1.4.2 How do child support payments interact with FTB?
Context
The Child Support Scheme and FTB are closely linked to reflect the long-standing principle that parents are primarily responsible for the financial support of their children, with the Australian Government providing family assistance where needed.
The interactions between child support payments and FTB can affect how much FTB a person receives during an entitlement year, and may result in retrospective changes in a person's FTB entitlement if their child support assessment is updated for a past period.
This page explains the interactions. If a person wishes to discuss their individual circumstances in relation to FTB, they can contact Services Australia on 136150.
On this page
- How the Child Support Scheme interacts with FTB
- MAT for FTB Part A
- MIT for FTB Part A
- Impact of maintenance income estimation method on FTB Part A
- Impact of retrospective child support assessment changes on FTB Part A
- Impact of child support paid on FTB ATI
How the Child Support Scheme interacts with FTB
The Child Support Scheme interacts with FTB through the:
- MAT for FTB Part A (FA Guide 3.1.5) – applies to all parents who receive FTB Part A for a child from a previous relationship
- MIT for FTB Part A (FA Guide 3.1.7) – applies to persons (payees) who receive child support
- FTB ATI (FA Guide 3.2.7) – a parent's (payer's) DCME will be considered when calculating their ATI.
Policy reference: FA Guide 3.1.5 Maintenance action test for FTB Part A, 3.1.7 Maintenance income test, 3.2.7 Deductible child maintenance expenditure
MAT for FTB Part A
A separated parent who receives FTB Part A for a child from a former relationship must take 'reasonable maintenance action' in order to receive their full rate of FTB Part A (FA Guide 3.1.5.30). Generally, this will involve applying for a child support assessment.
It is important to know that a parent can apply for an exemption from the MAT. There are a number of exemptions to the requirement that a person take reasonable maintenance action for a child (FA Guide 3.1.5.70), including if a parent has a fear of family and domestic violence.
If a parent does not meet the MAT for a child, only the base rate of FTB Part A (FA Guide 1.1.B.15) is payable in respect of the child, and the child is not included for rent assistance purposes.
FA Guide 3.1.5 provides information on the MAT. The MAT does not apply to non-parent carers.
Parents who have a senior secondary school child turning 18 are required to take reasonable action to obtain an extension of their child support assessment (FA Guide 3.1.5.40).
Policy reference: FA Guide 1.1.B.15 Base FTB child rate, 3.1.5 Maintenance action test for FTB Part A, 3.1.5.30 Taking reasonable maintenance action, 3.1.5.40 Maintenance action in progress
MIT for FTB Part A
The MIT may reduce the amount of FTB Part A a person is entitled to, based on the amount of child support they receive, or are entitled to receive.
The MIT:
- assesses whether an individual's maintenance income is greater than their MIFA (FA Guide 3.1.7.10), and
- reduces the rate of FTB Part A by 50c for every dollar of maintenance over the MIFA until the base rate (FA Guide 1.1.B.10) is reached (the MIT only affects the amount of FTB Part A over the base rate).
Maintenance income is estimated during the financial year for people who receive FTB via instalments, as the actual amount assessed or received is not known until reconciliation occurs after the end of the financial year. The actual amount of maintenance received is assessed for past period claims.
If the parents have made a child support agreement, a 'notional assessment amount' is used in calculating the relevant amount of FTB Part A payable to the payee. Topic 2.7.4 and FA Guide 3.1.7.14 provides more information on the effect of notional assessments on FTB part A.
Methods used to estimate maintenance income during a financial year
The methods used by Services Australia to estimate a payee's maintenance income depend on if the payee's child support assessment has a private collect or an agency collect arrangement.
- Private collect cases - the entitlement method is always used (FA Guide 1.1.E.35).
- Agency collect cases – the payee has the choice of the
The entitlement method is always used to estimate the maintenance income for private collect cases. In a private collect arrangement, the payee chooses the child support collection arrangement and has agreed that the parents are responsible for the transfer of child support. For this reason, in a private collect arrangement, all child support is deemed to be paid.
A payee with an agency collect arrangement can choose to have either the modified entitlement method or the disbursement method used to estimate their maintenance income.
The default method in agency collect cases is the modified entitlement method. Under the modified entitlement method, Services Australia will automatically switch between the entitlement method and the disbursement method depending on which method results in a higher MIT reduction.
A payee can ask Services Australia at any time to change their method to the disbursement method where they are receiving less child support than that estimated under the entitlement method.
Payees who have more than one agency collect case can nominate different methods for each case. A payee who has both a private collect case and an agency collect case can choose between the modified entitlement method and the disbursement method for their agency collect case, but must use the entitlement method for their private collect case.
Policy reference: CS Guide 2.7.4 Effect of a child support agreement once accepted by the Registrar (other than lump sum payment provisions)
FA Guide 1.1.D.100 Disbursement method (FTB), 1.1.E.35 Entitlement method (FTB), 1.1.M.65 Modified entitlement method (FTB), 1.1.B.10 Base rate of FTB, 3.1.7.10 Maintenance income test - general provisions, 3.1.7.14 Notional assessments
Impact of maintenance income estimation method on FTB Part A
The method used to estimate a payee's maintenance income has different impacts on their FTB Part A entitlement.
Private collect – entitlement method
Services Australia will apply the payee's assessed child support entitlement to the FTB Part A MIT even if the amount of child support collected by the payee is less than what they are entitled to receive (FA Guide 1.1.E.35).
At reconciliation, a payee's FTB Part A entitlement is reconciled based on the assessed amount of maintenance income for that entitlement (plus the family income test).
Agency collect – modified entitlement method
Services Australia determines a payee's FTB Part A rate by using the estimated maintenance income worked out by applying the higher of the entitlement method and the disbursement method formula.
This means that Services Australia will use the method that produces the highest estimated maintenance income amount (FA Guide 3.1.7.23). The modified entitlement method allows Services Australia to use a payee's assessed amount of child support, and update their estimated maintenance income if and when child support arrears are collected and paid. At reconciliation, a payee's FTB Part A entitlement is reconciled based on what the payee actually received during the financial year (and the family income test).
Agency collect – disbursement method
The disbursement method (FA Guide 3.1.7.22) may be appropriate where the payee does not know how much child support they are likely to receive, or if the amount paid by the payer is substantially less than they should be paying.
The payee must ask Services Australia for the disbursement method to be used, otherwise the modified entitlement method will be used.
The payee's rate of FTB Part A is recalculated each time the monthly amount of child support they receive from Services Australia changes. This means that their FTB rate can change every month.
The payee's estimated maintenance income is worked out by adding the amount of child support the payee has already received during the financial year to the amount projected for the rest of the relevant period. This second amount is worked out by multiplying the latest Services Australia monthly payment the payee has received (less any arrears) by the number of months left in the financial year.
The amount of estimated maintenance income for the financial year is then annualised when applying the MIT for the relevant period.
At reconciliation, a payee's FTB Part A entitlement is reconciled based on what the payee actually received during the financial year (and the family income test).
Policy reference: FA Guide 1.1.E.35 Entitlement method (FTB), 3.1.7.22 Maintenance income - disbursement method, 3.1.7.23 Maintenance income - modified entitlement method
Impact of retrospective child support assessment changes on FTB Part A
If a child support assessment retrospectively changes (that is, because one party to the assessment lodges their tax returns), the payee's new rate of child support for that past period, may result in their FTB entitlement for a past period being re-reconciled (FA Guide 6.4.2.30). This may result in an FTB debt or top-up payment.
The table below provides information on how a person's FTB entitlement is affected by a retrospective change in a child support assessment, by the collection type, and if the person's child support entitlement increases or decreases.
| Child support collection type | Child support entitlement increases | Child support entitlement decreases |
|---|---|---|
| Private collect |
A higher child support entitlement can result in a higher MIT reduction and reduce a payee's FTB Part A entitlement for a past period. The payee is deemed to have received the underpaid child support entitlement, even if the updated amount has not been paid by the payer. This may result in an FTB debt in respect of the year/s affected. |
A lower child support entitlement can result in a lower MIT reduction and increase a person's FTB Part A entitlement. The payee is deemed to have repaid the overpaid child support entitlement. This may result in an FTB top-up in respect of the year/s affected. |
| Agency collect |
A higher child support entitlement for a past year will only be applied to the FTB Part A MIT in the financial year it is collected and paid to the payee. This can result in an update to the payee's estimated maintenance income and result in a reduced rate of FTB Part A. |
A higher estimated maintenance income may result in mandatory continuous adjustment (FA Guide 4.3.1.30) during the year to offset the risk of an FTB debt and/or cause an FTB debt at reconciliation. A lower child support entitlement for a past year will reduce the payee's estimated maintenance income and be removed from the FTB Part A MIT in the financial year it is repaid. This can result in an increase to their FTB and may result in a top-up at reconciliation. |
Policy reference: FA Guide 4.1.3.30 Responsibilities of nominees, 6.4.2.30 FTB reconciliation due to maintenance income
Impact of child support paid on FTB ATI
ATI is used in the FTB income tests when assessing a payer's eligibility for FTB Part A and FTB Part B (FA Guide 3.2.1). A payer's ATI is reduced by 100% of their 'child maintenance expenditure' for that financial year. (FA Guide 3.2.7).
Example: Mary has estimated that she will have taxable income of $36,500 for the income year. She estimates that she will pay $4,500 to her ex-partner as child maintenance. Mary's ATI for FTB purposes is $32,000 ($36,500 - $4,500).