Editors --- "Family tax benefit: maintenance income; lump sum arrears payment; whether capitalized maintenance income" [2006] SocSecRpr 8; (2006) 8(1) Social Security Reporter, Article 8

• SCARBOROUGH and SECRETARY TO THE DFaCS
• Background
• The issues
• Discussion
• Formal decision

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Family tax benefit: maintenance income; lump sum arrears payment; whether capitalized maintenance income

SCARBOROUGH and SECRETARY TO THE DFaCS

(2005/1178)

Decided: 29th November 2005 by L. Hastwell

Background

On 30 September 2004, the applicant advised Centrelink that she had received the sum of $25,000 by way of a lump sum child maintenance payment for her four children. This payment was treated as periodic child maintenance arrears and, on 1 October 2004, Centrelink decided to attribute the payment to the applicant as income received by her in the year of receipt pursuant to clause 20A of Schedule 1 to the A New Tax System (Family Assistance) Act 1999.

Relevant legislation

The relevant provisions are contained in the A New Tax System (Family Assistance) Act 1999 (‘the Act’). Of particular relevance are the following sections:

Definitions

Section 3.(1) In this Act, unless the contrary intention appears:...

maintenance income, in relation to an individual, means:

(a)child maintenance-that is, the amount of a payment or the value of a benefit that is received by the individual for the maintenance of an FTB child of the individual and is received from:

(i)a parent of the child; or

(ii)the partner or former partner of a parent of the child; or

(b) partner maintenance-that is, the amount of a payment or the value of a benefit that is received by the individual for the individual’s own maintenance and is received from the individual’s partner or former partner; or

(c) direct child maintenance-that is, the amount of a payment or the value of a benefit that is received by an FTB child of the individual for the child’s own maintenance and is received from:

(i)a parent of the child; or

(ii)the partner or former partner of a parent of the child;

but does not include disability expenses maintenance.

...

Schedule 1

Clause 20A.(1) The object of this clause is to annualise the maintenance income (other than capitalised maintenance income) (CMI) of an individual during an income year.

The issues

The issue in this case was whether the lump sum payment received by the applicant was ‘maintenance income’ which was to be treated as income in the year the lump sum was received in accordance with clause 20A of schedule 1 or whether it was ‘capitalised maintenance income’.

Discussion

The AAT considered the provisions of the Child Support Act, in particular the provision dealing with ‘a child support terminating event’. It found that Scarborough had, as part of a negotiation to settle a longstanding maintenance dispute, elected to end her entitlement to pursue arrears of maintenance and to future administrative assistance of her entitlement to child maintenance in return for a lump sum. That sum bore no correlation to the arrears over time, or to any estimate of future liability.

The AAT determined that Scarborough had elected to convert into capital a long term liability that both pre and post-dated the payment to her. It commented that had she received a payment only for arrears and an ongoing liability existed, then the payment could not be characterised as capitalised maintenance.

Therefore the AAT found that the payment was ‘capitalised maintenance income’. This finding meant that the payment was to be apportioned over the period for which the lump sum related rather than being annualised over the year in which the payment was received.

Formal decision

The AAT set aside the decision under review and remitted the matter to the Department with a direction that Scarborough’s 2004/05 FTB entitlements be re-assessed on the basis that $18,750 of the lump sum payment she received was ‘capitalized maintenance income’.

[Contributor’s Note: The AAT incorrectly found that the term ‘capitalised maintenance income’ was not defined in the Act. In fact, the term is defined in section 3(1) of the Act as follows:

capitalised maintenance income, in relation to an individual, means maintenance income of the individual:

(a) that is neither a periodic amount nor a benefit provided on a periodic basis; and

(b) the amount or value of which exceeds $1500.

Whilst it does seem that the payment could be characterised as ‘capitalised maintenance income’, the decision appears to be inconsistent with earlier Tribunal decisions in Re Doolin and Secretary, Department of Family and Community Services [2004] AATA 164 and Re Blunden and Secretary, Department of Family and Community Services [2000] AATA 273.

The distinguishing feature of this case, however, is that the lump sum received by the applicant not only represented the payment of arrears owed to her by her ex-husband, but was also made in discharge of all future obligations to pay child support for the children.]

[S.O.]