This topic provides information about child support agreements made on or after 1 July 2008 and how they are assessed under the maintenance income test for FTB Part A. It covers the following:
When parents separate, rather than collecting the amount of child support as assessed under child support legislation, the parents may choose to enter in to a child support agreement. Child support agreements are arrangements made between separated parents as to the amount of child support to be transferred to the payee by the payer. Child support agreements can also stipulate the way in which child support is paid.
Example: Lump sum payments (including property settlement), periodic cash payments or non-cash payments. Non-cash payments may include mortgage repayments, rental payments and school fees.
Agreements can either be limited or binding. Limited agreements must be equal to the child support assessment as determined by Child Support. Binding agreements are child support agreements where legal advice has been sought by both parents and can be for amounts less than the child support assessment. In either case, FTB will be calculated using the underlying child support assessment which is known as the notional assessment (1.1.N.45).
Limited agreements are formal agreements made in writing and signed by both parents and can be made by both parties without seeking legal advice. Limited agreements must be made after a child support formula assessment has been made and the agreement amount must be equal to or more than the formula amount.
Child Support updates the formula assessment every 3 years, or if the amount of child support payable under the agreement changes by more than 15%, or if either parent asks for an updated assessment.
The formula assessment (or notional assessment) is updated by Child Support to ensure Centrelink uses the appropriate child support amounts to calculate the payee's FTB Part A payment and also allows parents to know how much child support would have been payable if the agreement was not in place.
Limited agreements can be ended if:
Binding agreements are formal agreements made in writing and signed by both parents following independent legal advice. A binding agreement can be for any amount of child support that parents agree to, even if this amount is less than the child support formula amount.
For an agreement to be registered as a binding child support agreement, each parent must obtain independent legal advice about the effect of the agreement and the advantages and disadvantages of making one.
A binding child support agreement can only be terminated if both parents agree to do so after getting independent legal advice, or by a court order.
Agreements can be made which provide for the payment of child support by a lump sum. The agreement must be a binding agreement and the value of the lump sum must be equal to or more than the value of the annual child support payable under a Child Support determined child support assessment.
The lump sum is credited against the annual child support liability and is credited in this way until the lump sum is reduced to nil. After the value of the lump sum is reduced to nil ongoing child support payments will resume.
In calculating FTB, the maintenance income test is based on the amount of the lump sum credited against the annual child support liability, plus any remaining cash child support received.
Example: An agreement provides for payment of a lump sum of $15,000 which is to cover 100% of the payer's child support liability. The payer's annual child support liability is $4,000. The payee's FTB is calculated on $4,000 of child support.
The lump sum is credited against 100% of the child support liability unless the agreement provides for a lesser percentage.
Example: A child support liability is $4,000 and the child support agreement provides that the lump sum is to be credited against 75% of the child support liability. Child Support collects $500 cash child support. The FTB maintenance income test will use $3,500 in child support, which is the $3,000 lump sum credit plus the $500 cash child support.
Act reference: FAAct section 3(1)-'child support agreement'
Child Support (Assessment) Act 1989 refer to Part 6 Consent Arrangements Division 2 Child support agreement requirements
Policy reference: FA Guide 1.1.N.45 Notional assessment (FTB)
Last reviewed: 12 August 2013