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FACT sheet Self Employed Persons

There is discussion on raising a FACT sheet, for giving some guidance to self employed persons involved in the Child Support system

Please provide key topic headings you would like guidance on in relation to self employed persons who are dealing with the child support agency.

I have placed a few items on the table that come to mind.

Things like:
  • What do CSA take into account when doing a Registrar initiated assessment
  • What records do you need to keep and for how long
  • Do you need a wages book?
  • What measures do you need to take to ensure payments from the business to a current partner are at arms length and protected.
  • How will the CSA deal with a company owned vehicle
  • What sort of vehicle can you have?
  • Private mileage and Log books
  • What office equipment will be considered exempt from income
  • What are legitimate deductions when self employed for purposes of CSA assessment?
  • How should you manage your business and private bank accounts to ensure they are separated
  • How should income tax be paid or provisioned if self employed to ensure that CSA treat it as tax on earnings
  • How should you deal with payments when the business is cash poor but balance sheets show a profit
  • What does your taxation advisor need to be aware of at balance date
  • To Journal or not to Journal? What do you need to consider at balance date

I am aware that payments to new partners is an extremely hot area where arms length transactions must be effected if the new partner is working in the self employed payer business and there are a wide range of other issues arising around a lack of guidelines for self employed persons.

We are currently discussing with FaHCSIA policy branch to see if something reasonable can be put together on similar lines to other FACT sheets here. This might be a first step toward something more substantial like the employers guide.


Executive Secretary - Shared Parenting Council of Australia
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* How CSA treats the different forms of small business ie sole proprietor, partnership, private company, public company

* How is the contribution of assets to the business by the business owner treated (especially at start-up)

* How are superannuation contributions treated (Will CSA treat contributions at the same level as you would receive as an employee as exempt from add-back?)

Just initial thoughts - will add more afer a good old ponder :)

"Decide that you want it more than you are afraid of it."
Bill Cosby
 :thumbs:
Please don't take my post the wrong way - but shouldn't they just be following the tax act on all these matters? Also Family assistance has similar processes to carry out to determine family benefits so why can't the C$A follow the same protocols?  
We can hope Fairgo

Unfortunately from what I have read on here, it seems C$A sees self-employment as an avoidance tactic (my opinion - sorry if I'm wrong!).

Which completely ignores the facts that the financial backbone of this country is dependent on small to medium business

"Decide that you want it more than you are afraid of it."
Bill Cosby
 :thumbs:
Fairgo said
Please don't take my post the wrong way - but shouldn't they just be following the tax act on all these matters?
Not at all… The problem we have is there are two rules. A rule for tax calculation and a rule for Child Support calculations. There is the taxation regime (ATO) legislation which gives self employed parties clear guidline and instruction and detail on appropriate allowable deductable expenses. The CSA on the other hand add all of this sort of deduction back in to work on a gross income basis. There are also other components and tests in the Guide that need to be met. The CSA have an ability via different SCO's to interpret things in different ways. We want to pin that interpretation down so there is either no interpretation and it is black and white but most of all we want CERTAINTY for self employed persons involved in the scheme. We want the self employed person to know what they must do for compliance.

Currently it is shaky, loose and open to vastly different interpretaions.
Fairgo said
Also Family assistance has similar processes to carry out to determine family benefits so why can't the C$A follow the same protocols?  
Would you post links please and expand on the areas in Centerlink that you believe set out these guidelines. The alignment of Centerlink to CSA is an ongoing saga that just does not seem to get over the line in relation to "time calculations" and we are following up at this months CSNSEG meeting. Thats another issue on our register

Executive Secretary - Shared Parenting Council of Australia
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Tulip said
We can hope Fairgo

Unfortunately from what I have read on here, it seems C$A sees self-employment as an avoidance tactic (my opinion - sorry if I'm wrong!).

Which completely ignores the facts that the financial backbone of this country is dependent on small to medium business
I think there is much weight in what you say here, which is why we are seeking advice from members and guests as to what specific items should be detailed in a FACT sheet.


Executive Secretary - Shared Parenting Council of Australia
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There are a few issues here;

Payees who want/need more child support,

Payers who do not want to pay/pay more child support.

How the C$A goes about justifying that payers should pay more.

Compliance of the Tax Act by all parties.

I would like elaborate more but can't, however this is what I think should occur in the long term for the C$A and the issues around COA:

We should be looking at how Family Assistance deals with self employed persons and apply the same processes in child support matters.

Eventually Family Assistance should take over the administrative assessment process of the C$A and the whole COA process be given to a AAT like body. The SSAT is not suitable due to slack evidence rules.

Resources saved by shutting down the C$A should then be put into Tax compliance for small businesses, payers/payees etc…, as it is clear many small businesses take too much advantage of the flexibility they have in managing their financial affairs to reduce tax and child support liabilities and increase Family Benefits.

The overall savings in Family Tax Benefits by increased compliance of small businesses tax affairs would dwarf the current 'clawback' tactics of the C$A.

Payers and payees would then have fairer assessments.

The COA legislation is complex and is actually a complete look at each persons financial situation or the financial settlement between the parents, however the C$A brushes over it gently and gets away with most decisions without full consideration of all aspects of the law due to the firewalls in place to make it hard for recipients to get through the appeals process.



Fairgo said
There are a few issues here;

Payees who want/need more child support,
Payers who do not want to pay/pay more child support.
Doesn't everyone want more? and those who pay a lot, want to pay less. Flipant comment as it may be. These are issue that I don't propose to deal with in this topic. Our only aim in this Topic is to find out what members and guests need in a FACT sheet around running a business and being self employed. We have far to many issues around self employed persons when taxation legislation is adequate for tax purposes but completely indequate for CSA calculations during an assesment.
Fairgo said
How the C$A goes about justifying that payers should pay more.
Exactly why we need a published FACT sheet to determine what the CSA will require. It is completely variable on case to case and that needs some guide line so everyone has a level playing field.
Fairgo said
Compliance of the Tax Act by all parties.
You can comply with the tax act and find you have a major problem when it coems to calculation of child support amounts in an assesment or COA and is the reason we must get a FACT sheet together to ensure we are corrcetly informed.
Fairgo said
I would like elaborate more but can't
Okay no problem and there are ways to communicate confidentially here.
Fairgo said
This is what I think should occur in the long term for the C$A and the issues around COA:
  • We should be looking at how Family Assistance deals with self employed persons and apply the same processes in child support matters.
  • Eventually Family Assistance should take over the administrative assessment process of the C$A and the whole COA process be given to a AAT like body. The SSAT is not suitable due to slack evidence rules.
  • Resources saved by shutting down the C$A should then be put into Tax compliance for small businesses, payers/payees etc…, as it is clear many small businesses take too much advantage of the flexibility they have in managing their financial affairs to reduce tax and child support liabilities and increase Family Benefits.
The overall savings in Family Tax Benefits by increased compliance of small businesses tax affairs would dwarf the current 'clawback' tactics of the C$A.

Payers and payees would then have fairer assessments.

The COA legislation is complex and is actually a complete look at each persons financial situation or the financial settlement between the parents, however the C$A brushes over it gently and gets away with most decisions without full consideration of all aspects of the law due to the firewalls in place to make it hard for recipients to get through the appeals process.
You make a lot of valid points and I have been a proponent of moving to a single Family Assistance organisation with same rules that deals with all facets of Family tax and benifits, including the collection of Child support. This organisation would most definitely apply the same processes to both family benifit and child support matters.


Executive Secretary - Shared Parenting Council of Australia
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SecSPCA - Here is the Family Assistance Application form - see the section about income estimates - should be exactly the same for C$A.

Families - Department of Human Services
The section about income estimates starts at page 13 and here are some extracts

allowable deductions include:
 deductions for work-related expenses
 expenses incurred for business purposes and gifts and donations to eligible charities and
organisations


Completely useless advice for purposes of Child support calculations

If a tax return is lodged, your taxable income is the income shown on the assessment notices from the Australian Taxation Office for you and your partner. Last years assessment notice amount may help you estimate your taxable income for the current year.

Completely useless advice for purposes of Child support calculations

Reportable Superannuation Contributions


Any reportable superannuation contributions are included as income and used to work out your family assistance. Reportable superannuation contributions include:
 discretionary contributions. Examples of these include: voluntary salary sacrificed contributions, made by you or on your behalf by your employer. These are above those required by law such as an industrial award or the superannuation guarantee (currently nine per cent), and

 total superannuation contributions made by you as a self-employed person, for which you can claim a tax deduction. Reportable superannuation contributions do not include compulsory employer contributions. If you have reportable superannuation contributions, you need to ensure this income is declared to the Family Assistance Office as part of your family income estimate.
If you do not know if this applies to you, contact your employer, financial adviser or the Australian Taxation Office.


This advice is getting closer to the mark, but for self employed and owener operators they, often, do not have good advice when it comes to Child Support issues and it is these gray areas we want to try to provide some guidance.

I also suggest we need a clear guidance for the SCO's and the SSSAT in how to deal with self employed CSA customers. Just what is the amount they are ordering actually for? It is for Child Support and not spousal maintenace or any other view that an officer may have.

A guide line in my view is well past due and along the lines of Centerlinks publication is a start but certainly with much more specific detail. When they start to add back the ball point pens and amount of paper consumed in a self employed business it is time to demand a stop to the nonsense and require a specific FACT sheet so it becomes a level playing field where the gaol posts are not smoke and mirrors depending on the views of one officer over another and how they wokre up in the morning.

The more items listed and dealt with in the FACT sheet the better off self employed customers will be. Have you read the Empoyers Guide? That may be the sort of detail required for self employed and owner operators.

Its just all simply not good enough and needs to be resolved sooner than later. The more we get contributed to this topic the better the first draft FACT sheet might be.


Executive Secretary - Shared Parenting Council of Australia
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One thing that REALLY concerns me is C$A's treatment of depreciation and expenses:

From The Guide Using the Child Support Guide | Child Support Guide

Self employment and business expenses

A parent may be involved in a business as a sole trader in person or under a trading name. A business may deduct certain expenses from income for tax purposes and as a result legitimately may have a reduced income or may even run at a loss. These deductible expenses can result in a child support assessment that does not take into account the full financial resources available to the parent. In these cases, assessing child support on the basis of taxable income can result in an unjust and inequitable level of child support.

What are business expenses?

Common examples of business expenses include:

expenses that are partly business and partly private, e.g. telephone, home office or motor vehicles;
salary and wages paid to employees;
depreciation of property, plant and equipment;
capital deductions related to primary production; and
prior year losses and capital losses.

If the tax deductible business expenses provide a personal benefit to the parent, this may make the child support assessment 'unjust and inequitable'. CSA will consider whether the parent has a greater financial capacity than is indicated by his or her taxable income, either as a direct result of the deductions or of having certain personal costs defrayed by being tax deductible.

…………….

Depreciation

Depreciation represents the loss or expense attributed to the use of business property or equipment. A claim for depreciation can result in a parent having additional 'cash in hand' that may be considered a financial resource. In cases that involve depreciation, CSA will determine whether receiving a benefit through claiming depreciation expenses results in a parent having greater financial resources or income than his or her taxable income would indicate. CSA will consider a parent's complete financial situation and the individual circumstances of the case. If the amount claimed as depreciation is used or set aside for replacing equipment then this is unlikely to provide the parent with additional financial resources. On the other hand, if the parent spends the benefit of depreciation on day-to-day living expenses or recreational expenses this is likely to be a reason for changing the assessment.

CSA can also consider the asset that is the subject of the depreciation expense, whether the asset is used for both business and private activities and whether the written down value is a reflection of market value. A luxury car leased as a work vehicle might also be used for private purposes.

"A claim for depreciation can result in a parent having additional 'cash in hand' that may be considered a financial resource."

No No No No No. Depreciation is an ON PAPER EXPENSE - cash in hand is physical ASSET

Changes that reflect a parent's financial circumstances

Where a parent's financial circumstances are not complicated, and the financial element can be easily identified and isolated CSA may increase the parent's adjusted taxable income.

Example

If business income is reduced by $10,000 as a result of depreciation and that amount is then used for day-to-day personal expenses the depreciation amount may be considered as an additional resource and added back to the parent's adjusted taxable income.

sheesh *throws hands in air*

INCOME is not reduced by Depreciation - ASSET VALUE is.



I have a headche now  O_o

"Decide that you want it more than you are afraid of it."
Bill Cosby
 :thumbs:
OMG what a minefield!
I had no idea how vague the whole CSA areas were in relation to an individual electing to choose self employment, a different profession or type of employment.  
The CSA is a suspicious beast that seems to group all individuals into the 'evil monster' category

Perhaps a link could also be established on other government websites regarding new initiatives / start up business etc as a pathway to learnign more about the ramifications of these decisions.
Tulip said
"A claim for depreciation can result in a parent having additional 'cash in hand' that may be considered a financial resource."

No No No No No. Depreciation is an ON PAPER EXPENSE - cash in hand is physical ASSET

Changes that reflect a parent's financial circumstances

Where a parent's financial circumstances are not complicated, and the financial element can be easily identified and isolated CSA may increase the parent's adjusted taxable income.

Example

If business income is reduced by $10,000 as a result of depreciation and that amount is then used for day-to-day personal expenses the depreciation amount may be considered as an additional resource and added back to the parent's adjusted taxable income.
sheesh *throws hands in air*

INCOME is not reduced by Depreciation - ASSET VALUE is.

I have a headche now  O_o   

This topic has been dealt with here:

Ladd & Child Support Registrar & Anor (SSAT Appeal) [2010] FMCAfam 23 (18 January 2010)

  • While I am satisfied it was appropriate for the Tribunal to analyse the companys depreciation expense as it did, and I find no error in that analysis, it was also necessary for the Tribunal to have considered the financial effect of treating a portion of that depreciation expense (in this case, nearly half) as a financial resource available to the appellant.

    This exercise would necessarily involve a consideration of the other company expenses.

    It was then a matter for the Tribunal, in the exercise of its discretion, to decide which of those expenses should be regarded as reasonable for child support assessment purposes, and which (if any) should not.

    The company accounts[12] for the 2007 financial year show the company made an overall loss in that year of $48,734.90[13].

    It was not open to the Tribunal to simply disregard all other expenses of the company resulting in that loss, as it has done. It is clear that if an amount of $39,266 (the depreciation expense the Tribunal found was not used for the purchase of new equipment) were omitted from the Statement of Financial Performance for the company for the 2007 financial year[14], the company would still have an operating loss of $9,468.90 [a loss of ($48,734.90) plus $39,266].

    In other words, that amount of $39,266 is not left in the hands of the appellant because, in the circumstances of this case, it makes no impact on the funds available to the appellant from the company.

    The position may have been different had the company achieved a net profit in that year.

    It is noteworthy that there is consistency in the company accounts in the 2006 and 2007 financial years. The company has negative equity in both the 2006 and 2007 financial years[15], and the companys trading result in the 2006 financial year was worse than in the 2007 financial year.

    The Tribunal did not have regard to these facts.


    I find the Tribunal misinterpreted the meaning of financial resources when it failed to examine the financial evidence before it in the context of determining what the actual personal financial resources of the appellant really were. This required an analysis of the personal benefits which actually flowed to the appellant from the company from the companys financial records.

    While I accept Mr Gouliaditis contention that it was a matter for the Tribunal whether or not to include particular liabilities of the company when deciding the extent of the appellants personal financial resources, the Tribunal could not simply disregard those liabilities without explanation, and the loss incurred by the company in that year.

    I do not accept the submission that the Tribunals approach was consistent with the
    Gyselman decision, nor that Gyselman should be distinguished because it concerned the debts of an individual. Gyselman makes clear that the assessment of financial resources required to be undertaken must be a realistic one, based on the evidence available. I agree with the appellants counsels submission that on the authority of Gyselman, the interpretation of financial resources in sections 98(1)(a) and 117(4) of the Assessment Act, is a question of law.

    I find the Tribunal misunderstood the task it was required to undertake to establish the true extent of the financial resources available to the appellant. This was an error of law.
Secretary SPCA said
Thanks for publishing this judgement and I have edited it somewhat for clarity. Pity the CSA Policy group do not make it clear as to what instruction they are issuuing to CSA officers in relation to these sorts of findings.

Last edit: by Secretary SPCA

As you can see from the above post the CSA are at a total loss when it comes to business finance. Below is an example for their educationally challenged staff:

A business buys die cast tooling for $100,000. That cost can be written off in one year or three at 50, 30 & 20K pa. Notice to CSA - this tooling is paid for in year one with real income (cash), so think of it as minus 100k in the bank. Any profits in year one are reduced by the real cost of the tooling, in this case 50K. This does not mean extra 50k in the hand in real terms, but that 50% of the cost of the tooling is recovered by offsetting against profit. In real terms there is still minus 50k in the bank for the tooling cost.

Using the logic of the CSA no one would go in to business. Any year ten business student can understand this.
Secretary SPCA said
This is also important because the Government has advised a 50% discount or additional depreciation for a range of business assets purchased prior to end December 2009. This is a one off opportunity / measure to stimulate the economy. Based on the above the CSA approach will be devastating on self employed CSA customers. Note I refer to customers because remember that both parents income is now taken into account.

I trust Monti will accept the notations

Last edit: by Secretary SPCA


Executive Member of SRL-Resources, the Family Law People on the site (Look for the Avatars).   Be mindful what you post in the public areas. 
SecSPCA - He's another for the list:

How with they treat losses that are carried on from previous years?

All being equal

The short answer here is CS should be calculated from after tax income.

I see this as almost the whole problem ,the csa get in on the ground floor which allows them to manipulate the figures as they see fit. Right or wrong.

Radical I know but fairly obvious in my mind.
The shorter answer is only the ATO should calculate taxable income and the CSA should be required to use that figure period.  CSA should only have access to that figure and no other information.
Newguy what is your definition of "Taxable income" when you are a self employed operator? and when you are a paye wages worker? In other words what is included to get to "Taxable income"?  O_o

Executive Secretary - Shared Parenting Council of Australia
 Was my post helpful? If so, please let others know about the FamilyLawWebGuide whenever you see the opportunity
 
SecSPCA.  I do not need to provide a definition of taxable income.  The ATO know what is taxable and what is not.  They are the expert in tax matters and not the CSA.

I don't have a business so I never file a tax forms as a business owner.  I know when I file my own tax forms, there is a bottom line number that is my taxable income and that is what I pay my taxes on.  I am allowed to take deductions that will deceased the amount of tax I owe.  I am sure when a business owner file their own returns there is a bottom line number and that is their taxable income.  

If someone is illegal minimizing their taxes it should be the ATO that act and not the CSA.  

The main point is the only information the CSA should get is the bottom line number and other information the law say they can have i.e FTB and net investment losses etc.   They should not have access to the whole return  or information on a new partner.
newguy said
If someone is illegal minimizing their taxes it should be the ATO that act and not the CSA.  

The main point is the only information the CSA should get is the bottom line number and other information the law say they can have i.e FTB and net investment losses etc.   They should not have access to the whole return  or information on a new partner.

I'm in two minds about this. Completely agree that info about a new partner has no bearing, but I do know that there are many ways to reduce your taxable income when self-employed that do not always reflect your financial resources. Not saying all self-employed people do this, but many do. And let's face it - under our taxation laws it is the right of the tax payer to LAWFULLY minimise their taxable income.

I think this is where C$A has a little tanty. And becomes rather confused and overbearing. Unfortunately, they can rely the wording of the Child Support (Assessment) Act. http://www.comlaw.gov.au/ComLaw/Legislation/ActCompilation1.nsf/framelodgmentattachments/4DD635996AEF61BFCA2575E6000A2E17

58  Registrar determination of adjusted taxable income
             (1)  For the purposes of assessing a parent in respect of the costs of a child in relation to a child support period, the Registrar may determine, in accordance with this section, that an amount that he or she considers appropriate is the parents adjusted taxable income for a year of income.

Note: The Registrar is required to amend an administrative assessment made on the basis of such a determination if the parents adjusted taxable income is subsequently ascertained or the Registrar makes a later determination under this section (see section 58A).

(my emphasis)

To my mind the biggest problem in developing a fact sheet will be having C$A establish standard procedures in dealing with self-employed parents.

"Decide that you want it more than you are afraid of it."
Bill Cosby
 :thumbs:
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