3.2.8.10 Initial Estimate When Making a Claim

Summary

An individual (1.1.I.90) may need to estimate their ATI (1.1.A.20) for the relevant income year depending on the type of claim they make. The following table shows when an estimate can be used to assess eligibility for FTB, CCB or baby bonus.

For information when an estimate can be used for an FTB bereavement claim see 4.2.2.30 Specific Requirements for a Bereavement Claim.

Note: For the purposes of the baby bonus income test, once an estimate of income provided with a claim for baby bonus is accepted as reasonable, the claim is determined as either entitled or not entitled.

• If entitled, the estimate is not re-visited and the individual maintains their eligibility even where their income has subsequently risen during the 6-month income test period.
• If the individual is determined as not entitled because the individual's ATI is too high and subsequently their income estimate decreases, the individual may become eligible for baby bonus. The individual can either submit a new claim to reflect the changed circumstances, or seek a review of the determination relating to the original claim and provide the revised estimate as part of the review process. If the individual chooses to lodge a new claim this must be done no later than 52 weeks from the day after the child's birth, or the date the child was entrusted to care for an adoption. If the individual chooses to seek a review of the no entitlement determination of their claim, they must do so within 52 weeks of being notified of the no entitlement determination. Where an individual has separated since lodging the claim their partner's income will be included unless they make a new claim at a date after the separation but by no later than 52 weeks from the day after the birth of the child, or the date the child was entrusted to care of the person for an adoption.

This topic includes the following information:

• assessing a reasonable estimate,
• fluctuating income,
• mandatory continuous adjustment assistance when income fluctuates,
• situations where the individual may be better off waiting to claim FTB, CCB or baby bonus for a past period,
• effect of reconciliation of income, and
• accepting or refusing that the estimate is reasonable.

Act reference: FA(Admin)Act section 14 Restriction on determining claim where income tax assessment not made, section 20 Determination of rate may be based on estimate, indexed estimate or indexed actual income, section 55A Determination of rate under Subdivision F may be based on estimate

FAAct section 36 When an individual is eligible for baby bonus in normal circumstances

Assessing a reasonable estimate

When deciding if an estimate of ATI is reasonable, consideration should be given to whether the individual:

• has provided all applicable sources of taxable income,
  • Example: Gross wages or salary including overtime and shift allowances, taxable and tax free pension or benefit, taxable income from self employment, taxable compensation payments, rental income, dividends, distributions interest received or net rental income.
• has included any other sources of income,
  • Example: Target foreign income (1.1.T.05) or adjusted fringe benefits.
• included amounts for a net rental property loss or DCME where appropriate,

Centrelink must ensure the individual has provided a total estimate and the calculations are correct. If errors or omissions are identified by Centrelink, they should be discussed with the individual. The individual must agree to make any alterations to the estimate.

The estimate must be considered reasonable taking into account the individual's financial circumstances for the income year to date, together with any anticipated variations to their income for the rest of the year.

Note: For the baby bonus income test the individual needs to consider their financial circumstances in the relevant 6 month income test period following the child's birth or the date the child was entrusted to care. For children born or entrusted to care on or after 1 January 2011, the 6 month income test period commences on the date that the individual or their partner become the primary carer of the child. Different rules apply where the child was born or entrusted to care before 1 January 2011. See 4.5.1 for further details.

Policy reference: FA Guide 3.2.2 Taxable Income, 3.2.3 Adjusted Fringe Benefits, 3.2.4 Target Foreign Income, 3.2.5 Total Net Investment Loss, 3.2.6 Tax Free Pensions or Benefits, 3.2.7 Deductible Child Maintenance Expenditure

Fluctuating income

In some cases it can be difficult for an individual to estimate their and/or their partner's income.

Example: If the individual and/or their partner are casual employees, working a lot of overtime, or self-employed.

Centrelink can assist the individual in calculating their expected income taking into account the individual's present circumstances and any changes that may occur. An allowance can be made for possible increases of income if the individual is unsure. There is no particular method that must be used to work out the estimate.

Example 1: Miriam's gross annual salary is normally $38,000. By September she has earned another $1,500 in overtime. Her employer has told her that overtime will continue, but not at the same rate. Miriam thinks that it's likely that she will get half as much overtime each month for the rest of the year. She is also hoping to receive a bonus of around $5,000 before the end of the financial year. Miriam's estimate is worked out as follows:

Miriam claims FTB and is paid instalments based on this estimate. As it turns out, Miriam never receives the bonus she was expecting. Her actual income is assessed as $41,750. After her estimate is reconciled against her actual income she is paid a top-up of FTB for the difference in her payment rate.

Example 2: Brian's gross weekly wage is $600. He works irregular overtime, however the amount he is paid can be substantial. Brian does not know how much overtime he will get for the current financial year. He has been working in the same job for the last 3 years and often worked overtime. Over the last 3 years his wage has increased, but his overtime has been an average of about 20% for each year. Brian's estimate is worked out as follows:

Example 3: Sarah has just had her first baby Cindy, and has decided to take 6 months unpaid leave as paid maternity leave is not available to her. Her annual salary is normally around $35,000 and the annual income of her partner Josh is $120,000. Over a normal 6 month period the combined income of Sarah and Josh would be approximately $77,500 ($60,000 for Josh and $17,500 for Sarah), which is over the baby bonus income test limit of $75,000 over the 6 month period from the birth of the baby. However, as Sarah is on 6 months unpaid maternity leave her income over the 6 month period from the birth of Cindy is nil, leaving only Josh's 6 monthly income of $60,000. This figure becomes their estimated income for the baby bonus income test.

Mandatory continuous adjustment

Individuals who receive FTB by instalment who advise of a change in their income, or have their FTB estimate automatically uplifted by Centrelink during the current income year may have their FTB rate automatically adjusted if required, to reduce the risk of an overpayment at the end of the income year.

Act reference: FA(Admin)Act section 31E Continuous adjustment of daily rate of FTB

Policy reference: FA Guide 4.3.1.30 Mandatory Continuous Adjustment of FTB Instalments

Situations where a past period claim may be preferable to instalments - FTB & CCB fee reductions

There are some situations where an individual may be unable to estimate their and/or their partner's income because the effect of a financial change on their taxable income is too complex to estimate. If this is the case, the individual should consider claiming FTB and/or CCB for the past period through Centrelink if they can afford to wait for payment.

Explanation: Estimating an individual's, or their partner's, income may be difficult if they expect to receive one of the following types of payment:

• eligible termination payment,
• capital gains,
• fringe benefits,
• inheritance from a deceased estate,
• surrender of a life insurance policy,
• lump sum compensation payment,
• earnings paid for a previous financial year,
• large arrears of child support, or
• lump sum interest payment.

Note: Individuals may also elect to receive part or none of their payment (e.g. base rate for FTB or zero rate for CCB) by instalment or fee reduction and then receive any top-ups after their payments are reconciled.

Situations where a past period claim for baby bonus may be preferable

There are also situations where an individual may be unable to estimate their, and/or their partner's income during the 6 month baby bonus income test period. This may be particularly the case if there are fluctuations in income resulting from the birth of the baby in addition to other complex financial circumstances, which could involve the receipt of different forms of income such as different types of lump sum payments. If this is the case, the individual may wish to claim baby bonus after the 6 month income test period when they have a greater degree of certainty about their likely income during the 6 month income test period.

Individuals have up to 52 weeks starting from the day after the birth of the child or the child's entry into care in the case of adoptions to claim baby bonus. The baby bonus is paid in 13 fortnightly instalments, whether or not the payment is claimed in the 6 month income test period or afterward.

Explanation: Estimating an individual's, or their partner's, income for the baby bonus income test may be difficult if they expect to receive one of the following types of payment:

• eligible termination payment,
• lump sum maternity leave payment,
• capital gains,
• fringe benefits,
• inheritance from a deceased estate,
• surrender of a life insurance policy,
• lump sum compensation payment,
• earnings paid for a previous financial year, or
• lump sum interest payment.

For the purposes of the baby bonus income test, taxable lump sum payments received by an individual in the relevant 6 month period following birth or the child being entrusted to care are to be included as income for the income test. The proportion of the lump sum payment that is taken into account will depend on the length of the period to which the payment relates, or whether the payment relates to a period.

Examples:

• If the payment relates to earnings over a 6 month period or less, 100% of the payment is to be included.
• If the payment relates to earnings over a period between 6 and 12 months the appropriate proportion between 50 to 100% of the payment is to be included (i.e. if the payment relates to earnings over a 9 month period, 67% of the payment is to be included).
• Where the individual can demonstrate that an amount less than 50% of their taxable lump sum payment should be attributed to the 6 month period because the payment received relates to a period of work longer than 12 months, a smaller proportion may be included.
• If the payment relates to an unearned lump sum that does not relate to a specific period, 50% of the payment is to be included (such as a payment from a family trust).

Note: For tax purposes capital gains are regarded as having been received on the date of the event rather than when the payment is made.

Explanation: For tax purposes a capital gain event takes place on the day contracts are exchanged for the sale of an investment property, not the date that settlement occurs on that property. The event is the date that payment is regarded as having been received for tax purposes so the capital gain from the event must be included as income for the purpose of the baby bonus income test if the event took place during the 6 month period from the birth of the child, even if the proceeds from the sale were received outside that period.

Accuracy of the estimate for FTB & CCB purposes

For those individuals who are required to lodge tax returns with the ATO, the estimated amount for a financial year is reconciled against the actual income for that year once their tax returns have been assessed. The following table shows the effect on FTB or CCB entitlement once income has been reconciled.

The individual may choose to deliberately overestimate their income if they are unable to make an accurate estimate, however they should be advised that this may affect their possible entitlement to:

• rent assistance,
  • Explanation: RA is only paid to individuals who receive more than the base rate of FTB Part A.
• an automatic HCC, and
  • Explanation: An automatic HCC can only be issued to individuals who receive the maximum rate of FTB Part A by instalments.
• the amount they need to pay up front for child care fees.

Policy reference: FA Guide 6.4 Reconciliation, 3.5 CCB Rate Calculation

Accuracy of the estimate for baby bonus purposes

For the purpose of the baby bonus income test the individual's estimated income is not reconciled against actual income at tax time. As the estimate relates to a 6 month period following the birth of the child or the child's entry into care, rather than a full income year, the individual is required to give a 'best effort' estimate of the income that will be, or was received by them and/or their partner during the 6 month income test period.

Accepting the estimate

For the purposes of FTB and CCB, generally the individual's estimate of ATI should be accepted as reasonable, if all their known sources of income are included, and the calculations are correct.

However, if it is clear that the estimate does not reflect the individual's financial circumstances, it must be discussed with the individual and the individual should be given the opportunity to change their estimate if they decide to do so.

Accepting an estimate which is obviously too low is likely to lead to a large debt once the individual's income is reconciled. Recovery of the debt may place the individual in a difficult financial position in the future.

For the purposes of baby bonus the individual's estimate is also accepted as reasonable if all known sources of income are included and their calculations are correct. However, as the estimated income is not reconciled against actual income, it is important to ensure the individual has submitted a 'best efforts' estimate that accurately reflects their circumstances.

Accepting an estimate of income that is too low from an individual for baby bonus could lead to incorrect payment of baby bonus. Once the estimate is accepted, the estimate will not be subject to revision, unless there is evidence of fraud or misleading information in the provision of the estimate - that is, the individual is considered to have made their best efforts to provide an accurate estimate and are considered eligible on that basis if their estimated income for the 6 month income test period is below the cut-off.

It is also important for the purposes of the baby bonus income test that caution is exercised before accepting an estimate that appears too high, unless the individual insists on lodging the claim with that estimate. Accepting an estimate that is too high could lead to an eligible individual being ruled ineligible for baby bonus. This could arise in circumstances where, for example, the individual overestimated the amount they should include from a lump sum payment or their estimated fringe benefits.

The following table shows whether an estimate should be considered to be reasonable.

Estimate not reasonable

In all circumstances for FTB, CCB and baby bonus, if the individual has clearly underestimated their income (taking into account their financial circumstances) and they do not wish to change the estimate, the estimate is not considered to be reasonable.

The claim must be determined on the basis that there is no fortnightly entitlement to FTB, or eligibility for baby bonus, or CCB by fee reduction at more than the zero rate as the case may be. An individual may be eligible for a lump sum of FTB after the end of the financial year or CCB after the end of the current or following financial year when their actual ATI is known.

Act reference: FA(Admin)Act section 20(2) Determination of rate may be based on estimate, indexed estimate or indexed actual income, section 19 Determination that no entitlement, section 38(2) A claim is not effective unless...

Policy reference: FA Guide 4.2.3.20 Determining an FTB Claim, 4.6.2 Approved Care CCB - Individual's Claim, 4.5.1 Claims for Baby Bonus & MIA, 3.2 Adjusted Taxable Income

_______________________________________________________

Last reviewed: 13 May 2013