18.104.22.168 Initial estimate when making a claim
This topic includes the following information:
- when an estimate can be used to assess eligibility or entitlement (1.1.E.30)
- assessing a reasonable estimate
- fluctuating income (1.1.I.20)
- mandatory continuous adjustment assistance when income fluctuates
- situations where the individual may be better off waiting to claim FTB or SBP for a past period
- effect of reconciliation (1.1.R.10) of income, and
- accepting or refusing that the estimate is reasonable.
When an estimate can be used to assess eligibility or entitlement
An individual (1.1.I.90) may need to estimate their ATI (1.1.A.20) for the relevant income year depending on the type of claim they make. The following table shows when an estimate can be used to assess eligibility for FTB or SBP or entitlement for CCS.
|If the claim is …
|the individual …
|an instalment claim (1.1.I.100) for FTB through Centrelink
|and their partner (1.1.P.30) must estimate their income for the current year. If no estimates are provided, Centrelink must use an indexed estimate. This estimate must then be compared with the indexed actual income when ATI for the previous financial year becomes available.
|a past period claim (1.1.P.60) for FTB for the current income year lodged in that year through Centrelink
|and their partner must estimate their income for the current year.
|a past period claim for FTB for a previous income year lodged in the following year through Centrelink
|must have their taxable income (1.1.T.20) assessed by the ATO if they were required to lodge a tax return.
Explanation: A past period claim for a previous income year cannot be determined if the individual's taxable income has not been assessed.
Their partner's income may be estimated if their taxable income has not been assessed.
Note: For the 2009-10 year onwards, past period claims will not be able to be based on an estimate of the partner's income. The partner will also need to lodge a tax return, if required by the ATO.
|a claim for SBP
and their partner on the day the claim is made must estimate their income received, or to be received for the relevant 6 month period beginning on the day of the of the stillborn child's delivery. If the individual does not have a partner on the day the claim is made, only the individual's income needs to be included in the estimate. This applies regardless of whether the claim is lodged during the 6 month income test period or following the 6 month income test period. The 6 month income test period can cross over 2 income years. (see Assessing a reasonable estimate)
Explanation: As an estimate of ATI for the purposes of the SBP income test is for a 6 month period that is not necessarily confined to a particular income year and which is not subject to end of year reconciliation, the status of the income used for the income test remains an estimate.
Note: If an individual is not eligible for SBP under the SBP income test, they may be eligible for SBP if they are eligible for FTB for another child (claimed either as instalments or as a past-period claim or as a bereavement claim for a deceased FTB or regular care child (1.1.B.20)) for a day within 52 weeks beginning on the day of the child's delivery, and the individual's rate of FTB included an FTB Part A rate greater than nil for that day.
Policy reference: FA Guide 2.12 SBP eligibility
|a claim for CCS
must provide an estimate of their and, if applicable, their partner's current year ATI.
Note: From the 2018-19 year onward, past period claims will not be able to be made for CCS payments. That is, the CCS (and ACCS if applicable) must be claimed throughout the year.
For information when an estimate can be used for an FTB bereavement claim see 22.214.171.124.
Note: For the purposes of the SBP income test, once an estimate of income provided with a claim is accepted as reasonable, the claim is determined as either entitled or not entitled.
- If entitled, the estimate is not re-visited and the individual maintains their eligibility even where their income has subsequently risen during the 6-month income test period.
- If the individual is determined as not entitled because the individual's ATI is too high and subsequently their income estimate decreases, the individual may become eligible for SBP. The individual can either submit a new claim to reflect the changed circumstances, or seek a review of the determination relating to the original claim and provide the revised estimate as part of the review process. If the individual chooses to lodge a new claim this must be done no later than 52 weeks beginning on the day of the child's delivery. If the individual chooses to seek a review of the no entitlement determination of their claim, they must do so within 52 weeks of being notified of the no entitlement determination. Where an individual has separated since lodging the claim their partner's income will be included unless they make a new claim at a date after the separation but by no later than 52 weeks beginning on the day of the child's delivery.
Act reference: FA(Admin)Act section 14 Restriction on determining claim where income tax assessment not made, section 20 Determination of rate may be based on estimate, indexed estimate or indexed actual income
FAAct section 36 When an individual is eligible for SBP in normal circumstances
Assessing a reasonable estimate
When deciding if an estimate of ATI is reasonable, consideration should be given to whether the individual:
- has provided all applicable sources of taxable income
Example: Gross wages or salary including overtime and shift allowances, taxable and tax free pension or benefit, taxable income from self-employment, taxable compensation payments, rental income, dividends, distributions interest received or net rental income.
- has included any other sources of income
Example: Target foreign income (1.1.T.05) or adjusted fringe benefits total.
- included amounts for a net rental property loss or DCME where appropriate.
Centrelink must ensure the individual has provided a total estimate and the calculations are correct. If errors or omissions are identified by Centrelink, they should be discussed with the individual. The individual must agree to make any alterations to the estimate.
The estimate must be considered reasonable taking into account the individual's financial circumstances for the income year to date, together with any anticipated variations to their income for the rest of the year.
Note: For the SBP income test the individual needs to take into account their financial circumstances in the relevant 6 month income test period beginning on the day of the child's delivery. See 4.15.1 for further details.
Policy reference: FA Guide 3.2.2 Taxable income, 3.2.3 Adjusted fringe benefits total, 3.2.4 Target foreign income, 3.2.5 Total net investment loss, 3.2.6 Tax free pensions or benefits, 3.2.7 Deductible child maintenance expenditure
In some cases it can be difficult for an individual to estimate their and/or their partner's income.
Centrelink can assist the individual in calculating their expected income taking into account the individual's present circumstances and any changes that may occur. An allowance can be made for possible increases of income if the individual is unsure. There is no particular method that must be used to work out the estimate.
Example 1: Miriam's gross annual salary is normally $38,000. By September she has earned another $1,500 in overtime. Her employer has told her that overtime will continue, but not at the same rate. Miriam thinks that it's likely that she will get half as much overtime each month for the rest of the year. She is also hoping to receive a bonus of around $5,000 before the end of the financial year. Miriam's estimate is worked out as follows:
|Overtime July - September
|Overtime October - June
Miriam claims FTB and is paid instalments based on this estimate. As it turns out, Miriam never receives the bonus she was expecting. Her actual income is assessed as $41,750. After her estimate is reconciled against her actual income she is paid a top-up of FTB for the difference in her payment rate.
Example 2: Brian's gross weekly wage is $600. He works irregular overtime, however the amount he is paid can be substantial. Brian does not know how much overtime he will get for the current financial year. He has been working in the same job for the last 3 years and often worked overtime. Over the last 3 years his wage has increased, but his overtime has been an average of about 20% for each year. Brian's estimate is worked out as follows:
Mandatory continuous adjustment
Individuals who receive FTB by instalment who advise of a change in their income, or have their FTB estimate automatically uplifted by Centrelink during the current income year may have their FTB rate automatically adjusted if required, to reduce the risk of an overpayment at the end of the income year.
Act reference: FA(Admin)Act section 31E Continuous adjustment of daily rate of FTB
Policy reference: FA Guide 126.96.36.199 Mandatory continuous adjustment of FTB instalments
Situations where a past period claim for FTB may be preferable to instalments
There are some situations where it may be difficult for an individual to accurately estimate their and/or their partner's income because the effect of a financial change on their taxable income is too complex to estimate. If this is the case, the individual should consider claiming FTB for the past period through Centrelink if they can afford to wait for payment.
Explanation: Estimating an individual's, or their partner's, income may be difficult if they expect to receive one of the following types of payment:
- eligible termination payment
- capital gains
- reportable fringe benefits
- inheritance from a deceased estate
- surrender of a life insurance policy
- lump sum compensation payment
- earnings paid for a previous financial year
- large arrears of child support, or
- lump sum interest payment.
Note 1: Individuals may also elect to receive part or none of their payment (e.g. base rate for FTB) by instalment or fee reduction and then receive any top-ups after their payments are reconciled.
Note 2: Individuals cannot elect to claim CCS for a past period. All individuals will be asked to estimate their, and their partner's, ATI at claim.
Situations where a past period claim for SBP may be preferable
There are also situations where an individual may be unable to estimate their, and/or their partner's income during the 6 month SBP income test period. This may be particularly the case if there are fluctuations in income resulting from the time taken off work to recover from the stillbirth or other complex financial circumstances, such as the receipt of irregular income or lump sum payments. If this is the case, the individual may wish to claim SBP after the 6 month income test period when they have a greater degree of certainty about their likely income during the 6 month income test period.
Individuals have 52 weeks beginning on the day of a stillborn child's delivery to claim SBP. SBP is paid as a single lump sum, whether or not the payment is claimed in the 6 month income test period or afterward (4.15.1).
For the purposes of the SBP income test, taxable lump sum payments received by an individual in the relevant 6 month income test period are to be included as income for the income test. The proportion of the lump sum payment that is taken into account will depend on the length of the period to which the payment relates, or whether the payment relates to a period.
- If the payment relates to earnings over a 6 month period or less, 100% of the payment is to be included.
- If the payment relates to earnings over a period between 6 and 12 months the appropriate proportion between 50 to 100% of the payment is to be included (i.e. if the payment relates to earnings over a 9 month period, 67% of the payment is to be included).
- Where the individual can demonstrate that an amount less than 50% of their taxable lump sum payment should be attributed to the 6 month period because the payment received relates to a period of work longer than 12 months, a smaller proportion may be included.
- If the payment relates to an unearned lump sum that does not relate to a specific period, 50% of the payment is to be included (such as a payment from a family trust).
Note: For tax purposes, capital gains are regarded as having been received on the date of the event rather than when the payment is made.
Explanation: For tax purposes, a capital gain event takes place on the day contracts are exchanged for the sale of an investment property, not the date that settlement occurs on that property. The event is the date that payment is regarded as having been received for tax purposes so the capital gain from the event must be included as income for the purpose of the SBP income test if the event took place during the relevant 6 month income test period, even if the proceeds from the sale were received outside that period.
Accuracy of the estimate for FTB & CCS purposes
For those individuals who are required to lodge tax returns with the ATO, the estimated amount for a financial year is reconciled against the actual income for that year once their tax returns have been assessed. The following table shows the effect on FTB or CCS entitlement once income has been reconciled.
|If the estimated ATI is …
|then the effect on entitlement is a …
|more than the actual ATI
|top-up for the difference between the payment received and the entitlement amount, where applicable.
|less than the actual ATI
|recoverable debt for the difference between the entitlement amount and the payment received, where applicable.
The individual may choose to deliberately overestimate their income if they are unable to make an accurate estimate, however they should be advised that this may affect their possible entitlement to:
- rent assistance
Explanation: RA is only paid to individuals who receive more than the base rate of FTB Part A.
- an automatic HCC, and
Explanation: An automatic HCC can only be issued to individuals who receive the maximum rate of FTB Part A by instalments.
- the amount they need to pay up front for child care fees.
Accuracy of the estimate for SBP purposes
For the purpose of the SBP income test the individual's estimated income is not reconciled against actual income at tax time. As the estimate relates to a 6 month period, rather than a full income year, the individual is required to give a 'best effort' estimate of the income that will be, or was received by them and/or their partner during the 6 month income test period.
Accepting the estimate
For the purposes of FTB and CCS, generally the individual's estimate of ATI should be accepted as reasonable, if all their known sources of income are included, and the calculations are correct.
However, if it is clear that the estimate does not reflect the individual's financial circumstances, it must be discussed with the individual and the individual should be given the opportunity to change their estimate if they decide to do so.
Accepting an estimate which is obviously too low is likely to lead to a large debt once the individual's income is reconciled. Recovery of the debt may place the individual in a difficult financial position in the future.
For the purposes of SBP the individual's estimate is also accepted as reasonable if all known sources of income are included and their calculations are correct. However, as the estimated income is not reconciled against actual income, it is important to ensure the individual has submitted a 'best efforts' estimate that accurately reflects their circumstances.
Accepting an estimate of income that is too low from an individual for SBP could lead to incorrect payment. Once the estimate is accepted, the estimate will not be subject to revision, unless there is evidence of fraud or misleading information in the provision of the estimate - that is, the individual is considered to have made their best efforts to provide an accurate estimate and are considered eligible on that basis if their estimated income for the 6 month income test period is less than or equal to the cut-off.
It is also important for the purposes of the SBP income test that caution is exercised before accepting an estimate that appears too high, unless the individual insists on lodging the claim with that estimate. Accepting an estimate that is too high could lead to an eligible individual being ruled ineligible for SBP. This could arise in circumstances where, for example, the individual overestimated the amount they should include from a lump sum payment or their estimated adjusted fringe benefits total.
The following table shows whether an estimate should be considered to be reasonable.
|If the estimate appears to be …
|and relates to a claim for …
|then it is considered to be …
It is acceptable to allow the individual to over-estimate their income if they want to avoid or reduce a possible debt later. However, it should be explained to the individual how this may affect their entitlement to other benefits.
|reasonable - exercise caution.
Although it is acceptable to allow the individual to over-estimate their income, this could mean that the individual misses out on a payment to which they would otherwise be entitled. The income information in the claim should be carefully examined before accepting the estimate.
Example: An individual could mistakenly include too much of a lump sum payment received during the 6 month income test period.
It is acceptable to allow individuals to over-estimate their income where an individual's income fluctuates making it difficult to provide an accurate estimate. These individuals may choose to provide an estimate at the upper end of an estimated income range, in order to avoid possible overpayments. However, it should be explained to the individual how this may affect the entitlements including having a lower CCS percentage.
|FTB or CCS
Note: The individual may want to deliberately underestimate their income to gain access in the short term to a higher rate of FTB, RA, a HCC or higher child care fee reductions.
The individual may be underestimating their income deliberately to gain access to SBP when their income would otherwise mean they are ineligible. As the estimated income is not reconciled against actual income, it is important to ensure the individual has submitted a best efforts estimate that accurately reflects their circumstances. An estimate that appears too low on the basis of the available evidence should be rejected.
Estimate not reasonable
In all circumstances for FTB, CCS and SBP, if the individual has clearly underestimated their income (taking into account their financial circumstances) and they do not wish to change the estimate, the estimate is not considered to be reasonable.
The claim must be determined on the basis that there is no fortnightly entitlement to FTB, or eligibility for SBP, or CCS by fee reduction at more than the zero rate as the case may be. An individual may be eligible for a lump sum of FTB after the end of the financial year when their actual ATI is known. In regard to CCS, at reconciliation, if the individual's actual ATI is below the upper income threshold and therefore their CCS percentage for the financial year is above zero, they may have a CCS entitlement and any outstanding amounts owed to the individual will be paid directly to them as a lump sum.
Act reference: FA(Admin)Act section 20 Determination of rate may be based on estimate, indexed estimate or indexed actual income, section 19 Determination that no entitlement, section 38 How to claim