2.5.6 Estimates of Income - before 1 July 2010
When a parent's income changes, they may be able to replace their existing adjusted taxable income by giving the Registrar an estimate of their current income.
CSA Act section 5, sections 55J, section 58B, section 58C, section 60 to section 64A, section 146G to section 146L, section 160, section 161
On this page
The Child Support and Family Assistance Legislation Amendment (Budget and Other Measures) Act 2010 amended the provisions relating to estimates of income from 1 July 2010. The new provisions are described in 2.5.1
The information in this section applies to:
- estimates made before 1 July 2010, and
- later estimates for the same child support period for parents who made an estimate for a period beginning before 1 July 2010.
- What is an estimate?
- Estimating adjusted taxable income for notional assessments
- Estimating incomes in relation to assessments (not notional assessments)
- When can a parent estimate their income for the remainder of a child support period?
- Income amount orders
- What period does an estimate cover?
- Refusing to accept an estimate
- Effect of an estimate
- Revoking an estimate
- Reviewing an estimate
- Retrospective estimate reviews (income decrease)
- Information available
- Effect upon both parties of any change
- Accuracy of the assessment
- Reconciling an estimate
- Estimate penalties
- Remission of estimate penalties
- Frequently asked questions
What is an estimate?
An estimate is an election that a parent can make to have their assessment or notional assessment based on their expected income.
Estimating adjusted taxable income for notional assessments
When the Registrar is required to calculate a notional assessment a parent can vary their provisional notional assessment by making an estimate election, see 2.7.4 'Varying a provisional notional assessment'.
Estimating incomes in relation to assessments (not notional assessments)
The rest of this page relates to estimating incomes in relation to assessments (not notional assessments).
Estimating adjusted taxable income for assessments
A parent can estimate their adjusted taxable income for a child support period, or the remainder of a child support period, by (CSA Act section 60(5)):
- Step 1. Working out the length of the remaining period,
- Step 2. Estimating the amount that would be the parent's adjusted taxable income (2.4.4) for the remaining period, and
- Step 3. If the remaining period is shorter or longer than 12 months, dividing the amount by the number of days in the remaining period and multiplying that figure by 365.
If the remaining period is more than 12 months, a parent can choose to estimate their income for the next 12 months or for the rest of the child support period (CSA Act section 60(6)).
Where a parent is resident in a reciprocating jurisdiction (1.5.1) they must include their overseas income in the estimate amount (CSA Act section 58B).
The remaining period (CSA Act section 60(5)):
- starts on the day the person makes an estimate or the day the child support period starts, whichever is later, and
- ends 15 months after the start of the child support period.
When can a parent estimate their income for the remainder of a child support period?
An estimate can be accepted:
- if there is no income amount order in force on the day of the election or in the remainder of the estimate period, and
- in the case of a first election in a child support period - if the estimate is 85% or less than the person's adjusted taxable income for the last relevant year of income (2.4.4). The adjusted taxable income is based on the parent's taxable income and must be:
- as advised by the ATO, or
- where the parent is a resident of a reciprocating jurisdiction, as advised by the relevant overseas authority (CSA Act section 58C), or
- a declaration by the parent of their adjusted taxable income (2.4.4) which the Registrar is satisfied is correct (CSA Act section 60(3)), or
- in the case of a subsequent election in a child support period - if the estimate is greater than or less than the amount of the first election relating to the period and it is 2 months or more since the last estimate was made (CSA Act section 60(4)), see revoking an estimate.
The Registrar can review a parent's estimate at any time if it is notified or becomes aware of an event, information or change of circumstances which might affect the rate of child support payable.
Note: the components of a person's adjusted taxable income changed as of 1 July 2009 (see 2.4.4).
Income amount orders
An income amount order (CSA Act section 5) means:
- a departure order made by a court (4.3.2) or change of assessment decision under Part 6A of the Act (2.6) that either:
- varies the annual rate of child support payable in a child support case by setting that annual rate, or
- varies the adjusted taxable income, or the child support income, of a parent by setting that adjusted taxable income or child support income, or
- provisions of a child support agreement that has been accepted by the Registrar that have effect, for the purposes of making or amending an assessment, as if they were such a departure order made by consent. That is, varying the annual rate of child support payable, the adjusted taxable income or the child support income of a parent.
An agreement that provides for the payment of child support other than in the form of periodic amounts is not an income amount order (see 2.7).
An income amount order can relate to only one parent or to both parents. An income amount order relating to only one parent will not prevent the other parent from making an estimate (CSA Act section 60(2)).
An order, agreement or change of assessment decision that varies a parent's child support percentage, a parent's self-support amount, a parent's relevant dependent allowance or multi-case allowance, the cost percentage, or the costs of children is not an income amount order.
Example: The child support assessment for parents, Charlie and Matteus, is based on a court order which sets Charlie's adjusted taxable income amount at $56 000. This is an income amount order for Charlie only. Matteus can still make an estimate election.
Example: Parents, Melina and Bob, enter into a child support agreement for child support for their child Arienne. The agreement states that Melina will pay Arienne's school fees and the costs of all school excursions and uniforms. It states that an annual amount of $8 000 is to be credited against Melina's child support liability.
Melina applies to the Registrar for acceptance of the agreement. The Registrar accepts the agreement and starts a new child support period reducing the annual amount that Melina pays Bob by $8 000. The child support assessment is based on Melina's adjusted taxable income for the last relevant year, namely $72 000. Three months later Melina's income has reduced. Melina contacts DHS and estimates earning an annual adjusted taxable income of $50 000. Melina is able to make an estimate. The child support agreement is an agreement for the payment of child support by non-periodic payments to the other parent. The provisions of the agreement are not an income amount order.
Example: The child support assessment for parents, Rasa and Claire, is based on a change of assessment decision. Rasa's relevant dependent child allowance was increased to take into account the special needs of Rasa's relevant dependent child. The change of assessment decision is not an income amount order.
What period does an estimate cover?
An estimate period starts on the day the parent makes the estimate election to the Registrar (or the day the child support period started if the parent makes the estimate before the child support period started). The estimate period ends at the end of the child support period (CSA Act section 60(5)).
However, if a parent chooses to make the estimate for the next 12 months rather than the whole remaining child support period, the estimate period ends at the end of the 12 months (CSA Act section 60(6)).
Once an estimate has been accepted, the estimate period is not altered by events such as the acceptance of a new estimate or the commencement of a new child support period. Even if the estimate itself ceases to affect the assessment for later parts of the original estimate period (e.g. if another estimate is lodged), the estimate period for the original estimate remains the same.
When an estimate has been accepted the parent's adjusted taxable income for each later day in the child support period is the amount the parent elected (CSA Act section 61(1)). A parent may have chosen to make an estimate of their income for the next 12 months, rather than the whole remaining child support period under CSA Act section 60(5). The estimate is used for all days in the whole remaining child support period.
Example: Katerina received a new assessment for a child support period beginning 1 October 2008. Katerina calls DHS on 26 September 2008 to advise that their income has fallen and elects to use an estimate. They make an estimate for the 12 month estimate period 1 October 2008 to 30 September 2009. The assessment for the child support period 1 October 2008 to 31 December 2009 is amended to use the estimated income.
When an estimate is reconciled, the Registrar must work out the parent's income for the whole estimate period. The Registrar annualises the income from the whole estimate period and uses this to amend any part of the period still affected by the original estimate.
Refusing to accept an estimate
The Registrar can refuse to accept an estimate if satisfied that the parent's adjusted taxable income (including their overseas income for a parent resident in a reciprocating jurisdiction) is likely to be higher than their estimated amount (CSA Act section 60A).
The Registrar will consider all the circumstances and may obtain further information, either from the parent or a third party (e.g. an employer or an overseas authority). A history of underestimating alone is not enough for the Registrar to refuse to accept an estimate. However, it may prompt the Registrar to investigate the circumstances further.
The Registrar will give a parent the opportunity to show that their estimate is accurate before refusing to accept an estimate.
If the Registrar refuses to accept an estimate, the parent will be given written notice of the decision.
Effect of an estimate
If the Registrar accepts a parent's estimate, their annualised estimate becomes their adjusted taxable income amount for the purposes of assessing the annual rate of child support payable in a child support period on or after the date of the estimate (CSA Act section 61(1)). The Registrar will amend the assessment to take the estimate into account (CSA Act section 61(3)).
An estimate does not prevent a later income amount order (CSA Act section 61(2)), change of assessment decision, court departure order or agreement (CSA Act section 61(5)) from affecting the assessment for the estimate period.
Revoking an estimate
A parent can only revoke an estimate by making a new estimate (CSA Act section 62(1)). The Registrar will then amend the assessment to take the new estimate into account (CSA Act section 63(3)). The new annual rate of child support payable takes effect from the date of the new estimate (CSA Act section 63(1)).
However, if the original estimate resulted in a minimum assessment then the minimum annual rate will continue for 28 days after the day on which the person would cease to be assessed to pay the minimum rate (CSA Act section 66(4)(b)(ii)). See 2.4.12 for information about the minimum annual rate of child support.
Example: Before the beginning of the child support period George makes an estimate and is assessed to pay child support at the minimum annual rate, for the child support period 1 September 2008 to 30 November 2009. George starts work on 1 March 2009 and lodges a new estimate on that day. Child support is now payable at a rate higher than the minimum annual rate. The higher rate will be payable from 29 March 2009, 28 days after the minimum rate would otherwise cease to be payable.
If an income amount order takes effect after the estimate was accepted, a parent cannot revoke the estimate (CSA Act section 62(3)).
Reviewing an estimate
The Registrar can review an estimate to decide if the estimate is still accurate and, if not, to amend the assessment to use a more accurate amount as the parent's income (CSA Act section 63A and 63B).
A parent is required to tell the Registrar of any event that affects the accuracy of their estimate. This obligation is outlined in the notice that is sent to a parent when an estimate is accepted (CSA Act section 160 and section 162A(2)).
The Registrar can amend an assessment if it otherwise becomes aware that the estimate is no longer accurate.
The Registrar can amend an assessment in 2 ways:
- if the Registrar becomes aware of an event that has affected the accuracy of the estimate, or if the parent tells the Registrar that the event has occurred (CSA Act section 63A), or
- if the Registrar has sent the parent a notice requesting information relevant to determining the accuracy of the estimate, under CSA Act section 161 or 162A(1) or (4) (section 63B). (See 6.2.3.)
Most estimates are reviewed and the assessment amended under CSA Act section 63A when the parent informs the Registrar of a change in their income or when the Registrar otherwise becomes aware that the estimate may no longer be accurate.
Examples: Leon becomes unemployed and lodges an estimate in June. On 1 October Leon starts a new job. On 10 October Leon calls DHS, advises of the income change and lodges a new estimate. The Registrar will accept the new estimate but will not amend Leon's previous estimate. Leon's previous estimate will be used in their assessment until 9 October.
Marina changes jobs and lodges an estimate in January. On 15 May Marina gets a promotion which makes the income they estimated in January no longer accurate. On 15 June Marina calls DHS, advises of the income change and lodges a new estimate. The Registrar will accept the new estimate from 15 June and will also amend Marina's previous estimate to reflect the change in income from 15 May.
The Registrar will only review an estimate under CSA Act section 63B if:
- Every attempt has been made to contact the parent but they cannot, or will not, provide any information, or consent to any amendments, or lodge a new estimate,
- All efforts to gather income information from third parties has been exhausted, and
- There is still not enough reliable information to proceed with an amendment under CSA Act section 63A.
If a parent complies with a notice issued under CSA Act section 161 or 162A(1) or (4), the Registrar can only amend the assessment to give effect to the review of the estimate from the date that the parent complied with the notice. If a subsequent estimate has been accepted, the Registrar cannot amend the earlier estimate.
Retrospective estimate reviews (income decrease)
A parent should advise the Registrar of a reduction in their income within 14 days of the event that led to the reduction in income (CSA Act section 160 and 162A).
The Registrar will review an estimate and amend the assessment in very limited circumstances where a parent does not advise of a reduction in income within 14 days of the event.
The Registrar will consider the following in order to determine whether a review is appropriate:
- the information available from the person who lodged the estimate or from other persons,
- the effect upon both parties of any change, and
- the extent to which a review and amendment of the assessment would affect the accuracy of the estimate.
The Registrar will consider the reasons for the delay in updating the income information. The reason for non-compliance with the notification requirements must be compelling before a review will be undertaken.
Example: If a parent was physically incapacitated around the time of the event then this could be a compelling reason why they did not contact DHS within 14 days of the event.
The Registrar will also consider the degree to which the decrease in income was foreseeable by the parent when they made their estimate.
If the Registrar is satisfied that these 2 conditions have been met, the Registrar will need to consider the remaining 2 factors before proceeding with a review.
Effect upon both parties of any change
The Registrar will consider if the effect on both parties to the assessment would be fair and reasonable if the estimate was reviewed and the assessment therefore amended to reduce the child support liability for the period between the event and the date of notification.
Accuracy of the assessment
A parent is required to keep their estimate accurate. However not every change or event will cause the assessment to change greatly. For the purpose of a retrospective decrease the Registrar will consider the effect on the existing child support assessment before considering to proceed with a review.
The happening of an event can provide a trigger for reviewing an estimate.
An event can include:
- an occurrence that was not expected when the estimate was made (e.g. starting a new job or non-payment of an expected contract fee), or
- the first day on which the actual rate of income earned exceeded the rate of estimated income (i.e. the first day the estimated income became inaccurate).
Reconciling an estimate
After an estimate period ends, the Registrar will compare the parent's estimate of income with their actual income for the estimate period. If a parent has earned more than their estimated income in the estimate period, the Registrar will reconcile the parent's estimate. If the Registrar has amended the assessment as a result of reviewing the estimate under CSA Act section 63A, 63B or 63C then the Registrar may decide not to reconcile the estimate (CSA Act section 64(2A)).
If a parent has made more than one estimate within a child support period it is only the last estimate that is reconciled (CSA Act section (64(1)(a)). Estimates made earlier in the child support period which were revoked when a later estimate was accepted may be reviewed.
The Registrar cannot reconcile an estimate until both the estimate period and the child support period have ended.
Examples: Cody lodged an estimate on 27 May 2009 for the child support period 1 July 2009 to 30 September 2010. Cody estimated earnings $15,000 over the full child support period (annualised to $12,000). Cody's 2009-10 tax assessment issued on 2 August 2010 and, as a result, the child support period ended on 31 August 2010. However, Cody's estimate period still ends on 30 September 2010. The earliest time that the Registrar can reconcile the estimate is 1 October 2010.
Elliot lodged an estimate on 29 June 2009 for the child support period 1 July 2009 to 30 September 2010. Elliot elected to make a 12-month estimate for the period 1 July 2009 to 30 June 2010 for $25,000. Elliot's 2009-10 tax assessment issued on 13 July 2010 and, as a result, the child support period ended on 31 July 2010. Given this, and the fact that Elliot's estimate period ended on 30 June 2010, the earliest that the Registrar can reconcile the estimate is 1 August 2010.
The Registrar cannot reconcile an estimate for a day in the child support period where the minimum annual rate applies (CSA Act section 64(1)(c)) but can review the estimate (CSA Act section 63C).
The actual income must be:
- calculated on the adjusted taxable income the parent earned within the whole of the period covered by the parent's estimate (including overseas income for a parent who is resident in a reciprocating jurisdiction), and
- compared against the estimate.
The Registrar will ignore the following things when it reconciles an estimate:
- any income the parent earned before or after the estimate period, and
- whether the child support period ended early (e.g. because the ATO issued a new tax assessment for the parent). If the child support period ended early the Registrar will still reconcile the entire estimate period.
If the parent's adjusted taxable income earned over the estimate period is more than their estimate, the Registrar must amend the assessment. The Registrar will do this by using the parent's annualised actual income as the parent's adjusted taxable income amount for all the days in the assessment still affected by the parent's estimate.
A person will be required to pay an estimate penalty when the Registrar reconciles their estimate and their actual income for an estimate period is 110%, or more, of their estimated income (CSA Act section 64A(1)).
The penalty is 10% of the difference between the liability based on the original estimate and the final liability based upon the adjusted taxable income amount determined (CSA Act section 64A(2)). An estimate penalty is a debt due to the Commonwealth (CSA Act section 64A(3)).
Remission of estimate penalties
The Registrar can remit an estimate penalty, either in whole or in part, (CSA Act section 64A(4)) where:
- the difference between the adjusted taxable income amount and the estimated income was due to an amendment of the tax legislation, or a change to a ruling or determination under the tax legislation, or
- the Registrar is satisfied that it would be fair and reasonable to remit the penalties in the circumstances.
Amendment of a tax law, ruling or determination
When making an estimate, a parent cannot be expected to know that a change to the tax legislation or a change to a ruling or determination will increase their adjusted taxable income.
Example: If an expense that was deductible in previous years is no longer deductible, a parent's taxable income may be higher than their estimate by the amount of the deduction.
This does not apply where a parent's taxable income is amended for other reasons (e.g. taxpayer error).
Fair & reasonable to remit the penalties in the circumstances
What is fair and reasonable depends on the circumstances of each case. Those circumstances do not need to be special, exceptional or unusual. Estimate penalties will be remitted if the Registrar considers the parent did not intentionally misuse the estimate provisions to defer payment.
The Registrar will consider whether a parent was or should have been aware of the conditions and implications of using an estimate.
A parent should use reasonable care and all information available to estimate their income. If their circumstances change, they should make a new estimate or advise the Registrar of the change in circumstances. The Registrar may not remit an estimate penalty unless a parent has a reasonable explanation for failing to make a new estimate when their circumstances changed.
Failure to mitigate the effects of the incorrect estimate income does not necessarily mean that the parent intended to misuse the estimate provisions. However, if a parent acts to mitigate the effects this could indicate that they did not intend to avoid or defer the liability.
Example: Logan becomes aware of the difference between their estimated income and their actual adjusted taxable income. Logan contacts DHS for advice and arranges to pay the arrears that will result from a reconciliation of the estimate. Logan has attempted to mitigate the effect of the underestimation. The Registrar will consider this when deciding whether to remit the estimate penalty imposed.
The Registrar will remove any penalty that has been imposed incorrectly (e.g. through error or miscalculation, or by a subsequent variation which decreases the liability).
Frequently asked questions
Is there any discretion as to how the adjusted taxable income is determined during an estimate review?
No. The adjusted taxable income must reflect the parent's adjusted taxable income that will be earned from the event date (or notification date) until the end of the estimate period.
How should an estimate be reviewed when more than one event has occurred since the estimate was accepted?
The Registrar needs to work out the income earned from the date of the earliest event resulting in an increase in income and take into account all further income fluctuations. This can include income earned in a period that is now covered by a subsequent estimate.
How is an estimate reviewed when a lump sum has been received?
Lump sums are treated no differently to 'regular' assessable income. Receipt of a lump sum will usually be an event for reviewing purposes. The Registrar needs to work out the income earned from the event date (or notification date) until the end of the original estimate period taking into account any assessable lump sum payment within that period.
How are multiple estimates reviewed?
Every estimate has to be considered separately. There has to be an event for each estimate before it can be reviewed and amended.