One of the attractions of going overseas is the lure of the clean slate, so that you land in a new country with a different future and the opportunity to reinvent yourself. This sort of attraction is no doubt all the more acute when an intimate relationship comes to a not so happy end. Similarly, if a relationship goes pear-shaped overseas, the temptation might be to leave all and come home to dear old Australia.
But if the relationship or marriage has children born to it, that’s not so easy. This is not only on a personal level, but also on a financial level, too: child support crosses borders. Expat Australians need to make arrangements for child support, especially as it has the same effect as a tax debt.
The basics of child support
Child support is administered like income tax. In fact, a child support debt has exactly the same status. The legislation says it’s a “debt to the Commonwealth”. An expat Australian would do well to regard child support in exactly the same frame of mind as an Australian income tax liability taken off-shore.
The Department of Human Services (DHS) uses your tax return to calculate child support. While your tax return is for the previous tax year (or earlier), the calculation is for what you must pay now and assumes your income has increased, whether or not it actually has.
As we’ll discover below, if you don’t have an Australian tax return, the DHS can still make an assessment. It’s better for you to tell the DHS about your overseas income, even if it is not assessable to Australian income tax. The DHS has quite an array measures to enforce payment. Trying to avoid child support can land you and your employer with penalties and, in extreme cases, criminal sanctions. Unlike other tax-like obligations, your compliance is subject to close scrutiny by the other parent of the child.
Child support might be said to be about ensuring children are properly supported, but when a government agency says that it is “here to help”, citizens are entitled to be sceptical. In this case, the DHS has a large investment in making sure that the most child support that can be paid is paid, because this reduces government expenditure on welfare payments.
The DHS investment in child support
Child support is often an emotional issue. Separated parents cope with what was fair and unfair about their relationship and on-going obligations to support children. These considerations do not trouble the DHS – from the department’s point of view, it’s all about the money.
The DHS administers child support in Australia. Child support is closely linked to the payment of the Family Tax Benefit (FTB). FTB is means tested against all income, including child support. So, another way to understand the child support scheme is to remember that the DHS wants FTB payments minimised and child support maximised.
The DHS encourages private arrangements for child support so that the direct payments are made between separated parents. Obviously, this cuts down on the cost of administration. But the DHS always operates on the assumption that the most child support that could be paid is being paid and means tests the carer parent accordingly.
Even so, expat Australians should carefully consider the advantages of private arrangements, like their certainty, compared to managing under the attention of the DHS.
Our overall take home message is that, just because you are an Australian expat for income tax purposes, child support will still follow you as if it were a tax liability.
Child support is an extremely complicated legislative scheme
There are two Acts covering child support. The Child Support (Registration and Collection) Act, the Collection Act for short, makes provision for how child support is registered with the DHS and collected. The Child Support (Assessment) Act, the Assessment Act for short, sets out how child support is calculated. Both of these have corresponding regulations.
The amount of child support works off a statutory formula set out in the Assessment Act. The formula is a percentage of a parent’s taxable income. Both parents are liable to pay child support, but which parent does the paying and how much is calculated using a formula that has as inputs:
- the income of both parents
- the ages of the child or children
- whether the parents have other people to support
- how many nights the child is with that parent
- an adjustment for inflation
While the formula is set out in the Assessment Act, even seasoned lawyers are led away from this legislation in tears. It’s an almost impossible code to crack and no wonder that Section 12A of the Assessment Act allows the use of computer programs to make decisions.
Though there are many exceptions, a very helpful tool to use is the online calculator provided by the DHS. We’ve used the calculator to work out an example for an Australian expat earning the equivalent of $80,000 who does not have any care of a child back in Australia. We assumed the caring parent earned $40,000. The expat would have a child support debt of $8,896, or $741 per month.
The bottom line is that financial support of a child is a reality in terms of the amount to be paid and the means by which it can be collected. If you are a PAYE taxpayer, your child support liability is as real as your tax liability.
At the extreme end, the Collection Act has a ‘do not pass go’ provision. Under section 72D, the DHS has the power to make a departure prohibition order against a persistent non–payer who has an outstanding debt. Breaking such an order runs you the risk of recieving twelve months imprisonment.
Section 72G of the Collection Act requires the DHS to inform relevant government agencies about the departure prohibition order. According to the Australian Government Social Policy Law website, the Australian Federal Police and Border Force are notified of these orders, so an attempt to leave Australia will probably have you turned around at the airport with the potential of a prosecution to follow.
But once you are overseas, a child support liability does not go away. Firstly, the DHS will make enquiries about where you are to your relatives, your ex and former employer, for example. Someone is bound to know at least what country you are in. Once the DHS knows where you are, it’s only a matter of time before an assessment is made based on the income you receive overseas, and that’s the good news.
The DHS does not necessarily need your overseas tax return to make a child support assessment. Section 58C of the Assessment Act permits the DHS to use other material to make the assessment and, if it’s way beyond your means when it catches up with you, it will be up to you to unwind it. Bear in mind that, just like tax, unpaid child support attracts penalties attached to the original assessment.
It’s far better to have the DHS make an assessment based on your actual means. If you expect a child support assessment, it’s better to let the DHS know your position at the outset.
We’ve counselled in other posts that you ensure you make arrangements for the payment of tax in whatever jurisdiction you work in. You cannot work overseas and fly under the radar when it comes to paying tax. Pay a bill, sign up for a mobile phone or take a job and, in most cases, you will come to the attention of tax authorities.
If you come to the attention of a tax authority in another country, you come to the attention of Australian authorities because of the reciprocal arrangements between governments. The UK, US, Canada, New Zealand – virtually every country in the English-speaking world has a reciprocal arrangement with the DHS about child support, as do most, if not all, European countries. The list of reciprocating jurisdictions can be found on the Department of Human Services website.
And, of course, it cuts both ways. A child support liability in another country will follow you home.
Managing child support
While child support has a lot of the characteristics of a tax liability, managing it is not at all like tax. For a start, tried and true tax minimisation strategies do not work. For example, the DHS disregards the deductions you can claim for a negatively geared property.
Perhaps it’s tempting to make clever and intricate salary sacrificing arrangements. Bear in mind, however, that while child support is linked to taxable income, Part 6A of the Assessment Act allows the DHS to “depart” from an assessment, either on its own motion or on the application of a parent.
Departure applications are dealt with in-house and, while everyone gets a chance to have a say, Part 6A provides for an “administrative” decision. The DHS can make child support assessments on any basis that tends to show a person’s realistic remuneration, even down to the apparent lifestyle of a payer. There is an appeal mechanism, but it can be tricky to navigate without expert help.
Departure applications cut both ways. One reason for a departure can be the “high costs involved in enabling a parent to spend time with, or communicate with, any other child or another person that the parent has a duty to maintain” (section 117 of the Assessment Act).
So, an Australian expat can expect the costs of going home to see a child or bringing a child to them might result in a lowering of child support. Bringing a child to an overseas destination to stay with you also reduces the nights the child is in the care of the other parent and this, too, will have the effect of reducing child support.
Similarly, if an Australian expat returns home and has to pay child support for a child in Australia, but has another child overseas for which child support is also payable, the costs of bringing the overseas child to Australia is a ground for departure. Whether or not there will in fact be a departure is at the discretion of the DHS.
Making a child support agreement
While private arrangements between parents are not a get out of jail free card, they do have the advantage of certainty. An expat with a child support agreement knows what they are up for and, under section 80CA of the Assessment Act, the terms of a properly made child support agreement cannot be varied.
In theory, parents can agree that no child support or less child support will be paid, or that one lump sum will cover everything, but remember that the DHS has an investment in this. They assume that a carer parent is receiving the maximum amount of child support possible and means test their benefit downwards in accordance with that assumption. There’s a financial incentive for carers receiving FTB not to agree to a reduction in child support.
For example, if a person caring for a child opts not to receive child support, they will be paid the base amount of FTB, which is $58.66 per fortnight. The DHS website advises that the base amount will not change until July of 2019. On the other hand, a carer asking for a child support assessment might get an annual maximum of $6,938.65 for a child aged between 13 and 19, depending on how they fare under the means test.
While a child support agreement is unlikely to extinguish a liability for child support, it can be attractive for the expat Australian juggling taxation liabilities to know what the budget looks like and to ensure that they are troubled by overseas authorities as little as possible.
Of course, it’s often easier said than done to agree with an ex, but the pain might be a great deal less than the pain of dealing with the DHS and its overseas counterpart.
In negotiating an agreement, it’s advisable to check the DHS calculator and make arrangements comparable to it if the caring parent qualifies for FTB. Bear in mind that a binding child support agreement has to be signed off by a lawyer, who is bound to draw attention to the FTB consequences of such an agreement.
The Assessment Act summarises child support agreements as follows:
- Parents (and non-parent carers) of a child can, using a child support agreement, agree between themselves what child support is to be paid.
- There are 2 sorts of agreements. The first is a binding child support agreement. Each party to the agreement must have received legal advice before entering the agreement, and must also receive legal advice before terminating the agreement. The lawyer must attach a certificate to the agreement that such advice has been given.
- The second sort of agreement is a limited child support agreement. An administrative assessment must be in place before a limited child support agreement can be accepted by DHS. The annual rate of child support payable under the agreement must be at least the annual rate of child support otherwise payable under this Act.
- Agreements may include provisions that state that child support is to be payable otherwise than in the form of periodic amounts. There are 2 main kinds of such provisions:
- non-periodic payment provisions, under which lump sum payments and other non-periodic payments (such as school fees) may be made; and
- lump sum payment provisions, under which lump sum payments may be made.
- Payments made under non-periodic payment provisions reduce the annual rate of child support payable.
- Payments made under lump sum payment provisions are credited against the amount payable under the liability of a party to the agreement (rather than reducing the annual rate of child support payable).
Whether or not you should go to the trouble and expense of child support agreement depends on your circumstances. Don’t forget that, if you are already overseas and want a child support agreement drawn up or signed off on, we have an extensive network of lawyers both in Australia and overseas we can refer you to.
Also bear in mind that negotiating child support does not require a lawyer. The Attorney–General’s Department maintains a list of family dispute resolution practitioners (mediators) who can help you negotiate arrangements for bringing a child overseas to visit you and child support arrangements at the same time. You must remember that these practitioners do not give legal advice, so you should be aware of your liability using the DHS calculator.
While child support is not taxation, an expat should treat it as if it were, especially because of its international enforceability. Just because you might not have to file an Australian tax return, you should nevertheless remember another debt you owe the Commonwealth.
Like any taxation liability, planning for it, rather than try to avoid it is the best option. This post has been about Australian child support liabilities following you overseas, but child support (and spousal alimony) can follow you home. If you need legal assistance on your overseas liabilities, we have an extensive network of colleagues and lawyers that we can put you in touch with.
Australian expats are generally unable to obtain specialist advice and services that they require from their domestic Australian accountant. Accordingly, Shane founded Expat Tax Services to provide Australian expats with access to specialist, quality advice at fair and reasonable prices (no hourly rates, fees quoted upfront with unlimited support included).
Receive the support and advice you need without having to take second-mortgage to pay your accountant's bill! Speak to Shane & the team at Expat Tax Services today.
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