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Just wondering how this works.

The ex is self employed, claiming 15k as her income through a family business. She used to earn almost 80k. Capacity to pay won't work, since I certain that she will claim "medical reasons" somehow. We also didn't want to stirr a fight at the moment.
Now DH is loosing his job later this year. Therefore, capacity to earn should also not be applied.

His income will drop to nil until his business operates and fictions well. So we will call CSA and tell them about him loosing his job and seeking employment (just like the ex did). Depending on the first few months, we can give CSA an estimate on how much we think his income will be. The first month it will likely be nothing, the second and third maybe 2k and so on. So after the first month we will give them a figure.

If she would do a COA on DH on capacity to pay, can we counter claim the same against her? Or does capacity to pay only apply to payers? What would you use at a counter claim against her business income?
First there are two distinct capacities. a) Capacity to earn and b) Capacity to pay. I believe that you are interested in the former. For the CSA to apply this they have to do so via a reason 8 departure (Change of Assessment). There are 3 must be met criteria:


The CSA Guide - Reason 8 - a parent's income, property, financial resources, or earning capacity (extract) said
Earning capacity

If the assessment is affected by a parent's reduced income, there may be special circumstances to justify changing the assessment to take into account the parent's earning capacity.
When can CSA take into account a parent's earning capacity?

From 1 July 2006, CSA can only determine that a parent's earning capacity is greater than is reflected in his or her income used in the child support formula if it is satisfied about all of the following three matters:

1. The parent is either:

    not working despite ample opportunity to do so (section 117(7B)(a)(i)); or
    has reduced his or her weekly hours of work to below full time work (section 117(7B)(a)(ii)); or
    has changed his or her occupation, industry or working pattern (section 117(7B)(a)(iii));

AND

2. The parent's decision about his or her work arrangements is not justified by either:

    his or her caring responsibilities (section 117(7B)(b)(i)); or
    his or her state of health (section 117(7B)(b)(ii));

AND

3. The parent has failed to show that the decision about his or her work arrangements was not substantially motivated by the effect this would have on the child support assessment (section 117(7B)©.

CSA must be satisfied that all three compulsory criteria are satisfied before it can change an assessment to take into account a parent's earning capacity, rather than his or her actual income.

If the parent's circumstances satisfy only one or two of the criteria, CSA cannot make a decision based on the parent's earning capacity.

CSA must also be satisfied it would be possible for the parent to increase his or her income by changing his or her work arrangements. That is, work must be available for the parent in his or her area and the parent must have the necessary qualifications and experience to perform that work.
Not working; working reduced hours; or has changed industry, occupation, or working pattern

This is the first of the three compulsory criteria for an earning capacity decision.

When considering the first criterion CSA must be satisfied that the parent:

    does not work despite ample opportunity to do so (section 117(7B)(a)(i)); or
    has reduced their weekly hours of work below the usual full-time standard in the occupation or industry in which he or she is involved (section 117(7B)(a)(ii)); or
    has changed his or her occupation, industry or working pattern (section 117(7B)(a)(iii)).

It is possible that a parent will meet more than one of these sub-criteria.

Except where the parent does not work, a parent who has not reduced his or her income cannot be found to have a higher earning capacity.

Example

A parent who refuses a promotion at work, maintaining his or her income at the same level, will generally not be found to have a higher capacity to earn.

Some reductions in income will not satisfy this criterion.

Example

A reduction from regular overtime to a standard working hours week or loss of bonuses which required additional effort beyond that required of a standard employee, cannot be considered as founding a parent's additional earning capacity.


Does not work despite ample opportunity

(section 117(7B)(a)(i))

A parent who is not working is one who is not engaged in work for remuneration, or in self-employment for profit.

A person can be said to be not working despite 'ample opportunity' to work if he or she has had offers of employment and refused them without adequate reason. Alternatively, if the person is not seeking work but there are job vacancies for which he or she is suitably qualified in their local area, this could also constitute ample opportunity to work.

Weekly hours of work reduced below the full-time standard for that occupation or industry

(section 117(7B)(a)(ii))

This sub-criterion may apply when a parent is still employed and has remained in the same occupation or industry. The relevant factor is that the parent now works less hours than they did previously. The fact that his or her hours have reduced is not in itself sufficient  the reduction must put those hours below the usual full time standard for the occupation.

The parent should be able to provide information about the usual full-time standard hours for their particular industry or occupation. Alternatively, CSA could obtain information from the person's employer.

Changed industry, occupation, or working pattern

(section 117(7B)(a)(ii))

This sub-criterion may apply when the parent is still employed, but has changed jobs, or rearranged his or her hours of work, or pattern of work. It is implicit that this change in industry, occupation or working arrangements has resulted in a lower income.

For a parent to change his or her occupation or industry requires a greater change than simply moving between employers or jobs. There needs be something in the nature of a change in career, or of working in the same type of job but in an entirely different field.

A parent who has changed his or her working pattern may still be in the same job, or employed in the same occupation or industry. What is relevant is whether the person has changed his or her hours of work, for example, by choosing not to work nights or weekends.

A parent may change his or her working arrangements, for example, to being a consultant or sub-contractor rather than an employee. In these situations CSA is satisfied that there has been a change in their working pattern.

If CSA is satisfied that the parent meets the first criterion (i.e. because he or she meets one or more of the three sub-criteria discuss above) it may be appropriate to make a decision to base the assessment on that parent's earning capacity. However, CSA may only make a decision of that type if the parent's circumstances also meet the remaining two compulsory criteria discussed below.
Decision not justified by the parent's caring responsibilities or state of health

This is the second of the three compulsory criteria for an earning capacity decision.

When considering this criterion CSA must be satisfied that the parent's decision not to work, to reduce the number of hours, or to change his or her working pattern is not justified on the basis of:

    the parent's caring responsibilities (section 117(7B)(b)(i));or
    the parent's state of health (section 117(7B)(b)(ii)).

This is an objective test. CSA must consider whether an ordinary, reasonable person would consider the parent's decision to be justified, rather than whether the parent who made the decision considers that their decision was justified. It is also important to note that if the parent's caring responsibilities or state of health do not adequately justify the parent's decision about his or her work arrangements, then CSA must then consider the third criterion below, relating to the parent's purpose in making that decision.

Parent's caring responsibilities

(section 117(7B)(b)(i))

The type of caring responsibilities that might justify a parent's decision to change his or her working hours will only be a personal responsibility to care for another person. Caring responsibilities include responsibilities to persons other than the parent's own children, such as their own parent, a new partner or step-children, elderly relatives or friends.

CSA will take into account the following factors when considering whether the parent's decision to change their working arrangements because of their caring responsibilities is justifiable.

    the relationship between the person being cared for and the parent providing care;
    whether the parent has a legal duty to maintain the person for whom he or she is providing care;
    if the parent does not have a legal duty, whether they have a moral duty and the extent of that moral duty;
    the degree and type of care provided;
    whether the parent has some capacity for part time or casual work in conjunction with his or her caring responsibilities;
    the availability of alternate care (personal and institutional);
    whether that alternate care is suitable and/or affordable; and
    the previous and proposed duration of the period of care.

CSA will weigh up the evidence about these and any other relevant matters in order to decide whether it is satisfied that the parent's caring responsibilities are such that they justify his or her decision to change his or her working arrangements.

The parent who is primarily responsible for care of the children for whom child support is payable may not be employed, or may be working part-time in order to accommodate his or her child care responsibilities. Where this is a longstanding arrangement (e.g. one that existed prior to separation, or since the children were born) the parent primarily responsible for care of the children may not have an additional earning capacity, because his or her ability and opportunity to undertake paid employment is diminished by their child care responsibilities and their absence from the workforce.

A parent who has been in the workforce may cease work, or reduce his or her work commitments to accommodate their responsibilities to care for a child. The child for whom the parent provides direct care could be the child from a former relationship (for whom child support is payable), or a child of a new relationship. In such cases, the parent (whether he or she is the payer or payee in the case) may still have an unexercised earning capacity that makes the assessment unfair. CSA may consider the following relevant facts over and above those considered in other earning capacity cases:

    the age, health and number of children being cared for;
    the practical availability of child-care;
    the economic cost of child-care compared with income available to be earned;
    the proposed period of the parent's absence from the work force; and
    whether the parent has appropriately balanced his or her obligation to support all of his or her children.

When making a decision about the effect a parent's caring responsibilities have on their earning capacity, CSA must have regard to government policies and initiatives designed to encourage parents back into the workforce. If the parent's caring responsibilities do justify his or her decision about his or her working arrangements, then CSA must not make a decision to base the child support assessment on the parent's earning capacity. However, if the parent's caring responsibilities would not preclude work, or additional work, CSA must proceed to consider the third criterion below, namely, the parent's purpose in making the decision about his or her working arrangements.

Parent's state of health

(section 117(7B)(b)(ii))

As with a parent's caring responsibilities, if a parent has health problems, this may mean that he or she does not have an earning capacity that makes the assessment 'unjust and inequitable'. If the Registrar is satisfied that the parent's state of health is such that he or she does not have an unexercised earning capacity that makes the assessment 'unjust and inequitable', it will not be necessary to consider whether the parent's circumstances satisfy the criteria in section 117(7B).

CSA will take into account any evidence that the parent presents about his or her state of physical and mental heath. It would usually be expected that a parent who claims to have made a decision to change his or her work arrangements because of his or her health will have been diagnosed by a qualified medical practitioner; treated for the condition and have made that decision based on medical advice. Therefore, the parent would usually be able to provide medical certificates or reports from his or her treating doctor, and/or reports from any specialist to whom the parent was referred.

The following factors are relevant in considering whether the parent's decision about his or her working arrangements is justified on the basis of the parent's state of health:

    the fact that the parent is suffering from a medical condition and the effect that this has upon his or her capacity to work;
    the expected duration of the condition;
    any recommended treatment, and the impact that this has on the parent's capacity to work;
    the availability of light duties, if the parent could work in a restricted capacity.

CSA will weigh up the evidence about these and any other relevant matters in order to decide whether it is satisfied that the parent's state of health is such that it justifies his or her changed work arrangements. If the parent's state of health does justify his or her decision about his or her working arrangements, then CSA must not make a decision to base the child support assessment on the parent's earning capacity. However, if the parent's state of health would not preclude work, or additional work, CSA must proceed to consider the third criterion below, namely, the parent's purpose in making the decision about his or her working arrangements.
Purpose of the parent's decision about working arrangements

This is the third of the three compulsory criteria for an earning capacity decision.

When considering this criterion CSA must be satisfied that the parent has failed to demonstrate that affecting the assessment of child support was not a major purpose of his or her decision to not work, to reduce hours or change his or her occupation, industry or working pattern (section 117(7B)©.

The test is framed as a 'rebuttable presumption'. The starting point is that affecting the child support assessment is presumed to be a major purpose of the parent's decision about his or her working arrangements. The parent can rebut this presumption by demonstrating, to CSA's satisfaction, that affecting the child support assessment was not a major purpose of his or her decision.

This is a subjective test. CSA must consider what the parent's purposes were in making the decision about his or her working arrangements and whether a major purpose was to affect the child support assessment. It is not necessary that CSA is satisfied that the parent's decision was objectively reasonable, but the reasonableness of the decision is a factor for CSA to consider in deciding whether it is satisfied that the parent has demonstrated that affecting the child support assessment was not a major purpose in his or her decision.

In considering the reasonableness of the decision, it needs to be kept in mind that this policy on earning capacity is intended to be flexible enough to allow parents to make decisions about their work and life, for example, choosing to pursue a different career. It is not the intention to micro-manage a parent's life on the basis he or she may have made a better decision about employment than he or she did in fact make.

The provision refers to 'a major purpose' not 'the major purpose'. This means that the parent can have more than one major purpose in making the decision. A major purpose does not have to be the dominant purpose. It is more than a 'significant purpose'. A suitable test would be whether affecting the child support assessment was one of the most important factors in the parent's mind at the time of making the decision about his or her working arrangements.

The usual way for a parent to rebut the presumption would be to show that there were other factors that he or she considered which were the major purpose and that affecting the child support assessment was not a major purpose. CSA will ask the parent to explain:

    the factors they took into account in making their decision to reduce their earnings or not to work;
    what financial arrangements exist to enable them to support themselves; and
    the consideration they have given to the arrangements to support the children for whom child support is payable after they changed their work arrangements.

CSA will also take into account any other relevant information that is already available in CSA's records, including:

    statements the parent may have made when advising CSA about their change in work arrangements;
    statements he or she may have made when CSA was discussing collection activities; and
    comments made by the other parent in the course of the change of assessment proceedings.

In particular cases, CSA may also contact the parent's employer or former employer to establish what reason the parent gave when he or she notified the employer of his or her decision.

If the parent cannot demonstrate that affecting the child support assessment was not one of the major purposes in the decision, he or she will fail to rebut the presumption and it may be appropriate for CSA to make a decision to base the assessment on that parent's earning capacity.

It is more likely that a parent will be found to have a higher capacity to earn where he or she has voluntarily made a change resulting in a reduction in his or her income. Where a parent has made a change involuntarily, such as being made redundant, he or she will be unlikely to be found to have a higher capacity to earn where he or she has made reasonable efforts to resume income earning activities. Documentation which should be available to CSA to substantiate claims relating to unemployment includes:

    separation certificates and termination statements;
    a 'job diary', as required by Centrelink for some 'Newstart' beneficiaries; or
    copies of job applications and responses.

Study

A parent might decide to leave their employment (or reduce their hours of employment) in order to undertake a course of study. If the parent cannot demonstrate to CSA's satisfaction that affecting the assessment of child support was not a major purpose of his or decision to undertake study, it maybe appropriate to base the child support assessment on the parent's earning capacity, rather than the parent's reduced income.

CSA can consider the following relevant factors:

    the parent's reasons for undertaking the course of study;
    the length of the course of study;
    whether the parent took into account his or her obligation to provide financial support for the children during the period of study;
    the needs and situation of the children at the time of the application and during the period of study;
    the manner in which the parent will support himself or herself during the period of study;
    whether part-time work or part-time study was available;
    the length of time the parent had been planning to undertake the course of study;
    the likelihood of securing employment, and of deriving increased income, after the course of study; and
    the qualification that would be awarded on completion of the course of study.

Even if CSA is satisfied that affecting the child support assessment was not a major facto in the parent's decision, failure to resume work following the anticipated course of study may leave the parent open to a further consideration of his or her earning capacity.
Change of occupation or industry

A parent's decision to change occupation or industry while maintaining full-time employment, resulting in a reduction in income, is not likely to lead to a finding of an increased earning capacity, especially if the parent's previous employment was dangerous or required significant travel and time away from home.
What is a parent's earning capacity

In respect of the earning capacity of the unemployed or under-employed parent, CSA may enquire as to the 'ability of' and 'opportunity for' that person to seek and gain employment (DJM and JLM (1998) FLC 92-816). CSA will consider the parent's qualifications, skills, age and employment history.

Examples

A parent who has been caring for children and has not been in the paid workforce for many years may have difficulty entering the workforce.

A parent who has been in the same job for 20 years, and is made redundant, may have similar difficulty.

On the other hand, a parent who is qualified in an occupation in high demand would be expected to enjoy considerable flexibility in their choice of employment.


The other relevant consideration is whether or not there are any special, local or other factors that affect a parent's capacity to secure employment. Opportunities for employment vary from place to place and between occupational groups.

In determining the extent of the parent's earning capacity, CSA may consider the following (Scott and Scott (1994) FLC 92-457):

    the circumstances in which the parent became unemployed or without income;
    the reasons for the unemployment or loss of income;
    the nature of the parent's previous employment;
    the efforts which they have subsequently made to obtain employment; and
    the property or financial resources that are, or should reasonably be, available to the parent.

CSA must weigh up the individual factors of each case in deciding whether a parent who has ceased work, or reduced his or her hours, has the ability and opportunity to earn a greater amount, and whether that additional earning capacity makes the child support assessment unfair.
Know how you feel, Partners ex is claiming to be unemployed and claims newstart, yet she is openly advertising her services on a bussniess web page, even states how much she charges per hour, what will CSA do NOTHING. so waste of time even doing a COA.
Thanks MikeT. I am more after "capacity to pay" as in CSA looking into the business of the payer, as they like to do. Capacity to pay is quit commonly applied against payers who operate their own business, which DH will.
Now I am unsure if they do this against the payees capacity as well? In our case the payee has her pen business also, electing 15k to be her income. Let's say she does a COA on DHs capacity to pay, as she thinks his business is making more. We counter claim that her busniss is also making more, which it certainly is giving her lifestyle, will CSA take a look into both businesses or only the payers business? I know that it falls under Reason 8 also. I am just unsure how exactly that works, cause so far I am only aware that CSA looks into payers businesses.
SM10, the CSA should not distinguish between payer/payee when applying the legislation. However, it is very clear that they do apply the legislation with such bias in order to collect more than what should be collected.

They would without doubt consider, if it were the liable parent, both businesses, even on the flimsiest of evidence (e.g. the business just existing). In one case that I am aware of, even though there was a finding that both equally contributed to the business, the incomes for the two participants were not distributed evenly. The decision resulted in the incomes being distributed so that the liable parent's income from the businesses was something like 10 times the income that they allocated to the non CS partner.

It's not exactly capacity to pay though, this is more used when deciding if a decision is just and equitable. Rather it's the income/property/financial resources of the parent. Have a look at The CSA Guide - Reason 8 - a parent's income, property, financial resources, or earning capacity. Here's a relevant extract:

The CSA Guide - Reason 8 - a parent's income, property, financial resources, or earning capacity said
Explanation

There may be a reason for changing the assessment if, in the special circumstances of the case, the assessment of child support results in an unjust and inequitable level of financial support to be provided by the payer for the child because of either parent's:

    income, property or financial resources (section 117(2)©(ia)); or
    earning capacity (section 117(2)©(ib).
Thanks guys and girls for the above information, after a 4 year battle its going to be very helpful in court tomorrow.

Did you know that I have read the ATO's act and the CSA act and I still can not find the meaning of  - setting aside a depreciation amount.
Have I opened up a can of worms here. Does anyone know ?
Thanks MikeT! I looked at the forms as well. I guess as long as we tick the box on Reason 8 and give our reasons on why we think this reason should apply, we will be fine. If they increase DHs income but not hers, then we may need to take it further. We will see.
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