Change of Assessment (Reason 8)
Reason 8 is the most common basis for seeking a child support change of assessment (COA). It concerns the capacity of parents to financially provide for children. You can select reason 8 in the Application to Change your Assessment - Special Circumstances form when:
The assessment does not correctly reflect one or both parent’s income, property and/or financial resources.
A parent's financial capacity is normally measured by the income recorded in their last tax return. But this can produce an unfair assessment in situations where current income is significantly different, the parent has other resources, or the parent is unreasonably earning below their potential.
Applying for an assessment change should not be done lightly as it can lead to a time-consuming review. You should check with the Child Support Agency (CSA) first to see if easier options are available.
Child Support COA Statistics
18,092 child support change-of-assessment applications were filed in 2014-15. By far, the most common reasons for seeking a variation are “income, property or resources of parents” and “earning capacity” (both Reason 8 types) (Child Support Agency, ‘Facts and Figures 08-09’, p 20, table 2.8).
Historically, close to two-thirds of applications result in an assessment variation (p 19, table 2.7). The number of objections to change-of-assessment decisions in 2014-15 was 3,056, which was 17% of applications (Department of Human Services Annual Report 2014-15, ’Child Support’). While 2 out of 3 applications produce a change, only around 10-20% of objections to the change are upheld (Henderson-Kelly).
4-Step Assessment Process
If no parties appeal against the CSA's eventual decision, a change of assessment (COA) because of special circumstances is a 4-step process.
1. Written application
Either parent (payer or payee) can apply for a COA. You must apply in writing using the Application to Change your Assessment - Special Circumstances form.
Include enough information for the application to proceed. Applications can be refused at this stage if (i) no reason for a change is identified or (ii) a change would not be just and equitable or otherwise proper.
2. Written response
If the application is accepted, the CSA will send a copy (and any accompanying documents) to the other party along with a response form: Response to Application to Change your Assessment - Special Circumstances. Responding to an application is not compulsory but is generally advisable.
3. Discussion with decision maker
Each party will have the opportunity to discuss the application and response with the decision maker by phone. The CSA officer can use any discussions to help inform their decision.
Before making a decision, the CSA may do further investigation or ask either party for additional information. The process should be transparent, with each party being informed of, and given opportunity to comment on, essential considerations and information being used.
4. Decision based on law
The CSA will consider and balance evidence from the parties, including written and oral statements, and supporting documents. The decision should be consistent with the law and, in particular, with the Child Support (Assessment) Act (CSA Act). For legal guidance, the CSA may use the Child Support Guide and draw on agency knowledge.
A decision to change an assessment is an amendment to your administrative assessment. While any of the component variables can be adjusted (including the annual amount itself), Reason 8 normally corresponds with a decision to increase a parent's taxable income. Changes can be backdated to as much as 18 months before the application was lodged.
Situations Covered by Reason 8
Reason 8 casts a wide net. Almost anything which a parent can conceivably use to provide cash for children – and is not measured in taxable income – can be a counted as available income.
Examples of situations which could produce a change of assessment are where a parent:
- has substantial property or other assets which produce little net income
- is working part-time instead of full-time
- has taken a lower paying job
- has voluntarily become unemployed
- is studying instead of working
- is making little money from a family business
- has a work arrangement which credits personal income to a different person or entity
- overpays related employees in a family business
- has tax-deductible business expenses which generate personal benefits
- has a low reported business income because of depreciation or prior-year losses
- is salary packaging or making voluntary superannuation contributions
- has received a large lump-sum payment.
COA Decision-Making Method
COA Reason 8 decisions are predictable because CSA officers consistently apply particular interpretations of the law. These interpretations are evident, to varying degrees, in the Child Support Guide.
As explained below, the CSA's interpretations have these 2 important implications.
- If you have extra financial capacity, it will be included in your assessment if this is allowed under the law (with some exceptions, such as where a mother has young children).
- Your taxable income will be set to your full deemed financial capacity, with no allowances for hardship or low living standards.
CSA legal interpretations
The duty of a parent to maintain a child "has priority over all commitments of the parent other than commitments necessary to enable the parent to support himself or herself; and any other child or another person that the parent has a duty to maintain" (Section 3 of the CSA Act).
The CSA Act makes it clear that child support is the number 1 financial priority beyond self support. For a Reason 8 decision, the CSA considers that any resources available to support children should be put to that use. Any and all resources are in scope.
An object of the CSA Act is that "the level of financial support to be provided by parents for their children is determined according to their capacity to provide financial support" (Section 4).
The CSA interprets this as meaning that, where a parent has greater potential income than indicated by taxable income, the parent should be assessed based on potential income alone.
In determining whether a decision is just and equitable (and, therefore, allowable), the CSA must have regard to "any hardship that would be caused" (CSA Section 117(4)). The provision is relevant to Reason 8 decisions because the CSA looks at income which may not be immediately available to a parent (e.g. from finding work or selling a property).
While this suggests a decision which is liable to cause hardship should not be allowed, the CSA has a different interpretation. If a parent has greater capacity to provide support, the CSA considers that the parent should be realising it (from the "duty to maintain a child"). Any financial hardship resulting from a decision is attributable to the parent, not the decision.
Moreover, the CSA considers that parents should be assessed based on full potential income (from the "capacity to provide support" goal interpretation). It would fail that objective to set taxable income to a lower amount (which rules out trying to soften hardship effects).
Another object of the CSA Act (Section 4) is "that children share in changes in the standard of living of both their parents, whether or not they are living with both or either of them".
A parent's living standards depend on actual income, not potential or theoretical. But, as with the hardship provisions, the CSA ignores this in Reason 8 decision making. The CSA assumes the goal is to assess parents using potential financial capacity.
The most common Reason for a COA [Change of Assessment] is Reason 8 when ‘the income, earning capacity, property or financial resources of one or both of the parents’ is not properly reflected in the formula assessment. COA decisions based on this Reason seem to be one of the most contentious areas of decision making for the CSA. It is also a common cause of complaint to this office.
Why Reason 8 Decisions are Usually Wrong
The Reason 8 COA facility is important to achieve fairer child support outcomes. Without it, parents could use a host of strategies to reduce payments or artificially inflate how much they receive.
But, at present, the COA system is structured towards stopping people from avoiding child support. It makes little allowance for parents who just happen to have unrealised financial capacity. For such parents, the decision-making method is unreasonable and the outcome usually unfair. Here's why.
Decisions are meant to be discretionary – but they're not
The CSA Act doesn't set out hard goals for COA decisions. It leaves the decision open to the officer, using words such as "reasonable" and "adequate". Any decision should be made by balancing the particular facts and considerations of the case. However, the Agency applies the law by re-purposing selected general objects of the Act (which aren't meant to handle unrealised financial capacity). COA decisions are predictable and pre-determined instead of flexible... READ MORE
The "duty to maintain a child" is overplayed
The CSA Act has a provision (in Section 3) which essentially says that both parents are responsible for paying for a child. Parents have the "primary duty" to maintain a child. And this duty "has priority over all commitments" beyond the need to support oneself and any other dependent children.
It's fine applying the "duty to maintain a child" principle when talking about how a parent spends their budget. But it's a different matter for unrealised financial capacity. Does a parent have a duty to sell a property in order to pay more child support? Is a parent compelled to never swap works hours for study hours, or to always stay in a high-paying job which makes them miserable? Of course not – there's more to life and being a good parent than maximising how much money you've got right now.
The CSA uses the "duty to maintain a child" principle in COA decisions to fully discount other reasons for a parent choosing a certain arrangement. In making an assessment variation, it will disregard your actual choice and simply assume that you sold the property, never studied, or stayed in the depressing job. Delegitimising a parent's choice in this way is a misapplication of the law.
Real budgets are ignored
If the CSA determines you have extra financial capacity than indicated by taxable income, it will assess you based on your full, theoretical capacity. Too bad if you're actually unemployed and not earning $100,000 a year. Too bad if you have to sell your house to pay the bills.
The CSA justifies this on the basis that an objective of the Child Support Scheme is that child support should be "determined according to their [the parents'] capacity to provide financial support" (Section 4). However, this misinterprets the CSA Act. When looked at in context, "capacity to provide financial support", has ordinary meaning. It's not meant to capture theoretical funds. Furthermore, the legislation explicitly requires real incomes to be considered... READ MORE
Payer hardship is ignored
Decision makers are required to have regard to the potential for a decision to cause hardship. You would think this would prevent decisions which place payers into a position of poverty or potential homelessness. However, the CSA reasons that, if you have spare financial capacity, you can avoid hardship by realising that capacity. While this seems logical, it doesn't help payers who are unable or unwilling to do what is required (for example, a parent who resigned from work after suffering a nervous breakdown and struggles to regain employment).
Advanced Frameworks for COA Decisions
The Reason 8 COA process can and will be fixed so that it is faithful to the law and produces just and equitable assessments. Achieving this requires advanced decision-making frameworks to be developed.
- Case officers lack necessary guidelines on how to conduct an assessment fairly under the law.
- To make consistently good assessments, currently an individual officer would need to break away from teaching and tradition; from what the agency has been doing continually for decades.
Here is an example of the kind of advanced decision-making framework the CSA should adopt.
- The CSA can introduce such guidelines at any time without a change to any law.
- Improving processes depends on executive leadership, good research and consultation, and a willingness to reject deficient past practices.
Example: Earning Capacity COA
Here is an advanced decision-making framework for an earning capacity COA (also shown in the infographic). To better understand it, you may want to read up on the child support formula: how it works.
- A change of assessment (COA) because of earning capacity is appropriate when a parent is earning less than his or her potential without good reason.
- The CSA Act provides detailed conditions for deciding if a change is warranted.
With respect to amending the $ assessment, the CSA Act sets high-level objectives: "(a) that children have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both of their parents; and (b) that parents share equitably in the support of their children" (s114).
The CSA Act does not prescribe hard and fast rules for amending an assessment. In lieu of this, the CSA, routinely and as a matter of habit, sets the parent's taxable income to their deemed earning capacity. However, much better approaches are possible, as demonstrated in part C and D below.
A. Job status
As defined in the CSA Act, an earning capacity COA may be appropriate if a parent (i) is not working despite opportunity (ii) has reduced work hours voluntarily or (iii) has made a major shift in terms of job type or working arrangements.
B. Job status reason
If one of more of the job status reasons is met, the CSA then looks at the reasons for that status. A COA will not be made if the parent's decision around work is justified by caring responsibilities or poor health. A COA will also not happen if the parent can prove child support was not a significant factor in the work decision.
C. Income %
If the conditions in Parts A and B are met such that a COA is appropriate, the CSA sets your (taxable) income to your deemed earning capacity (which is usually your higher past income). It means a parent's Income % (the percentage of child-raising costs for which the parent is responsible), will depend only on the parent's former income or deemed earning capacity.
For a parent who is currently earning above the default income (defined as two-thirds of Male Total Average Weekly Earnings), the CSA's approach is unnecessarily harsh. Depending on circumstances, the parent could be argued to already be making a reasonable and adequate contribution. In general, it would be more equitable to average the parent's old and current incomes rather than just use historical income.
For a parent whose earnings have dropped below the default level, their current earnings and contribution could be seen as inadequate. In this case, the fairest approach may be to set the parent's income to the midpoint between the default level and their former income. Just using former income may result in a unfairly low standard of living.
For a parent who has reduced their income from an already-low level (or who is refusing work), their contribution is inadequate. A fair setting of income for calculating his or her Income % is the average of the default level and the current level.
D. Costs of Children
The Costs of Children is part of the child support formula and depends on the combined incomes of the parents.
- A higher Costs of Children advantages the parent with a greater Care %.
- In general, a low-income parent with equal or majority care of children will get extra child support when the Costs of Children goes up.
If you raise a majority-care parent's income for child support purposes above actual income, you are advantaging them through the Costs of Children measure. You are effectively assuming they are spending more on children than their budget allows.
Doing this is clearly wrong when the majority-care parent has deliberately reduced their income. But it is what the CSA does. A better approach is simply to use the parent's current actual income. It is a superior indicator of how much the parent is spending on the children. The approach is also consistent with Section 4(2)(d) of the CSA Act.
For a minority-care parent, we suggest using the parent's "income for calculating their Income %" (Part C above). It captures the current affluence of the parent while also ensuring he or she makes a contribution commensurate with earning capacity.
Story of Graeme and Helen
Here's an illustration of how the CSA method and the advanced framework produce different outcomes.
Suppose Graeme and Helen have 2 children (aged 11 and 14), who spend 9 nights per fortnight with Helen and 5 with Graeme. He earns $150,000 per year and Helen earns $75,000. Graeme pays $16,800 in child support.
Now suppose Graeme moves to the city permanently and leaves his fly-in, fly-out job. His earnings drop to $75,000 and child support drops to $6,100.
- If a COA is made against Graeme by the CSA, he has to pay $16,800 on a $75,000 salary (while having the children 5 nights a fortnight).
- If the CSA used the advanced framework, child support would be a more reasonable $12,150.
Now suppose Helen decides to work part-time, reducing her income to $37,500.
- If a COA is made against Helen, her child support amount would be kept at $16,800.
- If the CSA used the advanced framework, child support would drop to $9,900.
Both parents have halved their incomes, but Graeme is still paying Helen $16,800. If the actual incomes of the parents were used, the amount would be $9,000 (using a child support calculator).
- The COA child support amount is almost double what the formula says is fair and reasonable.
- The advanced framework produces a fairer result because, instead of relying on historical income, it accounts for current income as well.
Appealing Against CSA and AAT Decisions
As already discussed, the CSA interprets the CSA Act in such a way that, in making a Change of Assessment, it habitually sets a parent's taxable income to their full deemed financial capacity.
Depending on the case, this could constitute the misconstruction of objectives and an error of law. Other errors of law can come from the CSA deliberately making false findings or ignoring important matters in order to support the pre-determined decision.
If you object to a CSA decision, your objection will be considered internally by a senior CSA officer. Because it is done internally, the objection will most likely fail except where there is something like new information or an obvious technical error in the original decision.
You could then take your objection to the Administrative Appeals Tribunal (AAT). They will conduct a hearing of the case, make a decision and write detailed reasons for the decision.
Again, the prospects of being successful are limited. The Tribunal interprets the CSA Act in the same way as the Agency.
The next step is to appeal against the Tribunal decision to a court, normally the Federal Circuit Court (FCC). The FCC is only interested in whether you can demonstrate an error of law. This is difficult to do.
- The FCC will assume the Tribunal was in a better position to make findings and will accept the Tribunal's judgement calls (however bad) as facts or reasonably open for them to make.
- An error of law is a narrowly defined error of a procedural nature (see Batrouney).
Error of Law Example: Misconstruction of Objectives
Here is the kind of submission that could be used to establish that the AAT made an error of law in a child support COA decision. It concerns a decision to set the taxable income for an unemployed father to his former salary. The arguments have not been tested in a court of law.
The Administrative Appeals Tribunal (the Tribunal) misconstructed legislative objectives and misapplied the law. Whereas the Child Support (Assessment) Act 1989 (CSA Act) calls for reasoned discretion in the making of departure orders, the Tribunal built a false legal framework in which only one decision was possible.
For assessment variations, the CSA Act has particular objects which are additional to general objects. They define high-level goals to be achieved by considering multiple forms of income and wealth together. Section 114 states:
Additional particular objects of this Division include ensuring:
a) that children have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both of their parents; and
b) that parents share equitably in the support of their children.
The Tribunal did not refer to s 114 in its decision reasons. Instead it applied the law by modifying a general object of the Assessment Act. The process can be understood from Tribunal statements.
The Tribunal stated a general object (ss 4(2a)): “The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.”
It then expanded the meaning of “capacity to provide financial support” to include unrealised earning capacity: “If he realised his earning capacity he would have a significant capacity to contribute towards the children's costs.”
In concluding, the Tribunal summed up why it set the applicant’s child support income to deemed earning capacity: “it is commensurate with his capacity to provide support to the children.”
If you (i) establish an object of the Assessment Act is that financial support is determined according to capacity to provide financial support and (ii) imagine a person’s capacity to provide financial support is commensurate with deemed earning capacity, then it follows (iii) the level of financial support is to be determined according to deemed earning capacity.
The Tribunal’s decision, to set the applicant’s child support income to his deemed earning capacity, was pre-determined. By its construction of objectives, the Tribunal’s decision was effectively made as soon as it found the applicant had earning capacity.
The Tribunal noted at one point in its decision reasons that it did not have to make a finding about the appellant’s financial circumstances: “because of its decision that he has an earning capacity”. In other words, the appellant’s financial circumstances, however dire, would have no bearing on the decision.
Error in logic
A problem with the Tribunal’s reasoning is that capacity to provide financial support in the Assessment Act has ordinary meaning. There are no references to earning capacity or other esoteric income concepts in the general objects of the Act [s 4]. There is no apparent intent to capture theoretical earnings either, or even a rationale for it. Earning capacity would include, for example, the foregone salary of a mother on maternity leave or unearned income following retirement.
Simply broadening the interpretation of capacity to provide financial support is an unsound way of accounting for unrealised earning capacity. Whatever earning capacity may be, there is always a real budgetary constraint to spending.
The general objects of the Assessment Act make it clear that child support obligations are constrained by the real needs and resources of parents. The duty of a parent to support a child does not take priority over “commitments necessary to enable the parent to support himself or herself” [s 3(2)]. And children should “share in changes in the standard of living of both their parents” [s 4(2d)]. The general objects of the Assessment Act call for balance:
it is a matter of the balancing of competing values, namely the obligation of the absent parent to continue to support his children with, on the other hand, the need for the parent to continue to maintain himself at a reasonable level. (Gyselman and Gyselman (1992) FLC 92-279 )
Making facts fit the decision
With the Tribunal constructing an objective which allowed only one decision, integrity issues arose where the particular facts of the case pointed to a different result. Not only do the subsequent errors show the decision was not open to be made, but that the Tribunal conducted the assessment disingenuously.
Error of Law Example: “No Hardship” Finding Not Open
This example submission is where the AAT makes a "no hardship" finding for a self-employed person on a presumption that the person would gain employment. A "no hardship" finding is necessary, where hardship is possible, to support a pre-determined decision to set taxable income to deemed earning capacity. The arguments have not been tested in a court of law.
The Tribunal found that, in relation to section 4(g) of the CSA Act: “The Tribunal is satisfied that hardship would not arise by a departure from the administrative assessment given he has the capacity to increase his income of nil by working”. This finding was (i) made in the absence of any supporting evidence; (ii) not otherwise open to be made; and (iii) necessary to the Tribunal’s decision.
Absence of supporting evidence
The Tribunal’s finding was asserted. There was no evidence indicating the appellant would seek paid employment to avoid hardship in the foreseeable future. Indeed, all evidence cited by the Tribunal concerning his intentions and financial circumstances indicated otherwise.
Contrary findings and evidence
The Tribunal found that the applicant intended to not seek paid employment for at least the next 9 months while building his company: “His intention is to continue working on a full-time basis for his business at least until the end of 2017.”
The Tribunal also noted evidence indicating the appellant was already experiencing financial difficulties, including evidence from the applicant that: “since he ceased paid employment, he has met his expenses through savings which are now exhausted and with credit cards.” The Tribunal also found: “in that financial year [2015-16] and to date he has derived nil income from the business.”
Why the “no hardship” finding was not open
Whether the appellant would respond to hardship by seeking employment was a decision only he could make. On the evidence before the Tribunal and considering its own findings, the only conclusion which could reasonably be drawn was that he would continue persevering with his business despite hardship.
Reliance on the finding
The Tribunal relied on the finding to make the order. Before a departure order can be made, the CSA Act specifically requires consideration of whether the order would cause hardship to the liable parent and children in his care [ss 117(4(g))]. The only explicit consideration by the Tribunal was in asserting the finding.
Furthermore, the CSA Act states that the primary duty of a parent to maintain a child does not have priority over the commitments necessary to enable the parent to support himself or herself [s 3]. It would be inconsistent with the Act to make a departure order where there is: (i) evidence indicating hardship will be caused to the payer; and (ii) an absence of countervailing evidence or findings.
Error of Law Example: Ignoring Children's Needs
This example submission is where the AAT ignores potential financial hardship to children when with a minority-care parent. The Tribunal does this to facilitate a pre-determined decision to set taxable income to deemed earning capacity. The arguments have not been tested in a court of law.
Before making the departure order, the Tribunal had to be satisfied that its decision ensured the proper needs of the children would be met. That the order achieved this could not reasonably be concluded.
A particular object in making a departure order is to ensure: “that children have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both of their parents” [s 114(a)]. Furthermore, in determining whether it would be just and equitable to make a particular order, the Tribunal must have regard to “the proper needs of the child” [ss 117(4)].
The Tribunal considered the overall costs associated with caring for the children. It also considered how the children’s proper needs would be met while in the care of their mother. In dealing with the father, the Tribunal did not resolve how he would maintain the children while in his care. The appellant raised the issue with the Tribunal.
He submitted that the decision to set his income based on previous earnings is unfair, and that he is being asked to live on nothing while responsible for some of the care of the children. The Tribunal has found that his earning capacity far exceeds his expenditure. The Tribunal is satisfied that hardship would not arise by a departure from the administrative assessment given he has the capacity to increase his income of nil by working.
The Tribunal had already found that the applicant was intent on developing his start-up company and had no plans to look for paid work. Even if he began looking, there was no guarantee he would find employment quickly.
The Tribunal was bound (by ss 114(a) and 117(4)) to consider how the proper needs of the children would be met. The applicant cared for the children 3 nights per week, corresponding with 43% care. He relied on the Newstart Allowance to pay bills. However, it was similar to the amount of child support he was required to pay and less than his fixed housing costs.
The effect of the Tribunal’s decision was to accelerate the rate at which the applicant was accumulating debt. It left him with grossly inadequate financial capacity to meet the proper needs of his children.
There can be no doubt that the Tribunal was aware of the budget issue because the appellant pointed it out. However, the Tribunal did not identify nor acknowledge a problem existed in its decision reasons. It offered no finding or resolution beyond the facile argument that he could get a job. The Tribunal provided no reassurance that the children’s proper needs would be met.
Had the Tribunal conceded the truth, that its decision did not ensure the proper needs of the children would be met, it would have been unable to justify the decision in the way it ordinarily does. The omission appears deliberate and calculated to facilitate a decision inconsistent with the CSA Act.