2.6.13 Reason 7 - Necessary Commitments of Self-support
A parent can apply for a change of assessment in special circumstances if their necessary expenses significantly reduce their capacity to support the child.
CSA Act section 4(2)(a), section 117(2)(a)(iii)(A)
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- Grounds for departure under Reason 7
- Special circumstances under Reason 7
- Necessary commitments for self-support
- Significant reduction of capacity to support child
Grounds for departure under Reason 7
There can be a reason to change an assessment if there are special circumstances because the capacity of either parent to provide financial support for their child is significantly reduced because of their commitments which are necessary to enable them to support themselves (CSA Act section 117(2)(a)(iii)(A)).
Special circumstances under Reason 7
The phrase 'special circumstances of the case' is not defined in the CSA Act. The Family Court has held that 'it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary' (Gyselman and Gyselman (1992) FLC 92-279).
One of the objects of the CSA Act is that the level of financial support provided by parents for their children should be determined according to their capacity to provide financial support, and, in particular, that parents with like capacity should provide like amounts of support (CSA Act section 4(2)(a)).
A parent must show that there is something special or unusual about their case. The mere fact that a parent's expenses exceed their income is unlikely to amount to a special circumstance.
The desire for expenditure on hobbies, entertainment, and holidays does not amount to a special circumstance.
The effect of a property settlement or agreement
An order or agreement relating to a property settlement which requires one parent to assume liability for a debt is unlikely to amount to a special circumstance. However, the responsibility of one parent for debts pending property settlement may amount to a special circumstance.
Where property settlement has not been made, the Registrar will consider:
- who exercises control of the relevant assets, e.g. it is less likely to be fair to change the assessment where the parent retains control of the asset.
- whether a property settlement is likely to occur within a short period. If so, it may be appropriate to change the rate of child support for a short time pending property settlement and/or disposal of the asset.
Necessary commitments for self-support
A parent must have necessary commitments or expenses for self-support for the reason to be established. The Registrar must:
- examine the nature of the expenditure to decide whether it is a 'necessary commitment' by looking at the kind of expenditure and the reasons for the expenditure
- decide if the amount of the expenditure is 'necessary'.
The use of the word 'necessary' is not intended to produce an unrealistically low standard of living for parents (Gyselman and Gyselman (1992) FLC 92-279). In that case the court went on to make the following comments:
'Where families separate, it is likely that in a number of cases that there will be insufficient income to support the 2 households at their prior standard or at a reasonable standard. Consequently, it is a matter of the balancing of competing values, namely the obligation of the absent parent to continue to support his children with, on the other hand, the need for the parent to continue to maintain himself at a reasonable level. It is clear from the objects of the CSA Act that there is an intention to reverse what was seen to be the undesirable lack of emphasis upon the former of those commitments in the past, but it was not intended to completely reverse that situation. It is a question of reasonable balance in the individual case.'
Expenditure which may be considered necessary includes:
- reasonable costs of food
- reasonable costs of accommodation
- household essentials
- necessary transport
- necessary health costs.
Note: Expenses incurred to enable a parent to spend time with, or communicate with, the child are not included under this reason. Where those costs are necessary to enable contact with the child, they can form the basis of an application under reason 1 (2.6.7).
All expenses should be substantiated with appropriate documentary evidence. The necessity of the cost will depend on the facts of the case.
To support their claim for consideration of necessary health costs, a parent should provide evidence that includes medical or dental reports, letters or other evidence from their treating doctor (2.6.5) to confirm their essential treatment requirements, as well as evidence of the net cost following health fund and taxation rebates or any financial assistance provided under the National Disability Insurance Scheme.
Generally, health costs accounted for under reason 7 will have already been incurred and applications will be supported by evidence of accounts paid and relevant rebates or assistance received under the National Disability Insurance Scheme. However, the Registrar will also consider anticipated health costs provided that there is a reasonable expectation that the cost will be incurred.
Supporting evidence of anticipated health costs may include (but is not limited to):
- proposed treatment and/or payment plan or National Disability Insurance Scheme plan
- evidence of estimated costs
- evidence of deposit paid
- a quote or documentation of expected health fund or taxation rebates or financial assistance to be provided under the National Disability Insurance Scheme.
Private health insurance contributions will not generally be considered necessary. However, the expense may be taken into account where the parent would have to pay a higher Medicare levy if they did not have private health insurance. Private health insurance may also be necessary if a parent has a medical condition.
The costs of setting up a household or servicing a debt immediately after separation may also be a necessary commitment. A parent leaving a former marital home will often incur costs in establishing a new residence or obtaining new accommodation. There may also be a variety of debts and obligations incurred during the former relationship that must be paid despite separation and which continue to be paid by a parent.
These costs are considered necessary subject to:
- proof of the expense and that it is being paid
- the necessity of the expense
- the expense being reasonable (e.g. no more than the minimum payment required if a periodic payment)
- the possibility of rearranging the commitment by refinancing, reducing payment, sale of the asset, etc
- the period over which the expense will be incurred.
Since 1 July 2008 changes to the child support scheme have enabled parents earning extra money after separation to request that this extra income not be included in the calculation of their child support assessment. This assists parents with post-separation costs (2.5.2) for a period of up to 3 years. This provision does not fall within the change of assessment process and the parent's adjusted taxable income can only be reduced by 30%. If a post-separation costs reduction has already been made, this will be relevant when deciding whether Reason 7 has been established.
Payments such as contributions to compulsory superannuation or trade unions will generally be accepted as necessary. Voluntary contributions to superannuation may not be necessary unless the applicant can establish that they are in an occupation where retirement takes place comparatively early and where compulsory contributions would be insufficient to provide a reasonable retirement income. Where the applicant is self employed and not entitled to employer contributions under the superannuation levy, it may be appropriate to allow superannuation payments at the rate of the levy applicable to the income.
Not every kind of contractual obligation will be 'necessary' (see below). The onus is on a parent to rearrange their affairs to financially support their child.
The Family Court has held that the proper approach is to take into account unavoidable or compulsory expenses (such as taxation, Medicare levy and compulsory superannuation) together with necessary living expenses (Mee and Ferguson (1986) FLC 91-716).
In all cases the test is whether the expense:
- is necessary for a reasonable standard of living
- is unavoidable or compulsory
'Reasonable' costs & expenses
There are no definitive rules to help decide whether expenses are reasonable. Each case must be considered on its individual circumstances. What is reasonable in one case may be an excessive expenditure in other circumstances. However, a parent will need to show that:
- reasonable measures have been taken to reduce expenditure
- items related to setting up a new household relate to basic furniture and whitegoods rather than to optional items such as a plasma TV
- the cost of the necessary item, such as a motor vehicle or accommodation, is what is required to meet the need rather than extravagant or luxurious items
- where the cost of the expenditure is tax deductible, this has been taken into account.
Contractual commitments may not be necessary
A commitment that must be paid such as a mortgage, credit card repayment or personal loan will not automatically be considered to be necessary.
Examples: Where a parent, knowing of their child support obligation, enters into a finance arrangement for cable television or a mobile telephone it would not be considered to be either necessary or a special circumstance.
A parent's commitment to a mortgage to buy a house is not necessary if it affects their ability to meet a previously attainable child support obligation.
A commitment related to acquiring an asset or a financial resource (e.g. real property, shares or an insurance policy) for the future will not be 'necessary' (Dwyer and McGuire (1993) FLC 92-420, Bassingthwaite and Leane (1993) FLC 92-410). Child support is intended to assist a payee to meet the recurring, day-to-day and often pressing expenses of maintaining a child. A child is not required to live in poverty now in the hope of a future expectation.
Significant reduction of capacity to support child
Once a parent has established that there are special circumstances and that the expenses are necessary and reasonable, the third element is to consider whether they significantly reduce the parent's capacity to provide financial support for the child.
The Registrar will compare the expenses with the available income (and any other benefits or relevant financial resources). While financial assistance payable to the parent under the National Disability Insurance Scheme is not counted as income for child support, the Registrar will consider this assistance to determine the parent's net expenses and capacity to support the child. Where a parent's necessary living expenses significantly exceed the funds available to them, their capacity to provide financial support is likely to be significantly reduced, and the reason will be established.
What period should a decision to change an assessment cover?
In most cases, short-term adjustments to the self-support amount or the annual rate of child support will be appropriate to enable a parent to refinance debts, reorganise their financial affairs, or dispose of assets.
Examples: A parent who has a complex salary package involving fringe benefits prior to separation may require time to reorganise their affairs following separation.
The costs necessarily incurred by a recently separated parent in establishing a new home are unlikely to be a long term consideration.