Changes to the Definition of Income for Child Support
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Do your Clients know about Changes to the Definition of Income for Child Support?
From 1 July 2009 salary sacrificed superannuation contributions and net losses from financial investments will be added back to a parent’s adjusted taxable income for child support purposes.
Income from 1 July 2009 will usually not affect child support calculations until 2010. So clients may not find out about the impact of these changes until next year when they receive their new child support assessments. Clients may be planning their finances based on the way superannuation contributions and investment losses have been treated in the past. It is important that you and your clients are aware of the changes now, so that you can advise your clients appropriately before the event.
What is included as a net loss from financial investment?
Since 1 July 2000 net rental property losses have been added to a parent’s income for child support purposes. From 1 July 2009, net losses from other investments such as shares, managed investment schemes, forestry managed investment schemes and rights and options, will be added to a parent’s income for child support as well.
Net financial investment losses are the amount of allowable deductions claimed for financial investments that exceed the gross income received from those investments. Capital gains and capital losses are excluded from the calculation of total net financial investment losses, but may impact on taxable income in other ways.
What about compulsory superannuation?
Compulsory superannuation payments, such as employer contributions under superannuation guarantee requirements, will continue to be excluded from income for child support.
But salary sacrificed super contributions and other extra super contributions an employer may make will be added back to a client’s income for child support.
In summary, what is included as income for child support purposes?
For the purpose of calculating child support, a parent’s income will include:
- taxable income;
- reportable fringe benefits;
- target foreign income;
- net investment losses;
- reportable super contributions; and
- some tax free pensions (including disability support pensions, wife pensions, carer payments and some Veterans’ Affairs payments).
Who do these changes apply to?
The changes apply equally to parents paying and receiving child support, as both parents’ incomes are relevant to the assessment of child support.
When will the changes have an impact?
In most cases, child support assessments are based on income earned in the previous year. So, although the new provisions came into effect on 1 July 2009, for most parents the changes will not affect child support assessments until after 1 July 2010.
However, where a child support assessment is based on an estimate of income or determined through a Change of Assessment process, net investment losses and salary sacri.ced superannuation will need to be added to each parent’s taxable income to avoid the risk of a further child support liability later.
Need more information or assistance?
If you or your clients would like more information about child support or any other family law matter, please telephone our Family Law Department on 9321 9771.