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Annualised income used to replace income estimate instead of actual taxable income

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Need help understanding this and how to lodge an objection.

My husband estimated his 2010/2011 income on 19 Nov 2010 at $37,915.

His YTD 1 July 2010 to 17 Nov 2010 was $12,242.
So his estimated income for the remaining period to 30 Jun 2011 came to $23,372.68 and his estimate was accepted. (He had gone from not being employed to permanent employment, to self employment then back to perm. employ).

After lodging his tax return, his actual income for the full FY was $44,380.

But we have now received a change of assessment for the period of 18 Nov 2010 to 30 Jun 2011 with a reconciled estimate of $52,134. There is now a debt of $2,500.41 and a penalty for incorrect income estimate of $250.

When I called them to query why they used a reconciled estimate instead of the actual taxable income, they advised that they have used the annualised income amount - this comprised of the actual income $44,380 less YTD $12,242 = $32,138 as what should have been the correct estimate (had we had a crystal ball and known how much work was coming or not coming our way).  This amount of $32,138 is then divided by the remaining days in period (225) x 365 = $52,134 which becomes the reconciled estimate.

I mentioned to them then that at no time during the income estimate process, were we advised that an annualised amount would be used.  In fact I have paperwork printed out from that time from their website which says
Where your actual adjusted taxable income is equal to, or lower than, the estimated income, the estimate will be confirmed. If your adjusted taxable income is higher, your child support will be reassessed for the time the estimate is used based on your actual adjusted taxable income.
Nor does the letter which came with the confirmation of the estimate of income acceptance, mention that an annualised amount would be used instead of the actual income earned.

My questions:

1. Why are they using an annualised amount when they have the actual taxable amount they can use?

2. Do we have grounds for an objection and if so how would I word it?

3. How did our actual income become 110% more than the estimated income ?
They say:
A person will be required to pay an estimate penalty when CSA reconciles their estimate and their actual income for an estimate period is 110%, or more, of their estimated income (section 64A(1)).


Please please someone help me before I go insane!!!


This is from their guide:
Reconciling an estimate
After an estimate period ends, CSA will compare the parents estimate of income with their actual income for the estimate period. If a parent has earned more than their estimated income in the estimate period, CSA will reconcile the parents estimate. If CSA has amended the assessment as a result of reviewing the estimate under section 63A, 63B or 63C then CSA may decide not to reconcile the estimate (section 64(2A)).

If a parent has made more than one estimate within a child support period it is only the last estimate that is reconciled (section (64(1)(a)). Estimates made earlier in the child support period which were revoked when a later estimate was accepted may be reviewed.

CSA cannot reconcile an estimate until both the estimate period and the child support period have ended.

Example

F lodged an estimate on 27 May 2009 for the child support period 1 July 2009 to 30 September 2010. F estimated earnings $15,000 over the full child support period (annualised to $12,000). Fs 20092010 tax assessment issued on 2 August 2010 and, as a result, the child support period ended on 31 August 2010. However, Fs estimate period still ends on 30 September 2010. The earliest time that CSA can reconcile the estimate is 1 October 2010.

M lodged an estimate on 29 June 2009 for the child support period 1 July 2009 to 30 September 2010. M elected to make a 12month estimate for the period 1 July 2009 to 30 June 2010 for $25,000. Ms 20092010 tax assessment issued on 13 July 2010 and, as a result, the child support period ended on 31 July 2010. Given this, and the fact that Ms estimate period ended on 30 June 2010, the earliest that CSA can reconcile the estimate is 1 August 2010.

CSA cannot reconcile an estimate for a day in the child support period where the minimum annual rate applies (section 64(1)©) but can review the estimate (section 63C).

The actual income must be:

calculated on the adjusted taxable income the parent earned within the whole of the period covered by the parents estimate (including overseas income for a parent who is resident in a reciprocating jurisdiction); and
compared against the estimate.
CSA will ignore the following things when it reconciles an estimate:

any income the parent earned before or after the estimate period; and
whether the child support period ended early (for example, because the ATO issued a new tax assessment for the parent). If the child support period ended early CSA will still reconcile the entire estimate period.
If the parents adjusted taxable income earned over the estimate period is more than their estimate, CSA must amend the assessment. It will do this by using the parents annualised actual income as the parents adjusted taxable income amount for all the days in the assessment still affected by the parents estimate.

Estimate penalties
A person will be required to pay an estimate penalty when CSA reconciles their estimate and their actual income for an estimate period is 110%, or more, of their estimated income (section 64A(1)).

The penalty is 10% of the difference between the liability based on the original estimate and the final liability based upon the adjusted taxable income amount determined (section 64A(2)). An estimate penalty is a debt due to the Commonwealth (section 64A(3).

Remission of estimate penalties
CSA can remit an estimate penalty, either in whole or in part, (section 64A(4)) where:

the difference between the adjusted taxable income amount and the estimated income was due to an amendment of the tax legislation, or a change to a ruling or determination under the tax legislation, or
CSA is satisfied that it would be fair and reasonable to remit the penalties in the circumstances.
Amendment of a tax law, ruling or determination
When making an estimate, a parent cannot be expected to know that a change to the tax legislation or a change to a ruling or determination will increase their adjusted taxable income.

Example

If an expense that was deductible in previous years is no longer deductible, a parents taxable income may be higher than their estimate by the amount of the deduction.

This does not apply where a parents taxable income is amended for other reasons (for example, taxpayer error).
I'm in the same situation, where they have used estimates for differing periods when I was unemployed and then employed earning a decent income. The difference between their estimate periods and using the tax returns is about $4K for the year in liability. Because a COA triggered it, I'm going to try a COA for the financial years 09/10 and 10/11 based on the fact that they used information now known to be incorrect. Don't know how far it will get because I can't get any reliable information about whether the CSA HAS to use annual income or whether they can use random "periods" to calculate the amount owed. In any case, I've got nothing to lose.

Check out austlii.edu.au for this case as it actually covers this topic : Foster & Child Support Registrar and Anor (SSAT Appeal) [2011] FMCAfam 808 (11 August 2011)

(key phrases: CHILD SUPPORT  Appeal from decision of SSAT  reconciliation after income estimate election  real remaining period taxable income  meaning  method of determination.)
Not Fair said
1. Why are they using an annualised amount when they have the actual taxable amount they can use?
I believe it is because some who were working for the CSA now work for SSAT and still lack the capacity to understand something as simple as the very object of the child support assessment act that says that parents should meet the proper financial responsibility toward their child or children and instead misinterpret the object to be that a liable parent should pay as much as can possible trough, but not limited to, distortion of the legislation and abuse of power.

Not Fair said
2. Do we have grounds for an objection and if so how would I word it?
Yes I believe so (as Valere has kindly suggested read the case). However, it is highly unlikely that objection will result in a proper correction, if it even considers that anything has been done wrong (this is part of the abuse of power that, to quote FM Halligan's term, "Infects" the CSA). You would very likely have to take the matter to SSAT. According to what I see as a distinctive trend, taking the matter to SSAT, will have a very good chance of simply having SSAT apply yet another distortion of the legislation. There's a good chance, according to the trend of "CSA style" legislative distortions and abuse of power "infecting" SSAT, that court may be the only way to get a proper decision.

Not Fair said
3. How did our actual income become 110% more than the estimated income ?
I think the above gives some pointers. I think your comment about using a crystal ball may also be a pointer although I'd suggest a wand is more likely the tool of the trade that is utilised.
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