188.8.131.52 Notional assessments
This topic provides information about the use of notional assessments in the maintenance income test (MIT) for child support agreements made on or after 1 July 2008. It covers the following topics:
- notional assessments
- private collect agreements
- Child Support collect agreements, and
- treatment of child support arrears.
For child support agreements, Child Support will work out the annual rate of child support that would otherwise be payable under the child support formula if there was no agreement. This is called the 'Child Support notional assessment' because it is a 'notional' rather than an actual rate of child support. The notional assessment is determined by Child Support in the same manner as a child support assessment, and is the annual rate of child support that would be paid if the agreement was not in place. Once a child support agreement is accepted, calculation of FTB will be based on the notional assessment to calculate FTB.
Example 1: Michael and Jane have registered for collection by Child Support a binding child support agreement for their son, Thomas. They have agreed that Michael will pay an annual rate of $4,000 in child support. The Child Support notional assessment is $5,000. The $5,000 is the amount that would have been payable had the agreement not been made. When applying the MIT in calculating Jane's FTB Part A rate, the notional amount of $5,000 will be used instead of the actual agreement amount of $4,000.
Example 2: Jason and Rachel have registered for collection by Child Support a binding child support agreement for their son, Lee. They have agreed that Jason will pay an annual rate of $6,000 in child support. The Child Support notional assessment is $4,000. The $4,000 is the amount that would have been payable had the agreement not been made. When applying the MIT in calculating Rachel's FTB Part A rate, the notional amount of $4,000 will be used instead of the actual agreement amount of $6,000.
Act reference: FAAct Schedule 1 clause 20B(2) Individual taken to have received notional assessed amount
CSA Act section 146A Simplified outline
Private collect agreements
If a child support agreement is made on or after 1 July 2008 and the child support is collected privately, the MIT for FTB Part A will use the notional amount of child support rather than the agreement amount.
Where a payee collects their child support through private arrangements, FTB will be calculated by using 100% of the notional assessed amount of child support. This is because it is assumed the payee will collect 100% of the child support liability.
Example: In Michael and Jane's example above, the notional amount of child support ($5,000) would be used in the MIT for FTB Part A to work out Jane's rate of FTB Part A.
Child Support collect agreements
If a child support agreement is made on or after 1 July 2008 and the child support is registered for collection by Child Support, special rules apply if less than 100% of the child support amount payable under the agreement is collected.
Where a payee arranges for child support to be collected by Child Support, FTB is assessed on the notional amount paid. This is a percentage of the notional assessment, where the percentage is the proportion of the agreement amount collected by Child Support and divided by the agreement amount.
If less than 100% of the agreement amount of child support is collected, the MIT will not use 100% of the notional amount. Instead, a percentage of this amount that is equal to the percentage of the agreement amount received is used.
Example 1: Mary's notional assessment amount is $20,000 but she makes an agreement with her ex-partner to receive $10,000 in child support for her 8 year old daughter. Over the income year, Mary only receives $5,000 from Child Support. To work out what amount should be used for the MIT, the amount collected ($5,000) is divided by the agreement amount ($10,000). This works out to be 50%. As Mary only received 50% of her agreement amount, only 50% (or $10,000) of the notional assessment amount ($20,000) is used for the MIT.
Example 2: Alex and Maria have a child support agreement and payments are registered for collection by Child Support. They have agreed that Maria is to receive an annual rate of $8,000 in child support from Alex. The notional amount of child support is $5,000. Child Support collects $6,000 in child support payments from Alex. This is equal to 75% of Alex and Maria's agreement amount of $8,000. This means that, when working out Maria's rate of FTB Part A, the MIT will use 75% of the notional amount of $5,000. That is, $3,750 will be used instead of the notional assessment amount of $5,000.
Act reference: FAAct Schedule 1 clause 20B(3) Underpayments
Provisional notional assessments
Once Child Support accepts a child support agreement, a provisional notional assessment must be made. This assessment is calculated taking into account both parents ATI and their most recent care details available for the children. Child Support must notify both parties of the provisional notional assessment, and both parties are entitled to seek variation of this.
A provisional notional assessment becomes a notional assessment either:
- 14 days after the notice of the provisional notional assessment is received by all parties, or
- if an application for variation was lodged, then on the day which it is varied, or is refused to be varied.
It is only once the provisional notional assessment becomes a notional assessment that it is used to calculate the FTB Part A entitlement.
A subsequent provisional notional assessment will be made where:
- the child support agreement (184.108.40.206) remains in force and it is 3 years since the notional assessment was last calculated
- the child support payable under the child support agreement (binding or limited) changes by more than 15%, or
- there is a limited agreement, and either party has requested a new provisional notional assessment.
Act reference: CSA Act Part 7A Notional assessments
Policy reference: FA Guide 220.127.116.11 Child support agreements (post July 2008)
CS Guide 2.7.4 Effect of a child support agreement once accepted by the Registrar (other than lump sum payment provisions)
Treatment of child support arrears
If the payee receives more than the agreement amount, FTB is calculated on the notional assessed amount plus the additional amount received. The additional amount of child support is treated as actual arrears or, if there had been an underpayment of child support in a previous financial year, notional arrears.
Where there has been an underpayment, the notional factor is calculated, which ensures that any arrears received will have the same effect as if the child support had been paid in the financial year it was due. If there has been an underpayment in more than 1 financial year, the arrears will affect the oldest underpayment amount first.
The notional factor is the amount of the notional assessment not paid, divided by the actual agreement amount that has not been paid.
Example: If the agreement amount is $4,000 and only $3,000 is collected, and the notional assessment is $5,000 then:
- the proportion of the agreement amount collected is 75%, which is equal to a notional amount paid of $3,750 (i.e. 75% of $5,000)
- the notional factor is calculated by dividing the notional amount underpaid by the agreement amount underpaid: $1,250 ($5,000 less $3,750) divided by $1,000 ($4,000 less $3,000). That is, a notional factor of 1.25.
Any arrears payments are multiplied by the notional factor to give the notional arrears amount. The payee's FTB is calculated on the notional assessed amount plus the notional arrears amount received.
Example: A child support agreement provides for payment of an annual child support amount of $4,000. Child Support collects the child support payments. At the end of the financial year, Child Support has collected $4,500. The notional assessment is $5,000.
In the previous financial year, the Child Support collected $3,000, resulting in an underpayment amount of $1,000 for that year and a notional factor of 1.25 (see calculation in the above example). The additional amount of $500 collected in the current financial year, if multiplied by the notional factor, equals a notional arrears amount of $625 ($500 × 1.25). The payee's FTB would be calculated on the notional assessed amount of $5,000 plus the notional arrears amount of $625. The year 1 underpayment is reduced from $1,000 to $500, and the year 1 notional factor remains at 1.25.
If more than the agreement amount is collected and the payer does not have an underpayment from a previous financial year, FTB will be based on the notional assessment plus the additional amount received as actual arrears.
Example: The agreement amount is $3,000 and $4,500 is collected. The full agreement amount of child support has been collected in previous financial years. The notional assessment is $5,000. FTB will be based on $5,000 plus the additional amount received of $1,500, that is $6,500.
Act reference: FAAct Schedule 1 clause 20B Working out amounts of child maintenance using notional assessments, Schedule 1 clause 20C Working out amounts of child maintenance in relation to lump sum payments
Significant changes to binding agreements
Binding child support agreements cannot be varied and can only be terminated if both parents agree to do so or a court order is made setting aside the agreement (18.104.22.168). If the care arrangements of a child change significantly so that the payer under the binding agreement now has over 65% care of a child, there are certain actions a parent can take to change from being the payer under the agreement to instead become the payee in order to satisfy the MAT (22.214.171.124).These include seeking the agreement of the other parent to give effect to a termination agreement.
If the payer under a binding agreement who now has over 65% care of a child cannot end the existing agreement, the existing notional assessment will remain in place until a new notional assessment is made. As the payer (under the agreement) is not receiving child support under the agreement, or the existing notional assessment, no maintenance income will be counted in the MIT.
If a new provisional notional assessment is triggered, the individual is not receiving maintenance under the agreement as they are the payer, which means the new notional assessment does not apply to the MIT when determining their FTB Part A entitlement.
Example: Roseanna and Christopher have a binding agreement in which Christopher is the payer. Roseanna has 70% care of their daughter Teleatha and Christopher has the remaining 30% care. Roseanna subsequently becomes unable to care for Teleatha permanently, so Christopher now assumes 100% care. Christopher is still liable under their binding agreement to pay child support to Roseanna even though he has a higher percentage of care for Teleatha. Christopher attempts to end the binding agreement although Roseanna refuses. This action by Christopher satisfies the MAT requirements. Two years later a new provisional notional assessment is triggered which identifies that Christopher has 100% care of Teleatha. It is not applied to the MIT as Christopher is not receiving maintenance under the binding agreement.
Act reference: FAAct section 3(1)-'maintenance income', Schedule 1 Clause 10 Effect of certain maintenance rights, Schedule 1 clause 20B Working out amounts of child maintenance using notional assessments