3.1.7.23 Maintenance income - modified entitlement method
Summary
The MEM was introduced on 1 July 2006 and affects the entitlement method (1.1.E.35) for estimating maintenance income when calculating FTB Part A. This topic covers:
- overview of MEM
- application of MEM, and
- revision of estimate when child support assessment changes.
Overview of MEM
Under the MEM, an individual's FTB Part A rate is determined using the estimated maintenance income worked out by applying the higher of the entitlement method and the disbursement method formula.
A revision of the estimate will be made when child support entitlement increases part way through the year under the MEM. The MEM will apply the higher of the estimate under the disbursement method and the estimate under the entitlement method.
These changes complement the introduction of the MIC (3.1.7.05) to take better account of child support arrears when calculating FTB entitlement.
Act reference: FA(Admin)Act section 20(3) Determination of rate may be based on estimate …
Policy reference: FA Guide 3.1.7.10 Maintenance income test - general provisions, 3.1.7.21 Maintenance income - entitlement method, 3.1.7.22 Maintenance income - disbursement method, 3.1.7.30 Application of the maintenance income test
Application of MEM
The MEM will apply:
- only to individuals who have chosen the Child Support collection method, and
- where the individual's FTB entitlement is assessed by choice or by default under the entitlement method and can include individuals that have had their FTB rate continuously adjusted.
The MEM will not apply:
- during a period of private collection, or
- during a period where the individual has chosen to be assessed under the disbursement method.
Each time Child Support notifies Centrelink of a disbursement that has been made to the eligible MEM individual, Centrelink will calculate the FTB Part A entitlement of the individual based on both the entitlement method and the disbursement method formula and compare the 2 results. The ongoing FTB Part A rate will be based on the higher estimate of maintenance income produced by the 2 results; that is the method that provides the lowest FTB Part A rate will be applied. If the estimate of maintenance income of the 2 results is equal, then the entitlement method will be used.
Individuals who have chosen MEM will be transferred to the disbursement method when the disbursement method calculation produces a lower FTB Part A entitlement than the entitlement method. Generally this will only occur where the Child Support collects an amount in excess of the usual monthly payment from the payer and transmits this to the payee (1.1.P.71). Often this will be an arrears payment of child support.
If an individual using the Child Support collection method is on the disbursement method under the MEM earlier in the income year, then has a reduction in child support payments that results in the entitlement method comparison producing a higher estimate of maintenance, the individual will revert back to the entitlement method.
If an individual in receipt of FTB is assessed using MEM and is on the disbursement method at 30 June, they will revert to the entitlement method from 1 July of the new income year until they satisfy the conditions to change to the disbursement method again in the new income year. This is because the entitlement method will always result in the same or higher estimate than the disbursement method at the start of the new income year.
Example: Jennifer, has chosen the Child Support collection method and is entitled to child support of $3,000 in the 2006-07 financial year. Her ex-husband Eric, stopped making any payment from February 2005. Jennifer is currently being assessed on the entitlement method. In August 2006, Child Support collected and forwarded to Jennifer an amount of $4,750, being full outstanding arrears of $4,500 and the expected monthly amount of $250. Eric continued to make regular monthly payments of $250 for subsequent months, so Jennifer received a total of $7,250 child support in 2006-07.
The estimated maintenance for Jennifer in 2006-07 under the different methods is as follows:
| Method | Dates | Maintenance Income Estimate |
|---|---|---|
| Disbursement | 01/07/2006 to 31/08/2006
01/09/2006 to 30/06/2007 |
$0
$7,250 |
| Current entitlement | 01/07/2006 to 30/06/2007 | $3,000 |
| Modified entitlement | 01/07/2006 to 31/08/2006
01/09/2007 to 30/06/2007 |
$3,000 (entitlement method is the higher estimate)
$7,250 (disbursement method is the higher estimate) |
Policy reference: FA Guide 4.3.1.30 Mandatory continuous adjustment of FTB instalments
Revision of estimate when child support assessment changes
From July 2006, the entitlement method ceases to be based solely on the new liability amount. The estimate takes into account of the liability amounts over the full year, as occurs when the liability decreases. This change applies to both Child Support collection and to private collection.
Example: If a child support liability for 2006-07 is $3,000 for the first 6 months then increases to $4,000 for the remainder of the year. Prior to July 2006, a maintenance estimate of $4,000 applied. While this reduced the risk of an overpayment, it overestimated the amount for that financial year, as the actual entitlement for the full year was $3,495.89. So from 1 July 2006, $3,495.89 is used for the annual maintenance estimate for the remainder of the year.
To avoid the risk of overpayment where the liability increases, the individual will have their rate continuously adjusted when they notify of an increase in their income estimate.