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I was made redundant last year, and although I was fortunate to have been able to find contract work almost immediately, it has meant a lower and variable income. So I have been doing estimates since then, and trying hard to get them right. If I don't get it right I've been submitting a new estimate as soon as my income changes, and I believe I have been doing the right thing. ( I also had a COA submitted against me in relation to earning capacity, but I was able to show it was a forced redundancy and I have done all I can to find work and have worked to my capacity, so it didn't succeed on that basis)

My question is - Does anyone know how the CSA reconcile an estimate an the end of the Child Support period ? I can't work out how they can do it if the estimate period doesn't match a financial year.

Also, are there any traps that I havne't thought of when I do my estimate ? I want to do the right thing and not be pinged in several years time for something I didn't know about. CSA have not been very helpful in giving advice in this regard, they just tell me to overestimate.

Anyone have any comments? Thanks
This is what the guide says about reconciliation :-

CSA Guide (extract)- 2.5.1: Estimates of Income. said
Reconciling an estimate

After an estimate period ends, CSA will compare the parent's 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 parent's 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). F's 2009-2010 tax assessment issued on 2 August 2010 and, as a result, the child support period ended on 31 August 2010. However, F's 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 12-month estimate for the period 1 July 2009 to 30 June 2010 for $25,000. M's 2009-2010 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 parent's 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 parent's 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 parent's annualised actual income as the parent's adjusted taxable income amount for all the days in the assessment still affected by the parent's 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 parent's taxable income may be higher than their estimate by the amount of the deduction.


This does not apply where a parent's taxable income is amended for other reasons (for example, taxpayer error).

Fair and reasonable to remit the penalties in the circumstances

What is fair and reasonable depends on the circumstances of each case. Those circumstances do not need to be special, exceptional or unusual. CSA will remit estimate penalties if it considers the parent did not intentionally misuse the estimate provisions to defer payment.

CSA will consider whether a parent was or should have been aware of the conditions and implications of using an estimate.

A parent should use reasonable care and all information available to estimate their income. If their circumstances change, they should make a new estimate or advise CSA of the change in circumstances. CSA may not remit an estimate penalty unless a parent has a reasonable explanation for failing to make a new estimate when their circumstances changed.

Failure to mitigate the effects of the incorrect estimate income does not necessarily mean that the parent intended to misuse the estimate provisions. However, if a parent acts to mitigate the effects this could indicate that they did not intend to avoid or defer the liability.

Example

M becomes aware of the difference between their estimated income and their actual adjusted taxable income. M contacts CSA for advice and arranges to pay the arrears that will result from a reconciliation of the estimate. M has attempted to mitigate the effect of the underestimation. CSA will consider this when deciding whether to remit the estimate penalty imposed.


CSA will remove any penalty that has been imposed incorrectly (for example, through error or miscalculation, or by a subsequent variation which decreases the liability).

Frequently asked questions


Can CSA amend any part of the child support formula when reviewing an estimate?

No. CSA can only consider whether or not to amend the adjusted taxable income amount of the parent and not any other part of the child support formula (e.g. annual rate, child support percentage).

Is there any discretion as to how the adjusted taxable income is determined during an Estimate Review?

No. The adjusted taxable income must reflect the parents adjusted taxable income that will be earned from the event date (or notification date) until the end of the estimate period.

How should an estimate be reviewed when more than one event has occurred since the estimate was accepted?

CSA needs to work out the income earned from the date of the earliest event resulting in an increase in income and take into account all further income fluctuations. This can include income earned in a period that is now covered by a subsequent estimate.

How is an estimate reviewed when a lump sum has been received?

Lump sums are treated no differently to 'regular' assessable income. Receipt of a lump sum will usually be an event for reviewing purposes. CSA needs to work out the income earned from the event date (or notification date) until the end of the original estimate period taking into account any assessable lump sum payment within that period.

How are multiple estimates reviewed?

Every estimate has to be considered separately. There has to be an event for each estimate before it can be reviewed and amended.

You may wish to checkout the entire section of the guide, here's a link The CSA Guide - 2.5.1: Estimates of incomexxxxx
I have been through the review process and the short story is that ended up in the court with the magistrate stating that the process was unfair and finding against them. Make you check everything they do as they usually make mistakes. They pretend to act like a tax agent to work out your income any many of us on here know they don't even come close to knowing enough about the tax Act..

From experience C$A will generally undertake reviews after June and will use whatever information they can access to work it out a child support income.

Since you have only been on an estimate for a short time you should not have any dramas, however, to assist them is making sure it is correct, you should put in your 2010 tax return ASAP after June so they have your latest financial information including deductions, offsets etc…
Thanks Fairgo, this is what worries me…..I am trying to avoid the ending up in court scenario! I also have heard some horror stories about people owing $thousands years later when CSA have reconciled their estimate.

I am not self employed so I have been assuming that the only deductions they add back in are rental property losses, I don't have much else to deduct anyway.

I don't quite get the difference between "reconciling" an estimate and "reviewing" and "revoking" estimates that they talk about in the Guide. I have been submitting a new estimate approx every 2 months to keep it as accurate as possible because my income varies so much. I think this is the right thing to do… but I don't believe I've had an estimate reconciled yet… would I know if it had been ?
What you mentioned is what happened to me and believe me the court was the best place to be with effective evidence rules, and reasonable magistrates that are much better than the C$A employees that can only pretend.

I would only use estimates if my income was dropping and then get my tax return in ASAP as this will then be used as the basis of the review or reconciliation.

You also might get your refund instead of them taking it as they can only hold it for so long and the review process can take a while.

Then if you still have arrears you can negotiate to pay it off. Don't be threatened by the penalties as you can usually negotiate to have them removed afterwards if you are reasonable, so do not pay any of them up front.

Don't worry they will be in touch when they want to do the review. If this happens try not to give them information over the phone - instead ask them to put any requests in writing so you can carefully consider your response. They like to get people to spill the beans over the phone.
Thanks MikeT and Fairgo for your advice. Cheers
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