Does Salary Sacrifice Affect Child Support?
Yes, salary sacrifice does affect child support in Australia. Child support is calculated based on a parent’s “adjusted taxable income,” which includes salary, wages, and other benefits.
When salary sacrifice arrangements are in place, they can reduce a parent’s taxable income, potentially affecting the amount of child support they are required to pay or are entitled to receive.
It is important to understand how salary sacrifice is treated when calculating child support to avoid unintended consequences.
Key takeaway: Salary sacrifice reduces your taxable income, which can impact child support calculations.
Understanding Salary Sacrifice and Its Impact on Income
Salary sacrifice is an arrangement where an employee forgoes part of their salary in exchange for benefits such as additional superannuation contributions, a vehicle, or other perks.
These sacrificed amounts are deducted before tax, reducing the employee’s assessable income for tax purposes.
However, for child support purposes, the sacrificed amount may still be included in the assessment of your income, as the Australian Government recognises that salary sacrifice is a form of financial benefit.
The Child Support Agency (CSA) uses your “adjusted taxable income,” which may take into account salary sacrifice arrangements.
Key takeaway: Even though salary sacrifice reduces your taxable income for tax purposes, it may still be included in child support calculations.
How Is Adjusted Taxable Income Calculated for Child Support?
In Australia, child support is based on a formula that factors in both parents’ adjusted taxable incomes.
This adjusted income includes taxable income, reportable fringe benefits, net investment losses, and other factors.
Importantly, it also adds back some salary sacrifice amounts, particularly those related to superannuation contributions, to give a clearer picture of a parent’s true income.
If a significant portion of your salary is sacrificed, it could reduce your child support obligations by lowering your taxable income.
However, the Child Support Agency may add back some or all of those sacrificed amounts to ensure the parent paying child support contributes a fair share based on their financial situation.
Key takeaway: Adjusted taxable income includes some salary sacrifice benefits, which means your child support obligations may still reflect these financial advantages.
Types of Salary Sacrifice and Their Impact on Child Support
There are different types of salary sacrifice arrangements, and not all are treated the same for child support purposes. The two most common are:
- Salary sacrifice to superannuation: These contributions are generally included in your adjusted taxable income, meaning they will affect your child support obligations.
- Other salary sacrifice benefits: Depending on the type of benefit, such as vehicles or laptops, these may also be considered part of your income for child support calculations.
Suppose you are using salary sacrifice to reduce your income with the intention of lowering your child support.
In that case, it is important to remember that some or all of these benefits may be considered by the CSA when determining your financial capacity to pay child support.
Key takeaway: Different salary sacrifice arrangements are treated differently, but most forms of salary sacrifice will still affect your child support assessments.
Can Salary Sacrifice Reduce Child Support Payments?
Yes, salary sacrifice can reduce child support payments if it lowers your taxable income, but this depends on how the sacrificed amount is treated in your adjusted taxable income.
While the salary you sacrifice may reduce your reportable income for tax purposes, the Child Support Agency may still include it when calculating child support.
For example, sacrificing a portion of your salary for additional superannuation contributions may lower your taxable income but could still be counted towards your adjusted taxable income for child support.
This is designed to prevent parents from using salary sacrifice to artificially reduce their income and avoid paying their fair share of child support.
Key takeaway: Salary sacrifice can reduce child support if it lowers your adjusted taxable income, but certain sacrifices, like superannuation, may still be included in assessments.
Should You Use Salary Sacrifice If Paying Child Support?
Salary sacrifice can affect child support in Australia by altering a parent’s taxable income. While it can reduce your taxable income for tax purposes, many salary sacrifice benefits, particularly superannuation contributions, are often included in child support calculations.
Before entering into salary sacrifice arrangements, it’s wise to consider how they may impact your child support payments.
Understanding how the Child Support Agency treats these arrangements is important to ensure that your child support obligations or entitlements accurately reflect your financial circumstances.
Consulting a legal or financial expert can provide clarity on your specific situation.
Director of Melbourne Family Lawyers, Hayder manages the practice and oversees the running of all of the files in the practice. Hayder has an astute eye for case strategy and running particularly complex matters in the family law system.
