House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Family and Community Services, Senator the Hon Jocelyn Newman)

chapter 15 - Adjustment of Child Support Income

Overview

15.1 Schedule 15 of the Bill will amend the Child Support (Assessment) Act 1989 (the Assessment Act) to modify the income on which a child support liability is raised.

Summary of the amendments

Purpose of the amendments

15.2 The proposed amendments will alter the basis on which a child support liability is raised by increasing the taxable income figure used by the amount of rental property loss included in the person's taxable income and also by the amount of exempt income pursuant to specific provisions of the Income Tax Assessment Act 1936 and 1997 .

Date of effect

15.3 Immediately after the commencement of "Objections to Decisions of the Child Support Registrar" amendments in Schedule 13 and will not apply in relation to the 1998-99 child support year or any earlier child support year.

Background to the legislation

15.4 To determine an income base which better reflects a parent's capacity to provide child support the Joint Committee recommended at Chapter 19 that particular items be "added back" to adjust the parent's taxable income. To move towards consistency between agencies, items used by the Department of Social Security in determining eligibility for Family Payments such as net rental property losses and exempt foreign income will be added to taxable income for child support purposes.

15.5 The Registrar currently raises assessments using each person's taxable income to determine a child support income amount. The taxable income figure is adjusted by an inflation factor to update the taxable income.

Explanation of the amendments

Child Support Income Amount

15.6 The child support income amount will be determined by adding to the person's taxable income an amount equal to the rental property loss included in the calculation of taxable income and also by adding the person's exempt foreign income under section 23AF or section 23AG of the Income Tax Assessment Act 1936 for the period. A new definition of the term supplementary amount will be inserted. [Item 1 - insert new definition in section 5 of "supplementary amount"; Item 2 - repeal section 38 and insert new section 38 and section 38A; Item 3 - repeal section 45 and insert new section 45 and 45A]

Inflation factor

15.7 The inflation factor will now be applied to update the total of the taxable income and the supplementary amount for the last relevant year of income. [Item 4 and 5 - amend section 55]

Presumption as to taxable income

15.8 The presumption contained in section 57 (that a person's income is nil if they have received a nil tax assessment) will not apply where a person has a supplementary amount for that year. [Item 6 - insert subsection 57(1A)]

Where taxable income and supplementary amount not readily ascertainable

15.9 The Registrar may raise an assessment based on a taxable income and supplementary amount that he considers reasonable based on information held. This may occur where the Registrar is unable to readily ascertain either a person's taxable income or supplementary amount (for example where a tax return has not been or is not required to be lodged), or both these amounts, and the person has been required to supply details of those amounts. [Item 7 - amend paragraph 58(1)(a); Item 8 - amend paragraph 58(1)(b); Item 9 - amend subsection 58(1); Item 10 - amend paragraph 58(1A)(a); Item 11 - amend paragraph 58(1A)(b); Item 12 - amend subsection 58(1A)]

15.10 Where the Registrar subsequently ascertains both the taxable income and the supplementary amount for the appropriate year, the assessment must be amended. [Item 13 - amend paragraph 58(2)(b); Item 14 - repeal heading of Subdivision B and insert new heading; Item15 - amend subsection 58(2)]

Estimates

15.11 A person electing to lodge an estimate of their income under Part 5 will be required to estimate the taxable income and supplementary amount for the child support year. The child support liability will be determined by using the total of the two figures. [Item 16 and 17 - amend paragraph 60(1)(a); Item 18 - amend paragraph 60(2)(b); Item 19 - amend paragraph 60A(1)(b); Item 20 - amend paragraph 60(1)(b); Item21 - amend paragraphs 61(1)(a) and 63(1)(a)]

15.12 Estimates of the total of taxable income and supplementary amount for a child support year will be reconciled against the total of actual taxable income and supplementary amount for that period. Penalties will apply where the total of the person's actual taxable income and supplementary amount exceed the person's estimate of the total of their taxable income and supplementary amount by 10% or more. [Items 22 and 23 - amend paragraph 64(1)(b); Item 24 - amend subsection 64(1); Item25 - amend paragraph 64A(1)(b); Item 26 - amend paragraph 64A(1)(b); Item 27 - amend paragraph 64A(2)(a)]