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5.2.9 Reason 8B - a parent's earning capacity

Context

Parents (1.1.P.10) and non-parent carers can apply for a change of assessment (1.1.C.50) in special circumstances if the child support assessment (1.1.C.70) is unfair because of the earning capacity of one or both parents, including if the assessment is affected by a parent's reduced income.

Act references

CSA Act section 98C, section 98E, section 98S, section 117(2)(c)(ib), section 117(4) to (9)

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Grounds for departure

There may be a reason for changing the assessment if, in the special circumstances of the case, the assessment of child support (1.1.C.60) results in an unjust and inequitable level of financial support to be provided by the payer (1.1.P.40) for the child because of either parent's earning capacity (CSA Act section 98C(2) and section 117(2)(c)(ib)).

Either parent can apply for a change of assessment using this reason. The Registrar can also initiate a change of assessment using this reason.

The phrase 'special circumstances of the case' is not defined in the CSA Act. The Family Court 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).

Although a child support assessment is generally calculated using the parents' ATI (1.1.A.20), the Registrar can look beyond the parent's ATI when considering an application for a change of assessment. Income, earning capacity, property and financial resources which do not necessarily form part of a parent's taxable income (1.1.T.20) can be added to or excluded from a child support assessment (David George Carey Husband and Tracey Louise Carey Wife (1994) FLC 92-489).

What is a parent's earning capacity?

In respect of the earning capacity of the unemployed or under-employed parent, the Registrar may enquire as to the 'ability of' and 'opportunity for' that person to seek and gain employment (DJM and JLM (1998) FLC 92-816). The Registrar will consider the parent's qualifications, skills, age and employment history.

Example: A parent who has been caring for children and has not been in the paid workforce for many years may have difficulty entering the workforce.

A parent who has been in the same job for 20 years, and is made redundant, may have similar difficulty.

On the other hand, a parent who is qualified in an occupation in high demand would be expected to enjoy considerable flexibility in their choice of employment.

The other relevant consideration is whether or not there are any special, local or other factors that affect a parent's capacity to secure employment. Opportunities for employment vary from place to place and between occupational groups.

In determining the extent of the parent's earning capacity, the Registrar may consider the following (PW Scott Appellant/Husband and CE Scott Respondent/Wife Appeal (1994) FLC 92-457):

  • The circumstances in which the parent became unemployed or without income
  • The reasons for the unemployment or loss of income
  • The nature of the parent's previous employment
  • The efforts which they have subsequently made to obtain employment, and
  • The property or financial resources that are, or should reasonably be, available to the parent.

The Registrar must weigh up the individual factors of each case in deciding whether a parent who has ceased work, or reduced their hours, has the ability and opportunity to earn a greater amount, and whether that additional earning capacity makes the child support assessment unfair.

When can the Registrar take into account a parent's earning capacity?

The Registrar must be satisfied that 3 compulsory criteria (see table below) are satisfied before a change to the assessment can be made to take into account a parent's earning capacity, rather than their actual income.

  • Criterion 1 - not working, working reduced hours, or has changed industry, occupation, or working pattern
  • Criterion 2 - decision not justified by the parent's caring responsibilities or state of health
  • Criterion 3 - purpose of the parent's decision about working arrangements

If the parent's circumstances satisfy only one or 2 of the criteria, the Registrar cannot make a decision based on the parent's earning capacity.

The Registrar must also be satisfied it would be possible for the parent to increase their income by changing their work arrangements. That is, work must be available for the parent in their area and the parent must have the necessary qualifications and experience to perform that work.

Criterion 1 - not working, working reduced hours, or has changed industry, occupation, or working pattern

The Registrar must be satisfied that the parent meets one of the following sub-criteria:

It is possible that a parent will meet more than one of these sub-criteria.

Except where the parent does not work, a parent who has not reduced their income cannot be found to have a higher earning capacity.

Example: A parent who refuses a promotion at work, maintaining their income at the same level, will generally not be found to have a higher capacity to earn.

Some reductions in income will not satisfy this criterion.

Example: A reduction from regular overtime to a standard working hours week or loss of bonuses which required additional effort beyond that required of a standard employee, cannot be considered as founding a parent's additional earning capacity.

Does not work despite ample opportunity

A parent who is not working is one who is not engaged in work for remuneration, or in self-employment for profit.

A person can be said to be not working despite 'ample opportunity' to work if they have had offers of employment and refused them without adequate reason. Alternatively, if the person is not seeking work but there are job vacancies for which they are suitably qualified in their local area, this could also constitute ample opportunity to work.

Weekly hours of work reduced below the full-time standard for that occupation or industry

This sub-criterion may apply when a parent is still employed and has remained in the same occupation or industry. The relevant factor is that the parent now works less hours than they did previously. The fact that their hours have reduced is not in itself sufficient. The reduction must put those hours below the usual full-time standard for the occupation.

The parent should be able to provide information about the usual full-time standard hours for their particular industry or occupation. Alternatively, the Registrar could obtain information from the person's employer.

Changed industry, occupation, or working pattern

This sub-criterion may apply when the parent is still employed, but has changed jobs, or rearranged their hours of work, or pattern of work. It is implicit that this change in industry, occupation or working arrangements has resulted in a lower income.

For a parent to change their occupation or industry requires a greater change than simply moving between employers or jobs. There needs be something in the nature of a change in career, or of working in the same type of job but in an entirely different field.

A parent who has changed their working pattern may still be in the same job, or employed in the same occupation or industry. What is relevant is whether the person has changed their hours of work, for example, by choosing not to work nights or weekends or choosing to purchase additional leave, resulting in a lower income.

A parent may change their working arrangements, for example, to being a consultant or sub-contractor rather than an employee. In these situations the Registrar is satisfied that there has been a change in their working pattern.

If the Registrar is satisfied the parent meets this first criterion, they must then consider the second criterion below, relating to if the parent’s decision is justified by their caring responsibilities or state of health.

Criterion 2 - decision not justified by the parent's caring responsibilities or state of health

The Registrar must be satisfied that the parent's decision not to work, to reduce the number of hours, or to change their working pattern is not justified on the basis of:

This is an objective test. The Registrar must consider whether an ordinary, reasonable person would consider the parent's decision to be justified, rather than whether the parent who made the decision considers that their decision was justified. It is also important to note that if the parent's caring responsibilities or state of health do not adequately justify the parent's decision about their work arrangements, then the Registrar must then consider the third criterion below, relating to the parent's purpose in making that decision.

Parent's caring responsibilities

The type of caring responsibilities that might justify a parent's decision to change their working hours will only be a personal responsibility to care (1.1.C.10) for another person. Caring responsibilities include responsibilities to persons other than the parent's own children, such as their own parent, a new partner or step-children, elderly relatives or friends.

The Registrar will take into account the following factors when considering whether the parent's decision to change their working arrangements because of their caring responsibilities is justifiable.

  • The relationship between the person being cared for and the parent providing care
  • Whether the parent has a legal duty to maintain the person for whom they are providing care
  • If the parent does not have a legal duty, whether they have a moral duty and the extent of that moral duty
  • The degree and type of care provided
  • Whether the parent has some capacity for part time or casual work in conjunction with their caring responsibilities
  • The availability of alternate care (personal and institutional)
  • Whether that alternate care is suitable and/or affordable, and
  • The previous and proposed duration of the period of care.

The Registrar will weigh up the evidence about these and any other relevant matters in order to decide whether the parent's caring responsibilities are such that they justify their decision to change their working arrangements.

The parent who is primarily responsible for care of the children for whom child support is payable may not be employed, or may be working part-time in order to accommodate their child care responsibilities. Where this is a longstanding arrangement (for example, one that existed prior to separation, or since the children were born) the parent primarily responsible for care of the children may not have an additional earning capacity, because their ability and opportunity to undertake paid employment is diminished by their child care responsibilities and their absence from the workforce.

A parent who has been in the workforce may cease work, or reduce their work commitments to accommodate their responsibilities to care for a child. The child for whom the parent provides direct care could be the child from a former relationship (for whom child support is payable), or a child of a new relationship. In such cases, the parent (whether they are the payer or payee (1.1.P.30) in the case) may still have an unexercised earning capacity that makes the assessment unfair. The Registrar may consider the following relevant facts over and above those considered in other earning capacity cases.

  • The age, health and number of children being cared for
  • The practical availability of child-care
  • The economic cost of child-care compared with income available to be earned
  • The proposed period of the parent's absence from the work force, and
  • Whether the parent has appropriately balanced their obligation to support all of their children.

When making a decision about the effect a parent's caring responsibilities have on their earning capacity, the Registrar must have regard to government policies and initiatives designed to encourage parents back into the workforce. If the parent's caring responsibilities do justify their decision about their working arrangements, then the Registrar must not make a decision to base the child support assessment on the parent's earning capacity. However, if the parent's caring responsibilities would not preclude work, or additional work, the Registrar must proceed to consider the third criterion below, namely, the parent's purpose in making the decision about their working arrangements.

Parent's state of health

As with a parent's caring responsibilities, if a parent has health problems, this may mean that they do not have an earning capacity that makes the assessment 'unjust and inequitable'. If the Registrar is satisfied that the parent's state of health is such that they do not have an unexercised earning capacity that makes the assessment 'unjust and inequitable', it will not be necessary to consider whether the parent's circumstances satisfy the criteria in CSA Act section 117(7B).

The Registrar will take into account any evidence that the parent presents about their state of physical and mental health. It would usually be expected that a parent who claims to have made a decision to change their work arrangements because of their health will have been diagnosed by a qualified medical practitioner; treated for the condition and have made that decision based on medical advice. Therefore, the parent would usually be able to provide medical certificates or reports from their treating doctor, and/or reports from any specialist to whom the parent was referred.

The following factors are relevant in considering whether the parent's decision about their working arrangements is justified on the basis of the parent's state of health.

  • The fact that the parent is suffering from a medical condition and the effect that this has upon their capacity to work
  • The expected duration of the condition
  • Any recommended treatment, and the impact that this has on the parent's capacity to work
  • The availability of light duties, if the parent could work in a restricted capacity.

The Registrar will weigh up the evidence about these and any other relevant matters in order to decide whether the parent's state of health is such that it justifies their changed work arrangements. If the parent's state of health does justify their decision about their working arrangements, then the Registrar must not make a decision to base the child support assessment on the parent's earning capacity. However, if the parent's state of health would not preclude work, or additional work, the Registrar must proceed to consider the third criterion below, namely, the parent's purpose in making the decision about their working arrangements.

Criterion 3 - purpose of the parent's decision about working arrangements

When considering this criterion, the Registrar must be satisfied that the parent has failed to demonstrate that affecting the assessment of child support was not a major purpose of their decision to not work, to reduce hours or change their occupation, industry or working pattern (CSA Act section 117(7B)(c)).

The test is framed as a 'rebuttable presumption'. The starting point is that affecting the child support assessment is presumed to be a major purpose of the parent's decision about their working arrangements. The parent can rebut this presumption by demonstrating, to the Registrar's satisfaction, that affecting the child support assessment was not a major purpose of their decision.

This is a subjective test. The Registrar must consider what the parent's purposes were in making the decision about their working arrangements and whether a major purpose was to affect the child support assessment. It is not necessary that the Registrar is satisfied that the parent's decision was objectively reasonable, but the reasonableness of the decision is a factor for the Registrar to consider in deciding whether the parent has demonstrated that affecting the child support assessment was not a major purpose in their decision.

In considering the reasonableness of the decision, it needs to be kept in mind that this policy on earning capacity is intended to be flexible enough to allow parents to make decisions about their work and life, for example, choosing to pursue a different career. It is not the intention to micro-manage a parent's life on the basis they may have made a better decision about employment than they did in fact make.

The provision refers to 'a major purpose' not 'the major purpose'. This means that the parent can have more than one major purpose in making the decision. A major purpose does not have to be the dominant purpose. It is more than a 'significant purpose'. A suitable test would be whether affecting the child support assessment was one of the most important factors in the parent's mind at the time of making the decision about their working arrangements.

The usual way for a parent to rebut the presumption would be to show that there were other factors that they considered which were the major purpose and that affecting the child support assessment was not a major purpose. The Registrar will ask the parent to explain:

  • the factors they took into account in making their decision to reduce their earnings or not to work
  • what financial arrangements exist to enable them to support themselves, and
  • the consideration they have given to the arrangements to support the children for whom child support is payable after they changed their work arrangements.

The Registrar will also take into account any other relevant information that is already available in the department's records, including:

  • statements the parent may have made when advising the Registrar about their change in work arrangements
  • statements they may have made to a department officer when discussing collection activities, and
  • comments made by the other parent in the course of the change of assessment proceedings.

In particular cases, the parent's employer or former employer may be contacted to establish what reason the parent gave when they notified the employer of their decision.

If the parent cannot demonstrate that affecting the child support assessment was not one of the major purposes in the decision, they will fail to rebut the presumption and it may be appropriate for the Registrar to make a decision to base the assessment on that parent's earning capacity.

It is more likely that a parent will be found to have a higher capacity to earn where they have voluntarily made a change resulting in a reduction in their income. Where a parent has made a change involuntarily, such as being made redundant, they will be unlikely to be found to have a higher capacity to earn where they have made reasonable efforts to resume income earning activities. Documentation which should be available to the Registrar to substantiate claims relating to unemployment includes:

  • separation certificates and termination statements
  • proof of receipt of a social security pension or benefit that includes mutual obligation requirements, such as JSP, youth allowance as a jobseeker, parenting payment single after the person's youngest child turns 6, or some types of special benefit, or
  • copies of job applications and responses.

Study

A parent might decide to leave their employment (or reduce their hours of employment) in order to undertake a course of study. If the parent cannot demonstrate to the Registrar's satisfaction that affecting the assessment of child support was not a major purpose of their decision to undertake study, it may be appropriate to base the child support assessment on the parent's earning capacity, rather than the parent's reduced income.

The Registrar can consider the following relevant factors:

  • The parent's reasons for undertaking the course of study
  • The length of the course of study
  • Whether the parent took into account their obligation to provide financial support for the children during the period of study
  • The needs and situation of the children at the time of the application and during the period of study
  • The manner in which the parent will support himself or herself during the period of study
  • Whether part-time work or part-time study was available
  • The length of time the parent had been planning to undertake the course of study
  • The likelihood of securing employment, and of deriving increased income, after the course of study, and
  • The qualification that would be awarded on completion of the course of study.

Even if the Registrar is satisfied that affecting the child support assessment was not a major factor in the parent's decision, failure to resume work following the anticipated course of study may leave the parent open to a further consideration of their earning capacity.

Change of occupation or industry

A parent's decision to change occupation or industry while maintaining full-time employment, resulting in a reduction in income, is not likely to lead to a finding of an increased earning capacity, especially if the parent's previous employment was dangerous or required significant travel and time away from home.

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