Purpose of the Bill

The purpose of the Social Services Legislation Amendment (Child Support Measures) Bill 2023 (the Bill) is to amend the Child Support (Registration and Collection) Act 1988 (the CS Collection Act) and the Child Support (Assessment) Act 1989 (the CS Assessment Act) to:

• provide the Child Support Registrar with an ability to refuse a departure authorisation certificate where a security is offered but the Registrar is not satisfied that arrangements will likely be made to wholly discharge the relevant outstanding child support or carer liability
• allow for employer withholding arrangements to continue or commence after the enforceable maintenance liability period ends—for example, after a child has turned 18 years old and
• allow the Registrar to determine a low-income parent’s adjusted taxable income as the child support self-support amount.

The departure authorisation refusal and employer withholding measures were announced in the previous Coalition Government’s 2021–22 Mid-Year Economic and Fiscal Outlook (MYEFO).[1]

The changes are expected to start from 1 July 2023.

Background

The Child Support Scheme

The Child Support Scheme (CSS) was introduced in June 1988 by the Hawke Government. The CSS is intended to assist separated parents in taking responsibility for the financial support of their children.[2] The CSS assesses amounts of child support in accordance with a formula and collects and enforces these assessments, child support agreements and court orders.[3]

Key legislation and administrative arrangements

The CSS is administered under the Child Support (Registration and Collection) Act 1988 (CS Collection Act) and the Child Support (Assessment) Act 1989 (CS Assessment Act).

The CS Collection Act:

• established the child support scheme on 1 June 1988, and
• provides for the registration, collection and enforcement of child support liabilities, and from 1 October 1989, of administrative assessments of child support.[4]

The CS Assessment Act took effect from 1 October 1989 and implemented administrative assessments of child support in accordance with a formula.[5]

The Minister for Social Services and the Department of Social Services is responsible for the general administration of the CSS. The Child Support Registrar is the Chief Executive Officer of Services Australia. The Registrar has decision making powers under the legislation and has responsibility for decisions in individual cases.[6]

In 2021–22 around $3.9 billion in child support was transferred with CSS support for around 1.1 million children.[7] The person entitled to receive child support, the payee, can nominate to have child support payments transferred privately (known as private collect), or via Services Australia (known as child support collect). In 2021–22, 51.4 per cent of child support cases used private collect arrangements—$2.1 billion was expected to be transferred via private collect and $1.8 billion was transferred via child support collect.[8]

According to the Department for Social Services, as at June 2022 there was around $1.69 billion in child support debt outstanding from 243,031 individuals (this data only relates to child support collect cases).[9]

Child support assessments

Child support assessments are conducted by the Child Support Registrar (Services Australia). A parent or non-parent carer, who is considered an eligible carer for a child, can apply for an assessment. These are administrative assessments by Services Australia which determine amounts of child support that might be payable by one parent to another according to a formula.

The formula assesses the income of both parents, deducts an amount needed for self-support, determines the percentage of care each parent has for each child and what costs are met through that direct care. If a parent’s share of their combined income remains positive, after adjusting for the share of costs met through direct care, then they are considered the payer.[10] The formula then determines the costs of each child based on the level of the parents’ combined income, and then determines the annual rate of child support payable. A parent with more than 65% care of the child is not liable to pay child support, even if the formula would otherwise determine this result.[11]

Generally, the assessment uses income information reported in the parent’s most recent tax return. Where a parent has not lodged a tax return, the Registrar can draw on other available income information—from within Services Australia (relating to income support payments) or information provided by the parents, government agencies, employers, or other sources.[12] Annual rates payable under an assessment can be varied at any time to reflect changes in financial circumstances, care arrangements or other events. There are special rules around when more information on income or a recently lodged tax return can be used to affect a child support assessment.[13]

Child support agreements

Child support agreements are agreements between parents on the amount of child support that is to be paid. An agreement must meet the requirements of the child support legislation and must include matters that can be dealt with in a child support agreement for the Registrar to accept it.[14]

From 1 July 2008 there are two types of child support agreements: binding agreements and limited agreements. Each party to a binding child support agreement must have received independent legal advice before entering into the agreement and there is no requirement that an administrative child support assessment be in place prior to making or accepting a binding agreement (except in cases that create lump sum payment obligations under the CS Assessment Act).[15] Binding agreements cannot be varied—to be altered they must be terminated and a new agreement made.

Limited agreements do not require the parties to have received legal advice before entering into the agreement but an administrative assessment must be in place when an application for such an agreement is made.[16] The amount of child support in a limited agreement must be at least the amount that would otherwise be payable by the same parent under the administrative assessment. Limited agreements cannot be varied. To alter the agreement, it must be terminated and a new agreement made.

Court orders

The Family Law Act 1975 and child support legislation provide for courts to register agreements for child and spousal maintenance and for a range of orders relating to child support assessments.[17] These include orders as to who should be assessed, to make changes to a child support assessment, to set aside or terminate an agreement, for certain arrears to be paid or for payees to refund money paid as child support where no liability existed.

Background to the measures in the Bill

At Senate Estimates hearings in February 2022, the then Minister for Families and Social Services stated that the departure prohibition and employer withholding measures announced in the 2021–22 MYEFO followed discussions with then Senator Rex Patrick:

Senator Patrick: Now, Minister, I just want to very quickly move to child support. You and I have had a long-running dialogue about the fact that payers of child support can effectively bypass increased payments by simply not lodging a tax return. On questions on notice, we found that there were 16,000 customers who hadn't lodged a tax return for more than 10 years, and I think we both agreed that that puts the children in a position where they may well not be receiving the right amount of child support through the system. So, Minister, is there any remedy that's been worked in relation to this?

Senator Ruston: Yes, and I acknowledge that fact that this is an issue that has been of long-running concern to you, and when you raised it with me I absolutely agreed with you. The responsibility of both parents is to support their children, and they have an obligation to do so under the orders that are put in place, whether through a private collect or agency collect. In MYEFO last year, following on from our discussions, I sought to put in place some additional measures to try to deal with this issue. One of the issues that became apparent when I investigated what you were talking about was that we as a government actually didn't have the power to pursue debts that were outstanding after the child turned 18. Often a parent, particularly when you’re talking about the kind of length of time that people have not put their tax returns in for, could hold out until the child turned 18 and then all of a sudden we were almost rendered powerless to chase the debts. The changes that we announced in MYEFO now enable us to pursue those debts even after the child has turned 18. It’s annoying that people will try to play this game, but at least it gives us the power to make sure that we can remedy it eventually.

The other thing we did was strengthen the departure prohibition process. Once again, looking into that particular issue, we realised there was a significant number of people who were leaving the country with very significant debts owed to their partner and really had very little intention of coming back or paying the debts. So, we now have much stronger powers within our agency to prevent people from leaving Australia until they pay their debt. Interestingly, since July 2017, even with the less strong powers, we've managed to recover nearly $100 million of child support debt that was owing. When people get to the border and realise they’re not being allowed out of the country, it’s amazing how they get their credit card out and pay their debt. So we are hoping that those two measures, just by themselves, will enable us to collect nearly $165 million extra. [bold added][18]

The Labor Government response to the Joint Select Committee on Australia’s Family Law System’s interim and final reports suggests the third measure in the Bill, taking the self-support amount as a low-income parent’s taxable income, was also included in the 2021–22 MYEFO.[19] However, the self-support amount measure was not detailed in the MYEFO document or in the former Minister’s media release.[20]

Committee consideration

At the time of writing, the Bill had not been referred to any committees.

Senate Standing Committee for the Scrutiny of Bills

At the time of writing, the Senate Standing Committee for the Scrutiny of Bills had not considered the Bill.

Policy position of non-government parties/independents

At the time of writing, non-government parties and independents had not publicly commented on the Bill. Two of the measures in the Bill were announced by the Coalition Government in the 2021–22 MYEFO.[21]

Position of major interest groups

At the time of writing, key stakeholders had not commented on the measures in the Bill.

Financial implications

The changes are expected to start from 1 July 2023 and recover up to $164 million in child support debt.[22] The measures will cost $8.54 million to implement over the period 2021–22 to 2024–25.[23]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[24]

Parliamentary Joint Committee on Human Rights

At the time of writing, the Parliamentary Joint Committee on Human Rights had not considered the Bill.

Key issues and provisions

Refusing departure authorisation certificates

The CS Collection Act provides for the Registrar to make a departure prohibition order (DPO) preventing a child support debtor or carer debtor from leaving Australia. [25] Carer debts can arise when a payee receives an overpayment of child support. A DPO can only be issued when certain conditions are met:

• the relevant person has a child support liability or carer liability
• they have not made satisfactory arrangements to wholly discharge the liability
• the Registrar is satisfied the debtor has ‘persistently and without reasonable grounds failed to pay child support debts (as distinct from spousal maintenance debts) or a carer liability’ and
• the Registrar believes it is desirable to make such an order to ensure the person does not leave Australia without discharging their liability (or making arrangements to do so).[26]

In 2021–22, there were 690 DPOs issued which helped in the collection of $26.5 million in debt.[27]

Departure authorisation certificates

When a DPO is in force, the debtor can apply for the issue of a departure authorisation certificate (DAC). A DAC allows the debtor to depart Australia for a defined period. Under section 72L of the CS Collection Act, the Registrar must issue a DAC in three different circumstances:

Circumstance 1: a debtor is likely to depart and return to Australia within a specified period; it is likely that the Registrar will be required to revoke the DPO under section 72I of the CS Collection Act within a period the Registrar considers appropriate; and, security for the debtor's return to Australia is not necessary (CS Collection Act, subsection 72L(2)).

Section 72I of the CS Collection Act requires that the Registrar revoke a DPO if a person no longer has a child support or carer liability, or arrangements have been made to wholly discharge their liability, or the Registrar is satisfied the liability is completely irrecoverable. A liability would be considered completely irrecoverable where there is no prospect the debtor will be able to make any payment towards it.[28] The Registrar also has discretion to revoke a DPO where they ‘consider it desirable to do so’ (subsection 72I(3)).

Circumstance 2: the debtor has provided appropriate security for their return to Australia by a specified date (CS Collection Act, paragraph 72L(3)(a)).

Section 72M sets out the requirements for appropriate security for the debtor’s return to Australia by the agreed date. The security can be in the form of a bond, deposit or other means but must be in a form that is readily convertible to cash. The security amount must not be significantly less in value than the debt owing.[29]

Where a security has been provided, the Registrar can substitute a later day for the person’s return to Australia (on application from the debtor or the Registrar’s own motion).[30] However, an application for a later return date can be refused if the person refuses to increase the value of the security to a level the Registrar considers appropriate, or if the Registrar considers it inappropriate to extend the return date.[31]

If a debtor does not return to Australia by the agreed date, the security is forfeited to the Commonwealth of Australia and cannot be applied against the outstanding debt.[32]

Circumstance 3: the debtor is unable to provide appropriate security for their return to Australia, however a DAC is to be issued on humanitarian grounds or the Registrar is satisfied that refusing to issue the certificate will be detrimental to Australia's interests (CS Collection Act, paragraph 72L(3)(b)).

The Department of Social Services’ child support policy guide makes clear that ‘unable’ in this context means that the debtor could not provide appropriate security—not that the debtor is unwilling to provide security or is unable to satisfy the Secretary as to the appropriateness of the security that is offered.

The debtor must supply evidence of their contention that they are unable to provide the security and the humanitarian grounds (which can include compassionate grounds). Similarly, if an application is made on the basis of ‘Australia’s interests’, the debtor must provide evidence as to why a refusal would be detrimental to Australia’s interests.[33]

Proposed changes

The Bill proposes to change the arrangements set out in Circumstance 2 (above). Currently, paragraph 72L(3)(a) of the CS Collection Act requires the Registrar to issue a DAC where the debtor has provided appropriate security, despite the Registrar not being satisfied that they will be required to revoke the DPO under section 72I (because the debtor has made arrangements to wholly discharge the liability or it is irrecoverable). Item 2 in Part 1 of the Bill repeals and replaces paragraph 72L(3)(a). Under proposed paragraph 72L(3)(a) issuing a DAC when a security has been provided is dependent on the Registrar being satisfied that, within an appropriate period, the Registrar will have to revoke the DPO under section 72I. The Registrar will decide the appropriate period.

Essentially, the change allows the Registrar to refuse to issue a DAC if they are not satisfied the debtor is likely to put in place an arrangement to discharge their liability, regardless of the debtor providing security. The amendments provide the Registrar with significant discretion in terms of whether they are satisfied they will be required to revoke the DPO and what is an appropriate period. Such discretion is not unusual in the context of child support law.

The Minister for Social Services estimates the measure will affect around 110 parents. However, this group has an average debt of $43,500.[34]

Extending employer withholding arrangements beyond liability period

The Child Support Registrar is required to collect certain child support liabilities from payers who are employees by deductions from their salaries or wages, as far as is practicable.[35] This is known as employer withholding. In 2021–22, employer withholding was used to collect $743 million in child support from around 91,000 parents.[36]

Employer withholding only applies to those with an enforceable maintenance liability

The CS Collection Act sets out employer’s obligations to withhold money from an employee’s wages and salaries and send it to the Registrar.[37] Currently, the requirement only applies to payers with an enforceable maintenance liability—a registered child support liability enforceable under the CS Collection Act:

• registrable liabilities are those able to be registered for collection by the Child Support Registrar. These include child support assessments under the CS Assessment Act, overpayments made to a payee, and court orders for child maintenance[38]
• enforceable maintenance liabilities are registered maintenance liabilities (such as child support assessments and court orders) that can be collected by the Registrar using the powers provided under the CS Collection Act.[39]

Enforceable maintenance liabilities are terminated in certain circumstances such as when the child maintenance is being paid for reaches 18 years of age, is adopted or is married (except where the court order or maintenance agreement or other law require the liability to continue after these events); or, for registrable overseas maintenance liabilities, when the payee and payer both cease to be residents of Australia.[40]

Enforceable maintenance liabilities can also stop being enforceable in certain circumstances. For example:

• where the payee or the payee and payer jointly elect to no longer have the liability enforced
• where the payer has a low-income (starts receiving a social security benefit or pension) and they apply for the enforcement to be suspended for the period they are receiving the benefit or pension
• as a result of decision by a court of the Administrative Appeals Tribunal
• where the payee ceases to be the main provider of ongoing daily care for the child or
• due to a decision by the Registrar.[41]

Where an enforceable maintenance liability is terminated or stops being enforceable (such as in one of the circumstances listed above), it is not currently possible to commence or continue employer withholding even when the parent has a child support debt.

Expanding employer withholding to those without an enforceable maintenance liability

The proposed amendments in Part 2 of the Bill will allow employer withholding to be applied to those with an enforceable maintenance liability as well to those with a child support debt, a child support related debt or a carer liability. This means that employer withholding can apply to those whose enforceable maintenance liability has terminated but who still have a child support debt outstanding.

Item 5 repeals and replaces subsection 43(1) of the CS Collection Act. Under proposed subsection 43(1) employer withholding can apply to a payer who is an employee who has any of the following liabilities due to the Commonwealth:

• an enforceable maintenance liability
• a liability to pay a child support debt
• a liability to pay a child support related debt or
• a carer liability.

Item 6 repeals and replaces subsection 43(3) to specify that the Registrar does not have to apply employer withholding to an enforceable maintenance liability if the entry on the Child Support Register contains a statement that employer withholding does not apply. According to the Explanatory Memorandum, this will allow payers to make an election to make timely repayments rather than have their wages or salary withheld by their employer (if the Registrar is satisfied the repayments will be made).[42] Proposed subsection 43(3) differs from the existing subsection in that it will apply only to those with a current enforceable maintenance liability, not to those who only have one or more of the other liabilities. The Registrar will have to apply employer withholding to those who only have child support debts, child support related debts and carer liabilities where practicable.

Item 8 adds new subsection 45(4) which clarifies that a notice to an employer to withhold an employee’s wages or salary remains effective even if the nature of the underlying liability changes–that is, even if an enforceable liability becomes unenforceable. Essentially, employer withholding is to continue regardless of any change to the enforceability of the underlying liability unless the Registrar revokes or varies the notice to the employer.

Employer withholding can commence on older debts

The amendments will apply to enforceable maintenance liabilities, child support debts, child support related debts or carer liabilities that arise after commencement and to those that exist prior to commencement (item 9). This means that some payers with debts dating back many years who have not been subject to employer withholding (for example, because their child turned 18) could now have their wages or salary deducted to repay their debt.

The Minister for Social Services stated that the proposed amendments are expected to recover around $164 million in unpaid child support from around 18,000 parents. The average amount owed to payees is around $11,000.[43]

Determining a low-income parent’s income as the self-support amount

Generally, a child support assessment uses tax return information to determine parents’ income. Where a tax return is not available, the Registrar can use other information to determine a parent’s income—for example, using an older tax assessment (adjusted using an indexation factor specified in the CS Assessment Act)—information on Centrelink payments provided to the parent or information provided by an overseas authority.[44]

In some cases, a parent may not be required to lodge a tax return—for example where the person has income below a certain threshold, and they receive an income support payment such as JobSeeker Payment or Parenting Payment.[45]

Section 58 of the CS Assessment Act sets out the circumstances in which the Registrar can make their own determination of a parent’s adjusted taxable income, and the methods available to them. The Registrar can make such a determination where a parent’s taxable income for the last relevant year has not been assessed by the Australian Taxation Office (ATO) or where the Registrar is unable to ascertain whether it has been assessed by the ATO. Methods available to the Registrar include:

• using information or documents in the possession of the Registrar that specify the parent’s taxable income for the last relevant financial year or which allow for the parent’s adjusted taxable income to be worked out as a reasonable approximation
• using a previous year’s tax assessment and multiplying their taxable income by the relevant indexation factor or
• using the greater of:
  • the previous year’s assessed taxable income multiplied by the relevant indexation factor or
  • two thirds of the annualised Male Total Average Weekly Earnings (MTAWE) figure for the relevant June quarter (for a child support period starting in 2023, two-thirds of MTAWE is $55,016).[46]

If none of these methods apply, or the Registrar decides not to make a determination using one of these methods, the Registrar can determine the person’s adjusted taxable income as two-thirds of the annualised MTAWE figure for the relevant June quarter.[47]

Proposed changes

Item 12 inserts proposed subsections 58(2A) and (2B) into the CS Assessment Act which provide a new method for determining a parent’s adjusted taxable income where the parent’s taxable income has not been assessed for the last relevant year, and where the Registrar is satisfied the parent is not required to submit a tax return (under section 161 of the Income Tax Assessment Act 1936). In such a circumstance the Registrar can determine that the parent’s adjusted taxable income is equal to one-third of the MTAWE figure for the relevant June quarter. For a child support period starting 1 January 2023, one-third of MTAWE would be $27,508.

One-third of MTAWE is also known as the ‘self-support’ amount.[48] The self-support amount is deducted from a parent’s child support income as part of the child support assessment formula—this amount is intended to represent the amount needed for the parent’s own support.[49]

Effect of the proposed changes

The proposed amendments essentially give the Registrar another choice in determining a parent’s income where they have not submitted a tax return for the relevant year and are not required to do so. The Registrar could use a previous year’s assessment (indexed), other information or documents available to them, two-thirds of MTAWE or one-third of MTAWE.

The Minister for Social Services, Amanda Rishworth, stated in her second reading speech that currently:

… for those who don't provide any income information, Services Australia must use an alternative provisional income in the child support assessment. Currently, Services Australia may apply a provisional income that is two-thirds of the annual male total average weekly earnings—$55,016 in 2023.

This default provisional income is twice as high as the self-support amount—the upper income limit that applies if a parent is not required to lodge a tax return. Therefore, it can significantly overestimate the parent's income.

An inaccurate estimate can put low-income parents into financial hardship in two ways—it can result in a parent receiving less child support than they should, or it can result in a parent being liable to pay more child support than they are able.[50]

The Minister claimed that the Bill will fix this issue of overestimating income and ‘will benefit up to 150,000 parents each year, with parents who receive child support making up around 70 per cent of this group’.[51]

Unclear why Centrelink income information cannot be used

Most low-income people who would not be required to submit a tax return will be those in receipt of government payments. It is unclear why the Registrar cannot access information on the payment amounts made to these individuals to determine their adjusted taxable income (as provided under section 58(2) of the CS Collect Act). Child Support and Centrelink are both part of Services Australia and the Registrar (the CEO of Services Australia) has broad information gathering powers under the CS Assessment Act.[52] The Social Security (Administration) Act 1999 also permits the disclosure of information to another person if the information is disclosed for the purposes of the CS Assessment Act or the CS Collection Act.[53]