ATI Indexation Factor
The Adjusted Taxable Income (ATI) indexation factor updates an older income when a current tax return is unavailable. It applies a wage growth adjustment so the system can estimate a parent’s current earning capacity.
Indexation and the use of provisional income form a routine part of the assessment process, especially early in each financial year when most parents are yet to lodge tax returns.
Key takeaways for parents
To smooth out payments, Services Australia uses an ATI indexation factor to simulate normal earnings growth from one year to the next. The result is a provisional income estimate while the agency waits for your next tax return to be lodged and processed.
- An income figure slightly above your last tax return is likely to be provisional income adjusted by the ATI indexation factor; and
- If your income drops by 15% or more, submit an income estimate promptly because it generally applies only from the submission date.
If a small income difference is only indexation, there is generally no need to worry. An on-time tax return allows Services Australia to replace the provisional income with actual ATI and retrospectively adjust the assessment.
What the indexation factor means
The ATI indexation factor is used to calculate a parent’s provisional income if there is no tax assessment for a parent for the last relevant year of income (but a tax return for a previous year of income). The ATI indexation factor is calculated to 3 decimal places.
The provisional income would be calculated by multiplying the parent’s ATI for a previous financial year by the ATI indexation factor.
How the ATI indexation factor is calculated:
- AWE amount for the December quarter of the last relevant year of income ÷ AWE amount for the December quarter of the tax return year.
The ATI indexation factor is calculated with reference to the trend all employees AWE figure for the December quarter (November reference period) published by the ABS and is used in the calculation of assessments where required from the following 1 July.
Definition source: Guides to Social Policy Law, Child Support Guide, ATI indexation factor.
How indexation sets provisional income
The ATI indexation factor is used to set a parent’s provisional income when the latest year’s tax assessment is not available. Provisional income is commonly used at the start of a financial year and may continue until the parent’s tax return is lodged and assessed.
Services Australia takes the most recent confirmed income and updates it using wage growth. The indexed figure for adjusted taxable income is then used as the parent’s income in the child support formula.
The wage adjustment keeps assessments current without waiting for tax returns. Indexation also reduces a parent’s ability to benefit from an outdated income figure by delaying lodgement.
Once the tax return is lodged and assessed, the provisional income may be replaced with the actual ATI. The amendment date depends on whether the return was lodged on time and whether the actual ATI is higher or lower, so the change may result in arrears or an overpayment adjustment.
Provisional income example
A new child support period starts on 1 July. A parent’s most recent assessed income is $70,000 from the previous year, but their latest tax return has not yet been processed.
The ATI indexation factor is 1.035. Services Australia calculates a provisional income of $72,450 and uses that figure in the assessment.
When the parent later lodges their tax return on time, the assessment is updated using the actual income from the start of the child support period. Any difference between the provisional and actual figures is corrected through arrears or a credit.