Today the amount of periodic child support that one parent is required to pay the other is determined according to the cost of care for a child (based on cost of care tables) which is then apportioned between the parents according to the amount of time the child spends overnight with each parent and the income of the parents.
The amount of income of the parents applied by the Child Support Agency is not the net taxable income of the parents but is the "adjusted income" of the parents which can be greater than the net taxable income of the parent. This occurs because deductions that are allowed by the Tax Office are disallowed by the Child Support Agency, such as mortgage payments in respect of investment properties or because the Child Support Agency determines that a parent is under utilising his or her earning capacity.
Not only are child support payments not claimable as tax deductions, the adjusted income of a party used as a basis of the child support determination, is the gross and not the income of the parent net of tax.
The establishment of a Child Support Trust, and execution of a binding child support agreement can be a tax effective method for making provision for future payment of periodic and non-periodic child support.
Another alternate arrangement for payment of child support other than by way of periodic assessment by the Child Support Agency is for parents to enter into a lump sum child support agreement.
If you would like to discuss child support issues or obtain advice concerning a child support agreement or a child support trust, please contact:
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
