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PSI in child support assessments is tricky. Even when you pass the PSI rules, you still face huge risks in child support assessments.
PSI in Child Support Assessments
How is personal services income – in short PSI – how is PSI treated in child support assessments?
That is the question to Simon Bacon of Manby & Scott in Melbourne. Simon Bacon is a child support lawyer and you might remember our previous interviews with Simon in episode 281 about child support payments and in 309 about child maintenance trusts. If you are new to child support, please listen especially to ep 281.
Here is what we learned but please listen in as Simon explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
PSI in Child Support Assessments
If you pass the PSI tests under tax law and hence you have a PSB, is that accepted for child support assessments? In other words, if you make it under tax law, does that also get you out of the rain for child support?
To answer this question, let’s assume you are the father and paying child support. Yes, there are cases where mothers pay child support but in the overwhelming majority, it is the father who pays child support.
And let’s assume that you receive personal services income paid to your company or trust. But the company or trust qualifies as a PSB. So only the wages the company or trust pays you, go into your individual tax return.
No Change of Assessment
If the payee – ie. your ex, the mother of your children – doesn’t request a change of assessment, then your tax return is the bible. Whichever way you treated your PSI in their tax return, that is how it goes into your child support assessment.
So if you receive PSI into a company or trust and you qualify for a PSB, then only the wages this company or trust pays you, will go into your child support assessment. As long as there is no request for a change.
So as the payer, it is better to avoid a change of assessment and to stick to your tax return.
Change of Assessment
But if there is a request for a change, then your tax return flies out of the window, and Services Australia or the court can assess your income in whatever way they see fit.
So if you are the payee, it is better to request a change of assessment and to get the full income within the company or trust into the assessment.
Going to Court or Not
Services Australia is meant to have no bias but is rumored to be on the payee’s side, so the side of the parent who receives child support. A court is likely to be more evenly keeled.
So if there is a change of assessment, then as the paying father, you are better off pushing past the review by Services Australia, since possibly biased, and going to court.
If you are the mother, it is better to accept whatever comes out of the review by Services Australia, since they are likely to be on your side, at least a lot more than a court.
Child Support Agency
In the interview, we just talk about the child support agency to keep it simple. But there are actually two government agencies that manage child support. The Department of Social Services and Services Australia.
The Department of Social Services is in charge of policy. So the theoretical stuff. So they provide the policy, the framework, how it should all work. Or in their words: “administration of the child support legislation and works to develop and improve child support policy to enable more effective delivery of the scheme.”
And then there is Services Australia. They manage Centrelink and Medicare, but they also manage Child Support. So they do the practical stuff. The hands-on stuff. So when you apply for a child support assessment or a change of such, then you deal with Services Australia. They collect the payment from one parent and pass it on to the other parent.
So we just say child support agency in this interview, but technically it is Services Australia.
Family Tax Benefit
Whenever you consider child support, you need to consider FTB A and B. Child support payments can easily affect Family Tax Benefit A entitlements.
For both, you need to have the child in your care for at least 35% of the time. So if you have the child for less than that, you don’t receive either. But it also means that both mother and father can receive Family Tax Benefits A and B.
So if you share care for example, and you both have the children 50/50 or at least 65/35, then both of you can receive Family Tax Benefits A and B as long as your income is low enough.
The thresholds for Part A are pretty low so child support payments will easily affect Part A.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 06 February 2023
Tax Talks spoke to Simon Bacon - Partner at Manby & Scott - for more details.
