Child Support estimates - Reconcile (Pre 1 July 2011) 277-07090000

Estimate reconciliation cannot be considered until both the estimate period and child support periods have ended.

Reconcile the last estimate in the child support period if the customer has earned more income in the estimate period compared to their original estimate with the exception of estimates that start on or after 1 July 2008.

In considering an estimate reconciliation:

• calculate the adjusted taxable income amount in the period being reconciled
• compare this amount to the estimate lodged, and
• reconcile where the adjusted taxable income amount is greater than the estimate lodged

This is irrespective of:

• any actual income outside of the estimate period
• whether or not the child support period was ended early. For example, through the issuing of a new tax return

If the customer’s actual income over the original estimate period is more than the original customer estimate:

• the actual income must be annualised (if not already a 12 month rate), and
• applied to all days in the assessment still affected by the original estimate

Resources has examples of when Child Support can and cannot reconcile.

The rules for reconciling estimates that start on or after 1 July 2008 differ from those for estimates that start before 1 July 2008. Where an estimate starts on or after 1 July 2008, if the estimate:

• has been reviewed (usually indicated by a ticked Estimate Reviewed check box), decide if an estimate needs to be reconciled
• has not been reviewed it must be reconciled, or
• results in a minimum annual rate assessment, it must be reviewed, not reconciled

Note: if undertaking an estimate reconciliation of an estimate that started on or after 1 July 2008, seek help from a Service Support Officer.

References has a link to the Child Support Guide 2.5.1.50: Estimates of income - before 1 July 2010.

Some estimates starting from a date before 1 July 2008 will have an estimate period that continues past 1 July 2008.

The definition of:

• income used in a child support assessment changed on 1 July 2008 from child support income amount to adjusted taxable income
• adjusted taxable income includes tax free pension or benefit amounts that were not previously included before 1 July 2008

When calculating the customer’s actual income for an estimate period that commenced before 1 July 2008:

• only look at those components making up the child support adjusted taxable income amount
• disregard the component amounts that apply to adjusted taxable income. For example tax free pensions or benefits

Note: applications for post separation income can only be applied from 1 July 2008 regardless of when the estimate period started.

The definition of adjusted taxable income changed on 1 July 2009. Net rental property loss was replaced with total net investment loss, the definition now includes reportable superannuation contributions.

References has a link to The Child Support Guide 2.4.4: Child support income.

When reconciling an estimate if the estimate has an effective start date from 1 July 2009 onwards clarify only the information relating to:

• total net investment loss, and
• reportable superannuation contributions

Do not include reportable superannuation contributions and/or total net financial investment losses in the parent's other component amounts with the exception of rental property losses if:

• the estimate has an effective start date prior to 1 July 2009, or
• the first estimate of the child support period was lodged on a WA ex nuptial case prior to 3 March 2011

For more about WA ex nuptial customers, see WA child support ex-nuptial cases.

Estimate reconciliation investigations may need much time to investigate and resolve. Where completing the reconciliation process will take more than 24 hours, transfer ownership of the estimating customer to the Service Officer assessing the estimate reconciliation position.

See Transfer or lock a customer Cuba process help.

A Service Officer may become aware that an estimate is inaccurate from other sources.

Often the trigger for estimate reconciliation action is notification of a tax refund through:

• TRIP exception intray item, or
• TRIP exception list

However, Child Support may still continue with estimate reconciliation if the Service Officer becomes aware of the customer’s actual income by other means.

Example

A customer's actual income is made available via a response to a s161 request initiated by a Change of Assessment officer.

The period of income requested is identical to a previous estimate period. Usually, only reconcile estimates that appear via an intray. In this case because the information is available, an investigation is initiated which results in the reconciliation of the estimate.

Before finalising the reconciliation:

• Gather and record all readily accessible information about the customer's income during the estimate period
• In particular, decide whether or not the customer’s actual income for the estimate period was greater than the original estimate

Before proceeding with any investigation ensure:

• all estimates within the period concerned have been processed correctly on Cuba
• there is clear documentation reflecting the intentions of the customer and the officer at the time of recording
• the amount has been appropriately annualised, if it was not a 12 month estimate and vice versa

If there is poor and/or insufficient documentation to reach a conclusion, assume the details have been entered correctly.

If there has been an error, see Correcting errors on Child Support cases.

Decide if there is any better income information to continue with a reconciliation investigation.

The Child Support and ATO systems may provide enough information to proceed to reconciliation, including:

• year to date income information
• documentation of discussions of income affecting events with the customer during the estimate period
• investigations undertaken before, during or after the estimate period that reveal details of income or events that may affect the income such as:
• s161 or s120 notices issued on employers or relevant third parties
• post separation income, see Post separation income for Child Support customers
• Change of Assessment (COA) applications, responses or decisions - whether they depart from the assessment or not
• returned Asset Liability Forms (ALF) or other forms containing income information, court documentation, which includes financial information
• Centrelink records indicating periods of unemployment
• tax return information that reveals secondary sources of income other than the known principal source of income. For example, rental property income, payments for termination of employment, business income, partnership income
• other ATO data. For example, CIDC

If there is pre-populated income and/or deduction information displayed in the Details of Child Support Income/Allowable Deductions window, access the External Information Window.

Check the CIDC Confidence Level and the Cuba and CIDC Customer Details before determining to apply the information. See External Information Window Help.

If there is new income information available, use the Details of Child Support Income/Allowable Deductions window in Cuba to enter the new income information.

The calculator will calculate an indicative income. This indicative income is the best calculation of the actual income for the estimate period.

Note: the indicative income may be used as a reconciling income as a last resort if the customer will not provide the relevant income information.

Consider what has been gathered. This includes information that is:

• reasonably accessible from Child Support and ATO systems
• pre-populated income and/or deduction details

Generally, if the indicative income is higher than the customer’s estimated income continue with the reconciliation.

Do not pursue the estimate reconciliation at this stage if there:

• is clear evidence the last estimate was accurate based on initial investigations, and
• are no further details needing clarification or investigation

Is the decision to continue with the reconciliation?

• Yes, see Table 3
• No, the decision is not to continue, see Step 5 in Table 5

Customer contact is essential before any reconciliation can be considered.

The purpose of the contact is to verify the estimate’s accuracy over the length of the estimate period.

If the actual income earned exceeds the customer's original estimate continue to reconcile the estimate.

When contacting the customer, on a case by case basis make some of these points:

• 'We are required to verify the accuracy of estimates used in a child support assessment'
• 'It appears your estimate may be inaccurate', 'Do you have your (relevant) tax return and other income details available?'
• Yes: 'We particularly need to clarify the details of your income earned between (start of Est Period) & (end of Est period)'

Ask about other income components. Step 3 in Table 1 has more detail about this

• No 'When would be a suitable time to call back?' Should be no more than 2-3 days in most cases - preferably same day

• 'To ensure that I have all these details recorded correctly - could you also provide the breakdown of your income details for the (relevant) tax year'. Record the amounts earned and the periods to which they apply. If clarification is needed , ask for payer (employer) details
• If necessary explain that 'We may need to verify these details with other sources'
• If a hard copy evidence is required: 'Forward a copy of the (relevant documents) to help Child Support finalise this query'

Customer unwilling to take part in the process

If a customer is unwilling to cooperate, advise:

'We will investigate further and we are required to continue with a reconciliation if we become aware that you have underestimated your income.

We would prefer to deal with you directly to clarify this issue.

Penalties and arrears may arise as a consequence of a reconciliation.

We are happy to discuss the consequences of any reconciliation and will endeavour to negotiate a fair outcome in all instances.

Your cooperation will help Child Support to resolve of this issue'

How to proceed to reconcile the last estimate will depend on whether the customer has been contacted and the result of that contact.

If the customer:

• agrees there is an under estimation, see Step 3 in Table 4
• disagrees they have underestimated over the estimate period, go to Step 4
• cannot be contacted by phone, go to Step 5

If a customer disagrees that the estimate is inaccurate, gather evidence from the customer. Weigh this up against any evidence on hand.

Ensure the customer understands what defines a legal underestimation. That is - actual income earned over estimate period exceeds customer’s original estimate. Unless the circumstances dictate otherwise, oral evidence from the customer is acceptable in the first instance.

If the customer has a good estimate history, further supporting evidence will not be necessary except in these cases:

• Other reliable evidence is at hand which contradicts the customer’s oral evidence, and
• The contradictions cannot be clarified orally to the Service Officer’s satisfaction

It is essential to try to gain the customer’s consent and agreement to any decisions made. If there is no evidence to contradict the customer’s claims, accept the customer’s evidence.

If a customer refuses to cooperate, use the indicative income as a basis for negotiation.

Advise the customer that Child Support may deem the indicative income to be the correct income unless proven otherwise.

If the customer disagrees with the indicative income, they need to provide evidence of a more accurate income. Before using the indicative income exhaust all investigations into determining the actual income details.

Whether or not the customer cooperated, if more information is needed, see Step 1 in Table 4.

After more discussion with the customer and/or resulting evidence, is the Service Officer now satisfied the estimate was accurate?

• Yes, see Step 7 in Table 4
• No, there is sufficient information to reconcile, see Step 3 in Table 4

If the customer cannot be contacted after 3 attempts, issue an ME4-4 letter to customer advising estimate reconciliation in progress. This is generated when the estimate reconciliation is set to a pended status.

The letter provides:

• overt advice to the customer about the estimate reconciliation process, and
• a summary of the income and deductions identified and the calculation used in determining an indicative reconciling income

The letter notifies the customer that failure to respond to this letter within 14 days of the issue date will result in finalising this change.

Proceed with the estimate reconciliation if after 18 days from the issue date of the letter:

• the customer has not responded, and
• all avenues of investigation have been exhausted

Standard response times.

Finalising the reconciliation will automatically issue a letter to both parents advising the outcome of estimate reconciliation. This includes additional child support payable or any overpayment. The letter provides child support liability detail and objection rights.

The only exception is if the gathering of:

• information to confirm details has been unsuccessful, and
• new information in the future is likely. That is, issue of a subsequent year tax assessment because the estimate period overlaps 2 tax years

In most cases, some income details can be confirmed via accessing to income tax assessment information.

Lock the customer and create a General Follow Up intray.

Before taking action, allow an extra 7 days after the date stated on the letter.

If the customer does not respond to the letter within that reasonable time, unless it is decided it is inappropriate at this time, reconcile the estimate using the indicative income.

If more investigation is needed after issuing the first letter, see Step 1 in Table 4.

Has the customer responded to the final letter?

• Yes, go to Step 8
• No:
• reconciliation is not able to be done, see Step 7 in Table 4
• there is insufficient information to reconcile now but there will be in the future, see Step 5 in Table 5

If the customer responds to the letter, discuss the accuracy of the estimate over the length of the full estimate period.

How to proceed will depend on whether the customer agrees there is an underestimation over the estimate period.

If there is not sufficiently reliable information about the actual income, investigate further before proceeding to reconciliation.

Make every reasonable effort to contact the customer and confirm the income details. More information may be sought from other sources to provide evidence or corroborate existing information on hand.

The Registrar has the power to require a person to provide information, attend and answer questions and produce documents.

In line with the Customer Management Approach, Child Support should be open and efficient in the way information is gathered. See Customer Management Approach (CMA) for Child Support.

Initially use the phone and make informal enquiries.

Before seeking information from a third party, check whether the information is already available on:

• the Child Support system - including Centrelink data and COA information
• an ATO system, or
• any other record to which Child Support has internal access. For example Immigration

Ensure the customer/source has not already provided the information previously.

If a more formal approach is neede, use the information gathering powers provided by s161. See Child Support's information gathering powers.

Step 2 describes the types of information that can be requested from a third party.

Has enough income information been gathered and has there been an underestimation?

• Yes, contact the customer. Table 3 has information about making contact
• No, as a consequence of investigation, the estimate is accurate. See Step 5 in Table 5

For the purposes of estimate reconciliation, if concerned with the actual income earned in the estimate period the types of information that may be requested from a third party include:

• pay slips (including statements of earnings from employers and information regarding Parental Leave Payments (PLP) if the employer administered this entitlement)
• contracts (detailing remuneration for work required and terms)
• financial statements from a property manager (for rental properties)
• bank statements (to assist in determining cash flow)
• dividend statements (to decide share income)
• provisional and past profit and loss statements. For example from an accountant

Decide what the actual income earned is for the relevant estimate period. Usually, this will mean totalling up the income amounts provided by the customer and/or gathered from other sources. For example, third parties

Even after investigation and customer contact, there may only be partial income details available. This should not necessarily prevent reconciling.

These customers should have been advised that Child Support will reconcile to the indicative figure if they cannot clarify their actual income details. It is the customer’s responsibility to advise if this amount is incorrect. The customer should be given every opportunity before reconciling to provide more accurate information.

If the customer cannot provide evidence of more accurate income details proceed to reconciliation using the indicative income -or a modified figure based on new information.

This information is needed for the whole estimate period to finalise reconciliation.

• income for tax purposes. Step 4 has more information
• actual deductions for tax purposes. Step 5 has more information about actual taxable income (actual income less actual deductions)
• target foreign income for that year of income
• net rental property losses
• reportable fringe benefits total for that year of income
• total reconciling income amount (sum of customer’s actual taxable income, target foreign income, net rental property losses and reportable fringe benefits)

Where possible, gain the customer’s agreement to the determination of the reconciling income amount.

A customer's income for tax purposes can includes items such as:

• salary and wages
• taxable Centrelink and Social Security payments
• Parental Leave Payments
• other government pensions, allowances and benefits
• taxable amounts of payments for termination of employment
• interest and dividends
• income from businesses, partnerships, trusts and personal services
• rental property income
• financial investment income, and
• reportable superannuation contributions

When determining the reconciling amount, do not include reportable superannuation contributions and/or net financial investment loss if:

• the estimate has an effective start date prior to 1 July 2009, or
• the first estimate of the child support period was lodged on a WA ex nuptial case prior to 3 March 2011

Only include net rental property loss, reportable fringe benefits, tax-free pensions or benefits and target foreign income (where applicable).

A customer's deductions for tax purposes can items such as:

• work related expenses
• business expenses
• gifts or donations
• rental property expenses, and
• financial investment deductions

Do not include financial investment deductions, if:

• the estimate has an effective start date prior to 1 July 2009, or
• the first estimate of the child support period was lodged on a WA ex nuptial case prior to 3 March 2011

The ATO has rules about when a taxpayer can claim business activity losses. For example, some may be claimed in the year in which they are incurred whereas others must be deferred to the following year of income.

When reconciling an estimate where the customer's relevant income tax returns have been assessed by the ATO, proceed on the basis that what the customer declared is correct. It is not necessary to consider the correctness of such a deduction.

When reconciling an estimate where an income tax return has not been lodged and Child Support is unable to speak to the customer, it is unlikely that Child Support will be aware of any losses arising from a business activity.

When reconciling an estimate where an income tax return has not been lodged, advise the customer to seek advice from the ATO about the deductibility of any business losses before factoring them into the calculations.

If the determined reconciling income amount is greater than the original customer estimate reconcile the estimate with the actual amount.

Note that the comparison is against the customer’s original estimate over the length of the original estimate period irrespective of any estimate reviews that may have been carried out or whether or not the original child support period was ended early by a new child support period.

If the determined reconciling income amount is greater than the customer’s original estimated income, see Step 1 in Table 5.

If the estimate is correct or the determined reconciling income amount is less than the original customer estimate, no amendment to the estimated income is necessary. Record on Cuba by loading the RECON-NO CHANGE status for the last estimate income for the estimate period.

This does not vary the assessment. It records on Cuba that the estimate has been checked, the estimate figure is correct and no amendment was necessary.

For more about adding a RECON-NO CHANGE status to an estimate see Estimate Income Window Help.

Once this estimate has been finalised, if no reconciliation is required see Step 5 in Table 5.

If the determined reconciling income amount is greater than the original customer estimate, replace the estimated income with the reconciling income amount for whatever part of the original estimate period is affected by the original customer estimate (including any reviews).

This means that if a new child support period was created sometime before the end of the original estimate period, Child Support will only amend that part of the estimate period up until the start of the new child support period.

Similarly if an income amount order is now in place for part of the estimate period, Cuba will only replace those periods not covered by the income amount order.

Once the reconciling income has been added, Cuba will automatically apply the reconciling income amount appropriately.

For more about income amount orders, References has a link to the Child Support Guide 2.5.1.50: Estimates of income - before 1 July 2010.

When the estimate is reconciled, sometimes the system:

• suppresses the Cuba letters, and
• issues a NOA-01 CS Notice of Assessment and covering page

The NOA-01 consolidates the decision letters however will not display the reconciliation details for Pre 1 July 2010 estimates.

When does the NOA-01 issue?

Generate letters – correct letters must be issued

To ensure the correct decision letters (ME4-3 and ME4-1) are issued to the customers, ‘mock’ MX0-2 letters need to be created.

For each customer:

• generate and pend an MX0-2 Unique letter with assessment
• if the NOA-01 has a status of Keyed, update to Deleted

The next day:

• check the ME4-3 & ME4-1 letters issued
• delete the pending MX0-2 letters

For help sending or deleting a unique letter, see Letters Cuba Process Help

If the reconciling income amount is at least 110% of the original customer supplied estimated income, an estimate penalty will apply.

The amount of the penalty is 10% of the difference between the liability based on the original estimate and the final liability based on the determined reconciling income amount.

Cuba will calculate or adjust this automatically when processing the reconciliation.

The customer may request remission of all or part of the estimate penalty.

For more about:

• underestimation, References has a link to the Child Support Guide 2.5.1.50: Estimates of income - before 1 July 2010, or
• remitting an estimate penalty See Penalties Cuba process help

It is essential that any discussion is fully documented in the notepad. This includes calculations and decisions.

Make it clear how the decision was arrived at and on what basis the decision was made.

The documentation must allow any other case officer to understand exactly what has happened and why.

The documentation should record:

• estimate period being reconciled
• details of how the reconciling income amount was determined
• details of all investigations
• all relevant details of customer contact
• if the customer could not be contacted - details of all contact attempts including specific time & date
• any other relevant information
• legislative references, that is, s60, s64, s64A

For more detail about what to document see Documenting Child Support information in Cuba.

Note: the information recorded here should not duplicate information recorded in the Calculator. It should summarise key areas or differences in the information found in comparison to the information originally provided by the customer. This will assist in future discussion with the customer and support decision making.

Customers should be notified of any variation to their child support assessment. Customers are automatically advised by letter of a variation to their assessments which results from an estimate reconciliation.

The types of letters generated by Cuba:

• ME4-1 letter to the non-estimating customer advising an estimate has been reconciled and a new income is being used), and
• ME4-3 letter to the estimating customer advising their estimate has been reconciled and a new income is being used, or
• NOA-01 letter to both parties. Sometimes the system:
• suppresses the Cuba letters, and
• issues a NOA-01 CS Notice of Assessment and covering page consolidating the decision letters. When does the NOA-01 issue?

Any variation which results in increased arrears, overpayments or changes to employer withholding deductions will incorporate the appropriate paragraphs alerting customers to the change.

In the circumstances of the case, it may be appropriate to also contact the customers by phone to discuss the consequences of the estimate reconciliation.

Issues for discussion may include:

• Overpayments (including overpayment waiver and refunding)
• Payment arrangements
• Estimates
• Opting Out
• Care
• Discharging arrears
• Applications for reducing a minimum assessment to nil (RMA)
• Applications for a Change of Assessment (subject to 18 month limitation unless the court orders to go back 7 years)

Document all discussions with customers.

Monitor and finalise any follow up actions.