The Guides to Social Policy Law is a collection of publications designed to assist decision makers administering social policy law. The information contained in this publication is intended only as a guide to relevant legislation/policy. The information is accurate as at the date listed at the bottom of the page, but may be subject to change. To discuss individual circumstances please contact Services Australia.

2.5.1.40 Reconciling an income estimate

Context

Estimates of income are reconciled when the parent’s relevant ATI becomes available from the ATO, or if the parent fails to meet their tax lodgement obligations, the Registrar may determine an ATI for the purposes of reconciling the income estimate.

A parent should take reasonable care and use all available information to estimate their income. If their circumstances change, they should advise the Registrar of the change in circumstances and make a new estimate. The estimate reconciliation process ensures child support assessments are based on the most accurate income information available.

Act references

CSA Act section 63A to section 64AH

CSRC Act section 80, section 89

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Calculating a parent’s estimated ATI – more than one income estimate

This methodology applies to calculating a parent’s estimated ATI for the purpose of reconciling a full year or part year income estimate. When a parent makes an income estimate election for a year of income and makes later updates to their income estimate during that year, all estimate elections will be reconciled when their actual income for the year of income is known.

The estimated ATI for the year (CSA Act section 64A(3)) is the total of the income expected in each application period for each income estimate election for the year of income.

The table below shows the method statement to calculate a parent's estimated ATI for the purpose of reconciling a full year or part year income estimate.

Method statement Example: Full year income estimate Example: Part year income estimate
 

On 27 May 2020, Matthew estimates his income for the 2020-21 year of income will be $32,000. On 1 November 2020, Matthew makes a later estimate, his partial year income amount for the period 1 November 2020 to 30 June 2021 (242 days) is estimated to be $26,500. On 1 April 2021, Matthew makes another later estimate, his partial year income amount for the period 1 April 2021 to 30 June 2021 is estimated to be $12,900.

Nikau made an income estimate election on 24 February 2021, estimating his year to date income to be $24,600, and his partial year income amount to be $9,200 (for the 127 day remaining period). On 13 April 2021, Nikau contacts Services Australia to advise that he has been working full time since 5 April 2021. Nikau estimates his partial year income amount for the period 5 April to 30 June 2021 will be $11,000 (an 87 day remaining period).

Step 1: Calculate the daily rate that applied for each income election made in the year of income (except the last income estimate for the year which ended on 30 June). If the income estimate commenced:

  • on 1 July, divide the amount by 365, or
  • after 1 July, divide the amount by the number of days in the remaining period (2.5.1.20) to which the income estimate related.

First estimate (1 July 2020 to 31 October 2020):
$32,000 ÷ 365 = $87.67123

Second estimate (1 November 2020 to 31 March 2021):
$26,500 ÷ 242 = $109.50413

First estimate (24 February 2021 to 4 April 2021):
$9,200 ÷ 127 = $72.44094

Step 2: For each of the income elections in Step 1, multiply the daily rate for that income election by the number of days in the application period (2.5.1.20) for each income election.

First estimate application period is:
123 days × $87.67123 = $10,784

Second estimate application period is:
151 days × $109.50413 = $16,535

First estimate application period is:
40 days × $72.44094 = $2,898

Step 3: Add up each of the amounts worked out under Step 2.

$10,784 + $16,535 = $27,319

$2,898

Step 4: Add the result of Step 3 to the partial year income amount for the last income estimate to calculate the parent’s estimated ATI.

Last partial year income amount (1 April 2021 to 30 June 2021):
$12,900

Step 3 estimated ATI = $27,319

Total estimated ATI = $40,219

Last partial year income amount (5 April 2021 to 30 June 2021):
$11,000

Step 3 estimated ATI = $2,898

Total estimated ATI = $13,898

Reconciling an income estimate

After the end of the year of income, the Registrar will compare the parent's estimated ATI with their actual ATI for the year. The income estimate is usually reconciled when the Registrar receives the parent’s tax assessment from the ATO, however, the Registrar may determine an income to reconcile an income estimate when the actual ATI is not known 12 months after the end of the year of income for the estimate election (CSA Act section 64AB).

If the actual ATI is less than or equal to the estimated ATI, no further action will be taken. If the parent's actual ATI is more than their estimated ATI, the assessment will be amended using their actual ATI (Division 7A of Part 5 of the CSA Act).

How the income estimate is reconciled will depend on whether the:

  • income estimate applied for part of, or the full year of income
  • parent made a single income estimate election, or more than one income estimate election for the year of income (that is, updated their income estimate)
  • Registrar receives a tax assessment within 12 months of the year of income, or if the Registrar is required to determine an ATI in order to reconcile the estimate.

If, after an income estimate is reconciled, a higher amended ATI issues from the ATO, the income estimate will be re-reconciled for that period using the higher amended ATI.

If the Registrar has amended the assessment after reviewing an income estimate under CSA Act section 63A, 63B or 63C, the income estimate will be reconciled only if the Registrar determines that it is appropriate to do so (CSA Act section 64(1)(e)).

The Registrar cannot reconcile an income estimate if an income amount order is in force for any part of the application period for the income estimate (CSA Act section 64(5)). The income estimate may be reviewed and the assessment amended under CSA Act section 63A, 63B or 63C, if required.

Reconciling an income estimate - actual ATI is known within 12 months

Single income election, income estimate applies to full year of income

The Registrar will reconcile the income estimate with the parent’s actual income for the full year of income. If the actual income is:

  • less than the estimated income, no further action is taken
  • more than the estimated income, the parent's actual income will be their ATI for the year (CSA Act section 64(2)) and the assessment will be updated (CSA Act section 64AA).

Example: Simon makes an estimate on 27 May 2020 for the year 1 July 2020 to 30 June 2021. Simon estimated his ATI for the year would be $32,000. Simon's 2020-21 tax assessment issues on 2 August 2021, his actual ATI is $39,000. The assessment is amended for the year using the actual income of $39,000.

Example: Alexa makes an estimate on 27 May 2020 for the year 1 July 2020 to 30 June 2021. Alexa estimated her ATI for the year would be $39,000. Alexa’s 2020-21 tax assessment issues on 2 August 2021, her actual ATI is $32,000. As the tax assessment is less than the income estimate, no further action is taken.

Single income election, income estimate applies to a part year of income

The parent’s partial year income amount is reconciled against their actual ATI (CSA Act section 64(3)) for the remaining period. The Registrar will reconcile the part year income estimate by comparing:

  • the parent’s estimated partial year income amount, and
  • the parent’s actual partial year income amount – the parent’s actual ATI less their estimated year to date amount.

If the parent’s actual partial year income amount is:

  • less than the estimated partial year income amount, the income estimate is reconciled and no further action is taken (the estimated partial year income amount is used).
  • more than the estimated partial year income amount, the parent's actual partial year income amount will be the amount used for the application period and the assessment will be retrospectively amended to use that income (CSA Act section 64AA). This may result in an overpayment or child support debt, and the application of an estimate penalty.

To apply the actual partial year income amount to the assessment, it needs to be annualised by:

  • calculating the actual partial year income amount daily rate, by dividing this amount by the number of days in the application period, and
  • multiplying the daily rate by 365 (CSA Act section 64(4)).

Example: Toni makes in income estimate election on 1 November 2020, and estimates her year to date income to be $22,000 and partial year income amount for the 242 day remaining period 1 November 2020 to 30 June 2021 to be $26,500. When Toni's 2020-21 tax assessment issues, her actual ATI for the 2020-21 financial year is $56,500.

  • Toni’s annualised partial year income amount is $26,500 ÷ 242 × 365 = $39,969.
  • Toni’s actual partial year income amount of $34,500 ($56,500 − $22,000) is used because it is higher than her estimated partial year income amount of $26,500.
  • the daily rate of the actual partial year income amount is $34,500 ÷ 242 = $142.56198.
  • the annualised amount is $142.56198 × 365 = $52,035.

Toni’s assessment for the application period, 1 November to 30 June, is amended using the annualised income of $52,035.

More than one income election, income estimate applies to full year of income

If the parent’s actual ATI is less than or equal to the estimated ATI, no further action will be taken. The assessment will be amended if the parent’s actual ATI is higher than their total estimated ATI. The reconciliation process identifies the difference between the person's estimated income and their actual income for the year of income, and applies the correct annualised income to each application period (CSA Act section 64A(4)).

The table below shows the method statement to calculate the correct income amount for each application period.

Example: Matthew made 3 estimates for the 2020-21 year of income (see previous example related to calculating Matthew’s estimated ATI). The Registrar receives Matthew’s tax assessment for 2020-21 and his actual ATI is $46,000.

Method statement Action
Step 1: Subtract the parent’s estimated ATI amount from the parent’s actual ATI amount. Subtract Matthew’s estimated ATI from his actual ATI.

$46,000 - $40,219 = $5,781
Step 2: Calculate the additional daily rate by dividing the Step 1 amount by the total number of days in the application periods. $5,781 ÷ 365 = $15.83922
Step 3: Calculate the underestimated amount for each income election, by multiplying the additional daily rate by the number of days in each application period. First estimate:
$15.83922 × 123 days = $1,948
Second estimate:
$15.83922 × 151 days = $2,392
Last estimate:
$15.83922 × 91 days = $1,441

Step 4: To calculate the actual ATI daily rate to be applied in each application period, for each income election, add the underestimated amount:

  • estimated ATI daily rate for each application period (except the last), and
  • for the estimated partial year income amount.

See method statement for

 First estimate:
$10,784 + $1,948 = $12,732
Second estimate:
$16,535 + $2,392 = $18,927
Last estimate:
$12,900 + $1,441 = $14,341
Step 5: For each income election, divide the actual ATI daily rate by the number of days in the application period for that income election and multiply the quotient by 365. First estimate:
($12,732 ÷ 123) × 365 = $37,781 (daily rate of $103.51045)
Second estimate:
($18,927 ÷ 151) × 365 = $45,750 (daily rate of $125.34335)
Last estimate:
($14,341 ÷ 91) × 365 = $57,523 (daily rate of $157.59746)
Step 6: Amend the child support assessment, by applying the actual annualised incomes from Step 5 to each application period in the year of income.

More than one income election, income estimate applies for part of a year of income

When a parent makes an election for part of the year of income and later makes one or more other income estimates for part of that year, all estimate elections will be reconciled when the parent's actual ATI for the year of income is known.

The Registrar will reconcile the part year estimate of income by comparing:

  • the parent’s total estimated ATI (the total of the income expected in each application period for each income estimate election for the year of income (CSA Act section 64A(3))), and
  • the parent’s actual partial year income amount which is their actual ATI less the year to date income amount (2.5.1.20).

The assessment will be amended if the actual partial year income amount (actual ATI for the whole year minus the year to date income amount) is more than the estimated ATI amount (CSA Act section 64A(2), section 64AA).

Example: Nikau made 2 estimates for the 2020-21 year of income (see previous example related to calculating Nikau’s estimated ATI). The Registrar receives Nikau’s tax assessment for 2020-21 and his actual ATI is $40,000.

Calculate Nikau’s actual partial year income amount:

  • $40,000 − $24,600 = $15,400.

As Nikau’s actual partial year income amount ($15,400) is higher than his estimated ATI ($13,898), the Registrar must reconcile his actual ATI for all application periods in the year of income.

Step 1: Subtract Nikau’s estimated ATI from his actual ATI amount:

  • $15,400 − $13,898 = $1,502

Step 2: Calculate the additional daily rate for the whole application period:

  • $1,502 ÷ 127 = $11.82962

Step 3: Calculate the underestimated amount for each income election:

  • First estimate: $11.82962 × 40 days = $473
  • Last estimate: $11.82962 × 87 days = $1,029

Step 4: For each income estimate, add the underestimated amount to the annualised partial year income amount:

  • First estimate: $2,898 + $473 = $3,371
  • Last estimate: $11,000 + $1,029 = $12,029

Step 5: Annualise the income elections for each application period:

  • First estimate: ($3,371 ÷ 40) × 365 = $30,759 (daily rate of $84.27057)
  • Last estimate: ($12,029 ÷ 87) × 365 = $50,467 (daily rate of $138.26641)

Step 6: Amend the assessment by applying the annualised incomes at Step 5 to the respective application periods in the year of income.

Reconciling using a Registrar determined ATI

The Registrar may determine an income to be used to reconcile an income estimate when the parent’s actual ATI is not known 12 months after the end of the year of income for the estimate election (CSA Act section 64AB). If the Registrar makes a determination of the income to be used (the parent's determined ATI) to reconcile an estimate, notice of the determination must be provided to the parent (CSA Act section 64AB(2)). The parent can object to the particulars of the assessment to which the determination relates (CSA Act section 64AB(3), CSRC Act section 80(1), item 11).

The estimate or estimates will be reconciled using the approaches described above, using section 64AC if only one estimate was made, or CSA Act section 64AD if more than one estimate was made

If the parent's actual ATI becomes known after the Registrar has reconciled the estimate/s using a determined ATI, and the actual income is higher than the determined ATI, then the estimate/s will be reconciled using the actual income (CSA Act section 64(1)(d), section 64A(1)(d)).

If the Registrar has amended the assessment as a result of reviewing the estimate under CSA Act section 63A, 63B or 63C, the Registrar may decide not to reconcile the estimate (CSA Act section 64(1)(e), section 64A(1)(e), section 64AC(1)(d), section 64AD(1)(d)).

Estimate penalties

A parent will be required to pay an estimate penalty when the Registrar reconciles their estimate and their actual income for a year of income (less any applicable year to date income amount) is 110%, or more, of their estimated ATI for the year (CSA Act section 64AF).

The penalty is 10% of the difference between the liability that would have applied if the original estimate or estimates were used to calculate the assessment, and the assessment/s amended under CSA Act section 64AA following reconciliation (CSA Act section 64AG(1)). An estimate penalty is a debt due to the Commonwealth (CSA Act section 64AG(2)).

Example: As noted in a previous example, Simon’s income estimate for 2020-21 was $32,000 but his actual income was $39,000. As his actual income is 122% of his estimated income, an estimate penalty will apply.

Remission of estimate penalties

The Registrar can remit an estimate penalty, either in whole or in part, (CSA Act section 64AH(1)) where:

The Registrar can decide to remit estimate penalties whether or not they have been paid. The Registrar will use this discretion in a way that will further the objectives of the child support scheme, according to the particular circumstances of each case.

There is no particular process for a parent to request remission of estimate penalties. The Registrar can remit estimate penalties without a request to do so if there is sufficient information available to make a decision.

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 ATI. This does not apply where a parent's taxable income is amended for other reasons (for example, 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. The Registrar will remit estimate penalties if the Registrar considers the parent did not intentionally misuse the estimate provisions.

The Registrar may consider remitting an estimate penalty if the person inadvertently underestimated or had some good reason for not correctly managing their income estimate during the year, such that it would not be fair to penalise them for the estimate being inaccurate.

The Registrar will consider whether a parent was or should have been aware of the conditions and implications of using an estimate.

The Registrar will not remit an estimate penalty unless a parent has a reasonable explanation for failing to make a new estimate when their circumstances changed.

Example: Darryl made his first estimate when his hours of work were reduced due to a fall in business for the company. Darryl made a second estimate when he lost his job because the company stopped trading. Darryl was not sure if he would receive a termination payment and so did not include such a payment in his second estimate. Darryl did, in fact, receive a termination payment of $9,000 on 30 May. As his ongoing circumstances had not changed, Darryl did not contact the Registrar about the payment.

Darryl's actual income was higher than his estimated income so the estimate was reconciled, the assessment amended and an estimate penalty imposed. Darryl contacted Services Australia and requested the estimate penalty be remitted. The Registrar considered the facts of the case and decided it would be fair and reasonable to remit the penalty as Darryl had not intentionally misused the estimate provisions.

The Registrar will remove any penalty that has been imposed incorrectly (for example, through error or miscalculation, or by a subsequent variation which decreases the liability).

If the Registrar makes a decision to remit only part of the penalty, or to not remit any part of the penalty, the Registrar must give written notice of the decision to the parent who is liable to pay the penalty (CSA Act section 64AH(2)). The notice must also include, or be accompanied by, a statement that the parent can object to the decision (CSA Act paragraph 64AH(3)(a), CSRC Act section 80, item 12) and apply to the AAT for a review of the objection decision if aggrieved (4.1) (CSA Act paragraph 64AH(3)(b), CSRC Act section 89).

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