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10.6.5 Capitalised Maintenance

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Explanation of capitalised maintenance

Capitalised maintenance income is income provided by a:

  • lump sum cash payment of an amount greater than $1500 that is not a regular payment of a series of periodic payments, or
  • transfer or settlement of property (for example a home, car or business).
Amount to be assessed under the maintenance income test

Only the part specified as being provided as maintenance for a resident parent or a child is assessed under the maintenance income test for Family Tax Benefit or DVA child related payments for saved children. If none of the amount is specified as maintenance, no amount is assessed. A person with an informal child support agreement, rather than a court order or written agreement must nominate the percentage of a capitalised amount that is for maintenance.

Example - explanation of capitalised maintenance

A court order involves the non-resident parent transferring part of their share in the former family home to the resident parent. The total value transferred was $40,000, half of which was specified as maintenance. The amount assessed as capitalised maintenance income is $20,000.

Assessment stops at the end of the capitalisation period

Assessment stops at the end of the capitalisation period. The assessment does not change if the capitalised maintenance is spent or disposed of in any other way before the period ends.

Assessing capitalised maintenance income

Capitalised maintenance income is converted to an annualised rate of maintenance income by working out:

  • each person's share of the total amount, and
  • the equivalent annualised income the person's share represents, as if it had been received over the entire capitalisation period.

The child support order or agreement may state the amount apportioned to each person. If not, the amount is divided equally between the people the agreement covers.

Example - assessing capitalised maintenance income

The following table shows an example of apportioning $30,000.

If the $30,000 is for...

The amount is apportioned as...

the resident parent and 2 children,

$10,000 for each person.

2 children only,

$15,000 for each child & nil for the resident parent.

Capitalisation period

The capitalisation period is the period for which the maintenance is paid. This will generally be given in the terms of the child support order or agreement. The capitalisation period given in a court order or agreement may be varied if it is clear that the period is not appropriate for the circumstances of the case.

Capitalisation period is not given in a court order or agreement

If the capitalisation period is not given in a court order or agreement, the period is taken to be the period stated by the resident parent. The following table shows when the capitalisation period is reduced in some situations.

When the capitalisation period is not specified in an order or agreement...

Then the capitalisation period is...

and the FTB child or saved child is less than 18 years old when the payment was received,

the period beginning on the day the payment was received, and ending the day before the child turns 18.

and the resident parent is less than 65 years old when the payment was received,

the period beginning on the day the payment was received, and ending the day before the parent turns 65.

Calculating the assessable amount

    

The following table shows how the amount of capitalised maintenance is assessed for the relevant period during the income year.

Step

Action

1

Work out the amount attributable for the income year using the following formula: Capitalised maintenance income X Relevant period / Capitalisation period

2

Work out the annualised amount for the income year using the following formula: Result from Step 1 X number of days in the income year / Number of days in the capitalisation period in the income year.

Payer dies during the capitalisation period

If the payer dies during the period that the capitalised maintenance covers, there is no change to the assessment of the capitalised maintenance under the maintenance income test.

The capitalised maintenance income definition is met at the time the payment is received by the person, and the payer is alive at the time.

Example - payer dies during the capitalisation period

Carol receives $100,000 capitalised maintenance under the terms of a court order. The order specifies that the $100,000 applies for a period of 10 years. Under the maintenance income test, $10,000 is assessed per year. Carol's ex-husband dies after 5 years. The assessment of the capitalised maintenance does not change and it continues to be assessed for the whole 10 year period.

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From 1 January 1998 responsibility for administration of most income support child related payments was transferred to  Centrelink. However, saving provisions allow any person in receipt of service pension or income support supplement on 31 December 1997 who would be or is financially disadvantaged by the transfer to continue having their child related payments paid by DVA. Saved children are assessed under the rules contained in the VEA as at 31 December 1997.

 

 

FTB child has the same definition as given in section 22 and 22A of the Family Assistance Act (i.e. A New Tax System (Family Assistance) Act 1999).

 

For more information, see also 9.4.3/Effect of Children on Remote Area Allowance (RAA) CS Policy Library.