be possible to ask the CSA for a new assessment based on the new care arrangements. The fact that there had been variations in contact arrangements, such as additional unplanned visits or missed visits due to unforeseen factors, would not suffice to justify a new assessment, as this would not be a change to the regular care arrangements for the future.

Recommendation 1.18

A new assessment may be issued during a child support period if the parents agree that there has been a change in the regular care arrangements amounting to the equivalent of at least one night every fortnight, or there has been a similar degree of change as a result of a court order.

Variations on the basic formula

The basic formula deals with situations in which the parents, although now separated, continue to support their children. However, families’ situations do not remain static. Either parent may re-partner and have a new family, they may then again separate with additional children to support, or children may be cared for by carers other than their parents. The new formula (in common with the current formula) must adequately handle each of these situations.
 

Second families

Tensions regularly arise when separated parents have re-partnered, and have a new family with the new partner. The parent feels the conflicting pressures of having children in two families to support, and the children will feel any differences in treatment between the parent’s new family and the old. The Child Support Scheme can only deal with these conflicting pressures on the basis of principle. As discussed in Chapter 7, the fundamental principle adopted by the Taskforce is that adopted by other Inquiries—that all children of a parent should be treated as equally as possible, irrespective of the order of their birth.

The current Scheme recognises a parent’s responsibility to new children for whom he or she has a legal duty of support. It does so by increasing the exempt amount of the parent by a substantial flat sum, plus amounts for each new child. However, the increase bears no relationship to the amount of child support paid for children in the parent’s previous family. The increase substantially overstates the costs of children in low-income families, but is inadequate to cover children’s costs at higher incomes. When new children arrive in an intact household, the income of their parent must be spread further, and the standard of living of all the children falls to some extent. If continuity of expenditure principles grounding the child support formula are extended, the available income of the parent to expend on the child support child should be reduced when new children arrive.

In order to demonstrate that children are being treated as equally as possible, the reduction should relate to the cost of the new children. This cost could be assessed to a large extent upon the principles outlined in the cost of children findings of the Taskforce. However, it must be assumed that the responsibility of the parent to their new children is undertaken alone, disregarding any income of a new partner of the parent. Cost calculated on this basis is a reasonable approximation of at least one parent’s share of the total cost of those new children, even where their new partner has income. It avoids involving a new unrelated person’s income in the child support calculation, with the administrative complexity this entails.

Because the new calculation under the proposed scheme considers only the new children, it assumes that there are no economies of scale in supporting those new children as well as the child support children. This reflects reality where it is the non-resident parent who has new children, although perhaps over-estimates the child’s cost where it is the resident parent who has new children to support, in addition to the child support children already in her or his care. The approach, however, may similarly be justified because it openly endeavours to treat the resident and non-resident parents of the child support child equally, while again avoiding too great a level of administrative complexity.

The calculated cost of the children in the new family would be deducted from the available income of the parent. The child support calculation for both the costs and allocation of the child support children may then occur as usual, although using that parent’s reduced income. The outcome will not produce mathematically identical amounts allocated to the support of children in the new and old family, but certainly demonstrates continuity in the principle behind the approach, which is clearly not achieved by the current formula.

While some parents with second families may receive a reduced allowance for the new child or children on the basis of this principle compared to the present provisions, the effect of this recommendation needs to be considered together with the impact of all the other recommendations, including a greatly increased self-support amount, fairer recognition of the costs incurred in contact, recognition that the same percentages of before-tax income should not be applied across the income range, a greater range of individual variations, and other changes to the way in which child support obligations are calculated. The availability of FTB to the second family should also be taken into account.

Recommendation 1.19

All biological and adoptive children of either parent should be treated as equally as possible. Where a parent has a new biological or adopted child living with him or her, other than the child support child or children, the following calculations should take place:

1. establish the amount of child support the parent would need to pay for the new dependent child if the child were living elsewhere, using that parent’s Child Support Income alone;
2. subtract that amount from the parent’s Child Support Income; and
3. calculate and allocate the cost of the child support child or children in accordance with the standard formula, using the parent’s reduced income.

Split care

Another possible family arrangement in families with several children is where one parent takes responsibility for some of the children, and the other parent takes responsibility for the others. In these cases, it is not clear which parent will have the overall child support liability, as each is both a resident and non-resident parent (although to different children). Each may be assessed separately as liable for children in the care of the other parent. The liabilities of each parent may then be offset in order to find the overall payer parent. This is precisely what happens under the current formula.

Recommendation 1.20

Where parents each care for one or more of their children, each parent is assessed separately as liable to the other, and the liabilities offset.

Payments to children in more than one household

The situation of a non-resident parent supporting children to different resident parents fits uncomfortably with income-shares principles. Theoretically, an approach of treating each resident parent separately, and calculating the liability to each such parent using the standard formula would accurately reflect the costs of two separate households. However, the non-resident parent would never factually live in two separate households and support them each to a level as though the other household did not exist. The liabilities in this case should reasonably be limited by the capacity of the liable parent to provide support for the children as though they all lived in one household with the resulting economies of scale. As a result, it is necessary to disregard the income of the carer parents in this circumstance, and calculate the liability on the payer’s income alone. The non-resident parent will not then see any reduction in his or her obligation as the income of either payee parent rises.

However, the payers have already benefited from both households being treated as having the economies of scale of one household. Given this assumption, additional reductions for payee income would significantly underestimate the children’s needs. For this reason it is valid to disregard such income.

Recommendation 1.21

Where a non-resident parent has child support children with more than one partner, his or her child support liability should be calculated on his or her income only and distributed equally between the children.

Payments from more than one non-resident parent

In contrast with the situation of a resident parent who cares for children with different non-resident parents, the issues are slightly different when there is more than one non-resident parent. The resident parent in that instance has available economies of scale in caring for more than one child in the same household. However, each non-resident parent, unless they have contact with the children, may not necessarily know about the existence of the other child, nor of the details of the other child’s non-resident parent.

In theory an assessment could be performed based upon the costs of the children in combination, using the income of the minimum of three parents in combination, with adjustments for new families as per the standard formula. However, this is highly artificial, because it would be extremely rare for an intact household with these parameters to exist. There is little basis upon which the Child Support Scheme can justify performing an assessment involving the income and living arrangements of all three involved parties, with the breaches of privacy this involves. It would also be treating each non-resident parent as partially responsible for the support of the other child or children, to whom they are not biologically related, which seems unjustifi able.

On balance, the Taskforce feels that the treatment of such situations by the current Scheme should be retained, and the calculation and allocation of the cost of the children of each non-resident parent performed separately.

Recommendation 1.22

Where a resident parent cares for a number of children with different non-resident parents, each of the child support liabilities of the non-resident parents should be calculated separately, without regard to the existence of the other child or children.

Payments by the parents to other carers

A final variation that may be encountered is where neither parent cares for the child. Sometimes grandparents or other relatives will take over the primary care of the child, because neither parent is able to do so. This may be an informal arrangement, with the consent or acquiescence of the parents, or a formal arrangement either by court order or through child protection authorities placing the child with the relatives. Child support is payable by both biological parents in these circumstances.

Where the care by a person who is not the child’s parent is such that child support should be available, the fact that the person has no parental obligation to the child should be clearly recognised in the formula. His or her income should not be taken into account in any way by the calculation, which should be based upon the incomes of both parents of the child. This should not prevent recognition that a parent is incurring costs in providing some care of the child through regular contact or shared care, as recognised by the general formula.

Recommendation 1.23

Where a child is cared for by a person who is not the child’s parent, the combined Child Support Income of the parents should be used to assess their liabilities according to their respective capacities. Where a parent has regular contact or shared care of the child, that parent’s liability will be reduced in accordance with the normal operation of the formula.

Minimum and fixed payments

9.11.1 The $260 per year minimum

Since 1 July 1999, there has been a minimum payment of $260 per annum ($5 per week), even if the payer has an income below the exempt amount. The minimum payment of $260 was first proposed in 1994. The payment was not linked to any index when it was introduced, with the consequence that inflation since 1999 has eroded the value of the payment.

AIFS survey results in Figures 9.3 and 9.4 show broad community support for a minimum child support obligation.

Figure 9.3: Do you think a father who does not usually live with his children should pay some child support even if his earnings are very low or he only receives government income support?

Notes: GP nonsep = general population non-separated sub-sample; CFC sep = Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (6) = 19.74, p<.01.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 29.

Figure 9.4: Do you think a mother who does not usually live with her children should pay some child support even if her earnings are very low or she only receives government income support?

Notes: GP nonsep = general population non-separated sub-sample; CFC sep = Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (6) = 21.65, p<.01.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 29.

Most respondents in all groups thought that non-resident mothers and fathers on low incomes should, like all other non-resident parents, pay some child support. This view was advanced by close to 60% or more respondents in the four groups.

The Parliamentary Committee endorsed the earlier introduction of the minimum paymen, but commented that they felt the amount was now too low. It recommended an increase to $10 per week. This is one of the specific issues on which the Taskforce was asked to advise further in its Terms of Reference.

There was strong support within the Reference Group for an increased minimum rate, or at least applying a minimum rate per child, although there were also concerns that the minimum remain affordable to very low income parents, who may be receiving only income support payments. For this reason, some members of the Reference Group had reservations about the Parliamentary Committee’s recommendation that the sum be increased to $10 per week, since this represents a significant sum for those on Newstart Allowance.

Accordingly, the Taskforce, advised by the Reference Group, thinks it is more appropriate that the current minimum be increased by reference to the level of infl ation since 1999. Income support pensions and benefits are adjusted on different bases, with some linked to movements in average wages, and others to the movements in the Consumer Price Index (CPI). The basic income support payment for a person seeking work has been linked to the CPI. The Taskforce therefore proposes that the minimum be indexed to changes in the CPI. This indexation should date from 1999, when the minimum payment was first introduced. This would require an increase, projected to the end of this calendar year, to about $6 per week.

Currently, where a payer is liable to support children with different carers, the $5 weekly minimum rate is divided between the carers in proportion to the number of children each cares for. It is hardly worthwhile to distribute such small amounts. The numbers of such cases is relatively small. The Reference Group advised that the minimum should be applied on a per case basis, and this recommendation was accepted by the Taskforce.

In keeping with the general principles of the income-shares approach, parents who are having regular contact with their child are contributing to the child by undertaking that care, and no payment should then be required. It can be assumed that these parents will be paying at least an equivalent to the minimum payment in caring for the child while having this regular contact. This is also the position where parents are sharing the care of the child.

Recommendation 1.24

All payers should pay at least a minimum rate equivalent to $5 per week per child support case, indexed to changes in the CPI since 1999. The increased amount should be rounded to the nearest 10 cents.
 

Recommendation 1.25

A minimum payment should not be required if the payer has regular contact or shared care.

Currently the system also permits a parent who has a significant reduction in income to notify the CSA, and have their assessment reduced to reflect their current income. Where the parent is in receipt of income support payments, the liability resulting will generally only be a minimum liability. Immediately the parent’s income situation has improved, they are required to notify the CSA, and their assessment is increased.

The Taskforce is aware that there are financial disincentives to improve workforce participation at income levels low enough that income support is payable. The Taskforce considers that it is sensible to allow parents a short period during which their child support obligations remain low, while they manage the costs of resuming employment. People starting a new job usually have to wait a while before their first pay day, depending on the pay cycle. The period of time after which the CSA needs to be notifi ed of the new income should not be too long, otherwise a disproportionate burden to support the children would fall on the other parent and the Government through family assistance. On balance, the Taskforce proposes a month beyond the usual time at which child support obligations would be increased.

Recommendation 1.26

Payers on the minimum rate should be allowed to remain on that rate for one month after ceasing to be on income support payments or otherwise increasing their income to a level that justifies a child support payment above the minimum rate.

Fixed payments

As reported in Chapter 6, more than 40% of all payers in the Child Support Scheme are paying $260 per year or less due to having low incomes. Only about half of these are on Newstart Allowance, Disability Pension, or other income support. It is likely that the reported taxable incomes of many of the remainder do not reflect their real capacity to pay a reasonable amount towards the support of their children.

The use of taxable income as the basis of child support means that those people who legally or illegally manage to minimise their tax also pay unrealistically low levels of child support. The House of Representatives Committee noted that for payers who are manipulating their taxable income to minimise or avoid taxation, there are many opportunities to also avoid paying child support. This is the case whether the manipulation is legal for the purposes of the tax laws or otherwise.

The CSA currently has powers to examine the taxable income of a parent on an individualised basis, and substitute an income that better represents that parent’s capacity. However, this is via the Registrar-initiated change of assessment process, and so is individualised, slow and involves significant administrative effort. There is a more generalised way of identifying parents whose taxable income may not fairly represent their true income, by reference to income support eligibility. Where a parent is genuinely on a low income, they are entitled to government support to meet basic needs. Parents who are apparently on a low income but not in receipt of government benefits are likely to have access to other income that they do not or need not declare as their taxable income.

The required child support payment should be $20 per week per child for those who were not on income support during the tax year on which the current child support liability is calculated, and who report taxable incomes below the level of maximum Parenting Payment (Single).

Parents may apply to the Child Support Registrar for a reduction where they wish to argue that they should not be subject to a fixed payment. The fixed payment may be reduced if the parent can demonstrate to the Registrar’s satisfaction that he or she truly has a level of total financial resources not exceeding basic pension level. Total fi nancial resources in this context include their access to income from any source to meet their living expenses, including from another person. If the parent chooses to live off the income of a new partner, but has a capacity to earn for himself or herself, then the $20 per week per child obligation, at least, should apply. This is consistent with the recommendation on capacity to earn in Chapter 12.

In order to satisfy the Registrar that the fixed payment will not apply, parents will need to approach the CSA and lay open their finances to scrutiny. This may also trigger scrutiny by the Australian Taxation Office. In some cases, there will be a ready explanation for the parent’s low income, despite not being on benefits, and once the explanation has been given and accepted, only a change in circumstances would result in any fresh inquiry or imposition of the fixed payment in future child support years. However, it would not be a sufficient explanation that the payer’s financial affairs are organised mainly through companies or trusts. What may be legal for tax purposes will not necessarily be a good enough reason to fail to make an adequate contribution to the support of one’s own children. This is consistent with the body of case law on capacity to pay, which allows the Senior Case Officers or the courts, on a change of assessment application, to go behind company and trust structures, and to impute an income if a person is likely to be engaging in cash transactions to avoid tax.

This fixed payment should not be reduced on account of regular contact because it is designed to ensure that those whose reported taxable income does not refl ect their real capacity to pay child support make at least a modest contribution towards their children’s upbringing. Should a parent in this situation wish to argue that they have contact costs, which they believe should be taken into account, they always have the option of permitting the Registrar to scrutinise their income and resources, and fi nd a truly appropriate level of income for child support purposes, via the change of assessment process.

The $20 fixed payment should not be applicable in shared care situations. In such cases there is no clear ‘non-resident’ parent who is not contributing sufficiently other than if they make a child support payment. Where a parent is sharing care, that parent is making a substantial contribution to the care of the child.

This fixed payment can be avoided if a self-employed parent reports taxable income just above the level of Parenting Payment (Single). However, the power to conduct a Registrar-initiated assessment will remain, and it can be expected that the Registrar might wish to target people who report taxable incomes between the level of Parenting Payment (Single) and the exempt amount under the formula, where there is reason to suspect that income or capacity to pay is understated.

Recommendation 1.27

Parents who are not in receipt of income support payments but report an income lower than the Parenting Payment (Single) maximum annual rate should pay a fi xed child support payment of $20 per child per week and this should not be reduced by regular contact.
 

Recommendation 1.28

The fixed payment of $20 per child per week should not apply if the Child Support Registrar is satisfied that the total financial resources available to support the parent are lower than the Parenting Payment (Single) maximum annual rate. In those cases, the minimum rate per child support case should apply.

9.11.3 Indexation

To maintain the current value of these payments into the future, both the minimum rate and the fixed payment should be increased annually in line with changes in the CPI and rounded to the nearest 10 cents.

Recommendation 1.29

The minimum rate and the fixed payment should be indexed to the CPI from the end of the 2004–05 financial year. The increased payment should be rounded to the nearest 10 cents.

Non-lodgment of tax returns

The Child Support Scheme relies heavily on the lodgment of tax returns as the basis for child support assessment. In the absence of genuine taxable income information, the CSA has power to substitute a default income figure. However, both assessment and compliance are made significantly harder when parents do not comply with current taxation laws requiring them to lodge returns. In the future, as for FTB purposes, both parents’ incomes will be relevant to child support assessment, and so it would be anticipated that both resident and non-resident parents would be required to lodge tax returns.

The CSA has some means available of determining an appropriate default income where a tax assessment is not available. However, this relies upon information being available from some source. For a certain proportion of payers, the CSA has no information upon which to realistically calculate the level of their assessments.

As discussed in Chapter 6, the CSA has an administrative practice of assuming that a parent’s income for an income year was nil, where that parent has not lodged a return and not paid any child support, and the CSA has no other reliable source of income information after making all reasonable inquiries. This approach is taken for administrative and practical reasons.

If taxable income is to remain the basis of the Child Support Scheme, and payers are to continue to have a legal obligation to lodge tax returns irrespective of their incomes, then more needs to be done to ensure compliance with this obligation. If the CSA uses a default income in lieu of any other information, then the normal way in which this ought to be corrected by the payer is to lodge a tax return or at least to provide other reliable information about his or her earnings for the relevant period. The Taskforce considers that the legislation should stipulate an appropriate default income, indexed to average earnings.

As these cases can be difficult for the CSA to manage, it is reasonable that debt levels based on default incomes be reported separately, so that improvements in other areas resulting from the CSA’s work will still be apparent.

Recommendation 1.30

Where a parent has failed to lodge a tax return for each of the last two fi nancial years preceding the current child support period, and the CSA has no reliable means of determining the taxable income of the parent, the parent shall be deemed to have an income for child support purposes equivalent to two-thirds of MTAWE. That income may only be changed if the parent files a tax return for the last financial year prior to the child support period to which the deemed income relates, or taxable income information is obtained from a reliable source.

Recommendation 1.31

The Child Support Registrar may report debts arising out of child support obligations based upon a deemed income separately from other accrued debts, but may not reduce a deemed income based on the parent’s failure to meet the obligation.

Improving Assessment and Enforcement of Child Support 

This chapter deals with a range of issues which are not directly raised by the Terms of Reference, but which are part of the context of the formula’s operation in practice. These need to be addressed if public confidence in the Scheme is to be increased, and sources of discontent with its operation reduced.
 

Enforcement by the Child Support Agency

The Child Support Agency (CSA) provides the fundamental operative basis and service delivery of the Child Support Scheme. It is now part of the Department of Human Services.

Under the child support legislation, the Child Support Registrar is currently responsible for both the assessment and enforcement of child support. CSA has administrative links to tax return lodgment information from the Australian Taxation Offi ce (ATO). This provides the information on taxable income, which is the basis for the assessment of child support. Automated information exchange, at least for parents who lodge timely tax returns, enables a streamlined child support assessment process to operate with minimal administrative intervention required by CSA offi cers.
 

10.1.1 The options for collection

Once an assessment has been made, the payee parent has the right to choose either to arrange transfer of the liability privately directly with the payer, or to ask CSA to collect the child support on their behalf. If the payee chooses private collection, CSA retains a role in updating assessments for each new child support period, and in some cases modifying an assessment in the light of information provided by one of the parents (for example, where a payer’s income falls significantly as a result of losing a job). However, in private collect cases, CSA has no role in actual transfers. The payee has the option of being able to apply for CSA collection if private collection arrangements are not working. If the payee chooses CSA collection, CSA will work with the payer parent as to their preferred means of payment of the liability, or enforce payments using available administrative mechanisms if the payer is not prepared to make voluntary payments.
 

10.1.2 Enforcement powers

Enforcement powers akin to those available to the ATO together with further specifi c powers directed to collection of ongoing liabilities are available to CSA. Where payers are in ongoing employment, they or CSA may ask their employer to make regular deductions from their wages and forward them to CSA in satisfaction of their child support obligations. If a payer does not pay voluntarily, CSA can impose collection from wages and intercept tax refunds from the ATO. CSA can also collect from social security pensions or benefits, including from Family Tax Benefit (FTB) in limited circumstances, give notices to third parties to garnishee money of the payer, and prohibit the payer from leaving Australia or seek bankruptcy of the payer. CSA has significant powers to require provision of information to assist in locating monies against which enforcement can occur. CSA can also seek a court judgment for the debt, and undertake court enforcement of the judgment.
 

10.1.3 Accurate assessment of capacity to pay

Reliance upon taxable income may be problematic in some parents’ cases, despite its administrative convenience. The assumption justifying using tax return information is that such information will fairly reflect a parent’s financial circumstances and capacity to support his or her child.

The purposes of taxation laws and child support laws are not the same. The tax treatment of particular types of income may be designed to encourage particular types of business activity or investment, or to improve competitiveness or economic or fi scal balance. Where a parent is engaged in a small business, runs his or her own company, or is self employed, a tax return that provides an accurate statement of taxable income for the purposes of taxation laws may in some cases understate the fi nancial resources actually available to that parent to support a child. The parent may be allowed signifi cant concessions and rebates because of the field in which he or she is conducting business. A parent who directs his or her own company may choose to draw little from the company in terms of income, but have access to significant resources and benefi ts that raise his or her standard of living. If the parents of the child were living together, the child would be sharing in the higher standard of living of that parent drawn from his or her business activities.

The Parliamentary Committee received a number of submissions highlighting the inequity between the position of PAYG wage earners within the Scheme compared with self-employed people or business people.

At present, the CSA has a range of methods by which it can assess the real capacity to pay of a self-employed person who has structured his or her financial affairs so as to minimise taxable income. It also has methods of estimating the real income of those who fraudulently conceal income derived from cash transactions. However, it normally relies on individual parents to initiate a change of assessment process on the basis that the other parent has a higher capacity to pay than is reflected in his or her taxable income.

Since 1999, the CSA has had the power to initiate changes of assessment of its own motion. This can be very useful in enabling the CSA to look at categories of child support cases that have shared characteristics and where a closer examination of the payer’s finances is warranted. The Taskforce recommends increased resources for this work.

Recommendation 2

The CSA should be given increased resources to investigate the capacity to pay of those who are self employed, or who otherwise reduce their taxable income by organising their financial affairs through companies or trusts, and those who operate partially or wholly by using cash payments to avoid taxation.

Effective enforcement

Making an appropriate assessment must be backed up by effective enforcement in circumstances where parents will not comply voluntarily. The Taskforce considers that the proper enforcement of child support obligations in relation to all child support payers is essential for popular acceptance of the Scheme. As has been recognised for many years, self-employed non-resident parents who do not meet their obligations to their children represent a particular challenge for the CSA, both in assessment and enforcement. The inequities between the way the Scheme applies to PAYG wage earners compared to the self employed or business people were noted by the House of Representatives Committee, and the Committee concluded that the CSA required extended enforcement powers to enable it to effectively address accumulating debt within the Scheme.

The Taskforce recommends that any enhancement of the CSA’s enforcement powers should be focussed on increasing its enforcement options in relation to self-employed parents who are defaulting on their obligations. CSA’s powers in this area are currently directed at debt, once a parent has failed to pay and is accumulating arrears. This contrasts with the situation of a wage-earning parent, where collection of future liabilities can effectively be enforced before arrears have accumulated, when it is clear that this is the best method of ensuring the obligation is paid in a timely way. In many cases, self-employed people will have ongoing sources of revenue, despite not having an employment relationship with the provider of that income source. Appropriate powers need to be available to maintain ongoing collection in such cases.

In many cases, even payers with a minimum liability who are on income support accumulate arrears until CSA sets up ongoing collection of the liability from their income support entitlements. CSA currently has very limited ability to address collection of arrears while the ongoing liability remains, with the result that the debts of such payers are increased by legislatively imposed late payment penalties over time. It would be preferable for the children who have not received that support, and in order to avoid debt for the payer, that greater opportunities were available to CSA to collect such arrears from Centrelink benefi ts.

Many types of government payments cannot be intercepted to recover debts, including various veterans’ entitlements, many superannuation funds and parliamentary pensions. This general prohibition may be for very valid reasons, including ensuring that the individuals can support themselves, as well as recognising the service to the public or the nation that such individuals have provided. However, a parent’s obligation to their children should not be treated as reduced by the fact that the parent has performed such service, and such parents placed in a different position from recipients of other sorts of government payments.

Such parents will generally meet their obligation to their children voluntarily. However, there have been instances of failure both by former parliamentarians and by veterans to pay their child support. When recipients of such payments do not comply, there should be means available to CSA to enforce their obligation against their government payments. Everyone should be in the same position before the law. No one who has the capacity to pay should be exempted from child support obligations or shielded from provisions designed to enforce those obligations when they fail to meet them voluntarily.

One recommendation made by the House of Representatives Committee was that there should be the power to cancel driving licences for the non-payment of child support. The Reference Group counselled against this particular enforcement option, as it may impair a payer’s earning capacity and therefore be self-defeating in terms of ongoing collection.

Recommendation 3

3.1 The CSA should be given increased enforcement powers to the extent necessary to be able to improve enforcement in relation to people who are self employed or who otherwise reduce their taxable income by organising their financial affairs through companies or trusts, in particular by:

1. broadening the powers available to the CSA to make ongoing deductions from bank accounts to align enforcement measures for non salary and wage earners with those for salary and wage earners;
2. aligning CSA powers with Centrelink powers to make additional deductions from Centrelink benefits to cover arrears; and providing the power to garnishee other government payments such as Department of Veterans’Affairs pensions.

3.2 Enforcement powers should not be extended to the cancellation of driving licences for failure to pay child support, as this might reduce parents’ capacity to earn income.

Court enforcement by payees

Escalating debt in individual child support cases is a frequent cause of complaints and Ministerial correspondence from payee parents. Currently, a payee who has registered a child support liability for collection with CSA assigns responsibility for the debt entirely. Such a payee has no continuing right to enforce the liability. If such a payee is involved in court action to resolve the division of property, or other proceedings where the opportunity to seek enforcement of outstanding child support exists, they must ask the Child Support Registrar to become involved in the proceedings. Delays or difficulties in persuading the CSA to intervene can hinder opportunities for collection when they arise in this way.

Such a payee has no power to require the Registrar to take any particular step. If such a payee is prepared to undertake all enforcement themselves, they may opt to collect the liability privately and cease to have the debt registered with the CSA for collection. However, there is currently no middle ground, where the payee may take action to enforce a debt while the ongoing obligation is registered with the CSA for collection.

The Taskforce concluded, on the basis of its consultations with judicial offi cers and professionals practising in family law, that payees ought to be given concurrent enforcement powers as long as this did not conflict with action being taken by the CSA. This benefits payees, is efficient in terms of court time, and saves administrative costs for the CSA.

The Taskforce proposes that payees should be able to give the Registrar notice that they will pursue a one-off court opportunity of enforcing arrears themselves, whilst maintaining CSA collection of the ongoing liability. The only issue is then ensuring that CSA is aware of the action being taken, the correct level of debt recorded and maintained and that no overlapping activity occurs to collect the same debt. A suffi cient period of notice should generally be given, although with opportunity to abridge the period should the urgency of the circumstances require it.

Recommendation 4

Payees should be given all the same powers of application to a court as the Child Support Registrar has for orders in relation to the enforcement of child support, provided either that the payee gives 14 days notice to the Registrar of the application, or the notice requirement is otherwise reduced or varied by the court, and that any money recovered under a payee enforcement action be payable to the Commonwealth for distribution to the payee.

Powers of courts determining child support matters

Powers in relation to information and discovery

The Federal Magistrates Court, in which many parents will determine their family law proceedings, has only limited powers to make orders requiring disclosure of information by one party to another. This was deliberate, in order to ensure that this court would provide a simpler and more accessible means of resolving disputes than the superior Federal courts. Formal information-determining processes such as discovery and interrogatories were seen as aspects of the procedure of superior courts that ought not generally to be replicated in the Federal Magistrates Court.

While this is generally appropriate, it is necessary, if payee enforcement is going to be effective, that the Federal Magistrates Court should have at least the same powers to obtain information and require evidence to be produced as the CSA has when enforcing a liability.

Recommendation 5

A court hearing an application for enforcement of child support by a payee parent should have the same powers to obtain information and evidence in relation to either parent as the Child Support Registrar has when enforcing a child support liability.

Powers of case management

Systems for the resolution of family disputes and child support issues should be designed as far as possible to keep matters out of court, and to provide opportunities for the resolution of disputes without recourse to litigation.

However, if these diversion and dispute resolution strategies do not resolve the dispute, cases may have to be determined by a court. Once a matter is in the court, it is best that the court manage the case according to its best judgment of the circumstances of the parents. The process of litigation allows for individualised determinations of the issues in dispute.

One important power that courts need to have, in relation to any dispute, is to maintain the financial position of the parties, pending the court’s final decision. In the context of child support, this needs to be balanced against the need of the children for ongoing financial transfers. Section 140 of the Child Support (Assessment) Act 1989 gives the court such powers in relation to change of assessment applications, but s.140 is not currently broad enough to deal with all the situations where it may be desirable to make orders staying or otherwise affecting the operation of the child support legislation pending final resolution of the case. In particular, the court has very few powers in relation to registration and enforcement, particularly in relation to debt and the accrual of late payment penalties. Courts should have all necessary powers to maintain the status quo, or to balance the interests of the parties appropriately, pending the outcome of the case.

Recommendation 6

Pending the final outcomes of any application or appeal under child support legislation, whether in relation to assessment, registration or collection, the court should have a wide discretion to make orders staying any aspect of assessment, collection or enforcement, including:

1. implementing a departure from the formula on an interim basis;
2. excluding formula components or administrative changes which might otherwise be available;
3. suspending the accrual of debt, and/or late payment penalties, without necessarily having to substitute a different liability for a past period;
4. discharging or reducing debt without needing to specify the changes to the assessment to effect this result;
5. limiting the range of discretionary enforcement measures available to the CSA, or staying enforcement altogether; and
6. suspending or substituting a different amount of available disbursement to the payee.

Rights to seek CSA collection

Payee parents currently have limited rights to make a choice as to whether to use the CSA to collect child support. Initially, upon the raising of the liability, such parents have the right to ask CSA to collect on their behalf. However, CSA can require parents to collect child support privately, despite the parents not having made an election for CSA to end collection of child support, where it is satisfied that the parents involved can make their own sustainable private collection arrangements. This provision was inserted into the legislation on the recommendation of the Joint Select Committee on Certain Family Law Issues, which reported in 1994.

While the Taskforce accepts the rationale for the Joint Select Committee’s recommendation, concern was expressed about the operation of this provision in the Reference Group, and the Taskforce considers that the legislative enactment of this recommendation does not find the right balance between payer and payee interests. Unlike an application for registration, CSA is not obliged to accept a payee’s application to resume CSA collection. CSA is only obliged to grant the payee’s application when the criteria in the Act are satisfied, namely that:

• the payer has an unsatisfactory payment record; or
• the Registrar is satisfied that special circumstances exist in relation to the liability which make it appropriate to grant the application.

The onus is thus placed upon the payee to justify a return to CSA collection. CSA’s policy is that ‘collection will be appropriate if there are exceptional difficulties in the relationship between the parents or between the payer and the children that may make private collection difficult to sustain’.

The Taskforce is concerned that there is a potential conflict between the interests of the CSA and payees in the administration of this discretion, for while the CSA’s mission is about collection of child support, resourcing constraints might lead it to seek to limit the numbers for whom it has a collection responsibility. The Taskforce considers that payees are in the best position to know whether, given the overall context of their relationship with the other parent, CSA collection is the better option for them. While this must be balanced with the interests of paying parents, the Taskforce proposes that the legislative position should be reversed. Instead of stating when the Registrar must accept a payee’s application to resume collection, the legislation should set out the circumstances in which the application should be refused.

Recommendation 7

Section 39(5) of the Child Support (Registration and Collection) Act 1988 should be amended to provide that a payee’s application to opt for agency collection after a period of private collection should not be refused unless it would be unjust to the payer because:

1. the payer has been in compliance with his or her child support obligations;
2. a failure in compliance has been satisfactorily explained and rectifi ed; or
3. there are special circumstances that exist in relation to the liability that make it appropriate to refuse the application.

Overpayments

Payers naturally have a keen interest in ensuring that overpaid amounts are ultimately repaid. Cases of disputed parentage are the most highly emotive, but overpayments can arise in many circumstances due to the general operation of the Act and administrative payment system.
 

Overpayments through CSA error

The situation sometimes arises where a carer is credited with an amount of child support to which he or she is entitled, but it is subsequently discovered that the payment was made in error, because no corresponding payment had been received from the payer. The CSA may recover the amount from the payer, but until then it is an overpayment, to be repaid by the carer. The carer may not have had any knowledge of the fact that the payment was made in error. Indeed, the parent may have spent the funds before being made aware of the overpayment. Such errors may cause stress to the carer, and adversely impact on the relationship between the payer and the carer and children. The CSA should carry the debt until it is recovered, as an outstanding payment, and not involve the carer in rectifying the error.

Recommendation 8.1

Where, as a result of administrative error, a payee has been paid an amount not paid by the payer as the result of administrative error, for example, as the result of the payer’s cheque not being met, or as the result of an incorrect allocation of employer garnishee amounts, the Child Support Registrar should not require repayment by the payee.

Payees affected by payers’ non-compliance

Currently, child support payers are required to lodge tax returns to provide a basis for administrative assessment. If there is no return, the Child Support Registrar will use available information to calculate an income as close as possible to the payer’s actual income or, as a last resort, set it at a default level. This process is outlined further in Chapter 3. If the payer lodges his or her return, the assessment must be revised. This has the potential to result in an overpayment that the resident parent must repay unless he or she successfully applies for a retrospective change of assessment.

The payee parent has no control over the payer’s compliance with tax laws. Hence, the responsibility for seeking adjustment to the assessment should be shifted from the resident parent to the payer. The Registrar should vary the payer’s income from the time the income tax information was lodged, but the payer must demonstrate reasons why it should be changed for the whole period. One of the factors the Registrar should take into account is the effect on the resident parent of any overpayment.

Recommendation 8.2

Where a payer lodges a late tax return for a child support period, and that return shows a taxable income lower than that used in the assessment, the Child Support Registrar shall vary that payer’s income from the date the return was lodged, but not for the intervening period unless the payer can show good reason for not providing income information at the time the assessment was made. In making a decision whether to vary the payer’s assessment, the Registrar will consider the effect on the resident parent of having to repay any overpayment thereby created.

Paternity disputes

While a paternity challenge is pending, the Registrar may currently make a suspension determination under s.79A of the Child Support (Registration and Collection) Act 1988, under which the father would continue to pay child support, but the Registrar would pay nothing out to the resident parent until the dispute is fi nalised. A suspension determination will always be made unless the resident parent would not be able to provide day-to-day necessities for herself and the child.

In the light of the research by the Taskforce on the costs of children in relation to the levels of family payments and ancillary benefits, it is difficult to imagine a situation under the current family payments regime in which a carer would experience such serious hardship. Consequently, the Taskforce considers it appropriate to legislate a default rule, subject to a court order to the contrary, rather than reposing a general discretion in the Registrar. Since the matter will be before the court in any event, it is in a good position to make a determination after hearing from both parents, if the payee parent makes an application that the money be disbursed before the case is resolved.

The effect of the default rule is to minimise the risk of unjustified payments. At least from the time the issue comes before a court until it is decided, child support payments should be held by the Registrar, to be repaid to the payer if the application is ultimately successful. This recommendation is consistent with the original recommendation made by the Joint Select Committee on Certain Family Law Issues.

Recommendation 8.3

Where a parent has made an application (under s.107 of the Child Support (Assessment) Act 1989) disputing an assessment on the basis that he is not the parent of the child, and informs the CSA of the application, the Child Support Registrar shall suspend payments of collected amounts to the payee until the application is finalised, unless the court orders otherwise.

Once a court makes a declaration that a man is not a child’s father under s.107, it is as if the child support assessment had never been made. Any child support paid under the assessment must be recovered from the carer by the payer. Currently, the former payer must separately ask the court to make that order for repayment. The Taskforce proposes that the decision about repayment should be part of the court’s deliberation on the question of paternity, minimising court costs and uncertainty for both parties.

Courts considering cases in which paternity has been challenged successfully have varied in their approaches to determining the amount of repayment due to the former payer. Relevant factors are set out in the decision of Federal Magistrate Riethmuller in the case of DRP & AJL. These should be codified in child support legislation to assist in the clarity of the law. They allow the court to consider the situations of all parties, including the biological father, and to consider all aspects of the relationship between the former payer and the child in determining whether the ‘child support’ mistakenly paid should be repaid.

Recommendations 8.4 and 8.5

8.4 Where a court has considered a s.107 application, and has made a declaration that the assessment should not have been made, it should immediately proceed to consider whether an order should be made for repayment of any amount under s.143 of the Child Support (Assessment) Act.

8.5 When considering how much of the balance of money paid under a child support assessment should be repaid to a payer who has successfully disputed paternity, the court should have regard to:

1. the knowledge of the parties about the issue of paternity;
2. any acquiescence or delay by the payer after he had reason to doubt his paternity;
3. the relationship between the payer and the child;
4. the present financial circumstances of both parties; and
5. the capacity of the biological father (if known) to provide child support in the future.

Even once a former payer has an order that support paid be repaid, their position in terms of enforcement of the order is subject to the resources of the payer. In contrast, the Registrar intervenes to recover debts from a payer under a child support assessment using powers to access bank accounts, tax returns and wages. The former payer should be put in the same position as a payee, where they are owed repayment of child support related debt.

Recommendation 8.6

Where a court makes an order for repayment of an overpaid amount under s.143 of the Act, the amount of such payment may be registered with the Child Support Registrar as a registrable maintenance liability, for enforcement.

Designated payments

The Child Support Scheme should be designed so that it encourages appropriate agreements between the parents about how child support should be paid, and the sorts of expenses it will be intended to cover. The Family Relationship Centres will play a significant role here (see Chapter 15).

However, there will always be a need for some facility for paying parents to pay amounts towards designated costs, for credit against their child support obligation, where both parents cannot agree that the amounts should be so credited. Some Non-Agency Payments have been prescribed in Regulations, and are able to be credited against up to 25% of child support liabilities, regardless of the wishes of the payee parent. These payments clearly benefit the child or the household in which the child principally resides. They can be for:

• childcare costs for the child who is the subject of the enforceable maintenance liability;
• fees charged by a school or preschool for that child;
• amounts payable for uniforms and books prescribed by a school or preschool for that child;
• fees for essential medical and dental services for that child;
• the payee’s share of amounts payable for rent or a security bond for the payee’s home;
• the payee’s share of amounts payable for utilities, rates or body corporate charges for the payee’s home;
• the payee’s share of repayments on a loan that financed the payee’s home; and
• costs to the payee of obtaining and running a motor vehicle, including repairs and standing costs.

Importantly, a credit against each periodic monthly obligation as it arises is only available if the paying parent pays the remaining portion of the liability directly to CSA. Such payments allow the paying parent to be confident that the children are benefi ting and to have some sense of control over how his or her child support is used, without impinging upon the payee’s discretion about how most of the payment is applied. For those parents who make prescribed payments as part of satisfying their child support obligation, there is frustration with the 25% limit on credit of the payments. The limit on credit is a balance between ensuring that the carer has sufficient ongoing cash-fl ow to cover the everyday requirements of the children and adequately maintaining the paying parent’s sense that he or she has an involvement in how his or her child support payments are expended.

Given the generous nature of the government contribution to children through FTB, there is less need now for a substantial majority of child support to be paid in cash. However, these are situations where parents cannot agree that the payments are to be credited as child support. If the parents agree, the payments may be credited for up to 100% of the periodic liability. On balance, the Taskforce is persuaded that the House of Representatives Committee’s recommendation of an increase in credit limit from 25% to 30% provides sufficient rebalancing of the rights of the parents in such cases.

However, there is a risk that in particular situations, the payee parent may be left with insufficient cash flow if prescribed payments are credited against their wishes, perhaps where a significant amount of the child support payment has already been transferred in a lump sum, or for other reasons. The Registrar should have a discretion to consider an application by the payee parent not to credit a prescribed payment, or to credit it only to a reduced extent, to allow individual adjustment in these situations.

Under the Taskforce proposals for a new formula in Chapter 9, the paying parent with regular contact will already have a credit of 24% of the costs of the child expended on the child whilst the child is in their care. The Reference Group advised that a further reduction in ongoing cash flow by allowing credit for in-kind payments otherwise than by consent in such cases, together with the aggravation of any conflict in parenting arrangements, would have a very negative impact. In such cases, the Taskforce believes it is undesirable to allow a further credit for in-kind payments otherwise than by consent, as this would reduce to an unacceptable level the discretionary funds in the hands of the payee to meet expenses such as rent and utility bills.

Recommendation 20

20.1 The limit on Prescribed Non-Agency Payments should be raised from 25% to 30%.

20.2 Prescribed Non-Agency Payments should not apply to parents whose child support liability reflects regular contact or shared care.

20.3 Section 71D of the Child Support (Registration and Collection) Act 1988 should be clarified so that the Child Support Registrar’s discretion not to credit a Non-Agency Payment or to reduce the level of credit should apply in circumstances where the payee would be left without sufficient funds to meet the reasonable needs of the child if the Non-Agency Payments were credited, or credited in the normal manner.

Child Support and the Maintenance Income Test 

The rationale for the Maintenance Income Test

As noted in Chapter 4, the Maintenance Income Test (MIT) has the effect of reducing a resident parent’s Family Tax Benefit (FTB) Part A by 50 cents for each dollar of child support above a prescribed threshold, usually $1,150 per annum plus $383 for each child after the first. It applies until FTB Part A has fallen to the base rate. Rent Assistance payable as a supplement to FTB Part A is also subject to reduction through the MIT.

The reason for the MIT is that when parents separate, the Government usually has to pay much more to support the primary caregiver and children than if the family had stayed together (in the form of increased FTB, Parenting Payment (Single) and Rent Assistance). Where the non-resident parent has the earning capacity to help support the former partner and the children, it has for many years been government policy that those support payments should reduce government expenditure on benefi ts.

As shown in Figure 11.1, the community attitudes survey conducted by the Australian Institute of Family Studies showed that most respondents believed mothers receiving government income support should keep all or some of these payments.

Figure 11.1: If mothers are on government income support payments, should their government payments be reduced by the total amount of child support, just some of it, or should they be able to keep all of it?

Notes: GP nonsep = general population non-separated sub-sample; CFC sep = Caring for Children after Parental Separation sample comprising separated/divorced parents with at least one child under 18; χ2 (6) = 29.01, p<.001.
Smyth B. & Weston R., ‘A snapshot of contemporary attitudes to child support’, in Volume 2 of this Report, p. 24.

The Taskforce acknowledges the role of the MIT, and the percentages recommended by the Taskforce in the Costs of Children Table have been adopted after taking it into account.

However, the Taskforce identified two fundamental problems with the way the MIT currently operates.

Problems with the MIT

Application to non-child support children

FTB is assessed on household incomes. The MIT operates to reduce the total of FTB Part A for all children in the resident parent’s family, not just the child or children for whom the child support is paid. As a consequence, if the resident parent remarries and has a baby with the new spouse, or indeed there are children from a previous relationship living with them, the MIT will operate to reimburse the Government not only for the FTB Part A payable in respect of the child for whom child support is paid but for all children in the resident parent’s household for whom FTB Part A is paid.

This is a serious anomaly. It means in effect that child support paid by the liable parent is being used to reimburse the Government for its expenditure on a new biological child or step-child of another parent, for whom the liable parent has no responsibility.

The MIT should operate only in relation to FTB payable for the child support children and should exclude other children living in the household. The Department of Family and Community Services has advised the Taskforce that this reform is feasible and could be accomplished without undue fi scal impact.
 

Misalignment with policy towards intact families

The MIT is not aligned with FTB in any coherent policy framework. For separated parents whose combined income for FTB purposes is below $32,485, the level of FTB Part A paid to the primary caregiver as a consequence of the MIT is much lower than if the parents were still living together. In effect, the Government is reducing FTB payments to the family following separation that it would have paid in full when the parents lived together. This appears to be inequitable.

This situation may be illustrated by the example of where a parent liable for child support has a taxable income of $32,484 and the other parent is on Parenting Payment (Single). They have one child, aged six, for whom child support is being paid, and the liable parent has no new dependent children. They are not splitting FTB Part A on the basis of shared care.

If the two parents were still living together as a household, they would be entitled to $4,095.30 in FTB Part A, which is maximum rate for one child of this age. Under the present Child Support Scheme, the liable parent would be paying $3,516 child support per annum for that one child. The resident parent would be entitled to keep $1,150 of that sum, and 50 cents in the dollar thereafter. As a consequence, $1,183, or about one third, of the payer’s child support goes to reimbursing the Government for FTB Part A expenditure that it would have incurred in any event if the parents had remained together.
 

The neutrality principle

The Taskforce believes that the MIT should not claw back FTB Part A beyond the level paid to equivalent intact families. It has termed this the ‘neutrality principle’.

In examining the issues around giving effect to the neutrality principle, the Taskforce considered a number of approaches. These fall into two categories: one is to adopt a totally new methodology for recovering expenditure on post-separation income support. The other is to adjust elements of the existing MIT.

Two totally new methodologies considered and rejected were: the inclusion of maintenance income as ordinary income for income support purposes and in adjusted taxable income for the assessment of FTB; and the calculation of FTB Part A using a notional joint income assessment approach.

The first approach would involve assessing maintenance income as part of the existing income test for a payee’s income support payment. This was rejected on two grounds— the inequity of maintenance payments for children being used to reduce income support for the resident parent and the workforce disincentives arising from applying maintenance income to the income free area and taper making it, potentially, unavailable for earned income. Furthermore, there would be a substantial cost to the Budget in treating maintenance income in the same way as other income for FTB purposes.

The second approach would hypothetically unite a separated couple and determine their notional rate of FTB as a couple compared to the actual FTB Part A they now receive, being separated. The difference in the notional and actual rates of FTB would be the amount available for recovery under the MIT. Although this approach gives practical effect to the neutrality principle on a conceptual level, it was rejected because it would lead to considerable complexities in implementation and administration and, accordingly, in public understanding and acceptance of the policy.

The Taskforce also consulted extensively with the Department of Family and Community Services about further options to improve the fairness of the operation of the MIT by adjusting elements of the existing arrangements. Of these, the most attractive is to adjust the free area to the level where the MIT claws back only the amount of FTB Part A paid to separated parents, as a group, that is in excess of what these families would receive if they had not separated. This approach would deliver equity in the aggregate (equity at the individual level not being administratively feasible). It would also need to be updated alongside any future changes to FTB to maintain the fairness of its application.
 

The terminology of maintenance

The Taskforce considers that terminology used in the current context is out of date. ‘Maintenance’ may once have been a generic term for both spousal and child maintenance, but it is no longer. The term ‘maintenance’ should be replaced with ‘child support’ for both the Maintenance Action Test and the Maintenance Income Test.
 

Reasonable maintenance action

Flexibility and more choices need to be built in to the Child Support Scheme to enable parents to agree on their parenting responsibilities following family separation. Currently, the operation of the FTB system is such that parents who seek more than base rate FTB Part A must apply for child support almost immediately, at a time when little discussion may have occurred between the parents about the parenting arrangements after separation.

To give parents more time to adjust to the separation and to discuss a parenting plan, the Taskforce proposes that there should be a moratorium on the requirement to apply for child support (the Maintenance Action Test—or MAT) for 13 weeks. In that period, FTB should be determined as though the MAT has been satisfied. Further discussion on parenting plans is provided in Chapter 15.

Recommendation 9

9.1 The mechanisms of the Maintenance Income Test (MIT) should be changed to ensure that it applies only to the children in a family for whom child support is paid.

9.2 The names of the Maintenance Action Test and the MIT should be changed to the Child Support Action Test and the Child Support Income Test in order to better reflect their roles.

9.3 The MIT’s free area, taper rate and scope should be reviewed in order to ensure that the operation of the MIT does not claw back FTB Part A beyond the level paid to equivalent intact families.

9.4 There should be an extension on the moratorium on taking reasonable maintenance action for FTB purposes from 28 days to 13 weeks, in order to give separated parents more time to negotiate a parenting plan. Child support should continue to commence from the date an application is made to the CSA.

Eligibility for income support of child support payers

The position of the parent paying child support is currently adjusted for the purposes of calculating that parent’s entitlement to FTB. The child support paid is treated as ‘deductible maintenance expenditure’ and the parent’s income is treated as less this amount for the purposes of calculation of his or her FTB. This is because that amount, once paid, is not available to the parent for the support of his or her current family. The Taskforce recognises that this amount is not available for the parent’s self support either. Accordingly, child support paid should be deducted from income considered for the purposes of calculating eligibility for income support payments in the same way as it is deducted to calculate FTB entitlement.

Recommendation 21

21.1 The Government should consider the deduction of child support payments from assessable income for the purpose of the assessment of the income support payment rate (in line with deductible child support maintenance for FTB adjusted taxable income).

21.2 The Government should consider treating the eligibility for income support of each parent in a shared care arrangement (35% to 65% of nights each) more equally.

Change of Assessment 

The current change of assessment process and reasons

Any child support scheme based on a formula that is of general application needs to have the flexibility to deal with situations where the formula may operate unfairly due to particular circumstances. The Australian Child Support Scheme has such a process. It is called ‘change of assessment’. Primarily, these cases are considered at an administrative level. However, a few cases are dealt with directly by the courts when there are proceedings involving other family law issues as well. Other cases go to the courts when a parent is dissatisfied with the outcome from the administrative process.

Change of assessment provides a discretionary means of addressing a parent’s individual special circumstances, where an existing formula assessment does not produce a result that a parent considers to be fair. With the exception of Registrar-initiated change of assessment, the application for the change is made by an individual parent, and the parent is responsible for providing information to show that there is reason for a change. The decision-maker must also be satisfied that the change is fair and appropriate in the circumstances.

The assessment may only be changed under this process on the basis of specifi ed grounds or ‘reasons’. These grounds are set out in the relevant legislation, and are relatively narrow in scope. A parent applies for a change of assessment to the Child Support Agency (CSA), providing information about the reasons for which he or she seeks the change. The information is sent to the other parent who has the opportunity to provide a written response. Senior Case Officers (either CSA staff or offi cers contracted to CSA) consider the application, including conducting a conference with each of the parents. If the Senior Case Officer (SCO) approves a change of assessment, it is essentially because in the circumstances, the formula does not produce a fair result. The decision is ultimately restricted by broad considerations relating to what is fair to all the parties and the child in the special circumstances, and the public policy objectives of the Act.

If the SCO determines that a change is appropriate, he or she can essentially vary or remove any of the formula components, with the exception of the imposition and level of the minimum liability.The SCO’s determination substitutes an individualised assessment, in some cases effected by creating an individualised formula. The formula component varied will depend upon procedural policies as to the best way to refl ect the desired outcome in the individual circumstances, while avoiding restricting the parent’s future administrative options.

Once the CSA has made a change of assessment, a dissatisfied parent must then object, before being free to apply to a court for a fresh determination. The court process is not a review of the previous decision, but a completely new examination of the parent’s circumstances and new decision.

The current legislated grounds for change of assessment have been expressed by the CSA as the following 10 reasons:
 

• Reason 1. The costs of maintaining a child are significantly affected by either parent’s high costs of contact with the child.
• Reason 2. The costs of maintaining a child are significantly affected by high costs associated with the child’s special needs.
• Reason 3. The costs of maintaining a child are significantly affected by high costs of caring for, educating or training the child in the way both parents intended.
• Reason 4. The child support assessment is unfair because of the child’s income, earning capacity, property or fi nancial resources.
• Reason 5. The child support assessment is unfair because the payer has paid or transferred money, goods or property to the child, the payee, or a third party for the benefit of the child.
• Reason 6. The costs of maintaining a child are significantly affected by the payee’s high childcare costs for the child (and the child is under 12 years).
• Reason 7. The parent’s necessary expenses significantly affect their capacity to support the child.
• Reason 8. The child support assessment is unfair because of the income, earning capacity, property or financial resources of one or both parents.
• Reason 9. The parent’s capacity to support the child is significantly affected by:
  • their legal duty to maintain another child or person
  • their necessary expenses in supporting another child or person they have a legal duty to maintain
  • their high costs of contact with another child or person they have a legal duty to maintain.
• Reason 10. The child support assessment is unfair because:
  • the payer earns additional income for the benefit of their resident child (who is not the payee’s child), or
  • the payee earns additional income for the benefit of their resident child (who is not the payer’s child).

The Terms of Reference necessarily required the Taskforce to review these grounds for change of assessment since they are integral to decision-making on the development of a fair formula. In particular, the Terms of Reference require the Taskforce to consider the treatment of any overtime income and income from a second job, and also the issue of re-establishment costs.
 

Limiting retrospectivity

An application for change of assessment may currently be made for a virtually unlimited time. This is highly undesirable, as it may open periods to re-examination which have long past, to the detriment of the other parent who finds past child support obligations being retrospectively reviewed. Particularly where a parent wishes to avoid complying with large outstanding child support debts, a belated application to reduce the assessment may be available, undermining the CSA’s ability to enforce debt. In practice, most decisions are not retrospective. However, the currently open discretion to make an application to vary past periods should generally be limited to the immediately preceding child support period.

However, there may be some exceptional circumstances where a parent has a legitimate reason for delaying their application for a change to a past assessment. One such reason is because information has only recently come to light about a payer’s hidden income. In such cases, a process should exist to enable this general limit on retrospective applications to be eased. A court is in the best position to consider the past ‘rights’ of the parties, and determine whether making an exception is appropriate. For this reason the Taskforce proposes that an application should be made to a court (in practice this would be the Federal Magistrates Court), to grant leave to apply out of time. This would be similar to the existing process under s.44 of the Family Law Act 1975 in relation to property and spousal maintenance applications.

Where such application has been made to a court, and the court is inclined to grant it, the court may have before it much of the necessary information and evidence from the parents to consider making a departure order. It may be inefficient to require the parents to return to the CSA to seek administrative determination of the application. In such cases, the court should have a discretion on application by a parent to proceed to determine the substantive departure application itself.

Recommendation 10

10.1 Change of assessment applications should only be able to be made in relation to the immediately preceding and current child support period, and future child support periods, unless the court gives leave.

10.2 The court may grant leave to the parent to make an application for change of assessment in accordance with the procedures of Part 6A of the Child Support (Assessment) Act 1989 in relation to child support periods up to seven years prior to the current child support period.

10.3 In considering whether to grant leave, the court should have regard to: a) the reason for the delay in bringing a change of assessment application; b) the responsibility for that delay; c) the hardship to the applicant if leave is refused; and d) the hardship to the respondent if leave is granted.

10.4 If the court grants leave to the parent to make the application, it may proceed to hear the matter itself on the application of either parent.

Streamlining jurisdiction for court-ordered departures

A parent seeking a change of assessment generally must apply for the change administratively to the CSA. This is a non-adversarial process, conducted at no cost to the parents, with as few formalities as possible so that both parents have equal opportunity to present their positions. As outlined above, once the CSA has made a change of assessment, a dissatisfied parent must then object, before being free to apply to a court for a fresh determination.

A parent may currently apply directly to a court for a departure from the child support formula (court-ordered change of assessment) where there are already matters before the court (such as property or parenting matters) and the parent wishes to seek a change to the child support assessment. However, a practical issue arises with the current wording of the jurisdiction of the court in such cases, when the ‘proceedings pending’ that give the court jurisdiction settle, or are otherwise finalised. The ending of the non-child support proceedings may prevent the parents from effi ciently fi nalising their departure from the child support formula via the court. The jurisdiction of the court in these circumstances should continue.

Recommendation 11

Section 116 of the Child Support (Assessment) Act 1989 should be simplifi ed to provide that a court shall have jurisdiction to determine a child support application whenever the application is brought in conjunction with proceedings under the Family Law Act 1975 (without needing to be satisfied that the child support application should be heard ‘at the same time’ as the other proceedings), and that the court does not cease to have jurisdiction only because the other matters are resolved before the child support application is heard.

High costs of contact

The current formula makes no adjustment for contact of less than 30% of nights per year. As a result, parents who do not see their children at all are treated identically to parents who care for their children 29% of the nights per year. The only way otherwise that the costs of contact can be taken into account is through a change of assessment. Where costs are greater than 5% of the parent’s Child Support Income, he or she can apply for a change to the formula assessment to recognise those costs.

As has been demonstrated, a parent with regular face-to-face contact involving overnight stays incurs significant costs, particularly relating to infrastructure. Costs of contact of 14% of the time or more are recognised in the proposed new formula, and an appropriate formula adjustment is made to allow for the average expenditure on a child provided by a non-resident parent. There will then be less need for a ground permitting further adjustment in individual cases, at least for the usual costs incurred by non-resident parents when children are in their care.

There still may be circumstances, particularly where parents reside some geographical distance apart, when the formula allowance may be inadequate. Costs of transport for the children to and from their non-resident parent’s home may be considerable. Where this cost is borne entirely by the non-resident parent, it may represent a signifi cant proportion of the Child Support Income of that parent, justifying an increased allowance beyond the allowance made in the formula for contact. If the resident parent is bearing this cost, the formula allowance for contact may actually be excessive. High costs of contact may thus be incurred by either parent.

Given the recognition of contact in the proposed formula, the Taskforce has concluded that the ground for change of assessment should be confined to high travel costs only. The CSA’s current policy is to consider a parent’s costs of establishing, modifying or enforcing contact orders under this ground of high contact costs. Consideration of such costs is not limited to established court costs, and is not excluded by a court order as to who should bear those costs. This policy conflicts with the role of the court to determine the allocation of costs resulting from matters before it on the merits of the case. The recommendation made by the Taskforce implicitly excludes this very broad view of the costs of contact.

Recommendation 12.1

The current change of assessment ground in s.117 of the Child Support (Assessment) Act 1989 based upon the high costs of contact should be replaced with a more limited ground in the light of the proposed recognition of the costs of regular contact in the formula. The ground should be that the capacity of either parent to provide financial support for the child is significantly reduced because of high travel costs borne by that parent in enabling him or her or the other parent to have contact with that child or any other child of the parent.

Another issue in relation to the costs of contact is that the legislation as currently drafted does not appear to provide relief for a non-resident parent who cannot afford to see his or her child. The parent may be meeting his or her child support obligations, and staying in contact with his or her child via affordable means, such as telephone, letters, email or other non-face-to-face avenues. The parent’s remoteness from his or her child may be for reasons of economic necessity, such as work, or for reasons beyond his or her control, including relocation by the resident parent. Funds to pay expensive airfares to enable contact to occur may remain unavailable without some adjustment of the child support liability. The requirement of prior expenditure being incurred or an existing pattern of expenditure on contact in order to satisfy this ground should be eased, and information about available options for parents who are not having contact publicised more generally.

Recommendation 12.2

This ground should be available to a parent who is not currently exercising contact because he or she cannot afford to do so, and hence has not been able to incur the expenditure prior to making the application.

Of course, there is a risk that a parent who has had their child support adjusted on the basis of proposed contact arrangements then fails to follow through and have face-to-face contact as planned. A process of establishing the parent’s detailed intentions and plans in order to establish the ground should minimise this risk. However, there can never be complete certainty, and plans may not be carried through for a range of reasons. There should be a ‘reversal’ available to the payee parent where contact does not actually occur, or does not occur to the extent planned. However, this should be via the change of assessment process, in order to allow both parents opportunity to explain what has happened, and ensure fairness to both parents and the child.

Recommendation 12.3

A change of assessment on this ground should be reversible upon application by the payee if the payer does not in fact exercise the expected level of contact, despite a reduction in his or her child support obligations.

Overtime and second jobs

The Parliamentary Committee received many submissions arguing that parents’ efforts to get ahead financially following separation were undermined, specifi cally identifying the impact of child support where additional income had been earned by parents taking on higher paying jobs, overtime or second jobs. Such income is automatically included in the income base for calculation of child support, as it forms part of a parent’s taxable income. This will remain the case with the new formula.

The principle underlying child support calculation as proposed is that the cost of the child be based upon the likely expenditure of the parents on the child were they living together. The children should continue to benefit from the changes of standard of living of the parents despite the separation, as nearly as possible as though they were living with them. However, the fact that the parents are separated may affect parents’ decisions about their workforce participation. A parent’s decision to take on a greater level of work, for example to undertake overtime or work a second job, may be motivated entirely by the need to re-establish him or herself following the breakdown of the relationship. If so, there is less basis for the cost of the child to be increased as the result of such additional earnings.

There is currently a change of assessment ground (Reason 10) relating to different treatment of additional income earned by a separated parent for the benefit of children in his or her new family. This ground sets out a detailed basis upon which the parent’s workforce participation prior to and following the establishment of a new family should be compared to demonstrate that the amount is indeed ‘additional’. Additional income is defined in s.117A(3) of the Child Support (Assessment) Act as follows:
 

For the purposes of subparagraphs 117(2)(c)(iii) and (iv), an amount is taken not to be an additional amount in relation to a person in the following circumstances:

1. the amount is earned, derived or received in accordance with a pattern of earnings, derivation or receipt that was established:
   1. before the resident child became a resident child of the liable parent or the entitled carer; or
   2. if the child was a resident child of the liable parent or the entitled carer immediately after the child was born—before the liable parent or the entitled carer could reasonably be expected to have been aware of the pregnancy that resulted in the birth of the child;
2. the amount is earned, derived or received other than in accordance with such a pattern, but the alterations to the pattern are of a kind that it is reasonable to expect would have occurred in the ordinary course of events.

The Taskforce proposal is that this ground for change of assessment should now apply also to parents who can establish that their purpose in earning additional income is to meet re-establishment costs following the breakdown of their relationship. However, this motivation would become less compelling as the time from separation increases. Accordingly, the reason should be subject to a time limit, after which it will no longer apply.

Recommendation 13.1

The current ground for exclusion of an ‘additional amount’ of income (such as overtime or a second job) for a new child from the child support assessment should be expanded to allow payers and payees to apply for a change of assessment if the child support assessment is unfair, unjust or inequitable because they earn an ‘additional amount’ of income to assist them with re-establishment costs following separation, with a limit of up to five years from separation.

Recommendation 13.2

The ground is established when the parent can show that the parents lived in one household prior to separation, and that the parent commenced earning the additional amount after the separation.

A parent’s situation may change markedly during the five years following separation. A parent may re-partner, and take on responsibility for his or her partner’s children, or have further children in his or her new family. The purpose of his or her changed workforce participation arrangements may change. Provision of support for the children in his or her new family may become the primary purpose, although the initial motivation may have been solely re-establishment. However, this should not exclude the parent from using or substituting either ground, when either is applicable.

Recommendation 13.3

If it has been established that, in the fi rst five years since separation, the parent earned the additional amount to meet re-establishment costs, and if during that time the parent has a child in a new family, the additional income can be claimed as specifically for the benefit of the resident child, beyond the first five years.

In practice, parents make workforce participation decisions on balance, having weighed up competing factors. The current reason requires the parent to demonstrate that his or her new family was the sole motivation for increasing his or her earnings. The fact that a parent has gone through a reasoning process in making an earning decision should not exclude him or her from applying under this ground, where he or she can establish that their major reason or motivation was either re-establishment costs or the support of a child in his or her new family.

Recommendation 13.4

The parent should be required to establish only that a major reason for his or her change in work arrangements resulting in the ‘additional amount’ was re-establishment costs or the support of a dependent child, in order to make out this ground.

Recognition of responsibility for step-children

Second families may often include children who are not biologically related to the parent of the child support children. According to the Australian Bureau of Statistics, there are approximately 176,700 families (or approximately 7% of all families with children aged 0–17) where some of the children are not biologically related to both parents. Of all children living separately from one parent, 22% live in step or blended families.

Children not living with both biological parents should receive support from their absent parent. The support provided will offset the contribution being made by the step-parent who is actually residing with the child. However, not all non-resident parents are in a position to contribute to the support of their child. The child’s absent parent may be deceased, unknown or not locatable, or unable to earn an income from which to contribute to the support of the child. In this case, the step-parent is actually supporting the child.

Some acknowledgement within the Child Support Scheme of the responsibilities of a step-parent has been made by reference to the parallel situation of ordering step-parent maintenance under the Family Law Act 1975. A step-parent subject to an order for step-parent maintenance under the Family Law Act may have their legal responsibility to a step-child reflected by a reduction in their child support. However, in practice, a court can rarely declare that a step-parent has a responsibility to support a child where the step-child is living with the step-parent against whom the order is sought.

As existing measures provide little relief for step-parents, it is proposed that there should be a closely defined change of assessment ground available for cases where the support for a step-child is impacting upon a parent’s ability to support their own child. The reason should essentially parallel the consideration process undertaken by the Family Court when considering whether to make a determination for step-parent maintenance. This would include considering the position and capacity of the partner of the child support parent (generally, the step-child’s biological parent) and of the step-child’s biological parent or parents, along with the impact of any change on the child support children and the payee.

This ground could only be established where neither of the biological parents is in a position to support the child. The fact that the non-resident parent is unable to pay child support is not, in itself, sufficient. The parent with whom the step-parent lives must also be unable to earn an income to provide for the child’s support.

In reaching a decision on whether an allowance should be made for a step-child to reduce a payer’s obligations to his or her biological children, decision-makers will need to have regard to FTB and any other government benefits being paid to the household to help support the child.

The fact that a parent has sought recognition of his or her provision for a step-child for child support purposes should be strong evidence in favour of finding a continuing step-parent obligation to support the child under s.66M of the Family Law Act 1975, if the parent and the step-child’s parent subsequently separate.

Recommendation 14.1

It should be a new ground for change of assessment that the parent has a responsibility, although not a legal duty, to support a step-child.
 

Recommendation 14.2

The ground to support a step-child is not taken to exist unless:

1. the parent has lived continuously for a period of not less than two years in a marriage or de facto relationship with the parent of the step-child; and
2. neither parent of the step-child is able to support the step-child due to:
   1. death,
   2. ill health,
   3. caring responsibilities for a child aged under five, or
   4. caring responsibilities for a child aged over five with disabilities requiring additional assistance and care from the step-child’s parent; and
3. the needs of the step-child for assistance can be established, taking into account any income-tested benefit, allowance or payment being paid for the benefi t of that step-child.

‘Capacity to earn’

‘Capacity to earn’ cases are amongst the most controversial of all issues in the Child Support Scheme. Reason 8 of the grounds for change of assessment is that ‘the child support assessment is unfair because of the income, earning capacity, property or financial resources of one or both parents’.

The ‘capacity to earn’ is different from the ‘capacity to pay’. A capacity to earn decision is one where although the decision-maker recognises that the parent’s real income is as stated, he or she has a capacity to earn greater than is being exercised. The consequence of a finding of this kind is that a parent’s child support may be assessed on the basis of a higher income than the parent is actually earning. In contrast, capacity to pay decisions usually involve arguments about whether the reported taxable income of the parent reflects his or her real income. Typically, the applicant in capacity to pay cases alleges that the reported taxable income represents only a portion of the income the other parent actually earns, or that the parent’s taxable income is minimised through use of companies or trusts through which income is channelled, or by the use of salary sacrifi cing.

Capacity to earn cases do not involve the CSA or the court saying that a person must go back into the workforce, or increase his or her earnings. However, the assessment is based on the finding that the higher award is reasonable because he or she has a higher earning capacity than is being exercised.

The Taskforce has two main concerns about capacity to earn cases. The first is that there needs to be a clearer legislative definition to limit when it is appropriate to deem a parent to have a higher capacity to earn than he or she is currently exercising. The case law indicates, for example, that a parent might be expected to engage in extensive overtime if that was the pattern of their work before the relationship broke down. In a 1998 decision, the Full Court of the Family Court wrote that:

a parent may be required or expected to work long hours or at more than one job if the parent has the capacity and opportunity to do so, and if the children need greater support than they would receive if the parent was only to work shorter hours.

The Full Court went on to indicate that it was within the discretion of a trial judge to conclude that a parent should continue to work 80 hours per week if there was a proven work history of such long hours. This raises certain issues about human rights and occupational health and safety on which Parliament might be expected to have a view as a matter of policy.

The case law also indicates that a parent can be deemed to have a higher capacity to earn even when he or she has not been responsible for the loss of a job and is making bona fide efforts to develop a new business.

The Taskforce considers that there needs to be a much clearer statutory defi nition of capacity to earn. No parent should be deemed to have a capacity to earn on the basis that he or she could work hours in excess of the level of normal full-time work for the occupation or industry in which he or she is employed, or that he or she could take on an additional job involving total working hours above the norm required by employment contracts for those in full-time work.

Furthermore, a parent should only have his or her child support assessed on the basis that he or she has a greater capacity to earn than he or she is exercising when there is evidence that a major purpose for making employment decisions has, on the balance of probabilities, been to reduce his or her child support liabilities, or to affect the child support liability of the other parent. The ground should not require the CSA or the courts to get involved in micro-managing people’s lives on the basis that, in the decision-maker’s view, they might have made a better decision about employment than they did in fact make. In an intact family, assuming children are not neglected, there are no situations apart from unemployment where parents will be required to earn more, or to contribute more to their children.

Although a capacity to earn decision does not involve making an order that a parent obtain a certain kind of work or increase his or her working hours, there is an element of coercion that is tantamount to this in making a child support assessment on the basis of deemed income or financial resources that the person does not in fact have. The current law on child support may be contrasted with the view that the courts have long taken in the enforcement of employment contracts. A court will not compel a person to engage in work involving personal services pursuant to a contract. At the most, it will by injunction restrain a person from engaging in any other work that would be in breach of that contract. The circumstances in which it will exercise this indirect coercion are carefully limited. The circumstances in which an administrative officer or a court should make such a decision as to income should be similarly limited to cases where a parent is deliberately taking action to affect their child support assessment.

The Taskforce considered whether capacity to earn decisions were of such sensitivity that they should be left only to courts to determine. It is apparent from a Report of the Ombudsman that there is cause for concern about the quality and consistency of administrative decision-making in this area.

The Ombudsman’s investigation looked at 1,156 decisions, made over a six-month period, under Reason 8. Of these, 58% were initiated by payee parents and 41% by payer parents. The Ombudsman found significant regional variations in the decision-making on this issue. States vary markedly on how they deal with situations where a parent does not appear to be earning at full capacity. NSW tends to disregard potential earnings altogether and to set a liability based on costs of children alone. Victoria and Tasmania used average weekly earnings, and WA largely used award earnings. There was also a difference in how States dealt with cases where the payer did not respond: in some cases, applications were refused or resulted in modest estimates of capability; in others, the details provided by the payee were accepted unless refuted by the payer (who could later lodge another application where any further evidence would be considered).

On balance, the Taskforce considers that if there is a clear statutory definition of the meaning of ‘capacity to earn’, combined with guidance to Senior Case Officers to avoid regional differences in the light of that new definition, then this will resolve many of the problems of inconsistency in decision-making. The CSA may always decline to deal with a change of assessment application administratively. If a case were too complex to deal with administratively, and needed to go straight to court, the CSA could facilitate this by intervening in the case to lead evidence in a neutral way. This would take much of the burden of private litigation off the payee parent.

Recommendation 15

15.1 A parent’s income for child support assessment purposes should only be able to be increased because he or she has a higher capacity to earn than he or she is currently exercising if the following conditions are satisfi ed:

1. the parent
   1. is unwilling to work when ample opportunity to do so exists or
   2. has reduced his or her employment below the level of normal full-time work for the occupation or industry in which he or she is employed;
2. and the parent’s decisions in relation to employment are not justified on the basis of
   1. caring responsibilities or
   2. the parent’s state of health;
3. and on the balance of probabilities a major purpose for the parent’s decisions in relation to employment was to affect the child support assessment.

15.2 Where the CSA declines to make an administrative determination in a capacity to earn case because the complexity of the issues makes it more appropriate for the matter to be dealt with by a court, the CSA should exercise its statutory right to intervene in the case in order to lead evidence to assist the court in reaching its decision.

Reviewing change of assessment processes

The current change of assessment process is designed to fit neatly with the formula created by the original Child Support Consultative Group. Adjustments will be needed at a broad level in order to fit with the changed formula. In particular, modifi cations will be needed to take account of the routine inclusion of both parents’ incomes in the formula, of the fact that parental incomes determine both the cost of the child and the share of that cost between the parents, and of the different treatment of care and contact levels.

The changes may provide an important opportunity to make the availability of change of assessment better known, and the process clearer. The CSA is currently conducting a detailed review of the change of assessment process, including the accessibility of the process, and improving general satisfaction with outcomes. Simpler characterisation and presentation of the issues parents must understand in order to effectively navigate the process would assist greatly with this. Greater certainty and information dissemination about the reasons and the considerations used by decision-makers when considering an application should also assist with consistency and acceptance of outcomes.

It is important also that there should be some system for reporting to lawyers and others the reasons why changes of assessment have been allowed or declined. It is impractical to do this for all individual cases, but some summation of decisions each year for external stakeholders may improve understanding of the process, and promote greater confidence in that process.

Recommendation 16

Section 117 of the Child Support (Assessment) Act 1989, which provides the legislative basis for changes of assessment, should be redrafted to:

1. take account of the new formula for child support proposed by the Taskforce;
2. take account of developments in the case law since 1989;
3. reflect the simplification adopted by the CSA in its 10 reasons for change of assessment;
4. reduce the number of different categories, where reasons for a change of assessment could be combined and expressed at a higher level of generality; and
5. make clearer the different considerations that decision-makers must take into account

Child Support Agreements 

The importance of encouraging agreements

When relationships break down, parents need to work out a range of issues, in particular, the parenting arrangements, and the division of the property (or debts, as the case may be). It is a fundamental axiom of family law that the best arrangements are those that the parties negotiate for themselves. They are more likely to last where people feel responsible for the choices and compromises that have had to be made. Imposed solutions can breed resentment and dissatisfaction. For that reason, adjudication should always be a last resort.

Child support, however, is the one area of family law where there has not been much of a focus on negotiated arrangements and dispute resolution. The child support formula is applied in the great majority of cases. This is not necessarily because parents do not want to make their own agreements about child support. There are certain restrictions that stand in the way of parents entering into negotiated settlements about child support that depart from the formula. These restrictions arise from the interrelationship between the Child Support Scheme and Family Tax Benefi t (FTB).

A further problem with the current arrangements about child support agreements is the lack of even the most basic safeguards to ensure that agreements that have long-term financial consequences for the parents and children are freely and fairly made. The law on child support agreements stands in marked contrast to the family law rules on agreements concerning property division and spousal maintenance. The extent of the difference is surprising, for child support agreements dealing with the support of children until 18 may be of much greater fi nancial significance in the long term than agreements about property.

The availability of Family Relationship Centres to provide parents with information, support and guidance when negotiating parenting related issues will provide practical assistance when parents wish to explore an individualised child support arrangement to match their particular circumstances. This then needs to be matched with a system of handling such child support agreements within the Child Support Scheme that provides adequate protection for the parents and the child, whilst maintaining the balance between parent and taxpayer contributions.
 

Agreements under the existing Scheme

Child support legislation allows parents to reach their own agreement on the amount of child support to be paid. A child support agreement has to meet the requirements of the legislation and has to include matters that can be dealt with in a child support agreement. A child support agreement must be in writing, and signed by both parents. An agreement must contain at least one of the following:

• provisions under which a parent is to pay child support for a child to another person in the form of periodic amounts paid to the other person;
• provisions varying the rate at which a parent is already liable to pay child support for a child to another person in the form of periodic amounts paid to the other person;
• provisions agreeing on any other matter that may be included in an order made by a court under Division 4 of Part 7;
• provisions under which a parent is to provide child support for a child to another person otherwise than in the form of periodic amounts paid to the other person; or
• provisions under which a parent’s liability to pay or provide child support for a child to another person is to end from a specifi ed day.

A document that forms a parenting plan, maintenance agreement, or fi nancial agreement under the Family Law Act can also be an agreement for child support purposes if it contains at least one of the above types of provisions and complies with the other necessary requirements.

Once parents have made a child support agreement, either parent can apply to the Child Support Agency (CSA) to have it accepted. The only formal requirement for making a child support agreement is that it must be in writing and signed by both parents. In many cases, the agreement will also need Centrelink approval.
 

The requirement of Centrelink approval

Generally, acceptance of the agreement depends upon whether there are fi nancial consequences in terms of increased FTB Part A payments flowing from the terms of the agreement. If the payee receives or has applied for more than the base rate of FTB Part A, CSA must refuse to accept the agreement unless there is a child support assessment in force immediately before the application is made. If there is an administrative assessment in force on the day CSA received the application for acceptance of a child support agreement and the payee receives, or has applied for more than the base rate of FTB Part A, CSA must send a copy of the agreement to Centrelink. Centrelink has to decide whether, if CSA accepts the agreement, the payee will have taken ‘reasonable action to obtain maintenance’ for the child (the Maintenance Action Test or MAT).

If Centrelink decides that the agreement does not pass the MAT it must advise both parents in writing. In this case, CSA must refuse to accept the agreement. Otherwise, if Centrelink decides the agreement is acceptable, CSA must accept the agreement.
 

Centrelink approval as a safeguard

Generally, Centrelink will only give its approval to an agreement if the amount or value of child support in the agreement is at least 100% of the amount that would be payable under the formula.

This provides little room for trade-offs to be made between levels of child support and other things that may be important to the parents. The provision for Centrelink approval is not there to protect the parents—or their children—from unfair agreements. Centrelink approval has a secondary effect of protecting payees from unfair agreements, but its purpose is to protect the taxpayer. Because the Government recovers some of its expenditure on separated families through the Maintenance Income Test (MIT), it needs to ensure that agreements about child support do not operate to reduce the amount that can be recovered for the Government.

It is not clear that the requirement for Centrelink approval protects either the children or taxpayers adequately. The requirement for Centrelink approval prior to an acceptance of an agreement only protects taxpayers based upon the circumstances in existence at that time. If the situation changes, the agreement remains in force, even if it would not have been acceptable if applied for on that day. Since agreements can last until the child turns 18, this creates a huge opportunity for manipulation and abuse. The Legal Aid Commission of NSW provided the Taskforce with one example of how child support agreements can be misused to avoid child support:

The parties had separated when the child was still a baby and the carer was in receipt of Parenting Payment and FTB Parts A and B at the time the agreement was entered into. The payer had a child support assessment using an income of $30,000 per year. The payer lodged an estimate that resulted in a nil child support assessment, since this was before the minimum $5 per week came in. The payer then placed some pressure on the carer parent to enter into a child support agreement requiring the payer to pay nil child support. The child was eight months old when the agreement was made and it ended when the child attained 18 years of age. A delegate of the Secretary of the Department of Social Security had to check that the proposed agreement was for an amount equivalent to the amount payable under the child support assessment. As the agreement met this amount at the time the agreement was entered, the delegate approved the agreement. Legal action had to be taken to bring the agreement to an end.

Another problem is that an agreement may be entered into at a time when the payer’s income is relatively low, and when the payer knows that those circumstances are likely to change. There is no requirement of full disclosure either to the payee or to Centrelink. The result may be that not only is child support lower than would be justified in the circumstances, but that the taxpayer is left to pay more of the support for the children through FTB than would be the case if the formula were applicable.

The Legal Aid Commission of NSW offered another example:

The payer in this case enjoyed a good income during the life of the marriage. Following separation, the payer went through a period of unemployment for approximately 18 months, and had a minimum child support liability. The carer struggled to support the two lower primary school aged children. The payer then offered the carer a child support agreement for $50 per week, payable until the children each attained 18 years. This agreement was for more than the current assessment and the carer entered the agreement to keep the peace, not fully appreciating how difficult it could be to vary this agreement. The Social Security Secretary’s delegate approved the agreement because it was for an amount higher than the current child support assessment. The carer then discovered three months later that the payer had returned to employment and was earning a similar income to the income earned during the marriage. This would have resulted in a child support assessment of $250 per week. Legal action had to be taken to bring the agreement to an end.

At 30 June 2004, 2,569 parents had an agreement with the other parent for a minimum liability of $260 per year. In some cases, the payee may have been given something substantial in return, such as a greater share of the property on separation. Some agreements reduce the payer’s liability during periods of unemployment. However, the number of these minimum liability agreements is a cause for serious concern. It suggests that the cases cited above are not isolated examples.
 

Protecting the taxpayer

The present method of using Centrelink approvals to protect the taxpayer from agreements that would be to the detriment of government revenue is neither the most efficient nor the most effective method of doing so.

A simpler and more effective way of ensuring that the agreements do not disadvantage taxpayers is to provide that wherever periodic child support liabilities are reduced as a consequence of the operation of an agreement, the parties’ entitlement to FTB should be calculated on the basis that the person who is in receipt of the agreed child support is receiving the amount to which he or she would be entitled under the statutory formula. Thus the MIT will be applied as if the parent was receiving the formula amount, while the actual amount transferred between the parents takes into account the terms of the agreement for child support.

This is the effect at the moment if a parent agrees that her or his FTB Part A payments should be based on the amount of child support to which he or she is entitled, rather than the amount which is actually received, and that there should be no reconciliation with actual receipt. This is universally the case where parents have a private collect arrangement, as the majority have. Neither the CSA nor Centrelink has any way of knowing whether in fact payees are receiving the child support to which they are entitled under the formula assessment since the transfer of money is a private one.

The consequence of not having CSA collect the child support is that for FTB purposes, the payee is assumed to be receiving the level of child support stipulated in the assessment.

The Taskforce proposal obviates the need to make child support agreements subject to Centrelink approval requirements. Taxpayers are in no way disadvantaged by the agreement. By breaking the nexus between child support agreements and FTB payments, there will be more room for private agreements since parents will be able to make bona fide agreements for less child support than the formula would yield in exchange for other benefits that may be valued by a payee parent.

There will also be an increase in revenue to the Government by reducing the scope for abuse of such agreements. Taxpayers cannot be disadvantaged if child support agreements cannot affect FTB entitlements. The present processes of approval of child support agreements by Centrelink based only on present circumstances cannot provide long-term protection for taxpayers and the system is wide open to manipulation.
 

A discretion to refuse registration

If Centrelink no longer has to approve agreements, then it will mean that one safeguard, albeit an ineffective safeguard, from unfair agreements is removed. The Taskforce proposes that there should still be safeguards, but that these should be purpose-designed to protect payees and their children from unfair agreements, rather than being an accidental collateral effect of a process designed for other purposes.

At present, the Child Support Registrar has no discretion to refuse to register a child support agreement that has been made in the proper form. The Taskforce proposes that, as one safeguard, the CSA should have discretion to delay registration of an agreement in order for a parent to seek legal advice.

The procedure could be similar to the present process of Centrelink approval in situations where the parents have not both had independent legal advice. A formula assessment would need to be carried out and the agreement compared with the operation of the formula. If the process is genuinely to check ‘adequacy’ for the parents, the comparison may need to be broader, comparing the amount produced by the agreement with something of the nature of an ‘average’ assessment, looking at the parents’ average rate of child support during a number of previous periods. Any past rate changes the agreement makes, and the level of child support provided for into the future would also be relevant. Also relevant is the value to the parents of any substituted benefits. If the Child Support Registrar concludes on the basis of this comparison that the agreement does not provide an adequate amount of child support for the child’s needs or otherwise that the agreement is not proper, because it is prima facie unfair or unjust to the child given the parents’ financial circumstances, then he or she may advise the parents accordingly by letter or phone call. The parent who is likely to be disadvantaged by an agreement should be encouraged to seek legal advice and be given the addresses of Legal Aid or a community legal centre if appropriate.

If that parent declines to seek legal advice, or persists in seeking registration of the agreement after receiving legal advice, then he or she must indicate this in writing to the CSA.

Further safeguards proposed by the Taskforce relate to powers of the court to set aside agreements. The proposed safeguards will make the child support legislation consistent with the policy of the Family Law Act 1975.
 

Other issues

Once accepted by the Registrar, an agreement has effect under the Act as though it is an order of a court. An administrative assessment must be made, or the terms of any existing assessment varied in accordance with the terms of the agreement. Any administrative processes that might otherwise apply to vary an administrative assessment are excluded if their operation would conflict with the terms of the agreement.

For example, if the agreement sets an amount of child support per child, any variations to the parents’ incomes, care of children in a second family or change in care levels will not affect the payments of child support due. If the carer parent ceases to care for some of the child support children, the liability may be reduced if the agreement was specifi c as to the liability for each child. However, if the agreement was general, providing an aggregate amount only, no reduction in the payments will occur unless the carer parent no longer provides care for any of the children.

An agreement may be varied by further agreement, or by order of a court. After the agreement has been registered in a court, the provisions may be discharged, suspended, revived or varied by the court in the same manner as the court could discharge, suspend, revive or vary a court order of that kind.

The rules on child support agreements can lead to serious disadvantage either to payers or to payees depending on the circumstances. First, payers or payees may make significant concessions to the other parent without any legal advice.

Secondly, agreements may be unlimited in duration, lasting until the time when child support is no longer payable under the Act. An example of the problem was also provided by the Legal Aid Commission of NSW.

In this case, involving a high-income employed payer, the parties entered a child support agreement in 1998 when the payer was earning in excess of the cap. The agreement required the payer to make periodic payments over and above the capped amount for two children of the marriage. The agreement allowed for no changes in circumstances of either party. The payer was made redundant in 2003. The payer continued to make the child support payments out of his redundancy payout for one year, until the redundancy payout expired. The payee did not respond to the payer’s request then to end the agreement, resulting in the need for a court application.

This case example illustrates a third problem—that agreements, once entered into, are very difficult to get out of. Unless there is a subsequent agreement of the parties, a court order is required. The Child Support (Assessment) Act 1989 does not specify the circumstances in which a court may terminate the operation of a child support agreement or the factors to which it should give consideration. Case law indicates that a court should apply the same three-stage process which is required under section 117 of the Child Support (Assessment) Act.

The lack of safeguards contained in the rules for child support agreements contrasts with the safeguards that operate under the Family Law Act 1975 in relation to binding financial agreements. This requires both parties to have independent legal advice on:

• the effect of the agreement on the rights of that party; and
• the advantages and disadvantages, at the time that the advice was provided, to the party of making the agreement.

The terms of child support agreements may be no less significant, in fi nancial terms, than a binding financial agreement. The lack of protections for the parties under the Child Support Scheme compared to the Family Law Act is notable. It is surprising in particular that when agreements may have a significant adverse effect on the wellbeing of children, there are not adequate safeguards in place.
 

Reforming the rules concerning child support agreements

The Taskforce proposes two strands to the reform of the law on child support agreements.

First, parents should be able to make binding financial agreements in relation to child support on the same basis as they can do for property, superannuation and spousal maintenance under the Family Law Act 1975. Binding financial agreements are only valid if the parties to it have independent legal advice. This brings the rules on child support agreements into harmony with financial agreements concerning property division and spousal maintenance.

In order to ensure that binding financial agreements are available to any parents, and not only to those who were married to another, the relevant legislative provisions should be placed in the child support legislation. The legislative provisions would not need to be identical to the Family Law Act. Indeed, since financial agreements under the Family Law Act are limited to those who are or have been in marital relationships, or are preparing to enter marriage, the text could not be identical. What is important is that the substantive rules for the making of agreements, setting aside agreements and enforcement should be the same to the extent that they are applicable to agreements in relation to child support. Parents who have had a marital relationship ought also to be able to include provisions on child support in binding financial agreements made under the Family Law Act.

Secondly, there should be safeguards for parents who make agreements without both having independent legal advice. The child support agreement should be of limited duration, and the agreement should be able to be set aside or varied in defi ned circumstances.

Unless the parents have made an agreement by way of a binding fi nancial agreement, the Taskforce proposes that agreements should only be binding for a three-year period; that is, the agreement should be terminable by either party on one month’s notice at any time after the first three years of the agreement. If the parents choose to enter into a fresh agreement, then it would have a binding effect for a further three years. The reason for this three-year period is that it is very hard to anticipate more than three years in advance what the circumstances will be.

It may of course, be appropriate in some cases that agreements are established to be binding for longer than three years and even until the children reach 18. In families where there is very high conflict, or there may be difficulties in enforcing ongoing obligations against a payer, it may be in the best interests of the children that a long-term agreement is made. The safeguard is that they will need to do this by means of a binding financial agreement, with both parents having independent legal advice.

Having two forms of agreement, one that requires independent legal advice, and one that does not require this, is a way of ensuring parental choice while ensuring that there are appropriate safeguards in place.

The proposal that binding financial agreements concerning child support should not be subject to the same restrictions as agreements made without legal advice, does not mean that a change in circumstances would be entirely irrelevant to binding fi nancial agreements. However, the test would be stricter. One of the grounds for setting aside binding financial agreements under s.90K of the Family Law Act 1975 is that:

Since the making of the agreement, a material change has occurred in the circumstances of either parent or the child and as a result of the change, either parent or the child will suffer hardship if the court does not vary the agreement or set it aside.

This, and other relevant grounds for setting aside binding financial agreements under the Family Law Act, would also apply to binding financial agreements made under the Child Support Scheme.

Recommendation 17

17.1 Agreements between the parents concerning child support should have effect on the condition that entitlement of the payee to FTB Part A will be assessed on the basis of the amount of child support that would be transferred if the agreement had not been made.

17.2 The Child Support Registrar should have a discretion to advise a parent to obtain legal advice about the agreement if the Registrar considers that the agreement provides for a level of child support that in all the circumstances, and taking account of the current financial circumstances of the payer and payee, is not proper or adequate. The Registrar may delay the registration of the agreement until the parent confirms in writing either that he or she has sought legal advice or that he or she wishes to have the agreement registered without seeking legal advice.

17.3 Parents should be able to make binding financial agreements under the Child Support (Assessment) Act 1989, registrable with the CSA, under the same conditions and with the same effect as binding financial agreements under the Family Law Act 1975.

17.4 Child support agreements made where one or both parents do not have independent legal advice should:

1. Be terminable by either party on one month’s notice at any time after the first three years of the agreement.
2. Be able to be set aside by the court on the following grounds
   1. fraud or non-disclosure
   2. undue influence, duress, unconscionable conduct or other behaviour in the making of the agreement that would make it unjust to maintain it
   3. that there has been a significant change of circumstances for the payee, the payer or the child that would make it unjust to maintain the agreement
   4. that the agreement provides for a level of child support that in all the circumstances, and taking account of the current financial circumstances of the payer and payee, is not proper or adequate.

Child Support and Re-Establishment Costs After Relationships Break Down 

The issue of re-establishment costs

The Terms of Reference require the Taskforce to examine, inter alia, ‘the costs for both parents of re-establishing homes for their children and themselves after separation’ and how these should be reflected in the Child Support Scheme.

One of the issues lying behind this aspect of the Terms of Reference is to examine whether and how the Scheme can take account of the transitional difficulties for parents in the first few months and years after separation. Depending on the circumstances, one parent or both may need to find a new house to live in. If they were renting the house before the separation, one will have to find new accommodation. If they were owner-occupiers, then often, as a consequence of the breakdown of the relationship, the house will have to be sold. In other situations, the property settlement may provide for one to keep the house, with or without a mortgage, while the other one has to start again in building up capital assets.

The circumstances of parents after separation are infinitely variable. What is common is that one or both has re-establishment costs and for the first year or two after separation, there are particular financial pressures. New furniture and appliances have to be acquired and there are many other costs associated with the transition from one household into two.
 

Taking account of re-establishment costs under the formula

It is not easy to take account of re-establishment costs under the basic formula, for two reasons.

First, the costs of re-establishment vary enormously from one situation to the next, and cannot easily be factored into a generic formula which is applicable across the population. Where children are born to parents who have never lived together, re-establishment costs do not apply in the same way as they do when parents who have lived together split up.

Secondly, the most severe financial pressures arise in the aftermath of the separation. A formula must be applicable from the time of separation until a child reaches 18. It is difficult to take account of re-establishment costs in the first months and years after separation in a formula which is applicable for all children whenever their parents separate.

The Taskforce considered a mechanical way of factoring re-establishment costs into the formula. A suggestion had been made to increase the allowance for each parent’s own living expenses for the first 12 months of their child support assessment by, say, $3,000.

The Taskforce did not adopt this approach for two reasons. First, although it may appear to treat the parents equally, the payer’s increased living allowance would reduce his or her child support at the expense of the payee. Given that signifi cant re-establishment costs may arise for either the payer or payee (or both), it would not appear to be just and equitable in every case for one to get an allowance for re-establishment costs at the expense of the other. Secondly, the taxpayer might also be affected, if as a result of the increased living allowance, less money was recovered through the Maintenance Income Test (MIT) than would otherwise be the case.

The Taskforce considered that it was preferable to make re-establishment costs a ground for change of assessment. In Chapter 12, it is proposed that a parent may request that overtime or a second job not count in the assessment of income for the purposes of the formula for up to five years if this represented a new pattern of work in order to meet re-establishment costs.

The Taskforce also considered that it would be desirable to create a lot more fl exibility for parents in making property settlements to balance the division of the property under the Family Law Act with the sharing of income through the Child Support Scheme in appropriate cases. In particular, the Taskforce recommends that much more fl exibility should be allowed to parents to make their own agreements about this than they can at present. This could have benefits for both parents.
 

Re-establishment costs and the use of lump sum child support

One way in which parents can balance their need for capital against their need for income, particularly in the first few years after separation, is to have a lump sum cash payment as part of the property settlement, so that the payee receives more of the capital, while the payer’s income is freed up to rebuild assets after the separation. While only a minority of separating families may be in a position to take advantage of this interaction, there is nonetheless great value in making this option more available to those able to use it.
 

The utility of lump sum child support

There may be a number of different situations where it is in the interests of both parents to be able to pay child support in advance as a lump sum, either in lieu of periodic payments entirely, or in exchange for lower child support payments for a period.

One example is where the children are going to live primarily with the mother, and she is very keen to keep the matrimonial home either without a mortgage at all or with modest mortgage payments that she can afford on her existing income. For example, the situation may arise that following negotiations between the parents, they agree that the mother should receive 65% of the net assets and that each should keep their superannuation entitlements. However, this is insufficient to allow her to keep the matrimonial home.

In this situation, it may well be worthwhile to the mother to have less ongoing child support for five years than the formula would produce, given the father’s current and expected future income, so that in return she can remain in the matrimonial home. This could be done if the parents could agree that the father would pay some child support out of the property settlement as a lump sum. This sum could then be credited against his child support assessment in the ensuing years. If she did not need any ongoing child support at all for five years, then the lump sum could displace the obligation. Alternatively, it could reduce the child support payable by a percentage, such as 50%.

Such an arrangement may be in the interests of both the payer and the payee. It would allow the payee to keep the home and help the payer to afford to purchase a house with a new mortgage by reducing his ongoing child support liabilities. Lump sum payments may also be advantageous in a range of other circumstances, for example where there may be problems with compliance with periodic payments or the liable parent is planning to move overseas.

The issues involved go beyond the financial circumstances of the parents. How property and child support issues are sorted out in the aftermath of separation may have a material effect on the arrangements for maintaining the involvement of the non-resident parent with the children, including the feasibility of shared care arrangements. If one parent keeps the matrimonial home and the other can afford to buy or rent in the same locality then it may make possible much closer involvement by the non-resident parent than if one parent is forced by their financial situation to move some considerable distance from the other to an area where housing costs are lower.
 

The problems in making lump sum child support arrangements

The difficulty with making lump sum agreements or orders is that the existing child support legislation acts as a deterrent to such an arrangement. The current child support legislation demonstrates a preference for child support in periodic form. Freedom to make agreements about lump sum child support (or to obtain orders that achieve such outcomes) is constrained by legislative provisions which have their origin in the need to ensure that periodic child support is not reduced at the expense of taxpayers.

The objective of ensuring that the support of children does not fall unduly on taxpayers remains as important as it was when the Scheme was introduced. Parents should not be permitted to make agreements about child support that have the effect of giving one of them an entitlement to more government support than he or she would otherwise be entitled to receive, and courts should not make orders to this effect without considering the interests of taxpayers. However, some of the legislative provisions that were designed to achieve these objectives are no longer either necessary or appropriate in 2005. There are simpler ways now of protecting the interests of taxpayers.
 

Overcoming the obstacles to lump sum child support

The problem of section 128 of the Child Support (Assessment) Act 1989

The most significant obstacle to private agreements or orders that allow for the payment of child support as a lump sum arises from the operation of s.128 of the Child Support (Assessment) Act 1989. One effect of this provision is that if a court orders the provision of child support by payment of a lump sum in substitution for periodic payments under s.124 of the Act, and subsequently the payee becomes entitled to an income-tested pension, allowance or benefit, then the situation may arise that the lump sum paid reduces the child support he or she receives by no more than 25%. Section 95(3) of the Act extends the same rule to agreements.

This makes the payment of child support in a lump sum risky for the payer. While the parents may want to agree that five years’ worth of child support, based on current income, should be capitalised into a lump sum so that the resident parent is able to keep the matrimonial home, if the resident parent’s circumstances change then the operation of s.128 may have the effect that only 25% of the value of the lump sum paid can be credited against the periodic assessment based on the formula.

There are ways around this provision. The Child Support Agency (CSA), in conjunction with the Family Law Council and the Family Law Section of the Law Council of Australia, publishes a Guide for legal practitioners, which discusses this issue. It remains the case nonetheless that the legislation deters lump sum payments of child support rather than facilitating them.
 

Is section 128 still required?

It would appear that while s.128 was necessary at the time the Child Support Scheme was introduced, the objective of protecting government revenue can now be achieved by more than one means without the need for s.128.

Section 128 was included in the original child support legislation for reasons linked to the social security regime at that time. An amendment to social security legislation was introduced as part of the child support package. Prior to the amendment, in-kind and capital maintenance were treated in the same way as other forms of income of a social security beneficiary, and such income had not consistently been taken into account. The amending Act (Social Security and Veterans’ Entitlements (Maintenance Income Test) Act 1988) provided for a maintenance income test which applied to maintenance income separately from the general income of the recipient, and covered all forms of maintenance income. Both the general income test and the maintenance income test were applied to the basic income support of the recipient.

The amending Act singled out special maintenance income, which was treated differently from other forms of maintenance income. Special maintenance income included all in-kind maintenance received in the first six months of separation, maintenance in the form of housing, and maintenance intended to cover costs arising directly from the needs of a child with a disability. Special maintenance alone could not reduce the benefit or pension below 75% of the maximum rate of the pension or benefit.

This operated in parallel to s.128 of the Assessment Act, so that a carer parent in receipt of an income-tested pension allowance or benefit would always be entitled to at least 75% of the assessed rate of child support by way of periodic amounts (provided this did not result in the parent no longer being entitled to the pension, allowance or benefit).

A fundamental change occurred from 1 January 1993, after the passage of the Social Security (Family Payment) Amendment Act 1992. This Act substantially restructured family payments, bringing together all social security payments for children into the categories of ‘basic’ and ‘additional’ family payment. The maintenance income test now applied exclusively to additional family payment. It no longer affected pensions or allowances, and could not reduce a recipient’s entitlement below base rates of Family Payment.

However, anomalously, the restrictions upon the effect of ‘special maintenance’ remained, so that recovery by the Government remained limited in cases of housing or other in-kind maintenance. This was subsequently addressed by the Further 1998 Budget Measures Legislation Amendment (Social Security) Act 1999, which removed the ceiling on the effect of non-cash maintenance, allowing such maintenance to reduce a carer’s entitlement to additional family payment to nil.

The full reduction of additional family payment flowing from receipt of non-periodic maintenance now applies, without restriction. While the processes for imputing capital or lump sum maintenance as income for family payment beneficiaries are complex, processes nonetheless exist to translate non-periodic amounts into periodic equivalents, where parties have not agreed as to the periodic rate of maintenance a lump sum or capital payment represents. Hence, there is no need any longer for government revenues to be protected by means of s.128.

The proposal discussed in Chapter 13 (at 13.5) provides a simpler way of protecting the taxpayer. The proposal is that wherever periodic child support liabilities are reduced as a consequence of the operation of an agreement, the parties’ entitlement to Family Tax Benefit (FTB) should be calculated on the basis that the person who is in receipt of the agreed child support is receiving the amount to which he or she would be entitled under the statutory formula. The same rule could readily be applied to agreements for lump sum child support, and to court orders that provide for lump sum payments in lieu of periodic child support.
 

Child support based on current capacity to pay

Another reason for placing constraints upon the use of lump sum payments is the principle embedded in the Child Support Scheme that parents should contribute to the support of their child according to their capacity to pay. This, by implication, means current capacity to pay, and that capacity will vary with changes in the situation of each parent over time. Consequently, child support ought to allow children to share in the standard of living of each parent in any given year. Lump sum payments made in relation to child support for a number of years into the future are likely to be based upon the earning capacity of the liable parent at the time of the lump sum arrangement. Unanticipated changes to those circumstances may at times seriously disadvantage the payer and at other times it may disadvantage the payee.

However, these problems do not need to arise. It depends upon how the lump sum amount is credited against the assessment. If, for example, the lump sum payment operates to give the payer a nil assessment for a period of five years, this may work unfairly to the payer or the payee depending on whether the actual amounts of money earned during those ensuing years were more or less than anticipated at the time of the agreement. Where, however, the lump sum is merely expressed as representing an annual sum to be credited against the assessment, then the same difficulties of having to anticipate future earnings do not arise.
 

Lump sum child support as providing a credit balance

In order to make lump sum payments more available to parents as an option if it is appropriate in their circumstances, the Taskforce proposes that there should be a set of default statutory rules that would apply in the absence of a binding agreement to the contrary. These default rules would treat the lump sum child support payment as giving the payer a credit balance from which the assessed annual periodic child support amount would be deducted until the credit is exhausted.
 

The use of default rules

The value of a default statutory rule is that it is easy for parties to adopt as a way of managing a lump sum payment. Many things are possible under the existing legislation if people are properly advised and agreements or orders are carefully drafted. However, the Act does not facilitate such arrangements. Rather, it is an impediment to sensible arrangements and there are many traps for the unwary. With default rules expressed in legislation, people can be readily advised, at a modest cost, about how to structure a lump sum arrangement effectively and about possible alternatives to the default provisions. Similar default rules are used in other areas of private law, for example, the rules governing trusts under Trustee Act legislation in the States and Territories. Such rules operate unless the parties make different arrangements.

It would remain open to the parents to make an agreement concerning the crediting of lump sum child support in a way that departs from the default rules. The agreement could make provision for a lump sum payment by way of capital transfer to be credited against future child support liabilities in ways similar to the options available under the current legislation (as adapted in the light of the proposed new formula).
 

The operation of the credit balance

The default statutory rule should be that the lump sum should act as if it were a fund, which is drawn upon each year by being credited against the child support obligation of the liable parent for that year in full. The annual value would not need to be specifi ed in advance. If the agreement or order is that the lump sum payment should operate to extinguish the child support liability for as long as the ‘fund’ is in credit, then the position will be that the child support liability will continue to be assessed annually based upon the current circumstances of the parents, but the liability considered satisfi ed as soon as it is raised, until the total available credit is exhausted.

If it is preferable that the lump sum payment be credited only to a certain percentage of the annual assessment so that there remains an entitlement to ongoing periodic support, then the order or agreement would stipulate that the appropriate fraction (say 50%) would be taken as having been provided from the virtual fund with the remaining 50% payable as periodic support. In the absence of such specification, it will be assumed that the full annual child support liability is intended to be treated as paid out of the fund.
 

Recognising the opportunity costs in making lump sum payments

In order to create an incentive for the payer to pay child support in advance as a capital sum, there ought to be a default rule, in the absence of agreement to the contrary, that the fund should be increased by a rate which is expressed in Regulations. The annual increase in the value of the fund ought to be commensurate with the after-tax value of what would be obtainable if instead the money had been invested rather than paid out as a lump sum. That increase should be applied on every anniversary of the date of the order or agreement.

The purpose of such an automatic increase is to recognise that if the lump sum payment had not been made, and the payer had retained the use of the monetary value of the asset, then he or she might have invested it for gain. While the after-tax value of an investment will vary depending on the tax circumstances of a taxpayer, the rate ought to be set at a level appropriate to give recognition to the opportunity costs of providing a lump sum payment.
 

What if the fund is not exhausted by the time child support ceases to be payable?

The circumstance may arise, perhaps because of the death of a child, because of a change in the residential arrangements which lasts until the time the child reaches 18, or because of the paying parent’s ongoing low income over a number of years, that there remains credit in the fund at the time the child support ceases to be payable.

The Taskforce proposes that in order to address this issue, the credit balance in the fund should create a statutory charge which is registrable under the laws of the States and Territories. The charge should crystallise when a terminating event occurs within the meaning of the Child Support (Assessment) Act 1989, that is, when something occurs that brings the payer’s child support obligation to an end.

If the credit balance is not registered as a charge against property to which the payee has title, then the proposed default rule is that there is no obligation to return the balance of the lump sum fund.
 

The need for legal advice

Availability of lump sum child support payments

While the availability of lump sum child support payments may assist some parents in some circumstances to resolve their financial affairs following separation, the risks and benefits need to be clearly understood and the agreement or orders tailored appropriately to the circumstances of the parents. In particular, if a payee’s entitlement to FTB is to be calculated on the basis of the amount of periodic child support that would be payable under the formula, disregarding the agreement or order for lump sum child support, then parents ought to realise this. Appropriate provisions can be included in the agreement or court order for some periodic support to become payable, and therefore for the capital sum to be eroded more slowly, if a payee is unable to work or if in some other way the parent’s financial circumstances necessitate the payment of some periodic child support.

For this reason, the Taskforce proposes that the same conditions should apply to agreements or orders concerning lump sum payments as to capital transfers and other aspects of property settlements under the Family Law Act 1975. That legislation provides for financial agreements to be binding without the involvement of a court if both parties have independent legal advice about the agreement. Property and maintenance matters may also be resolved through court orders made by consent, and this is the usual way in which property matters are resolved. If both parties have independent legal advice, then there is a simple procedure for having the agreement translated into consent orders. If one or both parties do not have legal advice, then it is probable that the court will scrutinise the draft consent orders and may ask questions of the parties concerning their understanding of what is agreed.

In order to ensure consistency between the child support legislation and the Family Law Act 1975, and to provide appropriate protection to parents, the Taskforce proposes that lump sum arrangements or capital transfers that exceed the current year’s child support assessment and are to be credited against future years should only be made by binding financial agreement or by court order. It would be expected that if such arrangements were enshrined in consent orders, and one or both parents did not have legal advice, then the court would exercise its independent responsibility to be satisfied that the proposed orders were just and equitable.

This still allows smaller scale capital transfers to be subject to a child support agreement that does not require legal advice subject to the safeguards stipulated in Chapter 13. Parents would also not need to have legal advisers in order to obtain consent orders from a court. The Taskforce considers that this provides an appropriate balance between the freedom to make agreements without needing legal advice, and the protection of parents from entering into disadvantageous agreements involving substantial amounts of money or property without a full appreciation of their consequences.

Binding financial agreements for lump sum child support ought to be capable of being varied or set aside on the same grounds as an agreement under the Family Law Act. This includes the provision that ‘since the making of the agreement, a material change has occurred in the circumstances of either parent or the child and as a result of the change, either parent or the child will suffer hardship if the court does not vary the agreement or set it aside’. A similar variation power ought to be included in relation to orders of the court, whether made by consent or otherwise.
 

Administration of agreements or orders for lump sum payments

The parties would need to lodge any agreement or court order with the CSA for it to be given effect. The lump sum would then operate rather like a mortgage account does, with debits and credits being calculated formulaically and an account given to the parents of the state of the credit balance.

An annual child support assessment should continue to be made, and all administrative adjustments normally available to parents to maintain the currency of the assessment should be available. This includes the ability for parents to update income as it changes, including lodging and updating estimates of income. Change of assessment, general short-term agreements and court-ordered variations should also be available, unrestricted by the existence of the advance lump sum payment.
 

Jurisdiction to make lump sum child support orders

If one of the objectives of making it easier to pay child support in a lump sum is to allow a trade-off between capital and income as part of a property settlement, then consideration needs to be given to the issue of jurisdiction of state courts. Most property matters are dealt with in the District Court or County Court of the states, with some matters being dealt with at Supreme Court level. If jurisdiction for the limited purpose of making lump sum child support orders as part of a property order is not conferred on all state courts whether or not they can otherwise exercise family law jurisdiction, then it will be necessary for litigants to go to two courts to resolve their affairs unless they can make an agreement about the child support aspect of their dispute.

Consideration should therefore be given to allowing state courts to make lump sum child support orders when exercising any of their powers under Acts which would be specifi ed in Regulations. These Acts would be those governing the division of property of de factos such as the Property (Relationships) Act 1984 (NSW). The problem of jurisdiction may be resolved over time if more States refer their powers over the property rights of de factos to the Commonwealth, and the Commonwealth enacts legislation to give effect to such a reference of powers.
 

Crediting of other in-kind payments by consent

There is already facility within the Child Support Scheme for parents to agree that particular payments should be credited as child support, known as Non-Agency Payments. The crediting of such payments is always against 100% of the ongoing liability, until the credit is exhausted. Parents may wish to use some more minor payments of child-related expenses even when they have already allocated a substantial capital or lump sum amount as credit against child support. For example, the lump sum credit may only be against 50% of the ongoing liability, and the remaining 50% is to be paid on a periodic basis. In this case, the parents may prefer to agree that a payment, for example, of a child’s music lesson fees, is to be credited only against 25% of the liability, to retain some ongoing cash fl ow. This flexibility should also be included in the Scheme.

Recommendation 18

18.1 Parents should be able to make agreements for lump sum child support payments only by means of a binding financial agreement or by consent orders if the payment of lump sum child support exceeds the total of the annual assessment of child support and is to be credited against payments for future child support years.

18.2 Agreements or orders for lump sum child support should have effect on the condition that entitlement of the payee to FTB Part A shall be assessed on the basis of the amount of child support that would be transferred if the agreement or order had not been made.

18.3 Section 128 of the Child Support (Assessment) Act 1989, permitting a carer parent in some circumstances to seek an assessment of child support for up to 75% of the then formula liability, despite an agreement or order to the contrary, should be repealed.

18.4 Default rules for the treatment of lump sum child support payments that exceed the total of the annual assessment of child support and are to be credited against payments for future child support years should be included in the child support legislation, and these default rules should apply in the absence of provisions of an agreement or court order to the contrary.

18.5 The default rules shall be as follows:

1. The parents should continue to have an annual assessment of periodic child support made based upon their then current income and circumstances.
2. The lump sum should be treated as providing the payer with a credit balance, to be credited against the periodic child support assessment as each annual assessment is made.
3. 100% of the annual assessed rate of child support should be credited annually from the balance of the lump sum, until the balance is exhausted.
4. The balance in the fund should be increased annually upon the anniversary of the creation of the fund, by a rate that is expressed in Regulations, to produce a value commensurate with the after-tax value if the money had been invested.
5. If there is a balance remaining to the payer after the child support liability has ended, then there should be no obligation to repay this amount unless the balance is registered as a statutory charge.

18.6 The balance of a lump sum child support payment should create a statutory charge that is registrable under the property legislation of the States and Territories.

18.7 Section 60 of the Child Support (Assessment) Act 1989 (concerning ‘income amount orders’) should be amended to allow payers to be able to provide estimates of their income in relation to a child support period when their obligations for that period are affected by an agreement for lump sum child support.

18.8 Sections 71A and 71B of the Child Support (Registration and Collection) Act 1988 should be amended to allow in-kind payments to be credited by consent against less than 100% of the liability in the child support period.

Child Support and the Family Relationship Centres 

In 2004, in response to the House of Representatives Standing Committee on Family and Community Affairs Report, the Government decided to establish a system of 65 Family Relationship Centres (FRCs) designed to provide information, advice and dispute resolution to help separating parents reach agreement, including the development of a parenting plan.

As part of its Terms of Reference, the Taskforce has been asked to consider:

• how the Child Support Scheme can play a role in encouraging separating couples to reach agreement about parenting arrangements; and
• how FRCs may contribute to the understanding of and compliance with the Child Support Scheme.

The first issue has been addressed in particular through the recommendations concerning the recognition of contact in the formula (see Chapter 9) and the related changes to Family Tax Benefit (FTB) splitting. However, it is also important to consider child support issues when negotiating post-separation parenting arrangements, and close collaboration between the Child Support Agency (CSA), Centrelink and the FRCs may help parents to work out sustainable parenting arrangements in which the relevant financial issues are properly considered. In this way also, the Child Support Scheme can play a role in encouraging separating couples to reach agreement about parenting arrangements. The FRCs can also play a major role in promoting understanding of and compliance with the Scheme.
 

Interactions between child support, family law and parental conflict

There is strong evidence that dealing with separating parents through the legal system alone can entrench conflict, rather than resolve it. A recent UK study shows that, unless the underlying reasons for parental conflict are addressed, the expectation that parents should agree over their parenting arrangements following family separation is unlikely to be fulfi lled. This is mainly because the legal system cannot easily deal with the essentially non-legal problems associated with disputes over children.

Issues with the family law system and the Child Support Scheme featured prominently in the submissions provided to the House of Representatives Inquiry. In their decision-making, neither the courts with family law jurisdiction nor the CSA can take into consideration the underlying reasons for conflict between separating parents. Confl ict between separated parents is often exacerbated by interaction with the family law system and the Child Support Scheme.

The FRCs offer a new and different way of helping parents to resolve these confl icts. Managing the difficult transition from parenting together to parenting apart is a critical time to help parents focus on the needs of their children. FRCs can assist families to reduce long-term conflict and to establish sustainable post-separation parenting arrangements. They will also provide valuable support to a range of proposed reforms that the Taskforce is recommending for the Child Support Scheme.
 

The role of Family Relationship Centres

The FRCs will be highly visible and accessible to the public, thereby encouraging families to use them for relationship and separation issues. FRCs will be an early intervention initiative to support intact families experiencing relationship difficulties. They will also be well positioned to provide relationship education, for example, through parenting seminars. FRCs will also play a support and counselling role for parents going through separation, with the goal of helping parents to work out post-separation parenting arrangements and to focus upon the children’s needs. In addition, they will be able to provide initial information to separating parents about child support and ways that Centrelink can assist them.

The FRCs will provide both an information and referral service and an intake assessment process. FRCs will be an integral part of the Family Relationship Services Program and a ‘gateway’ to many other services that can assist parents to resolve the issues between them. This includes the family law system, if a legal intervention is the most appropriate means of resolving the issues. Desirably, many parents who cannot resolve their disputes immediately will go on to other kinds of services rather than going to courts. These include continuing efforts at mediation, seeking legal advice about issues, or going to other appropriate services such as anger management courses, drug and alcohol programs, and fi nancial counselling.

The Taskforce expects that FRCs will help achieve a change in the pathways separated couples take after separation. A UK study in 1999 found that the majority of people experiencing family or relationship difficulties chose to visit a solicitor. The same is true for Australia, where a great many people visit a solicitor before any other professional about separation matters. This can have the unfortunate effect of entrenching adversarial attitudes, depending on the approach taken by the solicitor.

While many parents may still wish to seek legal advice at some stage in working out the post-separation parenting arrangements, the FRCs will offer another pathway for assistance. In particular, when all 65 centres have been established, they will offer a readily available source of free advice and assistance to the majority of the Australian population. Parents will be encouraged to make contact with them as a first step towards negotiating the post-separation parenting arrangements and the related fi nancial issues. Outcomes for parents and their children are generally substantially better where parents can reach agreement, through parenting plans, for example, rather than having arrangements imposed upon them by courts. FRCs will provide mediation services to help parents reach agreements.

FRCs will not only have a pivotal role in alternative dispute resolution in the aftermath of separation. They will also have a role in dealing with ongoing confl icts between the parents. Where entrenched conflict makes resolution within the centre unlikely, FRCs may refer the family to the Contact Orders Program, or to other specialist Family Relationship Service Program providers. While parents cannot be ordered to use these programs (only a court can do that), they will be strongly encouraged to do so as a better way of dealing with the issues than going to court.
 

How Family Relationship Centres may contribute to the understanding of and compliance with the Child Support Scheme

An educational role

The educational role of the FRCs is particularly important in terms of the way in which FRCs may contribute to parents’ understanding of the Child Support Scheme, and therefore promote voluntary compliance. The information sessions and other educational programs of the FRCs should explain in outline about the Scheme, the basis on which child support obligations have been calculated and the way in which regular contact and shared care are dealt with in the formula.

Initial information sessions do not need to give detailed information—that is perhaps best done through CSA staff offering special information sessions or through legal advisers. However, material on child support should be included in the general information sessions about post-separation parenting. Explanation should be given about how it is that the Government seeks to protect children from the reduced living standards flowing from separation in a way that is as fair as possible to both parents. In particular, if parents can be helped to understand that the formula is based on the amount that each parent would be likely to spend on child-related expenses if the parents were together, some of the controversy about child support may be reduced.

Specific provision of information to parents about their child support obligations and entitlements should include highlighting of areas where the Scheme has considerable scope for parental agreement, and the tailoring of child support arrangements. Parents considering substituting their own agreed child support for the formula outcome need a good understanding of the likely consequences, in terms of both child support outcomes, and FTB interactions (as discussed in Chapter 13). The reasons for change of assessment (as described in Chapter 12) should be made known, so that parents can use the information in their negotiations. There will be more freedom to make lump sum child support arrangements under Taskforce proposals (discussed in Chapter 14).

If a non-resident parent is concerned about whether the child support will be utilised to meet the expenses of raising the child, or would particularly like child support payments to be used for particular purposes, then the parents ought to be encouraged to agree about some in-kind payments. Importantly, the extent to which both parents consider that expenses such as fees for extra-curricular activities, haircuts and educational costs should be credited against a formal child support assessment can be agreed.

FRCs have the potential to streamline and tailor the provision of information to parents, promoting a greater understanding of child support and, by making opportunities available to parents to become involved in their child support arrangements, including both the amount and use of payments, improve compliance and overall satisfaction.

Recommendations 19.1 and 19.2

19.1 The Family Relationship Centres should encourage voluntary agreements between parents on in-kind payments.

19.2 Information sessions and seminars conducted under the auspices of the Family Relationship Centres should provide information on the Child Support Scheme and draw attention to the flexibility provided in the Scheme through the change of assessment process, as well as the possibilities for private agreements and in-kind payments.

Negotiating other financial aspects of post-separation parenting

Child support issues are also relevant to developing workable parenting arrangements in other respects. Once parents have reached an agreement about basic parenting arrangements, such as where the child will live, there is often a need to resolve secondary issues as well, including financial ones. Parents may need to address practical matters such as transport costs, clothing and the provision of other personal items as well as any other matter that is likely to be contentious.

Three areas in particular that it may be important to discuss are any fi nancial issues about where the parents will live, childcare costs, and educational plans. In some cases, it may be important for parents to see child support obligations as a minimum rather than a fixed sum, and discussion of appropriate levels of child support may assist in helping parents to reach agreement over parenting issues. For example, if the parents have been living in an area of a city where housing is expensive, and the parent who is likely to have to pay child support wants to be involved in a shared parenting arrangement, then it may be necessary to explore the financial issues to see whether it is realistic for both the parents to stay in the same area following separation. The price of remaining close to one another geographically may be that the parent with the greater income has to pay more than the formula amount of child support in order to help the other parent meet the costs of renting or mortgage instalments for a home in the same area.

Childcare costs are another area that may need to be the subject of specifi c negotiation. Taskforce examination of the costs of children revealed significant variations in childcare costs. Childcare expenses were specifically not included in costs of children data for this reason. Allowances have been made within the formula to address childcare and other related costs for younger children, in that the costs of children in the 5–12 age bracket have been extended to younger children. However, this is a prime area in which individual discussion between parents may result in agreement about the handling of childcare expenses, particularly where these are substantial, or parents agree that such costs will provide a significant barrier to the resident parent increasing his or her paid workforce participation following the separation.

Children’s education costs are also highly individual, with signifi cant variation depending upon the provider of the tuition. Educational costs are one ground for a change of assessment, and one common basis for a decision that a payer should be required to contribute an additional sum towards private school fees is that this was the parents’ intention when they were together. However, a couple’s mutual understanding as to children’s future education is often affected by separation and resulting fi nancial pressures. Conflicts about money in the future may be best avoided if parents are encouraged to turn their minds to this issue in the course of developing a parenting plan. FRCs are in a good position to prompt necessary discussions in these cases.

These discussions on shared parenting responsibilities could then form the basis of the development of a comprehensive parenting plan that deals both with parenting and ongoing financial issues. The plan could contain anything that the parents thought relevant such as:

• a child’s living and contact arrangements;
• the time a child might spend with other people such as grandparents;
• how parents will exercise their parental responsibility;
• child support payments;
• costs of transportation for contact visits;
• childcare and educational costs where these are high;
• in-kind contributions to the costs of the child and prescribed payments;
• how hand-over will be managed;
• holiday arrangements; and
• ways of resolving any future disputes.

Recommendation 19.3

Family Relationship Centres and other organisations providing counselling and mediation services to parents who are negotiating parenting arrangements after separation should encourage parents to discuss child support issues including childcare costs and the future education of the children, especially where a private school education has been contemplated.

Collaboration between Family Relationship Centres, the CSA, Centrelink and other organisations

The majority of separated parents who are CSA clients also deal with Centrelink. The two agencies perform different but complementary functions, and parents need information and support from both to fully understand their fi nancial situation. Centrelink and the CSA already have a close working relationship and refer parents to each other’s services. Both agencies also refer to other government and non-government agencies within the community on a regular basis. The FRCs will have an important role in providing initial information and advice to people who may not have an understanding of the range of services available to assist them in the transition to post-separation parenting, including making child support arrangements.

In response to a request by the Taskforce for information on how CSA and Centrelink can work with FRCs, both agencies have committed to working closely with FRCs. The CSA and Centrelink have advised that they are keen to support FRC staff working with parents. The Taskforce supports Centrelink’s and the CSA’s view that this could contribute to improving compliance with the Child Support Scheme.

The Taskforce believes that CSA and Centrelink are well placed to support FRCs to work with separating families and to assist parents to establish parenting plans. Both agencies are keen to be involved in developing services in a range of ways, balancing the needs of parents and children and the efficient use of resources. Other possibilities include:

• Centrelink staff located in FRCs could have online access to the Centrelink computer system and provide real-time information and processing. CSA uses tax data systems and due to security issues has no remote access to their computer system. CSA has an internet-based child support calculator which is widely used in the community sector now to inform clients of the impacts of their decisions and could be accessed from FRCs;
• using telephone technology to make ‘warm transfers’ between agencies to support FRC staff dealing with a range of issues for parents;
• having Centrelink and CSA staff conduct training and information sessions for FRC staff;
• availability of ‘hotline’ telephone support to FRC staff if Centrelink and/or CSA staff are not present in person;
• sharing of information regarding complex cases with families already known to either or both agencies, as appropriate within the context of privacy legislation;
• using an interagency joint case management approach for parents with very complex issues. This approach is being trialled now between CSA and the Family Court, and is used by Centrelink as part of their interventions with families;
• utilisation of national strategies already developed by Centrelink and CSA on domestic and family violence to assist in early identification and service delivery responses by all agencies;
• using remote servicing options such as Centrelink’s network of social workers based in Community Support and Call Centres to support families in rural and remote locations;
• regular exchange of information between FRC staff and Centrelink and CSA staff to identify issues affecting parents in the local area and provide timely and appropriate responses;
• provision of Centrelink and CSA information products in FRCs; and
• regular sharing of best practice to enhance national service delivery.

The Taskforce believes that the more FRCs can be integrated appropriately within the service environment of Centrelink and the CSA and network with other family relationship services, the more families will benefit from services that address their needs, both before and after separation.

Planning for FRCs should involve close collaboration with both the CSA and Centrelink. Both agencies have particular experience in being able to provide advice and assistance to a range of diverse groups who do not have ready access to face-to-face services, including families living in rural and remote areas, Aboriginal and Torres Strait Islanders, families from diverse cultural and linguistic backgrounds and people with a disability.

Many families and individuals may fall into more than one of these groups, creating multiple disadvantages when accessing services. The Taskforce considers that establishment of a ‘virtual’ FRC through telephone, website and video conferencing capabilities would have special benefit for servicing families with special needs or who are too remote to access face-to-face services. The FRCs could facilitate the referral of clients directly with Centrelink, CSA or the other Family Relationship Service Program service providers. Experience shows that clients who are put into direct contact with a service at the time of the referral are more likely to follow through with the referral.

Recommendation 19.4

Planning for Family Relationship Centres should involve close collaboration with the CSA and Centrelink, particularly on ways of serving the needs of regional and rural Australia.

Centrelink and CSA are not the only organisations that may be able to work collaboratively with the FRCs. The interactions between family law, government family payments and child support are intricate and complex. It would not be expected that FRCs would themselves have available expertise in all relevant areas. The FRCs should take advantage of such possibilities for collaboration and government and community-based sources of legal advice to make opportunities to receive specialist advice more accessible to parents using the FRCs.

Recommendation 19.5

Organisations selected to run Family Relationship Centres should be encouraged to invite the CSA, Centrelink, Legal Aid and community legal centres to conduct regular advice and information sessions on the premises of the Centre.

Family Relationship Centres and change of assessment

FRCs will be available to separated families to help reduce ongoing confl icts and difficulties emerging as their circumstances change. This availability should extend to difficulties with broader parenting responsibilities, particularly including child support arrangements. Mediation services should be available to assist with any areas of re-negotiation of child support agreements or payment arrangements.

In addition, to promote better outcomes, FRCs could also play a role in the existing processes within the Child Support Scheme to vary assessments. Currently, a very small proportion of change of assessment applications made to CSA are settled by parents without the need for the Senior Case Officer to make a determination. Some proportion of parents may have entered into an agreement, varying their child support based upon change of assessment grounds, although without actually making the application.

Although not appropriate for every case, alternative dispute resolution ought to be as much a feature of the change of assessment process as any other family law dispute. The CSA should have the discretion to encourage separated parents to negotiate the often contentious issues around change of assessment applications through a FRC or other mediation or counselling organisation, prior to determining an application.

Recommendation 19.6

The CSA should have a discretion to encourage parties to change of assessment applications to negotiate the issues through a Family Relationship Centre or other mediation or counselling organisation, prior to determining the application

Modelling the Outcomes of the Proposed Formula 

The modelling tool

The Taskforce commissioned the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra to build a highly sophisticated modelling tool to facilitate the development of options for a new formula. The model helped the Taskforce to:

• better understand the effects of the current child support formula;
• examine the characteristics of alternative new formulae; and
• comprehensively test the operation of the proposed formula, using a wide variety of family types and circumstances.

The modelling tool allows the input of a broad range of initial settings and assumptions. It uses an enhanced version of NATSEM’s tax and transfer modelling tool, STINMOD, to calculate not only child support payments but also income support and family payments, income tax, and other flows. Finally, it produces a range of charts and tables showing detailed analysis of changed outcomes for both the payee’s and payer’s families, including scenarios where there is contact and shared care, where there are new biological or adopted children, and where one or both parents have re-partnered. A strength of the model is its ability to hold one parent’s private income constant while incrementing the income of the other parent, enabling ready analysis of ‘what if?’ scenarios and of how the various elements of income and expenditure interact.

The tool enabled the Taskforce to assess both the functioning of the current Child Support Scheme and the proposed changes to a level of precision that had not previously been possible. The marked improvement in computing power in recent years has helped enormously in this pursuit.

In this chapter, output from the model (calibrated with the settings contained in Recommendation 1) is used to demonstrate key features of the proposed formula. Broadly speaking, the model simulates the 2005–06 policy and economic environment. The results are only indicative at this stage, as the changes in the Consumer Price Index and average weekly earnings that will be used to index social security payments and child support formula components in 2005–06 are not yet known. Further, changes to income tax, income support and family payments announced in the 2005–06 Budget (which have not been passed by the Senate at the time of writing) have not been incorporated. In essence, the modelling simulates the rules of the various taxes and programs as they were expected to be in 2005–06 at the point when the modelling was undertaken in early 2005.

Modelling of outcomes for the largest parent groups is presented in the following graphs, together with tables comparing outcomes at a glance.

It should be noted that in all of the following results it has been assumed that resident parents with low to medium levels of private income receive Parenting Payment (Single) and that non-resident parents with low levels of private income receive Newstart Allowance. (In both cases, the rules of the relevant income tests in 2005–06—prior to the announced 2005 Budget changes—have been replicated.) This is why the results do not show any non-resident parents with private incomes below $18,000 paying the $20 per child minimum payment proposed by the Taskforce for those non-resident parents whose taxable incomes fall below the maximum annual rate of Parenting Payment (Single) and who are not on any form of income support. Thus, in all of the following charts non-resident parents with private incomes below this level are assumed to be receiving Newstart Allowance and therefore paying only the $6 minimum payment when their level of contact is below 14%.

Four key types of distributional output are presented in the following sections:

• Section 16.2 compares child support liabilities under the proposed new scheme with those payable under the current Child Support Scheme. This is done for a range of illustrative family types and ages and numbers of children.
• Section 16.3 shows the change in effective marginal tax rates for four non-resident parent categories.
• Section 16.4 examines how the costs of children and child support liabilities vary, for both resident and non-resident parents, at four income levels—very low (zero private income), low ($26,000), middle ($52,000) and high ($78,000).
• Section 16.5 analyses the outcomes of the proposed scheme for five hypothetical sets of parents.

Child support outcomes by income level

Non-resident parent’s income increasing

This section shows the outcomes of the proposed new scheme for non-resident parents with progressively increasing levels of private income, where the private income of the resident parent is held constant at zero (and as a result, although the resident parent is assumed to be receiving Parenting Payment (Single), his or her adjusted taxable income is below the self-support threshold).

Figure 16.1 shows a common scenario: the resident parent’s taxable income is less than the self-support amount, there is one child aged 0–12 years, no sharing of care and no new biological/legal children. The non-resident parent’s private income is increasing from $0 to $141,000, in $3,000 increments of private income.

In this figure (and in Figures 16.2 and 16.3) the resident parent has income below the self-support amount, so that the costs of the child are fully met by the non-resident parent. This amount is shown in the solid blue line, which represents child support liabilities under the proposed formula.

Figure 16.1: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years

Taskforce Child Support Model.

Up to approximately the proposed new individual self-support amount of $16,883 in 2005–06, the non-resident parent is required to pay only the minimum payment under the proposed new scheme. At $18,000 of private income the non-resident parent ceases to receive any Newstart Allowance, so their private income at $18,000 and above is the same in this scenario as their adjusted taxable income.

Under the proposed scheme, the cost of the child begins to increase immediately either parent’s private income increases above their individual self-support income amount. The rate of increase slows at higher income levels, in line with the reduced marginal child cost rates at higher income thresholds proposed by the Taskforce. This is why the solid line of child support liabilities shown in Figure 16.1 does not continue to increase at the same rate as income.

Figure 16.1 shows that the Taskforce’s suggested child support liabilities for a child aged 0–12 years are less than the current formula at all income levels, but particularly so at higher income levels.

Figure 16.2, like Figure 16.1, shows a scenario where the resident parent’s income is less than the self-support amount, there is no sharing of care, no new biological/legal children and the non-resident parent’s income is increasing from $0 to $141,000. The difference is that the sole child is aged 13–17 years rather than 0–12 years. Again, the non-resident parent is meeting the full cost of the child, so that the solid blue line of the proposed child support to be paid by the non-resident parent coincides with estimated child costs (not shown separately).

Figure 16.2: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 13–17 years

Taskforce Child Support Model

Figure 16.3: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, two child support children (one aged 0–12 years, one aged 13–17 years)

Taskforce Child Support Model.

Figure 16.2 shows that the Taskforce’s proposed liability for a child of this age is slightly less than the current formula at the lowest levels of income, higher than the current formula across a large range of incomes, and again lower at high income levels.

Once again, Figure 16.3 shows a scenario where the resident parent’s income is less than the self-support amount, there is no sharing of care, no new biological/legal children and the non-resident parent’s income is increasing from $0 to $141,000. However, in this scenario there are two child support children, one in each of the proposed two age groups.

As shown in Figure 16.3, the current formula amount for the two children is higher than the Taskforce’s proposed estimated costs and child support payments at all income levels. As the two children span both of the age ranges proposed by the Taskforce, the net costs are higher than would be applicable for two children aged 0–12 years and lower than those that would be applicable for two children aged 13–17 years.

In Figure 16.4, the resident parent’s income is again less than the self-support amount, there is no sharing of care, no new biological/legal children and the non-resident parent’s income is increasing from $0 to $141,000. However, in this scenario there are three child support children, all in the younger age group.

The current child support formula amounts are considerably higher than the Taskforce’s estimated costs and proposed child support paid for three younger children. As shown in Chapter 8, estimates of the gross costs of additional children after the fi rst refl ect the effect of economies of scale. This effect is further accentuated when net costs are calculated, as the Government pays the same amount of Family Tax Benefi t (FTB) Part A for each child.

Figure 16.4: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, three child support children (all aged 0–12 years)

Taskforce Child Support Model.
 

Resident parent’s income increasing

The figures in section 16.2.1 examined the impact of the new scheme where the resident parent’s income is held constant and the income of the non-resident parent is increased. In contrast, the figures in this section show what happens when the non-resident parent’s income is held constant, and the resident parent’s income is increasing.

The scenario in Figure 16.5 illustrates the impact of the proposed new scheme on the child support received by resident parents where the non-resident parent has $700 per week of taxable income.

Figure 16.5: Child support received—resident parent’s private income increasing, non-resident parent’s private income $700 pw, one child support child aged 0–12 years

Taskforce Child Support Model.

In this scenario the costs of the child are not zero when the resident parent’s income is below the self-support amount, because the non-resident parent has income above the self-support amount. When the parents’ Child Support Incomes are equal, they each pay half the costs of the child under the proposed formula. Thus, when the resident parent’s income reaches about $36,000, the proposed child support of about $61 per week represents half of the net child costs of $121 per week. The gap between the two unbroken lines represents the resident parent’s expenditure on the child from his or her own resources.

Note that the resident parent’s rising income has only a small effect on the non-resident parent’s liabilities at the lower levels of income. This is because net child costs, which increase as combined family income increases, are rising almost as fast as his or her income. However, under the current formula, the resident parent’s rising income has no effect whatsoever on liabilities until it exceeds $39,312, as shown by the broken line in the figure.

At higher levels of combined income, the ‘income shares’ effect of the proposed formula becomes more pronounced, and each additional dollar of income earned by the resident parent decreases the child support liability by an increasing amount. This figure (and Figure 16.6) also suggest that non-resident parents whose former partners have middle-to-high incomes have not been paying their fair share of the costs of children under the current formula.

In Figure 16.6 the income of the non-resident parent is again held constant, this time at $1,000 per week, while the income of the resident parent is increasing in $3,000 increments. This scenario illustrates the impact of the proposed new scheme on middle-income non-resident parents as the income of the resident parent increases. Similarly, it shows resident parents with a middle-income non-resident parent the likely impact of the proposed new scheme upon their child support received.


Figure 16.6: Child support received—resident parent’s private income increasing, non-resident parent’s private income $1,000 pw, two child support children (one aged 0–12 years, one aged 13–17 years)

Taskforce Child Support Model.

Higher-income payers whose former partners earn above about $39,000 would see a significant rise in child support liabilities under the proposed formula. This is shown by the solid line of child support received under the proposed new scheme being higher than child support received under the current Scheme. As with the previous scenario, resident parents at lower levels of private income would experience a slight fall in child support received.
 

Regular contact and shared care

The figures in this section illustrate the impact of the proposed new scheme where there is regular contact or shared care.

It is useful to compare Figure 16.7 with Figure 16.1: the situation is identical except that the non-resident parent in this case has care of the child for 20% of nights. The solid dark blue line (representing child support paid under the proposed formula) is well below the dotted line (representing child support paid under the current formula) because the current formula does not take account of contact at this level. The figure reflects the Taskforce’s recommendation that regular contact or shared care at or above the level of 14% of nights per year by a parent should result in that parent being taken to incur some proportion of the costs of the child.

Figure 16.7: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years, non-resident parent has 20% care

Taskforce Child Support Model.

The gap between the two unbroken lines represents the non-resident parent’s expenditure on the child during the 20% of time that the child is in his or her care. As in Figure 16.3, because the resident parent has taxable income below the self-support amount, the non-resident parent is meeting the full net cost of the child. However, the non-resident parent is paying some of that cost in child support (the amounts shown in the solid dark blue line) and an increasing amount in direct expenditure while the child is in his or her home as income rises (represented by the gap between the solid lines).

Where the non-resident parent’s income is below the self-support amount, these examples assume that he or she receives government income support payments and is therefore not subject to the fixed payment of $20 per week per child. In addition, non-resident parents who have care of 14% or more are not liable for the minimum payment. Therefore, as Figure 16.8 shows, there is no minimum liability or fi xed payment imposed under the proposed formula in this example.

Figure 16.8: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years, non-resident parent has 35% care

Taskforce Child Support Model.

In the preceding scenario there was a significant difference between the current and proposed child support liabilities, in part because under the current Scheme shared care of less than 30% does not affect child support liabilities. This scenario, in contrast, shows the outcomes of the proposed scheme where the non-resident parent has 35% care, the resident parent still has zero private income, and there is still one child aged 0–12 years. There is less of a difference between current and proposed child support liabilities in this scenario than in Figure 16.7 because the current child support system also reduces child support liabilities when care is shared at this level.

In this scenario the blue dashed line of child support paid under the current system is lower than the blue dashed line in Figure 16.7 because, as noted above, the current Scheme reduces child support liabilities when the non-resident parent has 35% care. The solid light blue lines, of the net costs of the child, are the same in both this figure and Figure 16.7. The solid dark blue line shows the proposed new child support payments by the non-resident parent to the resident parent, while the gap between the solid lines shows the estimated child costs incurred by the non-resident parent when the child is in his or her care.

This example shows that the proposed formula takes into account, to a greater extent than the current formula, the non-resident parent’s expenditure when the child is in his or her care.
 

Second families

The figures in this section illustrate the impact of the proposed new scheme on non-resident parents with second families.

An important issue for any child support scheme is how new biological children are treated in comparison to existing child support children. Figure 16.9 shows the impact of the proposed and current schemes on a non-resident parent who has a new biological child aged 0–12 years and a child aged 0–12 from a previous relationship for whom he or she is paying child support. In this example, the resident parent’s taxable income is below the self-support amount, as his or her private income is zero.

Figure 16.9: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12 years, non-resident parent has a new biological child aged 0–12 years

The key difference between the current and proposed systems is that the current system allows a flat-rate deduction for new biological children, whereas the proposed scheme allows a ‘percentage of income’ deduction. At middle-to-higher income levels, the proposed percentage of income represents more dollars than the current fl at-rate deduction.

For a non-resident parent with a new biological child aged 0–12 years, the impact of the Taskforce’s recommendations is to increase the child support paid at low levels of private income and decrease the child support paid at upper middle-to-higher levels of private income.

The increase in child support paid by the non-resident parent at low income levels is because the proposed reduction in the Child Support Income of the non-resident parent due to the new biological child represents a lower dollar amount than the current Scheme exemption for new biological children. Conversely, the reduction in child support paid by non-resident parents with taxable incomes above about $55,000 is due to the percentage reductions in Child Support Income at this income level because of the new children representing a higher dollar amount than the current flat-rate deduction for new biological children. The generally lower child support percentages at higher income levels also contribute to the reduction for these non-resident parents.

In Figure 16.10, the non-resident parent has one child support child aged 13–17 years from an earlier relationship and has regular contact. The non-resident parent also has two new biological children, one aged 0–12 years and the other aged 13–17 years.

Figure 16.10: Child support paid—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 13–17 years, non-resident parent has two new biological children, one aged 0–12 years and one aged 13–17 years, non-resident parent has 25% care

Taskforce Child Support Model.

Here the proposed amount of child support to be paid lies above the current child support liabilities for low-to-middle-income non-resident parents. There are two reasons for this. First, the child support child is aged 13–17 years and the proposed child support payments are therefore higher than the current Scheme’s non-age-related rate for one child. Second, the current flat-rate deduction from taxable income applicable for two new biological children is a higher dollar amount than the proposed percentage reduction in Child Support Income until well up the income range. However, the effect of this is moderated because the non-resident parent has regular contact.
 

Effective marginal tax rates

This section examines the impact of the proposed new scheme on effective marginal tax rates (EMTRs). An EMTR measures the increase in income available to a person to spend after their private income (e.g. from earnings) has increased. Thus, an EMTR of 70% means that, out of a one dollar increase in private income, a person has a 30-cent increase in the income that they have available to spend, in this case after taking full account of any possible reductions in income support or family payments, payment of income tax, and changes in child support paid or received.

It should be noted that the figures in this section do not show the EMTR facing parents on their next dollar of private income, but instead show the averaged EMTR that they will face on the next $3,000 of private income. (Thus, the calculation is the increase in effective disposable income after allowing for child support, income tax, family payments and income support changes, expressed as a percentage of the $3,000 increase in private income. An EMTR of 50% therefore means that the parent can expect to retain half of a $3,000 increase in private income.)

Using output from the NATSEM model, this section examines EMTRs produced under the current and proposed new systems. These figures show EMTRs resulting from income tax and from taper rates for income support and (where applicable) family payments, as well as those resulting from the operation of both the current and proposed child support schemes.

Figure 16.11 shows EMTRs for the scenario presented earlier in Figure 16.1, where the resident parent has no private income, the non-resident parent therefore meets the full estimated costs of the children, there is one child aged 0–12 years and the non-resident parent’s income is increasing in $3,000 increments up to $141,000.

Figure 16.11: EMTRs—resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 0–12

Note: Effective marginal tax rate averaged over the $3,000 income range between one income point and the next.
Taskforce Child Support Model.

At low levels of private income (below $18,000) this non-resident parent is assumed to be in receipt of Newstart Allowance (the most common case). When the non-resident parent is on Newstart Allowance and has some private income that takes his or her total taxable income above $13,462, there is a modest reduction in EMTRs due to the increase in the self-support threshold from the current $13,462 to the proposed scheme level of $16,883.

At $18,000 of income and above, EMTRs for the non-resident parent are reduced across almost all income ranges, with significant reductions at higher income levels up to the level of the current cap. This is due to the proposed child support percentages for younger single children being lower than the 18% used in the current scheme. Workforce disincentive effects of child support are thus reduced under the proposed scheme. Above the level of the current cap of around $131,000, EMTRs under the proposed scheme are somewhat higher than at present.

Figure 16.12 shows the payer’s EMTRs for the families represented earlier in Figure 16.2. This is a very similar example to that shown in Figure 16.11, with the single exception that the child support child is aged 13–17 years, rather than 0–12 years. In this example, while the payer is initially in receipt of Newstart Allowance, EMTRs are high and fall slightly under the proposed scheme due to the increase in the self-support threshold.

Figure 16.12: EMTRs—Resident parent’s private income $0, non-resident parent’s private income increasing, one child support child aged 13–17 years

Note: Effective marginal tax rate averaged over the $3,000 income range between one income point and the next.
Taskforce Child Support Model.

At $18,000 of private income and above, by which time the non-resident parent is not receiving any Newstart Allowance, EMTRs are initially higher under the proposed new scheme because of the higher rate applicable to an older child. This reflects the higher rate of net child costs and therefore child support paid for older children, relative to the current system. While EMTRs are around five cents in the dollar higher for lower- and middle-income earners, they are significantly reduced at higher income levels up to the level of the current cap.

Figure 16.13 shows the EMTRs facing resident parents with increasing incomes and with a non-resident parent whose income is $700 per week (the example shown earlier in Figure 16.5). The EMTRs facing resident parents fall here at taxable incomes of about $39,000 to $78,000, due to the removal of the provision in the existing Child Support Scheme that sharply reduces child support received once the income of the resident parent exceeds this level. Thus, work incentives for resident parents on middle to high incomes who have a non-resident parent with some private income will be improved under the new scheme. The reduction in child support paid under this scenario when the resident parent’s income is below this $39,000 threshold results in a very slight increase in the resident parent’s EMTRs, although the increase is so marginal that it can barely be seen in the graph. Similarly, the proposed new scheme has little impact upon the EMTRs faced here by resident parents with taxable private incomes above about $78,000.

Figure 16.13: Child support received—resident parent’s private income increasing, non-resident parent’s private income $700 pw, one child support child aged 0–12 years

Note: Effective marginal tax rate averaged over the relevant income range.
Taskforce Child Support Model.

Contributions to the cost of the child
This table and those on the following pages show liabilities under the current and proposed schemes, Taskforce agreed net costs of the child or children, and the average expenditure by the resident parent, for various numbers and ages of children and at various levels of parents’ incomes. The tables show the outcomes for resident parents and non-resident parents each at four different private income levels, namely very low ($0), low ($26,000), middle ($52,000) and high ($78,000).
 

1. This is the private income of the resident parent. In all of these examples the resident parent is assumed to be receiving Parenting Payment (Single), which is taxable and can therefore affect the estimated costs of the children if it takes the taxable income of the resident parent above the self-support amount. PPS received is $250 a week at $0 of private income, $74 at $26,000 of private income, and zero at $52,000 of private income and above. This is why the resident parent's contribution is greater than the non-resident parent's contribution when their private incomes both equal $26,000 (because the resident parent's taxable income equals $29,848, which is greater than the non-resident parent's taxable income of $26,000). All figures in table rounded to nearest $.
2. In this example, this is the amount that the non-resident parent has to pay the resident parent in child support
    

1. This is the private income of the resident parent. In all of these examples the resident parent is assumed to be receiving Parenting Payment (Single), which is taxable and can therefore affect the estimated costs of the children if it takes the taxable income of the resident parent above the self-support amount. PPS received is $250 a week at $0 of private income, $74 at $26,000 of private income, and zero at $52,000 of private income and above. This is why the resident parent's contribution is greater than the non-resident parent's contribution when their private incomes both equal $26,000 (because the resident parent's taxable income equals $29,848, which is greater than the non-resident parent's taxable income of $26,000). All figures in table rounded to nearest $.
2. In this example, this is the amount that the non-resident parent has to pay the resident parent in child support
    

1. This is the private income of the resident parent. In all of these examples the resident parent is assumed to be receiving Parenting Payment (Single), which is taxable and can therefore affect the estimated costs of the children if it takes the taxable income of the resident parent above the self-support amount. PPS received is $250 a week at $0 of private income, $74 at $26,000 of private income, and zero at $52,000 of private income and above. This is why the resident parent's contribution is greater than the non-resident parent's contribution when their private incomes both equal $26,000 (because the resident parent's taxable income equals $29,848, which is greater than the non-resident parent's taxable income of $26,000). All figures in table rounded to nearest $.
2. In this example, this is the amount that the non-resident parent has to pay the resident parent in child support

Cameo illustrations of the operation of the formula

This section provides five worked examples of the operation of the proposed new scheme.
 

Tom and Meng

Tom and Meng have three children, all under 12. They separate. All of the children live with Meng. They stay with Tom for 25% of the nights per year (generally alternate weekends and half of school holidays).

Step 1—Find Tom and Meng’s Child Support Incomes

Tom has an adjusted taxable income of $51,500 and Meng has an adjusted taxable income of $27,000. Deducting the self-support component ($16,883) from each gives Tom a Child Support Income of $34,617 and Meng a Child Support Income of $10,117.

Step 2—Calculate the costs of the children

Tom and Meng’s Combined Child Support Income is $44,734. The cost of the children is calculated by taking 27% of the first $25,324 of this and 26% of $19,410 (the remainder of the Combined Child Support Income).

27% of $25,324 is $6,837, and 26% of $19,410 is $5,047, giving a total of $11,884. (In the Costs of Children Table, this is shown as $6,837 plus 26 cents for each dollar over $25,324.) This is the cost of the children.

Step 3—Apportion this cost between the parents

This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Tom has 77.38% of the Combined Child Support Income, so Tom is responsible for 77.38% of the cost and Meng is responsible for 22.62% of the cost.
Under the formula, Tom is given credit for incurring 24% of the children’s costs by caring for the children. Therefore only the balance of Tom’s obligation must be contributed through his child support payment. Tom’s payment is his total obligation (77.38% of the children’s cost) less his credit due to care (24%). His payment is 53.38% of the costs of the children.

53.38% of $11,884 is $6,344. Tom must pay this to Meng.

Other outcomes

Tom’s payment to Meng equals 12.3% of his adjusted taxable income of $51,500. This reflects the self-support threshold, as well as the sharing of care between Tom and Meng. Tom’s payment equals 15.9% of his post-income-tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)
 

Ali and Leila

Ali and Leila have two children, one is 14 and one is 16. They separate. They share care of the children equally.

Step 1—Find Ali and Leila’s Child Support Incomes

Ali has an adjusted taxable income of $54,000 and Leila has an adjusted taxable income of $67,000. Deducting the self-support component ($16,883) from each gives Ali a Child Support Income of $37,117 and Leila a Child Support Income of $50,117.

Step 2—Calculate the cost of the children

Ali and Leila’s Combined Child Support Income is $87,234. The cost of the children is calculated by taking 29% of the first $25,324 of this, 28% of the next $25,324, 25% of the next $25,324, and 20% of $11,262 (the remainder of the Combined Child Support Income).

29% of $25,324 is $7,344, 28% of $25,324 is $7,091, 25% of $25,324 is $6,331, and 20% of $11,262 is $2,252, giving a total of $23,018. (In the Costs of Children Table, this is shown as $20,766 plus 20 cents for each dollar over $75,972.) This is the cost of the children.

Step 3—Apportion this cost between the parents

This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Leila has 57.45% of the Combined Child Support Income, so she is responsible for 57.45% of the cost of the children and Ali is responsible for 42.55%.

Under the formula, Leila is given credit for incurring 50% of the children’s costs by caring for the children. Therefore only the balance of Leila’s obligation must be contributed through her child support payment. Leila’s payment is her total obligation (57.45% of the children’s cost) less credit due to care (50%). Her payment is 7.45% of the costs of the children.

7.45% of $23,018 is $1,715. This is the amount that Leila is required to pay to Ali.

Other outcomes

Leila’s payment to Ali equals 2.6% of her adjusted taxable income of $67,000. This reflects the self-support threshold, as well as the sharing of care between Leila and Ali. Leila’s payment equals 3.4% of her post-income-tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)
 

Peter and Kate

Peter and Kate have two children, one is eight and one is 15. They separate. Both the children live with Kate 100% of the time.

Step 1—Find Peter and Kate’s Child Support Incomes

Peter has an adjusted taxable income of $50,000 and Kate has an adjusted taxable income of $24,000. Deducting the self-support component ($16,883) from each gives Peter a Child Support Income of $33,117 and Kate a Child Support Income of $7,117.

Step 2—Calculate the costs of the children

Peter and Kate’s Combined Child Support Income is $40,234. The cost of the children is calculated by taking 26.5% of the first $25,324 of this and 25.5% of $14,910 (the remainder of the Combined Child Support Income).

26.5% of $25,324 is $6,711, and 25.5% of $14,910 is $3,802, giving a total of $10,513. (In the Costs of Children Table, this is shown as $6,711 plus 25.5 cents for each dollar over $25,324.) This is the cost of the children.

Step 3—Apportion this cost between the parents

This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Peter has 82.31% of the Combined Child Support Income, so Peter is responsible for 82.31% of the cost, and Kate is responsible for 17.69% of the cost. Kate spends her share of the cost in paying for day-to-day expenses from her money and Peter pays Kate his share to meet the remaining expenses of the children.

82.31% of $10,513 is $8,653. Peter must pay this to Kate.

Other outcomes

Peter’s payment to Kate equals 17.3% of his adjusted taxable income of $50,000. This reflects the self-support threshold, which results in child support paid as a percentage of taxable income being lower than the 26.5% net costs of children rate embedded in the proposed new formula for income immediately above the self-support threshold. Peter’s payment equals 22.3% of his post-income-tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)
 

Jack and Sharon

Jack and Sharon have one child aged nine years. They separate. The child lives with Sharon 100% of the time.

Step 1—Find Jack and Sharon’s Child Support Incomes

Jack has an adjusted taxable income of $26,000 a year. Sharon has no private income of her own and is paid the maximum rate of Parenting Payment (Single), giving her an estimated adjusted taxable income in 2005–06 of $12,979. Deducting the self-support component ($16,883) from each gives Jack a Child Support Income of $9,117 and Sharon a Child Support Income of zero.

Step 2—Calculate the costs of the children

Jack and Sharon’s Combined Child Support Income is $9,117. 17% of $9,117 is $1,550. (In the Costs of Children Table, this is shown as 17 cents for each dollar.) This is the cost of the child.

Step 3—Apportion this cost between the parents

This cost is apportioned according to each parent’s capacity to pay. A parent’s capacity to pay is determined by the proportion that they have of the Combined Child Support Income. Jack has 100% of the Combined Child Support Income, so he is responsible for all of the cost of the child. Jack pays Sharon $1,550.

Other outcomes

Jack’s payment to Sharon equals 6% of his adjusted taxable income of $26,000. This reflects the self-support threshold, which results in child support paid as a percentage of taxable income being lower than the 17% net costs of children rate embedded in the proposed new formula for income immediately above the self-support threshold. Jack’s payment equals 7% of his post-income tax income. (It should be noted that this estimate is based on the currently promulgated income tax scales for 2005–06, not the tax scales put forward for 2005–06 in the May 2006 Budget, which at the time of writing this Report have not yet been passed by the Senate.)

Living standards are often compared by using equivalent income measures, which essentially reflect the number of people that have to be supported by each parent’s income. The Organisation for Economic Co-operation and Development (OECD) equivalence scale is widely used and gives a value of 1 to the first adult in the family and 0.3 for each child. Under the proposed new scheme, Sharon’s disposable income (after receiving Parenting Payment (Single), FTB, and child support) would be $397.70. If this is divided by 1.3, to take account of the fact that she is supporting herself and her child with this income, then her equivalent disposable income is $305.90 a week. Jack’s disposable income, after paying child support and income tax, is $387.40. As he is only supporting himself with this income, his equivalent disposable income is the same, at $387.40.
 

Stephen and Vimia

Stephen and Vimia have two children aged six and four. They separate. The children spend some school holidays with Stephen, so that Vimia’s share of care is 90%.

Step 1—Find Stephen and Vimia’s Child Support Incomes

Stephen has no private income of his own and is receiving Newstart Allowance, giving him an estimated adjusted taxable income of $10,462 a year. Vimia has no private income of her own and is paid the maximum rate of Parenting Payment (Single), giving her an estimated adjusted taxable income in 2005–06 of $12,979. Deducting the self-support component ($16,883) from each gives both Stephen and Vimia a Child Support Income of zero.

Step 2—Calculate the costs of the children

Stephen and Vimia’s Combined Child Support Income is zero. There is therefore no cost to be apportioned between the parents.

Step 3—Calculating the child support obligation

As Stephen is receiving income support and has less than 14% care of the children, he pays Vimia the minimum payment of $6 a week in child support.

Other outcomes

After taking account of the new higher payments of FTB received by Vimia under the proposed new scheme, her income is about $451 a week (made up of Parenting Payment (Single), FTB, and the $6 child support paid by Stephen, and with no income tax paid in this case). Using the OECD equivalence scale (which is 1 + 0.6 for two children reduced to 0.54 because Vimia has the children only 90% of the time) gives Vimia an equivalent income of $293 a week (that is, $451 divided by 1.54).

Stephen also pays no income tax and thus has a disposable income of about $195 a week after paying his $6 a week of child support to Vimia. As he has the two children for 10% of the time, this gives him an equivalent income of $184 a week (that is, $195 a week divided by 1.06).

Vimia’s equivalent income is higher than Stephen’s, which is largely a result of Parenting Payment (Single) and associated benefits being significantly higher than Newstart Allowance.
 

Other Issues Related to Administration of the Scheme 

This chapter deals with some broader issues of the future sustainability and public understanding of the Child Support Scheme, and with matters consequential upon the broad changes recommended by the Taskforce. Successful reform cannot occur without these matters being addressed, in support of the central recommendations. Matters relating to consistent treatment of the support of young people more generally complete the coverage of the reforms.
 

Suspension while parents are reconciled

Currently, if parents reconcile, the payer parent continues to be liable under an existing assessment until the payee parent advises the Child Support Agency (CSA) that she or he wishes it to end. If the parents separate again, having previously ended the assessment, the payee must apply for a new assessment.

Parents should be able to suspend child support payments when they get back together, but be allowed a period of six months before the child support assessment is terminated. Since the payer parent is making contributions in kind to the support of the child while the family is living together, his or her child support liability would be suspended. If the reconciliation fails, the payee parent can reinstate the assessment without having to make a new application. The assessment would only come back into force from the date the parents again separate, so that no debt accrues for that period.
 

Recommendation 22

22.1 Where parents reconcile, their child support assessment should be suspended during the reconciliation, such that no debt accrues for this period.

22.2 If the reconciliation continues beyond six months, the assessment should be terminated.

External review

An important aspect of providing a system that is well accepted in the community is to provide consistency and quality of result, with decisions subject to external scrutiny and independent review.
 

Review under the child support legislation

The child support legislation was originally designed without a signifi cant internal review system. The Child Support Registrar had power of a limited nature to correct errors, but the predominant source of review was by appeal to the court. The Administrative Appeals Tribunal (AAT) was also given jurisdiction to review a limited number of decisions. The review process has been extended several times, but always with the focus on internal rather than external review. The result has been piecemeal and the need for external review remains.
 

Recommendations of other Inquiries

Since its introduction, the Child Support System has been scrutinised by a number of specialist bodies, including three parliamentary reviews (as outlined in Chapter 2). Each body has concluded that an external review process should be established for reviewing CSA decisions.

The Child Support Evaluation Advisory Group (1992) observed that few appeals had been made under the original legislation, probably because potential applicants were discouraged by a perception of the high costs of legal representation. It recommended that an informal appeals process be established, before the Family Court Registrar or an Administrative Tribunal.

The Joint Select Committee on Certain Family Law Issues (1994) recommended the establishment of external review process, independent of the environment and culture of the CSA, by officers appointed for this purpose by the Minister, with publication of all decisions (although without naming the parties). It envisaged this would operate alongside extensive review of all administrative decisions by a Child Support Claims Tribunal within the Registry of the Administrative Appeals Tribunal, with no fi ling fee.

The Government responded by increasing the range of decisions for now mandatory internal review. The ‘Objections’ procedure under new Part 6B applied to most decisions made by the CSA, including Part 6A change of assessment decisions. However, external review has remained available only by appeal to the courts.

Despite this response, the 2003 Every Picture Tells a Story report highlighted continued concerns that the system was not providing an outcome that was perceived by parents to be fair, although the report did acknowledge that the internal review processes were an improvement on a solely court-based process. The Parliamentary Committee recommended establishing a proper external review process.

A recent own motion report of the Commonwealth Ombudsman found signifi cant areas of concern with CSA decision-making, at least in the highly discretionary change of assessment process. The continuing absence of an accessible administrative review process external to the CSA appears unsustainable.
 

An alternative procedure

In discussing what process would be most appropriate, all reports have emphasised the importance of providing an expeditious, less formal and less expensive procedure.

A recent paper, ‘External Review of Child Support Agency Decisions: The Case for a Tribunal’ puts a case for review of child support decisions by the Social Security Appeals Tribunal (SSAT). The paper argues that SSAT members already have some expertise in child support matters. Appellants to the SSAT currently comprise income support and family payment recipients, many of whom are also clients of the CSA. Given the significant interrelatedness of child support with social security, particularly Family Tax Benefit (FTB), the conduct of reviews by members with expertise in both areas may improve the quality of decisions. Although it may be necessary to make minor adaptations to the Tribunal’s procedure in order to handle child support matters, the paper concludes that it is well suited to take on this jurisdiction.

Currently, a parent who appeals to a court must bring their action against the other parent in an adversarial process. The legislation makes the carer and liable parent, rather than the Child Support Registrar, parties to the appeal. The House of Representatives Standing Committee on Family and Community Affairs was particularly swayed by evidence before it in the family law context that the adversarial nature of the legal system as it currently operates amplifies animosity between separated parents, and looked to a more inquisitorial process for determination of disputes. An external administrative tribunal could review the reasons given for a decision by the Registrar, with the aggrieved parent as the other party, joining the other parent in the child support case if necessary. Inexpensive, expeditious external review in a non-court based, less adversarial, multi-disciplinary style fits well with the new approach that will unfold with the development of the Family Relationship Centres.

There are nonetheless some advantages in allowing the courts to deal with departure applications otherwise than as a review of a tribunal decision. These costs and benefi ts need to be fully explored, but it was outside of the Terms of Reference for this Taskforce to do so.

Recommendation 23

The Government should consider the introduction of an external mechanism for reviewing all administrative decisions of the CSA, either by establishing a new tribunal or by conferring jurisdiction on an existing tribunal.

Revision of the legislation

The child support legislation should be rewritten, as far as possible, in plain English. The current wording is highly complex and difficult to understand, with an excessive reliance on technical language and complex phraseology. Legislation of this kind must be usable beyond the agency entrusted with its implementation. Lawyers and other advisers, as well as courts, are significant users of the legislation and it is important to its utility that it be written without undue complexity.

This recommendation was also made by the Joint Select Committee on Certain Family Law Issues in 1994. It considered also that the two Acts should be combined into one. The complexity of the drafting was criticised by the Family Court, the Family Law Council and the Law Council of Australia in submissions to the Joint Select Committee. The Joint Select Committee considered back in 1994 that there was an urgent need for the legislation to be redrafted, and it was the first recommendation that the Committee made.

Recommendation 24

The Child Support (Registration and Collection) Act 1988 and the Child Support (Assessment) Act 1989 should be replaced with new legislation written, as far as possible, in plain legal language.

Transition

Most of the recommendations of the Taskforce will need legislative amendment, substantial administrative change to the systems of both CSA and Centrelink, and extensive re-training and information dissemination. The legislative basis of the Child Support Scheme for unmarried parents in Western Australia creates further issues.

The recommendations are mutually interconnected, and represent component parts of a unified reform. Piecemeal implementation may have unanticipated and undesirable consequences. Further, the definition and interaction of the elements of the proposed formula are conceptually different from the workings of the current formula. No measure standing alone will operate as an interim approach without changing the character of the full implementation. For example, Recommendation 1.3 sets a new, higher self-support amount. To implement this before introducing the new method for calculating income would result in change to some liabilities, which may be reversed once the complete formula is introduced.

Necessary administrative groundwork may delay implementation of the complete package. However, this is unavoidable. No interim change to the elements of the existing formula will duplicate the results of the balanced package the Taskforce is recommending. However, when the full package is prepared, the Government may wish to give consideration to the position of those whose liability or entitlement will vary to a large extent as a result of the recommendations, to avoid causing hardship in the short term.

Recommendation 25

The Government should recognise that full implementation of these recommendations will affect a range of existing child support clients, and should comprehensively consider the management of transitional issues, including the resources that the CSA will need to ensure an effective transition to the new scheme.

Public education campaign

The proposed changes to the Scheme will naturally require some explanation, mainly to clients of the CSA but also to others who have an interest in the Child Support Scheme, including legal and financial advisers. This provides an opportunity for the Department of Human Services to explain the practical implementation of the new scheme in positive terms and to draw a line underneath the negative associations of the existing Scheme.

One of the important aspects of the Scheme that needs better emphasis is its fl exibilities. Some of the dissatisfaction expressed towards the Scheme to MPs and others would be dissipated if clients of the CSA were aware of solutions that already exist, and which continue under the new scheme. The change of assessment process is particularly important (see Chapter 12). The grounds allow a lot of individual circumstances to be taken into account. The CSA also has a ways of dealing with changes in income during the course of a child support year. The provisions concerning Non-Agency Payments and prescribed payments are also significant ways in which payers’ concerns about the use of child support transfers can be addressed.

Recommendation 26

26.1 There should be a public education campaign to explain the changes to existing clients of the CSA, and adequate resources to deal with inquiries about the new arrangements.

26.2 A public education campaign about changes to the Scheme should include information about the flexibility of the Child Support Scheme, especially in relation to the grounds for changes of assessment.

The courts and the costs of children and young adults

The Lovering and Lee Tables

When making an order for child maintenance, courts must consider the needs of the child given the child’s age, standard of living and any special needs, and may take into account findings of published research in relation to the maintenance of children. Courts have been assisted by the research of Kerry Lovering and Donald Lee. Lovering’s analysis priced a limited basket of goods, which provided a useful indication of how much parents would spend on their children if the child were to enjoy the benefits of those goods. Lee used the 1984 Australian Bureau of Statistics Household Expenditure Survey to estimate what parents were actually spending on children. Courts have preferred the Lee figures as representing a more accurate guide to the costs of children.

Until 1999, the Australian Institute of Family Studies published updated fi gures to the Lee and Lovering Tables. In light of research that proposed new approaches to calculating costs of children, the Institute discontinued those updates. Courts and practitioners continue to update the Lee and Lovering Tables using the Consumer Price Index and average weekly earnings fi gures, respectively.

The Taskforce was directed specifically to research the costs of children. The Taskforce utilised three different methodologies to reach the best and most up-to-date estimates possible of the costs of children in intact Australian families (details are in Chapter 8). Apart from providing the most current information on the costs of children, the research results take account of government benefits in assessing how much ought to be transferred in child support.

Courts may only make a maintenance order for a child in relation to whom an application for administrative assessment could be not made. To ensure equivalent treatment of children in both systems, courts should refer to the research relied on by the Taskforce and to the way in which government benefits are included in the calculations. This research ought also to provide the most reliable basis for decision-making if the costs of children need to be considered in the exercise of the court’s discretion when a ground for a departure application is made out. Given the age of the Lovering and Lee research now, and that it has been superseded by much more recent research, it is perhaps time for the updating of the Lovering and Lee figures to cease. This is, of course, a matter for the courts and legal publishers, rather than the Government.

Recommendation 27

The Federal Magistrates Court and the Family Court of Australia should utilise the costs of children research of the Taskforce as the basis for decision-making on child support issues, and should have regard to the impact of government benefi ts in working out the costs of children.

Child support for young adults

The parent of a child aged 18 years or over continues to be eligible for child support assessment only for a child in full-time secondary education, until the end of the school year in which the child turns 18. The Family and Federal Magistrates Courts have a broader power, being able to make a maintenance order for a young person aged 18 or over if the court considers that maintenance is necessary for the child to complete his or her education or because of a physical or mental disability.

When ordering maintenance for a child over 18, a court should consider the Taskforce research, particularly that relating to the costs of children, and base its calculations on the costs of the child, net of relevant government benefits such as FTB and Youth Allowance.

Recommendation 28

28.1 The Federal Magistrates Court and the Family Court of Australia should have regard to the Taskforce research on the costs of raising adolescent children, and any applicable government benefits, in working out child support liabilities in respect of young people over the age of 18.

28.2 The Government should consider the development of a formula or guidelines for the assessment of maintenance for young people over the age of 18 in circumstances where maintenance may be ordered under s.66L of the Family Law Act 1975.

Research and monitoring

Previous reviews of the Child Support Scheme have commented on the lack of relevant research. The Taskforce had available to it independent and comprehensive Australian research on which to base recommendations. However, many issues still remain unexplored, particularly given the fast pace of social change. Work needs to continue in this area.

The Australian Institute of Family Studies research program includes research into families and children after separation. Such research provides an essential background for the Government to make informed policy decisions and maintain the currency of the Scheme and its interactions with other areas.

The CSA has a number of means of receiving feedback from its clients and stakeholders. As part of delivering its service, the CSA is advised by the Registrar’s Advisory Panel. Many of the members of the Reference Group which supported this Taskforce participate in this panel, providing input and guidance on operational issues. A similar body with appropriate expertise needs to be set up to provide input and guidance to the Department of Family and Community Services on broader child support policy development and reform.

CSA also collects operational data that is published in its Annual Report. As discussed in Chapter 5, such data need to be more meaningfully and fully presented, particularly in the area of compliance, and of greater depth and scope to support ongoing policy monitoring. The Government should not be entirely reliant on published CSA data for its assessment of the operation of the Scheme.

The Taskforce is aware that ongoing policy analysis and monitoring of policy administration is crucial to ensuring policy settings that are responsive to emerging policy needs. In order to fulfil its policy responsibility for the current Scheme and to consider future development of the child support system, the Department of Family and Community Services should maintain an active area solely responsible for ongoing child support policy analysis and development and for monitoring the outcomes of service delivery by CSA.
 

Recommendation 29

29.1 The Department of Family and Community Services should undertake or commission periodic updates to research on:

1. the costs of children;
2. the circumstances of payers and payees;
3. the interaction of the Child Support Scheme with related policy on tax, income support, family payments, and family law;
4. the impact of the Scheme (in combination with effective marginal tax rates) on workforce participation;
5. compliance amongst CSA collect and private collect payers; and
6. community perceptions of the fairness and effectiveness of the Scheme, and of the way it is administered.

29.2 The Department of Family and Community Services should take such steps as are necessary to ensure that it has a continuing expertise in child support policy and is capable of providing advice to Government on the operation of the Scheme independently of the data provided by the CSA.

29.3 The Department of Family and Community Services should consider the establishment of an advisory body to provide advice on issues of child support policy and on the impact of the Scheme. Such a body should comprise recognised experts in all relevant fields, including family law, family relationships counselling, child development, social and economic research, and taxation.

29.4 The Department of Family and Community Services in collaboration with the Australian Institute of Family Studies should promote research on and discussion of child support policy by such means as the provision of research funding, the organisation of conferences, and the promotion of dialogue with child support experts from other countries.

Currency of the Scheme

At the heart of the currency of the child support system is its capacity to respond to social change. Equally, it must respond to legislative change. Alterations to social security, tax or other legislation impacting on social policy may change the operation of the formula, creating undesired outcomes at points where two legislative schemes intersect. The formula must be monitored to ensure it keeps pace with these changes.

Recommendation 30

The currency of the Scheme should be monitored, with reference to signifi cant changes to child-related payments and in the light of ongoing research on child support issues.