2.5.2 Additional income earned post separation
A parent can apply to have extra income earned following separation excluded from their child support assessment.
CSA Act section 44
On this page
- What are the requirements for excluding additional income?
- Additional income
- The ordinary course of events
- Limits for reduction of adjusted taxable income
- 3 year limit on excluding additional income
- When does a determination to exclude additional income apply?
- Special circumstances
- Estimates of income
- Income or annual rate set
- Non-ATO incomes
- Parents with more than one child support case
- Parents who reconcile & re-separate
- Non-parent carers
- Revoking election to exclude additional income
- Review rights
A parent can apply to have additional income that was earned after separation excluded from their adjusted taxable income for child support purposes in certain circumstances. A parent may apply to have additional income excluded, regardless of whether they pay or receive child support.
The exclusion of additional income post separation is limited to the first 3 years after the parents last separated before the start of the child support case.
What are the requirements for excluding additional income?
Parents of a child may apply to have additional income (earned, derived or received after separation) excluded from their adjusted taxable income (2.4.4) for the calculation of their child support assessment.
The Registrar may exclude the additional income from the parent's adjusted taxable income if the following requirements are met:
- the parents must have lived together (2.1.1) on a genuine domestic basis for at least 6 months (section 44(1)(a))
- the last separation of the parents occurred before the application for administrative assessment was made (section 44(1)(b)(ii))
- the application is made within 3 years after the last separation of the parents (section 44(1)(b)(i))
- at the time of the application, the parents remain separated (section 44(1)(c))
- the income must have been earned, derived or received in accordance with a pattern of earnings that was established after separation with the other parent (section 44(1)(d)(i)), and
- the income must be of a kind it is reasonable to expect would not have been earned, derived, or received by the parent in the ordinary course of events (section 44(1)(d)(ii)).
Parents may earn additional income from a variety of sources, including for example, from overtime, a second job, a career change to a higher paying job, or from investment income. For a self-employed person, additional income may be earned, derived or received through extending the opening hours of their business, increasing production or developing new markets or new products (to a greater extent than before separation). The parent must be able to show that the change that resulted in the additional income being earned happened after separation (section 44(1)(d)(i)).
The ordinary course of events
Not all additional income that is earned, derived or received after separation will qualify for exclusion from a parent's adjusted taxable income. The new pattern of earnings must have been established after separation and would not have been reasonable to expect that income in the ordinary course of events (section 44(1)(d)(ii)).
Income that parents would have been reasonably expected to earn in the ordinary course of events cannot be excluded from their adjusted taxable income. For example, it is within the ordinary course of events that parents will earn additional income through regular pay rises, or seasonal variations in income.
However, income that parents earn outside the ordinary course of events is able to be excluded from their adjusted taxable income. This could include, for example, income from overtime or second jobs taken on after separation, a cashing out of leave entitlements, promotions or a shift to a higher paying job. However, moving from an unemployment benefit to employment is considered to be within the ordinary course of events. Any income to be excluded must have been earned in a pattern established after separation.
Limits for reduction of adjusted taxable income
The exclusion of post-separation income cannot reduce a parent's adjusted taxable income by more than 30% (section 44(3)(a)). If excluding all the additional income earned post separation would reduce the adjusted taxable income by more than 30%, the Registrar can only reduce the adjusted taxable income by 30%.
Example: Lesley has an income of $30,000 at the date of separation from Irena in May 2016. From June 2016, Lesley's income increases to $60,000 as Lesley takes on a second job.
In August 2017, Lesley's child support liability is assessed on an adjusted taxable income of $60,000, as that was Lesley's income for the last relevant year of income (2016-17 financial year). Lesley can apply to have the additional income of $30,000 earned post separation excluded from their adjusted taxable income of $60,000. If Lesley's application is successful, Lesley's current income used in the assessment, $60,000, can only be reduced by a maximum of 30%, or $18,000. Therefore, Lesley's adjusted taxable income would be set at $42,000. Lesley has $18,000 excluded from their income before the self-support component is deducted and Lesley's children receive child support based on an adjusted taxable income for Lesley of $42,000.
Below income at date of separation
In certain circumstances, the parent's new adjusted taxable income, after excluding the income earned post separation, will be lower than their income at the date of separation.
Example: Abdul has an income of $50,000 at the date of separation from Neela in December 2016. From January 2017, Abdul takes on a new role which increases their annual income by $10,000, as stated by their employer.
In August 2017, Abdul lodges their tax return for the 2016-17 financial year, which includes $1,000 of work-related deductions for their new role (e.g. vehicle and travel expenses and home office expenses). Abdul's resulting adjusted taxable income is $59,000 and this is applied to their child support assessment.
Abdul applies to have the additional income of $10,000 earned post separation excluded from their adjusted taxable income. Abdul's application is successful and the extra $10,000 is excluded from the assessment. The $10,000 is less than a 30% reduction in Abdul's adjusted taxable income of $59,000. As a result, Abdul's adjusted taxable income is now assessed at $49,000, which is less than Abdul's income of $50,000 at separation.
3 year limit on excluding additional income
Post-separation income cannot be excluded for more than 3 years from the date of separation (section 44(3)(b)).
When does a determination to exclude additional income apply?
If the Registrar accepts an application to exclude additional income earned after separation this will ordinarily apply from the date the application was made. However, it can apply from the start of the child support period in which the application is lodged if there are special circumstances.
Whether there are special circumstances to justify backdating the exclusion of additional income will depend on the facts in each particular case. Generally the Registrar will be satisfied special circumstances exist where the parent was prevented from applying earlier but did apply in a timely way once they were able to, generally within 28 days.
The following are the circumstances in which a parent will be considered to have been prevented from applying earlier:
- The income was not yet used in the assessment.
- The parent was not aware of the existence of the child support assessment.
- The parent was not aware of the existence of the provision because it was not discussed in their initial contact with DHS (where child support essentials are communicated), because, for example, that contact occurred prior to 1 July 2008.
- The parent was a victim of family violence.
- The parent (or a family member) was ill or had an accident that stopped the parent from applying.
- The parent suffered a personal trauma such as a death in the family or a natural disaster that caused damage to their property.
- The parent had communication difficulties because of, or including, isolation, illiteracy or poor English-language skills.
- The parents were involved in negotiations over child support and/or other matters and applying may have compromised those negotiations.
- There are other exceptional circumstances.
The exclusion will remain in place until the end of the child support period. However, it will end sooner if the 3 year time limit (since separation) expires within the child support period.
A new application can be lodged for the next child support period if the other requirements are met and the 3 year time limit has not expired.
Estimates of income
Parents who have lodged estimates of income may also apply for exclusion of post-separation income (section 44(1)(d)). Where an estimate of income has been made, the Registrar will consider excluding any additional income earned, derived or received in the remaining period for the purposes of the estimate of income, rather than additional income earned in the last relevant year of income.
Example: Ashley had an income of $30,000 at the date of separation from Maxima. Two months after separation Ashley's hours of work fall and they lodge an estimate of income of $20,000. Four months later Ashley starts in a new job paying $38,000. Ashley lodges a new estimate for that amount and the assessment is amended to use that amount.
Ashley may also make an application to have the additional income earned post separation excluded from the new assessment. If the Registrar is satisfied that the section 44 requirements are met, the Registrar may make a determination that Ashley's adjusted taxable income will be reduced by the additional income Ashley earned post separation up to a maximum of 30%.
For more information about estimates of income, see 2.5.1.
Income or annual rate set
Where a parent's annual rate or income for child support purposes is set by a court order, child support agreement, or change of assessment decision, the parent is able to apply for post-separation income to be excluded from their adjusted taxable income. However, the income exclusion cannot start until after the court order, child support agreement, or change of assessment decision ceases to have effect. If the court order, child support agreement, or change of assessment decision covers the entire child support period, the application will be refused (section 44(5)).
When a parent's child support assessment is based on a non-ATO income, the parent may still be able to make an application to have post-separation income excluded from that income, provided that the Registrar is able to clearly identify the income that has been earned post separation.
Where the income is provided by the parent or derived from information provided by the ATO, Centrelink or employers, it may be possible for the Registrar to identify additional income that has been earned post separation. In those cases, the Registrar will check the income that is being used and make a decision as to whether the components of the income can be identified.
Where the components of the income cannot be ascertained, or where the income being used is a default income of at least 2/3 MTAWE, post-separation income will not be able to be identified and so cannot be excluded.
Parents with more than one child support case
Additional income earned after separation that has been excluded reduces the adjusted taxable income of the parent in only the child support case between the parents who separated - not any other case the parent may have (section 44(1)).
Parents who reconcile & re-separate
Reconciling and re-separating allows a new application for exclusion of post-separation income only if during the last reconciliation the parents lived together in a genuine domestic relationship for at least 6 months (section 44(1)(a) and section 44(1)(b)). The additional income must have been earned after the last separation.
Parents with a child support case involving a non-parent carer are able to apply to exclude additional income earned after separation. The separation must have been between the parents of the child, not a parent and the non-parent carer.
Revoking election to exclude additional income
Once an election to exclude additional income has been accepted, it cannot be revoked. Therefore, if the parents no longer want the exclusion to apply, they would need to make a child support agreement setting the relevant parent's income at a higher level or specifying an annual rate of child support.
See 2.7.1 for more information on child support agreements.
DHS's internal review (objection) process allows parents to ask the Registrar to formally reconsider particular decisions made under child support legislation.
If the Registrar refuses an application for exclusion of post-separation income, the Registrar will give the parent written notice of the decision (section 44(5)). If a parent is dissatisfied with this decision they may object to the particulars of the unchanged assessment.
If the Registrar accepts an application for exclusion of post-separation income the Registrar will give effect to the determination by amending any administrative assessment that has been made in relation to the child support period. A parent who is dissatisfied with that decision may object to the particulars of the amended assessment. See 4.1 for more information on objecting to the Registrar's decisions.