In determining whether personal services income has been alienated through a company, trust or partnership, the Registrar will consider the following factors:. Whether company, trust or partnership income is derived from the personal exertion of a parent needs to be examined in each case.
The primary issue is the extent of the connection between the parent and the income derived and the services rendered by the interposed entity. There may be cases involving corporate, trust or partnership arrangements that involve the alienation of income other than personal services income e.
In these cases the Registrar will examine the structure of the company, trust or partnership. The Registrar may take into account any relevant taxation ruling or guideline that has been issued by the ATO, but may make a different decision on how the facts are applied to child support. The Registrar will consider whether the arrangement alienates income that should properly have been included in the parent's adjusted taxable income known before 1 July as the child support income amount in respect of companies refer to Stein and Stein FLC , in respect of trusts refer to Harris and Harris FamCA and also Ashton and Ashton FLC ; in respect of partnerships refer to Dwyer v McGuire FLC The Registrar may conclude that a company or trust is the alter ego of the parent; or that a company or trust is a sham for the purposes of the CSA Act or that a partnership is ineffective.
A parent or a third person may retain profits in a company, trust or partnership structure instead of distributing the profits to themselves or others. This may have the effect of reducing the parent's taxable income and could mean that the child support assessment is unfair. In a change of assessment, the Registrar may consider including some or all of the following in the parent's adjusted taxable income:.
A parent may be involved in a business as a sole trader in the person's name or under a registered business name. A parent who operates a business as a sole trader is personally liable for all business debts and entitled to all business profits, is required to declare all income from the business in their personal tax return, and is responsible for any tax payable on the business income.
A sole trader may or may not pay themselves a wage from the business. Alternatively, they may take drawings whereby goods or money are withdrawn from the business profit for personal purposes. A business may be able to deduct certain expenses from income for tax purposes and as a result legitimately may have a reduced income or may even run at a loss.
These deductible expenses can result in a child support assessment that does not take into account the full financial resources available to the parent. In these cases, assessing child support on the basis of taxable income can result in an unjust and inequitable level of child support.
When considering business expenses and losses in a change of assessment, it will be necessary to examine the full financial position of the business to determine any personal financial resources available to the parent from the business. If the tax deductible business expenses provide a personal benefit to the parent, this may make the child support assessment unjust and inequitable. The Registrar will consider whether the parent has a greater financial capacity than is indicated by their taxable income, either as a direct result of the deductions or of having certain personal costs defrayed by being tax deductible.
A parent who is a salary or wage earner may operate a business as well as receiving a salary or wage. Expenses relating to the business activity may legitimately be offset against salary or wage income for tax purposes. This can result in a reduced taxable income, which will in turn affect the child support assessment. However, when considering a change of assessment application, the Registrar may decide that the offsetting of business expenses has led to a taxable income which does not accurately reflect the parent's full capacity to contribute to the support of the child from their income, property and financial resources Bassingthwaite v Leane FLC and Humphries and Humphries FLC In determining the parent's income and financial resources the Registrar can consider the following:.
Where an expense is partly business and partly private the expenses must be apportioned for taxation purposes. Parents who are self-employed or who operate a business might claim expenses that may otherwise be considered private as a legitimate income tax deduction.
Examples include the fixed-costs component of telephone expenses such as the rental and connection fees, home office expenses or motor vehicle expenses. These deductions are generally not available to parents who derive income solely from salary and wages.
If the Registrar concludes that, as a result of the deductions, the parent has additional income or financial resources that are not taken into account in the child support assessment, a reason to change the assessment may be established. A parent who operates a business may legitimately pay wages or salaries to employees. However, if the employee is a related person, such as the parent's new spouse, de facto partner or a family member and the payments exceed the reasonable value of the work performed, the Registrar may treat the income of that employee as the income of the parent.
In deciding whether to treat part or all of such salary and wage payment as the parent's income, the Registrar will consider the following matters:. In other cases, regular entries may be made in the business's account ledger to reflect the employee's contribution to the business.
Where an employee is related to the parent and the business fails to properly account for their contribution and business profits are later attributed to that employee, the Registrar may determine that those profits be treated as income of the parent.
Depreciation represents the loss or expense attributed to the use of business property or equipment. It is an entry in the business account that is not necessarily an expense that is actually incurred by the business. The aim of depreciation is to spread the cost of a capital asset e. A claim for depreciation can mean that a parent has financial resources available to them that are not necessarily reflected in their taxable income or the resources of the business.
In cases that involve depreciation, the Registrar will determine whether receiving a benefit through claiming depreciation expenses results in a parent having greater financial resources or income than their taxable income would indicate. The Registrar will consider a parent's complete financial situation including the business' overall financial position and the individual circumstances of the case.
Before depreciation expenses can be taken into account as income or a financial resource personally available to the parent, the underlying nature of the depreciation expense must be determined.
If the amount claimed as depreciation is used or set aside for replacing equipment e. Similarly, if the business operates at a loss even after accounting for depreciation expenses, these expenses will not be available to the parent as a personal financial resource. On the other hand, if the parent spends the benefit of depreciation on day-to-day living expenses or recreational expenses this will most likely be a reason for changing the assessment.
The Registrar can also consider the asset that is the subject of the depreciation expense, whether the asset is used for both business and private activities and whether the written down value is a reflection of market value. The principles above apply equally to any business in which there is substantial expenditure on the acquisition or development of plant and equipment.
A parent may claim that capital investment is warranted at present as it will produce a higher income and therefore higher child support in the future. In each case the Registrar will consider the parent's complete financial situation and the individual circumstances of the case as well as the extent of the capital investments. For taxation purposes some deductions may be claimed during a year even though there has not yet been any direct expense in that year.
Example: Where a taxpayer has a tax loss more deductions than income , they may be able to deduct that loss from income received in later years. There are also special rules for capital losses. They may be carried forward indefinitely to be deducted against any future capital gain. In either case, the result is that a person may have a lower taxable income in a future year and therefore a lower or higher assessment of child support.
In these cases the Registrar will determine the parent's capacity to contribute to the financial support of the child. The Registrar may consider the relationship between the loss and the actual expenditure. Example: Capital losses from may be carried forward and offset against a capital gain in As the loss occurred 8 years earlier, the parent may have additional financial resources in The parent has received a benefit in the later year without incurring the related expenditure.
The Registrar may decide that the parent has income and or financial resources that are not reflected in the parent's taxable income for However, it is possible that parents may have made arrangements with creditors to repay an outstanding debt caused by the earlier loss.
Any repayments will be taken into account in deciding whether there is a reason to change the assessment. If the debts or losses have been dealt with in a family law property settlement, the Registrar will consider the terms of the settlement in deciding whether there is a reason to change the assessment.
Parents may use a number of different structures to minimise their taxable income. For example, a parent may operate 1 business as a sole trader but operate associated activities through a company and trust structure. Sometimes the structure used during the parents' relationship is different to the structure used after the relationship has ended. A business may have operated as a family business, as a partnership or as a sole trader during the relationship.
After the relationship ends a parent may restructure the business as a company or trust which produces a lower taxable income although the business activity had not changed. Where there has been an historic pattern of earnings at a particular level and a restructuring results in a lower level of taxable income, the Registrar may assess the level of child support with reference to the earlier income.
Parents may use complex business structures which have the effect of minimising their adjusted taxable income. Where the issues raised by the application for change to an assessment are too complex, the Registrar can refuse to change the assessment CSA Act section 98E.
Some taxation incentives for the improvement of primary production properties provide deductions by allowing a percentage of the cost or a write-off over a period of time. Examples include the costs of conserving or conveying water, deductions for telephone costs over a year period and outright deductions for measures that prevent land degradation.
Proof of this kind of expenditure alone will not establish a reason to change a child support assessment. Primary producers can be subject to extreme fluctuations of income that are not usual in ordinary businesses and are outside the control of the farmer. Farmers are able to average their income over a period of 5 years for taxation purposes, to reduce the impact of marginal tax rates. Additionally, Farm Management Deposits FMDs provide farmers with a tax effective way to save money during good years to be used during bad years.
By depositing an amount in the FMD, a farmer can reduce their taxable income for that year, which would in turn affect the rate of child support payable. The FMD amounts are assessed as taxable income when they are withdrawn in a subsequent year as long as they remain invested for 12 months.
In deciding whether the FMD provides the primary producer parent with additional income or a financial resource that makes the child support assessment unjust and inequitable, the Registrar will consider the primary producer's surrounding financial situation. If, for example, the parent makes an FMD in a good year, after a history of low taxable incomes due to poor yields and drought, it would not generally be appropriate to simply add the FMD back into the person's income for child support purposes.
If it is likely that the parent will withdraw this deposit over the next few years, the withdrawn amounts will be included in their taxable income at that time, and taken into account in the assessment of child support in the normal course of events. However, in some cases, it may be appropriate to take account of the income that was paid into the FMD before it is withdrawn, through the inclusion of smaller income amounts over a number of child support periods.
Conversely, if a parent who is a primary producer has a history of medium to high incomes and is constantly topping up their FMD without making withdrawals thus reducing their taxable incomes over a number of years , this may indicate that the scheme is merely being used to lower taxable income artificially. In these cases, increasing the parent's adjusted taxable income by the full amount of the particular deposit is likely to be the most appropriate action.
Salary packaging is an arrangement whereby an employee receives remuneration from their employer by way of a total package, made up of various benefits plus a component paid as salary. Usually the employee has some flexibility in the way that their salary is packaged. Depending upon the nature of the salary package, and whether the benefits are reportable fringe benefits, the person's adjusted taxable income may not be an accurate reflection of their overall remuneration from their employment.
A fringe benefit is a benefit that is provided to an employee or an associate of the employee such as a family member as part of the employment arrangement. An employee can be a current, future or former employee. The term benefit is broad and includes any right, privilege, service or facility.
An employer has to pay tax on the taxable value of a fringe benefit. The taxable value of a fringe benefit is usually reduced by the amount of any payment by the recipient or employee towards the fringe benefit. Income derived by the provision of a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act is exempt income and is not taxable income Income Tax Assessment Act section 23L.
The total taxable value means the amount that the employer paid or assigned as the value of the benefit. However, the grossed up taxable value which is the total taxable value as determined by the employer multiplied by a figure pre-determined by the ATO will appear on the employee's payment summary.
The grossed up taxable value is known as the 'reportable fringe benefits' amount. For child support assessments commencing after 30 June , the reportable fringe benefits total included in an employee's payment summary being the grossed up taxable value is included in the parent's adjusted taxable income and used to calculate the child support assessment.
It is therefore unlikely that a parent's reportable fringe benefits will be a special circumstance that will warrant a further increase in their child support assessment after 1 July In some cases a parent may consider applying to change the child support assessment on the basis that their income, earning capacity, property and financial resources are not properly reflected in the child support assessment because such fringe benefits have been included. The fact that reportable fringe benefits have been included in the adjusted taxable income will not, in itself, be a reason to change the assessment.
In order to show a reason to change an assessment a parent must show that other circumstances affect their capacity to provide financial support for the child or that the nature of the fringe benefit received does not provide them with an actual, additional financial resource.
In deciding if the benefit provides the person with an additional financial capacity, the Registrar can consider the individual circumstances of the case including:. A parent may apply for a change of assessment solely because a fringe benefit does not provide him or her with an additional financial capacity.
If the parent would have incurred the same kind or similar kind of expense but would not have incurred the expense to the extent reflected by the amount of the reportable fringe benefit, and the amount is significant, this may make the assessment unjust and inequitable.
The Registrar may reduce the adjusted taxable income by the difference of the reportable fringe benefit and the estimated expenditure. The Registrar may also give consideration to reason 7 2. In deciding what is an appropriate period the Registrar will consider the individual circumstances and the parent's commitments in supporting himself or herself.
Some benefits are expressly excluded from the definition of a fringe benefit and do not give rise to any fringe benefit tax liability Fringe Benefits Tax Assessment Act section 1. You won't have to pay a fee. Find out more about getting child maintenance from the CMS. You might be able to make arrangements for child maintenance as part of the process for ending your relationship.
You can find out more about making a consent order on GOV. You should tell the Child Maintenance Service if you find out the other parent has left prison or is no longer a full-time student with no income. The CMS will then look at your case again.
Find out how to apply to the CMS for child maintenance. You might have to go to court to arrange maintenance. What to do if something goes wrong with your benefits.
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And often that means one parent will pay the other. This is referred to as a family-based arrangement. To get an idea of how much child maintenance you should pay or receive, use the child maintenance calculator on the GOV.
UK website. You can contact the CMS by calling or through your online account. Child maintenance might stop earlier — for example, if one parent dies or the child no longer qualifies for child benefit. Use the child maintenance calculator. UK for more information. The figures below assume that your children stay with the parent who receives child maintenance all the time. If your children spend some time with the paying parent, this will reduce the amount of child maintenance he or she pays.
The amount of child maintenance is reduced for each child who spends time with the paying parent. The Child Maintenance Service simply reduces the amount of weekly income that it takes into account. For example, if the paying parent is paying for:.
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