Can You Avoid Child Support by Reducing Your Income?

Introduction

Quitting a job, cutting hours or paying yourself a tiny salary through a company are the classic moves people have in mind when they search for how to avoid child support. The case law shows courts and tribunals see these moves for what they are, but it also shows they cannot punish a parent on suspicion alone. Three questions come up again and again.

When can child support be based on capacity to earn, not actual income?

Child support in Australia is normally calculated on each parent's actual taxable income. Only when the strict conditions set out in the law are all met can the assessment instead be based on a parent's income earning capacity rather than their actual income. The starting point of the administrative assessment is always the statutory formula. If one parent believes the formula result is unfair, for example because the other parent's current actual income does not reflect their true earning capacity, that parent can apply for a change of assessment under section 98B of the Child Support (Assessment) Act 1989. As long as a ground for departure under section 117(2) exists, such as the income, property and financial resources of a parent, or the earning capacity of a parent, the decision maker may depart from the administrative assessment under section 98C.

Section 117(7B) is the provision that stops the earning capacity ground from becoming a weapon against any parent who changes jobs. It provides:

"In having regard to the earning capacity of a parent of the child, the court may determine that the parent's earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied that: (a) one or more of the following applies: (i) the parent does not work despite ample opportunity to do so; (ii) the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes fulltime work for the occupation or industry in which the parent is employed or otherwise engaged; (iii) the parent has changed his or her occupation, industry or working pattern; and (b) the parent's decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern, is not justified on the basis of: (i) the parent's caring responsibilities; or (ii) the parent's state of health; and (c) the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child."

Before your child support can be calculated on "what you could earn" rather than "what you actually earn", the following three conditions must all be satisfied:

First, your work situation has changed, or you remain underemployed. For example, you choose not to work despite ample opportunity, your working hours fall below the full-time standard for your occupation or industry, or you voluntarily change your occupation, industry or working pattern, resulting in reduced income.

Second, the change cannot be reasonably explained by caring responsibilities or health. If you reduced your work to meet caring responsibilities for the children, or a genuine health problem means you cannot continue your previous work, these are legitimate justifications recognised by the law. If either of these reasons holds, child support cannot be assessed on earning capacity merely because your income has fallen.

Third, you cannot demonstrate that affecting the child support assessment was not a major purpose of reducing your income. This is the most critical requirement in practice. Once the first two conditions are met, the onus shifts to the lower-earning parent to demonstrate that the reduction in income was not aimed at affecting the child support calculation. If they cannot demonstrate this, the decision maker may reassess child support based on their earning capacity rather than their actual income.

Notice how the third condition works. The decision maker does not need to prove you set out to dodge child support. You need to demonstrate that you did not. A resignation that happens to coincide with a separation or a fresh assessment will invite hard questions, as the cases below show.

Can you avoid child support by quitting your job and starting a company?

Running your income through a company you control rarely works, because decision makers can look behind a perfectly legal corporate structure and add the income back. This is the scenario people imagine is safest. The salary is small, the books are professionally kept, the company is real. The Full Court of the Family Court has confirmed none of that matters if the structure hides your true capacity to support your children.

The father's central legal argument was that a tribunal could only look behind a company structure if the company was a sham or he controlled it. The Full Court rejected that outright.

Similarly, we reject the submission that the Tribunal could only look behind the company structure if it was a sham or it was shown the father had control. Such restrictions are not warranted by the legislation, one of the stated objects of which is to ensure that the level of financial support to be provided by parents for their children is determined according to their capacity to provide financial support.

What this shows is that a child support income assessment is not an audit of whether your company is lawful, but a search for your real capacity to provide financial support. Splitting income with a partner who contributes little, loading personal costs onto the business or leaving profit in the company can all be unwound on paper, and the Tribunal in this case put it bluntly: parents are free to give gifts to their partners, but that is not a legitimate basis for reducing their child support liability.

What evidence does a child support income assessment need?

A decision maker cannot pluck an earning capacity figure out of the air. A capacity finding must rest on evidence of actual work opportunities, not assumptions about the job market, and the pendulum swings both ways. Yip shows that strong evidence sinks an income minimising parent. Kindree shows that without evidence, even an unimpressive work history cannot justify an earning capacity finding.

In the absence of any evidence as to the availability of employment of the relevant type, the failure of the appellant to seek that type of employment does not show he has an earning capacity, simply that he had not explored a possible option.

In practice, if you are the parent alleging that your ex could earn more, you need to bring proof. Job advertisements for their occupation in their region, pay scales, evidence of offers they turned down. If you are the parent whose capacity is under attack, keep records of every application, every knock back and every course you take, because the court said only slight evidence of opportunity can shift the persuasive onus back onto you.

Why did these two cases end differently?

The decisive factor: evidence. In Yip the numbers came straight out of the company's books, so the capacity finding was concrete and defensible. In Kindree the Tribunal relied on what it assumed about government hiring, and that assumption could not support a $55,000 figure. Suspicion of income minimisation, however reasonable, is never a substitute for proof.

What if your income really dropped because of injury or illness?

A genuine health problem is a complete justification for reduced income under section 117(7B)(b), and courts must give proper weight to the medical evidence that proves it. The earning capacity rules are aimed at parents who choose to earn less. They are not meant to squeeze parents who physically cannot work the way they used to. The dividing line is medical evidence, and a Full Court decision on capacity to work shows how seriously that evidence must be treated. The case arose in a property settlement appeal rather than a child support assessment, but the question was the same one that arises under the health limb: what does the medical evidence say about this parent's real capacity to work?

Her Honour did have evidence other than the husband's evidence and had she evaluated it and considered it together with the husband's evidence, we are of the view that she could not have come to the same conclusion about the husband's future earning capacity.

For a parent whose income fell for medical reasons, this case is the roadmap. Your own say so about pain and limits will be tested, and working hard through an injury can even be held against you as proof you are fine. What carries the day is evidence from practitioners who actually treat you: functional capacity assessments, specialist reports, a documented history. Get it in proper form, because reports alone, without the author available for cross examination, may be given little weight at trial.

If you want to understand the change of assessment process itself, see Child Support Departure Order: How to Apply in Australia. For other departure grounds such as debts, inheritance and school fees, see Child Support: Debts, Inheritance and Private School Fees. And if the other parent is hiding assets rather than reducing income, the court has separate powers, covered in When Can Australian Courts Order Child Support?.

What should you do if your ex deliberately reduces their income?

The three cases teach clear lessons.

Courts look at capacity, not payslips. Yip & Wreford and Anor shows that resigning and rerouting income through a company does not lower your real position in the eyes of the law. The assessment followed what the father was capable of providing, and his legal obligation to his children came before his choice to benefit his new partner.

Accusations need evidence, not suspicion. Kindree & CSR (SSAT Appeal) shows the protection built into the system. However convenient the timing of a job loss looks, an earning capacity figure must be anchored to real, provable work opportunities.

Genuine health problems are a defence, and medical evidence is how you prove them. Babbit & Babbit shows that treating practitioners' reports carry weight and a court cannot dismiss them without a proper basis.

If you are the parent receiving child support and the other parent's income suddenly collapses, apply for a change of assessment through Services Australia and gather evidence: their work history, qualifications, job advertisements in their field and region, and anything showing the timing and purpose of the change. If you are the parent whose income dropped for honest reasons, document everything, from medical reports to every job application you send.