Last month we looked at what is income, and the basic provisions behind the trustee’s ability to assess bankrupts for contributions from their income. This month we look at the final factors considered when making an assessment.
The trustee has wide powers to make assessments when the bankrupt does not provide information on their income, or does not provide sufficient evidence to support their income information.
One of those powers is to deem the income of a bankrupt based on the income that someone in a similar employment would receive. The trustee must have a reasonable basis on which to make the deemed assessment, they cannot simply pull a figure out of thin air and leave it to the bankrupt to disprove. But they do not have to prove an absolute correlation and exactly match the employment circumstances.
If the factors are present, the trustee can deem that a bankrupt – in an industry and doing a job that would normally provide a certain level of income – has that income. Once deemed, the bankrupt will be assessed on that income, unless they can get relief through a formal review.
The power extends to assessing income to a bankrupt when a related entity receives a benefit from the exertions of the bankrupt. That is, if the bankrupt does the work and someone else receives the compensation or benefit, the trustee can deem that the bankrupt received that compensation as income.
The earned income, other sources of income, FBT benefits received and deemed income all become the income on which the bankrupt is assessed. Tax is paid on the appropriate amount of income and the after-tax balance is compared against the statutory thresholds. Contributions are payable on amounts over these thresholds.
The thresholds are based on the number of the bankrupt’s dependants. The more dependants, the higher the threshold and the less income is assessed for contributions. These thresholds are constant across all parts of Australia, so bankrupts with the same number of dependants and the same income will be assessed for the same contributions regardless of where they live. We have previously commented that this benefits bankrupts that live in areas that have a lower cost of living.
These thresholds can be viewed on the Figures page of our website. The amounts are indexed and updated every six months.
A dependant is someone living with the bankrupt and who is financially reliant upon the bankrupt. People not living with the bankrupt are not classified as dependants. To be financially reliant, that person cannot earn more than $2,756 per year (this amount is indexed). It is these dependants that will determine the level of the threshold.
Sometimes a bankrupt and their spouse have separated and the children live with the non-bankrupt partner. In these cases the children will not be classified as dependants under the Act, but any Child Support payments will be deductible from the income before assessment.
The last factor that may need to be considered will occur if the bankrupt requests an adjustment to assessed contributions due to hardship. There are only a few grounds to base a hardship request:
1. the bankrupt or dependant has an illness or disability that requires ongoing medical attention or medication.
2. the bankrupt must meet child care costs in order to be able to work.
3. the bankrupt is living in rented accommodation necessary for their employment and these costs are not covered by the government
4. the bankrupt incurs substantial traveling costs to get to and from work.
If an appropriate hardship claims is made and sufficient evidence is provided to show that claims, the trustee will adjust the assessment and lower the contributions payable.
Next Month: Enforcement and Reviews