3.1.7.05 Maintenance income credit
Background
From 1 July 2006 individuals who receive FTB and who are entitled to maintenance income that is registered for collection by Child Support may access a MIC balance. The MIC balance represents the unused amount of MIFA (1.1.M.21) from past income years. When the individual or their partner receives arrears of maintenance income (1.1.M.10), the MIC balance may be drawn upon to reduce the amount of arrears counted under the maintenance income test.
Act reference: FAAct Schedule 1 Part 2 Division 5 Subdivision B Maintenance income credit balances
Policy reference: FA Guide 3.1.7 Maintenance income test, 3.1.1.20 Current FTB rates & income test amounts
Eligibility
To accrue a MIC balance, an individual or their partner must be eligible for FTB and be entitled to maintenance income that is registered for collection by Child Support.
Act reference: FAAct Schedule 1 clause 24B Accruals to a maintenance income credit balance
Availability
The MIC is available to individuals at the end of year reconciliation or lump sum payment of FTB. This will occur if the individual received child support arrears in that financial year and had a MIC balance above zero at the end of the previous financial year.
Example: At the end of the previous income year Carrie had a MIC balance. She receives child support arrears during the current income year. These arrears can be offset against her MIC balance when her FTB entitlement for the current income year is reconciled.
Types of maintenance payments that can be credited against the MIC
The types of maintenance payments that can be credited against the MIC balance are periodic payments covered under the Child Support Scheme that are registered for Child Support collection.
Maintenance payments registered for private collection are not credited against the MIC as it is assumed that the full maintenance entitlement is received during private collect periods.
Explanation: While the maintenance income test also applies to maintenance entitlements that are privately collected, from 1 July 2012, if an individual chooses private collection, they are deemed to be collecting 100% of their entitlement. If the individual is unable to collect 100%, they are able to transfer to Child Support collection and Child Support is able to collect a period of unpaid private arrears (3.1.6.80). Alternatively, the individual may take effective action to collect the arrears privately or seek an exemption from the MAT. Prior to 1 July 2012, if an individual was unable to privately collect 100% of their entitlement, they may have been deemed to have failed the maintenance action test.
Policy reference: FA Guide 3.1.5.50 Reasonable maintenance action completed - Child Support collect, 3.1.6.70 Child support collection, 3.1.6.80 Changing the method of collection
Accruing a MIC balance
The earliest date for accruing a MIC balance is the later of 1 July 2000 or the day the individual or their partner became eligible for FTB.
The accrual amount is equal to the amount of MIFA that would have been used if the correct amount of maintenance income had been received when it was due. Therefore, the MIC accrual is equal to the lower of:
- the MIFA, less the annualised amount of maintenance income received, or
- the annualised amount of the maintenance income entitlement less the annualised amount of maintenance income received.
Example 1: Samantha has one child and is entitled to receive child support of $3,000 for the income year but received $500. Samantha's MIFA is determined to be $1,335.90. Samantha's MIC accrual is $1,335.90 - $500 ($835.90).
Example 2: Miranda has 2 children and was entitled to receive child support of $1,000 but received $500. Samantha's MIFA is determined to be $1,335.90, as her annualised maintenance income entitlement is used in the MIC calculation. Miranda's MIC accrual for that year is $500, that is, $1,000 - $500. The amount of MIC accrual cannot exceed the amount of child support that should have been paid.
Example 3: Charlotte has one child and was entitled to receive child support of $800 for one year and $825 the following year. She received $200 in child support for each of those years. Her MIFA was determined to be $1,292.10 and $1,335.90 for the 2 years. Her MIC accrual for the 2 years is $600 for the first year and $625 for the following year.
Where there is more than one Child Support registered liability that has been underpaid between an individual and their partner, the combined MIC accrual is equal to the lower of:
- the MIFA, less the combined annualised amount of maintenance income received, or
- the combined annualised maintenance income entitlement less the combined annualised amount of maintenance income received.
An individual and their partner may each have a MIC balance. An individual or their partner may have more than one MIC balance if they are entitled to maintenance income from more than one child support payer. The apportioning of a combined MIC accrual between liabilities is on an equal basis up to a cap. The cap has the effect that the apportioning to a liability cannot exceed the amount of maintenance that was underpaid for that liability. Any remaining accrual is distributed to the remaining liabilities until the MIC balance is used up or the cap for all liabilities has been reached.
The following examples assume that the individual's MIFA was $2,759.40 in 2005-06 and 2006-07.
Example 1: Mark was entitled to receive child support of $3,000 in 2005-06 but received nil and his partner was entitled to receive child support of $2,000 but received nil. The MIC accrual for 2005-06 would be a combined amount of $2,759.40 (the full MIFA) and would be apportioned as half each ($1,379.70) to Mark and his partner.
Example 2: Peter was entitled to receive child support of $2,000 in 2005-06 but received $500 and his partner was entitled to receive child support of $1,000 but received nil. The MIC accrual for 2005-06 would be a combined amount of $2,259.40 (the MIFA of $2,759.40 less maintenance income of $500) and is apportioned as $1,259.40 to Peter's MIC balance, and $1,000 to his partner's MIC balance.
Example 3: Nick was entitled to receive child support of $2,400 in 2005-06 but received $2,200 and his partner was entitled to receive child support of $1,000 but received nil. The MIC accrual for 2005-06 would be a combined amount of $559.40 (the MIFA of $2,759.40 less maintenance income of $2,200), and would be apportioned as $200 to Nick's MIC balance (the underpaid amount of $2,400 less $2,200), and the remainder of $359.40 to his partner's balance.
Where there is more than one MIC balance, there may be accrual to one MIC balance, and depletion from another MIC balance, in the same income year. Where MIC accrual and MIC depletion occur in the same income year, the accrual calculation excludes any disregarded arrears due to MIC depletion. That is, the depletion calculation occurs before the accrual calculation.
Example 4: Pip was entitled to receive child support of $1,000 in 2006-07 but received $1,500 and her partner was entitled to receive child support of $2,000 but received nil. Pip has an available MIC balance of $700 from previous financial years. The arrears of $500 that Pip received, is offset by her $700 MIC balance, reducing her MIC balance to $200. Pip's received amount of $1,500 is reduced by the MIC balance of $500, meaning her new received amount of child support is $1,000. The MIC accrual for 2006-07 would be a combined amount of $1,759.40 (the MIFA of $2,759.40 less maintenance income of $1,000), and the entire amount would accrue to her partner's MIC balance.
Example 5: Patricia was entitled to receive child support of $1,000 in 2006-07 but received $1,500 and her partner was entitled to receive child support of $2,000 but received nil. Patricia has a MIC balance of nil at the end of 2005-06. The MIC accrual for 2006-07 would be a combined amount of $1,259.40 (the MIFA of $2,759.40 less maintenance income of $1,500), and the entire amount would accrue to Patricia's partner's MIC balance. Patricia's received amount of $1,500 is not reduced by an available MIC balance, therefore the whole amount is assessed as part of the reconciliation.
Act reference: FAAct Schedule 1 clause 24C Amount of accrual to a maintenance income credit balance, Schedule 1 clause 22 How to calculate an individual's maintenance income free area
Policy reference: FA Guide 6.4.2.30 FTB reconciliation due to maintenance income
MIC balance cannot be greater than outstanding child support arrears
At any particular time, the MIC balance for a registered maintenance liability is equal to the balance of the accruals and the depletions that have occurred in relation to that liability. The MIC balance cannot exceed the total child support arrears owing from that liability for all income years for which the liability has existed. Child Support will advise Centrelink at the end of each income year the amount of child support arrears outstanding on a child support case, and the individual's MIC balance cannot exceed this amount.
Depletion from the MIC balance
An individual or their partner is regarded as receiving arrears of maintenance income if the amount received is greater than the ongoing liability that is due in a particular income year. The MIC balance is depleted (at reconciliation) whenever arrears are received. The amount depleted is the lower of the arrears received or the amount of the MIC balance.
Example: The MIC balance at the end of 2005-06 is $2,500. If arrears of $1,500 are received in 2006-07, the MIC balance at the end of 2006-07 would be $1,000 and no arrears would be counted in working out an individual's annualised maintenance income under the maintenance income test at reconciliation. If arrears of $1,500 are received the following year in 2007-08, the MIC balance at the end of that year would be nil and only $500 arrears would be counted under the maintenance income test when payment of FTB is reconciled for 2007-08.
An individual is not able to access their MIC balance for a particular income year until their FTB entitlement has been reconciled. For individuals receiving their FTB by instalments, this means that any arrears of maintenance received during an income year continue to be counted when determining their rate of FTB before reconciliation.
Act reference: FAAct Schedule 1 clause 24E Depletions from a maintenance income credit balance
Capitalised maintenance income
Arrears of maintenance that may be offset against the MIC is periodic maintenance that is registered for collection by Child Support. Therefore capitalised maintenance income is not relevant in depletion of the MIC balance. However, in working out the individual's accrual amount, capitalised maintenance affects the size of unused MIFA.
Example: In 2006-07 Anika is entitled to receive $3,300 in periodic child support. She receives $700 in periodic child support. Anika also has an annualised amount of $500 in capitalised maintenance in that year. Anika's MIFA is $2,025.75. The amount of MIC that she accrues for that year is $2,025 - $1,200 = $825.
Policy reference: FA Guide 3.1.7.13 Capitalised maintenance
Change in circumstances
The accrual of a MIC amount is calculated on a daily basis because an individual's circumstances can change throughout the income year, which can vary their MIFA throughout the year.
Example: In 2005-06 Suzy had care of her daughter for the first 100 days. Her son then came into her care as well for the remaining 265 days. The MIFA initially was $1,182.60 and then increased to $1,576.80. Suzy was entitled to receive child support of $3,000 in 2005-06 but received nil. Her daily MIC accrual would be $3.24 ($1,182.60 ÷ 365) for 100 days and $4.32 ($1,576.80 ÷ 365) for 265 days. Suzy's total accrual is $1,468.80 for 2005-06.
Children for whom base rate is payable
The amount of depletion from a MIC balance excludes any child support arrears that are not counted in calculating maintenance income, such as arrears paid for children over 16 years who are not senior secondary school children (1.1.S.27).
Example: Elsie has 2 children aged 12 and 18, and her 18 year old child completed their year 12 qualification prior to the start of the financial year. In 2006-07 Elsie receives a total of $5,000 in child support, which includes arrears of $2,000. Her MIC balance at the end of 2005-06 is $1,800. The arrears of $1,000 for the child aged 18 are disregarded because only base rate is payable for that child. Only the arrears of $1,000 for her 12 year old child are offset against her MIC balance of $1,800 leaving a balance of $800 at the end of 2006-07. No arrears are counted under the maintenance income test when Elsie's FTB payments are reconciled for 2006-07.
Act reference: FAAct Schedule 1 clause 24E(3) Depletions from a maintenance income credit balance
Policy reference: FA Guide 3.1.7.12 Exempt maintenance income
Periods of ineligibility
An individual who ceases to be eligible for FTB may have a MIC balance at that time. During their period of ineligibility there can be no accrual of a MIC. However, MIC depletion can still occur if they receive child support arrears. Later eligibility for FTB takes into account the previous MIC balance and any depletion from the MIC balance that occurred while they were ineligible.
Act reference: FAAct Schedule 1 clause 24A(4) Maintenance income credit balances, Schedule 1 clause 24B(2) Conditions that must be satisfied
Where previous years of FTB have not been reconciled
It is possible that an individual's FTB may be reconciled for a particular income year when they have not yet had their FTB reconciled for an earlier year, and where the earlier year could result in an accrual or depletion for that year. This can occur where tax returns are not lodged in sequence.
If arrears were received in the earlier income year, the arrears would deplete the MIC balance. If the amount of maintenance income received in the earlier income year was less than the amount due in that year and less than the MIFA, there is a 'potential MIC accrual' that may arise upon reconciliation for that year.
From the 2012-13 financial year, the time limit for the potential MIC accrual to occur is the one year time limit that applies for lodging tax returns or advising non lodger details, to satisfy the FTB reconciliation conditions. Extensions to the tax lodgement timeframe may be granted in special circumstances.
Prior to the 2012-13 financial year individuals had 2 years to satisfy FTB reconciliation conditions.
Example 1: For 2005-06, the time limit to lodge a tax return was 30 June 2008. Reconciliation for 2006-07 may occur before the time limit expires for 2005-06. If so, the potential MIC accrual for the earlier year (2005-06) would not be taken into account at that stage.
Example 2: In 2 October 2007, Katherine's FTB for 2006-07 is ready to be reconciled, and 2004-05 is the last income year that has been reconciled. The MIC balance is $2,000 at the end of 2004-05. It is known that there is a potential MIC accrual of $1,500 for 2005-06. Also, arrears have been received in 2006-07. Reconciliation for 2006-07 would proceed on the basis that the MIC balance before depletion for 2006-07 is $2,000 (not $3,500). In December 2007, Katherine's FTB for 2005-06 is ready to be reconciled. An additional accrual of $1,500 occurs for 2005-06, giving a MIC balance of $3,500 instead of $2,000 at the end of 2005-06. The reconciliation calculation for 2006-07 based on the original MIC balance of $2,000 would be revisited, substituting a MIC balance before depletion for 2006-07 of $3,500.
Example 3: Anna's MIC balance was $1,500 at the end of 2011-12. There is a potential MIC accrual of $2,000 for 2012-13 and in 2013-14 Anna received arrears.
In August 2014, Anna lodges her tax return for 2013-14, but has failed to lodge her tax return for 2012-13. Reconciliation for 2013-14 proceeds on the basis that the MIC balance before depletion for 2013-14 is $1,500 (not $3,500).
In November 2014, Anna lodges her tax return for 2012-13. Due to changes to lodgement periods, she cannot receive any supplements or top-ups for 2012-13, nor can her MIC accrue the $2,000. The reconciliation calculation for 2013-14 based on the original MIC balance of $1,500 would remain the same (that is, it cannot be revisited as Anna did not meet lodgement requirements for the 2012-13 financial year).