How to avoid paying child support in Australia? There are ways and means to ensure you only pay a fair and correct amount. We've come up with a list of a dozen legal and ethical methods to avoid overpaying.
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It should be stated from the start that the child support system is strongly regulated, making it very difficult to beat.
- Child support is administered like income tax.
- You lodge your tax return and Services Australia uses a formula to work out how much to pay each month.
- Services Australia has numerous tools and measures to enforce the law.
Maintaining personal integrity
Keep in mind that child support is important for Australia's children, even if the way it's calculated often produces assessments that seem unrealistic and unfair.
Never be motivated to get out of paying child support by resentment of the other parent, Services Australia, the family court, the system, or anything else. Whatever your particular circumstances, a negative attitude will most likely lead to poor decisions.
Remember to also provide for the children in other ways, such as by spending on them directly or setting up an education / early-adulthood fund. Voluntary contributions will give you a greater sense of personal freedom and worth.
Dr Andrew Lancaster
The Child Support Agency [now defunct] has its own legislation and a formula which staff use to determine how much a parent should be paying... It is not possible to try and reduce your income by strategies such as salary sacrifice or negative gearing of rental properties. The CSA will add these amounts back in to your gross income for the relevant period. If you have a child support debt you cannot discharge this debt through bankruptcy. Basically all forms of income are included for the purposes of a child support assessment and if you become bankrupt the debt remains.
Tip: If you put money for your child(ren) in a bank account in their name, interest won't be taxed (until annual interest reaches ATO thresholds for under 16s and under 18s). Suncorp Bank, for example, offers good savings products for children.
1. See Your Children More
The single best thing for avoiding child support is to spend time with your children. How much you pay basically depends on how many nights per fortnight the children spend with you.
- If you have the kids 7 nights per fortnight, you're assumed to be covering 50% of their costs through direct care.
- You may still need to pay some child support if you have a higher income than the other parent.
Child support payments are lower if you have at least 2 nights with the children per fortnight. The amount drops again if you have 5 nights and then keeps reducing as the number of nights increase. See our online calculator / estimator.
To have more time with the children, ideally you can come to a mutual agreement with the other parent. Otherwise, you'll need to go through a court process (which starts with mediation).
2. Make a Binding Child Support Agreement
Number 2 on the list is a binding child support agreement. This is where you and the other parent agree on how much child support will be paid over a specified period. The precise terms of the agreement are up to the parties.
To be recognised by Child Support, you both need to (i) get legal advice and (ii) obtain a legal certificate to attach to the agreement. Getting an agreement which is legally binding protects the parties involved.
- If it's not binding, the agreement won't be recognised by Services Australia.
- That means the government process would continue (if you're already in the system) or could be initiated by either party at any time (including calculation of arrears and ongoing payments).
- Note that child support provisions within court orders may not be legally binding without a certificate indicating legal advice was sought.
A binding child support agreement could be advantageous if you negotiate well. But, perhaps more importantly, it helps create positive work incentives. Each party keeps any extra income they're able to make (instead of giving some up via child support). You may both be better off in the end (emotionally as well as financially).
You can make a binding agreement whether you already have a child support assessment or not. It can be made for any amount that you and the other parent agree to. Your agreement may include payment of cash or non-cash items, such as school fees or health insurance. All parties to the agreement must get independent legal advice before making or ending a binding agreement. The legal advice you get must be from a legal provider. They must have been admitted by the Supreme Court of a state or territory of Australia and hold a current practicing certificate.
3. Don’t Chase Pay Increases
When you're a child support payer, work-life balance can be a big issue. You may feel like you're working for everyone else (the ex, the taxman and your children) without having much for yourself.
Taking a more relaxed approach to your career could be important for mental well-being while also lessening child support payments. If you get a pay rise, child support goes up because (i) your income is higher relative to the other parent and (ii) the children are assumed to cost more to raise (because combined income is higher).
Obviously, you shouldn't be looking to knock back an easy promotion or a better paying job just for the sake of it. You and the kids will be financially worse off. But, at the same time, you could re-think doing overtime or a tough job that pays only slightly better. Work can be personally rewarding as well as a means to pay bills.
4. Become Self Employed
A strong way to gain control over your finances is to become self employed. Instead of taking a salary or wage from an employer, you find work for yourself (which could be contract work or running a small business).
If successful in self-employment, you control how much income you earn and, therefore, how much child support must be paid.
- You can work harder when you need the extra money or, if taxable income is getting high, relax a bit.
- You can also choose whether or not to squeeze out more income. If you don't need income now, you can invest in the business or spend money to improve your working conditions.
Being self-employed also makes you a target for child support officers. They are notorious for using creative accounting to set excessively high income levels for self-employed payers. So be prepared for a strong defence if the other parent initiates a Change of Assessment (see Strategy 9).
5. Hire a Good Tax Accountant
It's always good to minimise taxable income when preparing a tax return. For a child support payer, it lessens child support and tax liabilities together – since payments are based on the taxable incomes of parents. If you have complex tax affairs, hiring a good accountant might help you find extra deductions (or ways to boost deductions next year).
But you can't simply shift income and investment funds around to artificially reduce taxable income. That usually doesn't work. For example, Child Support will add salary sacrificed super back in (same with tax offsets from negatively geared property).
6. Pay Only What You Receive Credit For
The rules around what counts as child support often don't favour payers. So be careful before paying for anything out of your own pocket or sending money to the other parent. Make sure it counts as child support, which may require you getting written acknowledgement by the other parent.
- Normally, you should just pay the exact amount of child support you are required to each month.
- If you have some care of the children, also pay directly for normal care expenses (when you have the kids) and any activities or purchases you personally choose.
Shared expenses when you have partial care
There are no firm guidelines around how child support money should be spent on children. Each parent spends money on the children independently. If you want something for your child and the other parent doesn't, you'll have to pay for it (and vice versa).
Some expenses should really be split in a shared or regular care arrangement, such as for clothing, dental work and sports participation. It's unfair if only one parent is always covering the costs.
The split should normally reflect the formula's cost % split. For example, if you have the children 5 nights per fortnight, you get credit for 27% of child-raising costs (see Cost % Table). So, overall, that's about the percentage you should be contributing towards shared expenses.
7. Inform Child Support if Your Income Drops
The current amount of child support you pay is normally based on your taxable income for the previous financial year. If your income is actually lower than previously, you should tell Child Support immediately. They don't do backdating for payers. A downward adjustment in child support is likely to be made if your income is at least 15% lower (see Services Australia).
One of the biggest child support loopholes is this perfectly legal trick to avoid paying extra when you have high income as a one-off in a single year. Suppose you receive a large payout in 2023-24 that dramatically increases your taxable income. Avoid putting in an income estimate during 2023-24. That way, as per usual, you'll only be assessed during that year based on your income in the previous year (2022-23). As soon as your high income year finishes on 1 July 2024, put in a (lower) income estimate for 2024-25 based on your expected earnings for that year.
8. Lodge Tax Returns Quickly if Your Income Drops
Always remember that Services Australia doesn't do backdating for the benefit of payers if they can get away with it. If you're late doing a tax return after your taxable income drops, they won't give credit for any over-payments. Get your tax return into the ATO soon after 1 July if you think taxable income has fallen for the financial year.
9. Avoid Triggering a Change of Assessment (COA)
The other parent can initiate a Change of Assessment (COA) review of your case if they believe the current assessment is unfair. A COA may be justified on the basis of special circumstances, which include you having significant assets or access to extra income. COA's are often initiated against self-employed payers and payers who have reduced their income significantly.
As payers who have experienced the process can testify, a COA can lead to unfair outcomes (see COA Reason 8). They are best avoided. You need to be careful when doing anything that might look like you're trying to get out of child support. For example, you can't choose to take a different job if the income is significantly lower. You are also prevented from stopping work to study. In both cases, Child Support is liable to set your income for support purposes to your highest earning amount.
We can change your child support if we’re satisfied there are special circumstances and the change would be fair to both parents and the child... You need to give evidence for at least one of the 10 reasons to change an assessment. We will send the application to the other parent so they can respond.
10. Initiate a Change of Assessment
While the COA process is often used against payers, it can also be applied to payees. If the other parent's reported taxable income doesn't reflect their financial means, you can initiate a COA. For example, you might start one because the other parent is choosing not to work and has reduced their income significantly.
Note that payees tend to fare better in COAs because of child caring responsibilities. For example, they are not expected to work if they have children below school age. They also lack an income benchmark if it's been many years since they worked full-time.
11. Donate to Charity
Donations to registered charitable organisations are generally tax deductible. By giving to charity, you can lessen your taxable income and partly reduce child support.
12. Have More Children
Having another child will somewhat reduce how much child support you pay. An extra dependent increases your basic living costs in child support calculations. Just make sure the other parent is a good earner. Otherwise, you could end up paying a lot more child support in the future!
13. Quarantine Increased Income After Separating
This is one no-one seemed to know about until recently. If you earn higher income after separating by doing something like getting a new job or working longer hours, you can quarantine that extra income from being part of your child support assessment. This applies to parents who have separated no more than 3 years ago. You need to submit a form to the Dept of Social Services: "Application for post separation income to be excluded".
In the news
Child support obligations: what you can do reduce payments (The Australian, 13 Feb 2018).
Deadbeat parents shown how to 'legally' avoid child support (Daily Examiner, 9 Feb 2018).