3.4.4 Reconciling an income estimate
Context
When a parent (1.1.P.10) makes an income estimate (1.1.I.20) election for a year of income (1.1.Y.10) their income estimate will be reconciled when their actual income for the year of income is known, including all updates made to their income estimate during that year.
Estimates of income are reconciled when the parent’s relevant ATI (1.1.A.20) becomes available from the ATO. If the parent fails to meet their tax lodgement obligations within 12 months of a financial year ending, the Registrar may determine an ATI for the purposes of reconciling the income estimate.
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.
On this page
- Calculating a parent’s estimated ATI – more than one income estimate
- Reconciling an income estimate
- Reconciling an income estimate - actual ATI is known within 12 months
- Reconciling using a Registrar determined ATI
Calculating a parent’s estimated ATI – more than one income estimate
The table below shows the method statement to calculating a parent’s estimated ATI for the purpose of reconciling a full year or part year income estimate, where a parent has updated their income estimate after it was first accepted.
The estimated ATI for the year is the total of the income expected in each application period (1.1.A.90) for each income estimate election for the year of income.
| 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:
| First estimate (1 July 2020 to 31 October 2020): Second estimate (1 November 2020 to 31 March 2021): | 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 (3.4.2) for each income election. | First estimate application period is: Second estimate application period is: | 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): Step 3 estimated ATI = $27,319 Total estimated ATI = $40,219 | Last partial year income amount (5 April 2021 to 30 June 2021): Step 3 estimated ATI = $2,898 Total estimated ATI = $13,898 |
Act reference: CSA Act section 64A(3) Estimated ATI amount
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).
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, the income estimate will be reconciled only if the Registrar determines that it is appropriate to do so.
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. The income estimate may be reviewed and the assessment amended under CSA Act section 63A, section 63B or section 63C, if required.
Act reference: CSA Act section 63A to section 63C Amendment of assessments, Part 5 Division 7A Reconciliation of estimates of adjusted taxable income
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 and the assessment will be updated.
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 for the remaining period. The Registrar will reconcile the part year income estimate by comparing the parent's:
- estimated partial year income amount, and
- 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. This may result in an overpayment or child support debt (Part 8) (1.1.C.90), and the application of an estimate penalty (3.4.5).
To apply the actual partial year income amount to the assessment, it needs to be annualised by:
- Step 1 - calculating the actual partial year income amount daily rate, by dividing this amount by the number of days in the application period, and
- Step 2 - multiplying the daily rate by 365.
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.
Act reference: CSA Act section 64 Reconciliation using a parent’s actual adjusted taxable income—single income election, section 64AA Action by Registrar following reconciliation
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.
For assessments which need to be updated to reflect the higher actual 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.
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:
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 (1.1.C.70), by applying the actual annualised incomes from Step 5 to each application period in the year of income. | |
Act reference: CSA Act section 64 Reconciliation using a parent’s actual adjusted taxable income—single income election, section 64AA Action by Registrar following reconciliation
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), and
- actual partial year income amount which is their actual ATI less the year to date income amount.
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.
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.
Act reference: CSA Act section 64 Reconciliation using a parent’s actual adjusted taxable income—single income election, section 64AA Action by Registrar following reconciliation
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. If the Registrar makes a determination of the income to be used (the parent's determined ATI) to reconcile an estimate, a notice of the determination must be provided to the parent. The parent can object to the particulars of the assessment to which the determination relates (Part 10).
The estimate or estimates will be reconciled using the approaches described above in relation to if only one estimate is made, or if more than one estimate is 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, the estimate/s will be reconciled using the actual income.
If the Registrar has amended the assessment as a result of reviewing the estimate under CSA Act section 63A, section 63B or section 63C, the Registrar may decide not to reconcile the estimate.
Act reference: CSA Act section 64 Reconciliation using a parent’s actual adjusted taxable income—single income election, section 64AB Registrar to determine a parent’s …, section 64AC Reconciliation using a parent’s determined ATI—single income election, section 64AD Reconciliation using a parent’s determined ATI—more than one income election
CSRC Act section 80(1) item 11 Decisions against which objections may be lodged—general