2.4.4.10 Adjusted Taxable Income

Introduction

A parent's adjusted taxable income is a component used to calculate child support income.

Description

A parent's adjusted taxable income is the total of the following components:

If an application for post separation income (2.5.2) to be excluded from a parent's adjusted taxable income has been accepted then the parent's adjusted taxable income will be the amount determined by the Registrar.

Act reference: CSA Act section 43 Working out parent's adjusted taxable income

Taxable income for the last relevant year of income

Generally, a parent's taxable income is the amount assessed by the ATO under an Income Tax Assessment Act for the relevant year of income (see example 1 below). An amended taxable income is taken into account in certain circumstances only - see 2.4.4.30.

Where a parent has a nil taxable income (whether or not there are carry forward losses) determined under the tax legislation, their adjusted taxable income is taken to be nil for child support purposes unless they have a reportable fringe benefit, target foreign income, total net investment loss, specified tax free pension or benefit or reportable superannuation component for that year of income.

Where a parent has not lodged their tax return, or the ATO has deemed that a parent is not required to lodge a tax return, the Registrar may make a determination of the parent's adjusted taxable income based on the income information available. The rules for determining a parent's adjusted taxable income changed from 1 July 2011 - see 2.4.4.40 for the current rules and 2.4.4.50 for the rules before 1 July 2011. The parent's adjusted taxable income will be the total of their taxable income and other income components. A child support assessment must be amended where the Registrar later ascertains the amount of the parent's adjusted taxable income - see 2.4.4.60.

The last relevant year of income is the last year of income under Australian taxation law that ended before the start of the child support period.

Example 1: If a child support period began on 1 January 2011, the last relevant year of income is 2009-10.

Where the parent is resident in a reciprocating jurisdiction (1.5.1), the Registrar can use information about the parent's income in that jurisdiction to determine the parent's overseas income.

Example 2: M who lives in New Zealand has a new child support period commencing on 1 May 2011. The New Zealand financial year runs from 1 April to 31 March.

As M is a New Zealand resident, New Zealand Inland Revenue Child Support advises the Registrar that M's taxable income for the 2010-11 New Zealand financial year is NZ$54,000.00. This information can be used to determine the parent's overseas income for the last relevant year of income.

The average exchange rate for New Zealand for their 2010-11 financial year was 0.7575. Therefore, the conversion calculation is 54,000 × 0.7575 = AUD$40,905.

See 2.4.4.40 for more detailed information about determination of adjustable taxable incomes.

Act reference: CSA Act section 5 Interpretation-definitions, section 56 Taxable income is as assessed under Income Tax Assessment Act, section 57 Taxable income for child support purposes where taxable income determined to be nil under Income Tax Assessment Act, section 58B Inclusion of overseas income in working out a parent's adjusted taxable income

Policy reference: CS Guide 1.5.1 Australia's International Maintenance Arrangements

Reportable fringe benefits

A parent's reportable fringe benefits total is the amount of reportable fringe benefits as defined in the Fringe Benefits Tax Assessment Act 1986 for the year of income. See 2.6.14 for more information about reportable fringe benefits, including examples of common fringe benefits provided from employment.

Act reference: CSA Act section 5 Interpretation-definitions

Target foreign income

Target foreign income is the total of:

  • the amount of the parent's foreign income as defined in section 10A of the SSAct that is neither taxable income nor received as a fringe benefit as defined by the Fringe Benefits Tax Assessment Act 1986, and
  • any other amount of the parent's income that is exempt from tax under sections 23AF and 23AG of the Income Tax Assessment Act 1936, less the amount of losses and outgoings incurred.

Act reference: CSA Act section 5B Definition of target foreign income

SSAct section 10A Definitions for Seniors Health Card provisions

Income Tax Assessment Act 1936 section 23AF Exemption of certain income derived in respect of approved overseas projects, section 23AG Exemption of income earned in overseas employment

Total net investment loss

The description of this income component at section 43(1)(d) of the CSA Act refers to the Income Tax Assessment Act 1997, which includes this definition of the term at section 995.1 of that Act:

'total net investment loss' of an individual for an income year means the sum of:

  1. the amount (if any) by which the individual's deductions for the income year that are attributable to financial investments exceed the individual's gross income for that year from those investments, and
  2. the amount (if any) by which the individual's deductions for the income year that are attributable to rental property exceed the individual's gross income for that year from rental property.

Financial investments include shares, managed investment schemes, forestry managed investment schemes, and a right or option in respect of any such investment.

In calculating the loss amount relevant to financial investments the gross income and related deductions are considered to determine if there is a net financial investment loss. A similar exercise is undertaken to identify if there is a net rental property loss. Both loss amounts (if any) are then added together to identify the total net investment loss.

Example 1: If M has an income from wages of $40,000, an income from financial investments of $15,000 and investment deductions of $10,000, M's taxable income is $45,000. As M's investment deductions do not exceed M's investment income, there is no investment loss. M's adjusted taxable income is $45,000 for child support purposes.

Example 2: If M has an income from wages of $40,000, an income from financial investments of $15,000 and investment deductions of $20,000, M's taxable income is $35,000. The investment loss of $5,000 is then added back to M's taxable income to arrive at an adjusted taxable income of $40,000 for child support purposes.

Example 3: If M has an income from wages of $10,000 and a net rental property loss of $15,000, M's taxable income is $0. The net rental property loss of $15,000 is then added back to M's taxable income of $0 to arrive at an adjusted taxable income of $15,000 for child support purposes.

Note: Prior to the 2009-10 financial year only net losses incurred in relation to rental property investments were included when calculating an adjusted taxable income.

Act reference: CSA Act section 43(1)(d) Working out parent's adjusted taxable income

Income Tax Assessment Act 1997 section 995.1 Definitions

Tax Laws Amendment (2009 Measures No. 1) Act 2009

Tax free pensions or benefits

Only the following tax free pensions or benefits received by a parent are included in the adjusted taxable income:

  • a disability support pension under SSAct Part 2.3
  • a wife pension under SSAct Part 2.4
  • a carer payment under SSAct Part 2.5
  • an invalidity service pension under the Veterans' Entitlements Act 1986 Part III Division 4
  • a partner service pension under the Veterans' Entitlements Act 1986 Part III Division 5
  • income support supplement under the Veterans' Entitlements Act 1986 Part IIIA
  • Defence Force Income Support Allowance under the Veterans' Entitlements Act 1986 Part VIIAB

but only the amount that is:

  • exempt from income tax, and
  • not a bereavement payment, pharmaceutical allowance, rent assistance, language, literacy and numeracy supplement, remote area allowance or tax-exempt pension supplement.

Note: Pensions and benefits are included as income for child support purposes only if they are classified as taxable income or if they are specifically listed in the tax free pensions or benefits section above.

Act reference: CSA Act section 5 Interpretation-definitions

SSAct Part 2.3 Disability support pension, Part 2.4 Wife pension, Part 2.5 Carer payment

Veterans' Entitlements Act 1986 Part III Service pensions, Part IIIA Income support supplement, Part VIIAB Defence Force Income Support Allowance and related payments

National Disability Insurance Scheme amounts

A National Disability Insurance Scheme (NDIS) amount (as defined under the National Disability Insurance Scheme Act 2013) is for the purpose of reasonable and necessary supports funded under a participant's plan.

NDIS payments received by NDIS participants are non-taxable, although any bank interest earned from the payments is taxable. Accordingly, NDIS payments are not 'taxable income' and are not part of a person's adjusted taxable income for general child support purposes.

When the Registrar is considering a parent's application for the minimum annual rate to be reduced to nil (section 66A) (2.5.4), or the fixed annual rate to not be used (section 65B) (2.5.3), any income earned, derived or received by the parent must be considered, except certain prescribed payments within CSA Regs regulation 7D. An NDIS amount is a prescribed payment under regulation 7D, and therefore, NDIS amounts are excluded from the definition of 'income' for these child support decisions.

Act reference: National Disability Insurance Scheme Act 2013

Income Tax Assessment Act 1997 section 52-180 National Disability Insurance Scheme amounts are exempt

CSA Regs regulation 7D Prescribed payments

CSA Act section 65B Application for section 65A not to apply, section 66A Registrar may reduce an assessment to nil in certain cases

Reportable superannuation contributions

From the 2009-10 financial year, a parent's reportable superannuation contributions are included in the calculation of their adjusted taxable income. These provisions capture the 'salary sacrificed' superannuation contributions to be added to income as a result of means testing reforms announced in the Federal Budget of 2008-2009.

The amount included is the total of reportable superannuation contributions as defined in the Income Tax Assessment Act 1997 for the year of income. This includes:

  • superannuation contributions that reduce the parent's taxable income (for example salary sacrificed superannuation contributions)
  • other contributions the employer makes to a super fund on behalf of the parent, (that are in addition to the minimum contributions the employer must make)
  • any personal deductible contributions made to a super fund which are claimed as an income tax deduction on the parent's tax return under Subdivision 290-C.

Compulsory superannuation contributions from after-tax income are not reportable.

Act reference: CSA Act section 43(1)(f) Working out parent's adjusted taxable income

Income Tax Assessment Act 1997 Subdivision 290C Deducting personal contributions

Tax Laws Amendment (2009 Measures No. 1) Act 2009

Last reviewed: 4 January 2016