Child support, the formula explained

The first child support assessment letter arrived three weeks after I'd told Services Australia we'd separated. I opened it on the kitchen bench, read the dollar figure, and thought there must have been a mistake. Then I read it again. Then I went and got the calculator from the drawer.

There wasn't a mistake. The number was right. I'd just never understood what the formula actually did.

If you're about to go through this, or you're already paying and you've never bothered to work out where the number comes from, this is the explainer.

The system, in one paragraph

Child support in Australia is administered by Services Australia (the agency, not the courts). It uses a formula set out in the Child Support (Assessment) Act 1989. The formula is mostly mechanical: you put both parents' incomes in, you put the percentage of nights the child spends with each parent in, and the formula spits out a number. It's deliberately designed to take discretion out of the calculation so that both parents know roughly what to expect.

You can vary the formula by agreement. You can challenge the assessment in specific circumstances. But you start by understanding the default.

The eight steps Services Australia actually runs

This is from the official methodology. I've translated it from bureaucratic English.

• Step 1: Work out each parent's child support income. That's their adjusted taxable income from the most recent tax return, minus a self-support amount (which is roughly the single-pension rate, indexed annually).
• Step 2: Add the two child support incomes together to get the combined child support income.
• Step 3: Work out each parent's income percentage. Your share of the combined income.
• Step 4: Work out each parent's percentage of care. Based on the number of nights per year the child stays with each of you.
• Step 5: Convert the care percentage into a cost percentage using a sliding scale. (This is where the system gets a bit non-linear: small changes in nights can produce bigger or smaller changes in dollars.)
• Step 6: Subtract the cost percentage from the income percentage. Positive number = you pay. Negative number = you receive.
• Step 7: Multiply that by the costs of the children, looked up from a published table that depends on combined income and the children's ages.
• Step 8: That's your annual amount. Divide by 12 for monthly, or 26 for fortnightly.

That's it. Eight steps. No magic, no judgment, no weighting for who left who.

The two inputs that move the number most

Two variables drive almost everything. Get these right in your head and you can predict roughly what'll happen if anything changes.

• Income gap. The bigger the gap between your income and the other parent's, the bigger the transfer (in whichever direction).
• Care percentage. The more nights the child spends with you, the lower your transfer (or the larger the transfer to you, if you're receiving).

The care percentage is on a non-linear scale. Going from 14% care (one night a fortnight) to 35% care (about 5 nights a fortnight) makes a big difference. Going from 35% to 50% makes another big difference but in a different way. The tipping points matter.

What counts as "nights of care"

Care percentage is measured in nights per year, not days. A "night" generally means the child sleeps at your house. Day visits without an overnight don't count for the formula.

Rough conversions:

• 1 night per fortnight: about 14% care
• 2 nights per fortnight: about 28%
• 3 nights per fortnight: about 35%
• 4 nights per fortnight: about 35-40%
• 5 nights per fortnight: about 35-40%
• Equal time (week-on, week-off): 50%

Care under 14% (less than one night a fortnight on average) generally produces a "regular care" classification but not much movement in the dollars.

The self-support amount: why your "income" isn't your salary

The formula doesn't use your full taxable income. It uses your taxable income minus a "self-support amount", a notional figure intended to cover your own basic living costs before you contribute to the kids.

The self-support amount is reset each year and is roughly equivalent to the single-rate Centrelink pension (typically around $28,000 in recent years, check the current figure). It applies to both parents.

Practical effect: if you earn $90,000 and the self-support amount is $28,000, your child support income is $62,000. The formula uses the $62k, not the $90k. Same for the other parent.

What if my income drops?

If you lose your job, get sick, or have a significant income drop, you do not have to wait for the next tax return to update the assessment. Apply for a Change of Assessment (or a provisional income estimate) with Services Australia. You'll need to demonstrate the change with payslips, separation certificates, or similar.

Don't sit on it. The formula accrues debt at the old rate until you tell them to update it.

The change-of-assessment process

If the formula produces a number that's clearly wrong for your situation (high private school fees the kids attend, special medical needs, one parent with deliberately low reported income), you can apply for a Change of Assessment. There are 10 prescribed reasons. The most common:

• Costs of educating the children (typically private school).
• Special needs of the children (medical, disability).
• High costs of contact (long-distance travel).
• Parent's earning capacity differs from reported income.
• Parent's income does not reflect their actual financial resources.

Reason 8 (earning capacity) gets used a lot when one parent appears to be deliberately under-earning. It's a high bar to prove but the option exists.

Private agreements vs formula assessment

You don't have to use the formula. Two alternatives:

• Limited Child Support Agreement: you and the other parent agree on an amount, must be at least equal to the formula amount, can be reviewed every three years.
• Binding Child Support Agreement: any amount (higher or lower than formula), both parents must get independent legal advice, hard to vary later.

Most parents stick with the formula. It's transparent, it adjusts automatically as incomes change, and Services Australia handles the collection if you want them to.

Two things people get wrong

• "I'm paying for her, not the kids." No. The formula is based on the cost of the children, not the cost of the other parent. The amount goes up if you have more children, not if your ex's standard of living goes up.
• "If I quit my job, I'll pay nothing." No. Reason 8 covers this. The agency can assess based on what you could be earning if it looks like you're deliberately under-earning to dodge the assessment.

Use the calculator before you panic

Services Australia has a free online estimator (search "Child Support Estimator Services Australia"). Plug in both incomes and the planned care arrangement. The number it gives you is a close approximation of what the formal assessment will produce.

Run it before you negotiate care arrangements. It changes the conversation when both parents know roughly what the formula will do for any given split.

Run the numbers. Read the letter. Then talk.