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Non-agency payments are payments to third parties credited to a child support liability.
Child Support Non-Agency Payments
Non-agency payments allow parents more flexibility around how they want to manage the sharing of parenting expenses.
In this episode, Simon Bacon of Manby & Scott in Melbourne will walk you through the ins and outs of these payments.
Here is what we learned but please listen in as Simon explains all this much better than we ever could. These notes here are really just scraping the iceberg and by no means a comprehensive review of what we discuss.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Non-Agency Payments
In this episode, let’s talk about non-agency payments (‘NAP’) and then in episode 385 about lump sum payments of child support. What they are, how you get them and how they affect Family Tax Benefits A and B.
To make it easier to read, we refer to the payer as the father and the payee as the mother, but of course, in some families, the mother is the one paying the child support to the father.
Tax
The tax side of NAP is relatively straightforward. They all fall under s51-50 ITAA97, so are tax-exempt income on the mother’s side and no tax deduction on the father’s side, assuming that the mother is the payee and the father the payer.
Flexibility
In child support agreements you have all the flexibility you want. The parents can agree to whatever they see right.
Child support assessments on the other hand lacked this flexibility. There was none.
The introduction of possible NA payments was to fix this and introduce some flexibility. But the approach is flawed.
Huge Minefield
NAPs easily widen the potential minefield between parents. There is a lot of room for misunderstandings and disagreements.
Substitution Orders
Whenever you make a non-periodic child support payment (as part of a child support assessment), then you need a substitution order.
So substitution orders cover non-agency payments as well as lump sum payments.
Prescribed NAPs
There is a list of prescribed NAPs, which the father can request without the mother’s consent. For other non-prescribed NAPs you need the mother’s consent. Only up to 30% of child support can be covered through prescribed NAPs.
One example of a prescribed NAP is urgent medical care. Another one is the running costs of a car for the payee.
The father has to be up to date with at least 70% of his child support payments in order to claim a prescribed NAP.
If the father sees his child for more than 14% of the time, at least one day per week, then he already receives a discount. Hence he can’t claim a NAP.
Avoid Non-Agency Payments
You can’t predict future needs. And the lines around prescribed NAPS are very blurry. Hence non-agency payments are tricky.
So keep it simple. Cash talks. Just leave it all in cash and stay away from NAPs. It just exponentially widens the potential minefield between parents.
Please listen to this episode since there is so much more that gets discussed that we haven’t mentioned here.
MORE
Child Maintenance Trust Income
TR 98/4 Child Maintenance Trust Arrangements
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 14 June 2023
Tax Talks spoke to Simon Bacon - Partner at Manby & Scott - for more details.
