Does Inheritance Affect Child Support Payments in NSW?

Understanding Inheritance and Child Support in NSW

Child support is assessed based on several factors, including a parent’s adjusted taxable income, care percentage, the number of children and other formulas. 

Although a lump-sum inheritance is not automatically treated as income, if it produces ongoing returns (interest, dividends, rental income) or otherwise improves the capacity to pay child support, it may increase the parent’s adjusted taxable income and may result in an increased child support liability. 

Services Australia has the power to vary an assessment in special circumstances to reflect true financial capacity, including income, property and financial resources. 

In NSW, if an inheritance arises because there is no will (known as intestacy), the distribution of the deceased estate will devolve in accordance with the order prescribed by Parliament in Chapter 4 of the Succession Act 2006 (NSW). The amounts to which a parent is entitled under Chapter 4 may be taken into account by Services Australia when calculating child support payments and entitlements to other Centrelink payments, regardless of whether the benefit is actually received by the parent (i.e. if the parent disclaims the entitlement). 

For parents receiving Centrelink payments, promptly reporting inheritance helps avoid compliance issues and overpayment debts.

How Child Support Is Calculated Under Australian Law

In NSW, Services Australia applies a national formula that considers various factors, including each parent’s adjusted taxable income, the percentage of care, the number and ages of children, and standard cost-of-children formulas. 

The full formula can be accessed on the Services Australia Basic Child Support Formula page.

Does Inheritance Count as Income for Child Support?

An inheritance is not automatically treated as income for child support purposes. However, if inherited funds produce ongoing income such as interest, dividends, or rental income, that income is counted in future assessments. Further, if a lump-sum inheritance improves a parent’s financial resources, Services Australia can consider a change of assessment in special circumstances so the amount better reflects the true capacity to pay.

How Inheritance Can Impact Child Support Payments

An inheritance can change child support payments where it increases a parent’s financial resources or capacity to pay. Even though a lump sum is not automatically treated as income, Services Australia can make a change of assessment in special circumstances if the standard formula would be unjust or inequitable given a parent’s income, property, or financial resources.

Examples of potentially relevant financial changes:

• Paying off debts or a mortgage with inherited funds, improving ongoing capacity to pay.
• Converting inheritance to investments that generate assessable income, such as interest, dividends, or rent.
• Holding significant assets that, in fairness, should be considered under change-of-assessment rules.

Lump-Sum Inheritances vs Ongoing Income

Lump-sum Inheritance (Asset)

A one-off windfall is not automatically counted as income in the formula. However, if ignoring it would be unfair, Services Australia can consider a change of assessment to reflect the true capacity to pay.

Income From the Inheritance (Ongoing)

If you invest the inheritance and it earns interest, dividends, or rent, that ongoing income is ordinarily included in future child support assessments as part of adjusted taxable income.

If you also receive Centrelink payments, separate assets and income tests may apply to that benefit, and you generally must report any income or changes in your financial position to Centrelink within the periods prescribed (generally 14 days). This is distinct from child support, but often relevant in practice.

Assessments by Services Australia (Child Support)

If inheritance changes a parent’s position, you can seek a child support reassessment through a Change of Assessment – Special Circumstances process. Services Australia may also initiate changes where appropriate. Decisions can be objected to internally, and many can be reviewed by the Administrative Review Tribunal. Strict time limits apply.

Practical steps:

1. Gather documents: probate papers, bank records, investment statements.
2. Explain why the current assessment is unfair given income, property, or financial resources (commonly raised under “Reason 8/8A”).
3. Lodge your application for a child support review and keep evidence current.
4. If you receive Centrelink benefits, report the income or lump sum promptly to avoid overpayments or debts. 

Legal Considerations for Inheritance and Child Support

Child support in NSW is administered under national legislation. The assessment can be varied where a parent’s income, property, or financial resources change in a way that makes the standard formula unfair. Inheritances can be relevant to this test. Parents must keep accurate records, disclose material changes, and cooperate with information requests. Non-disclosure can lead to reassessment, debt recovery, penalties, and in serious cases, prosecution. Where a person requires help managing disclosure, timing, and evidence, they should seek independent legal advice to ensure their interests are properly protected. 

Key points:

• One-off lump sums are not automatically income but may regardless, increase a person’s financial resources and impact a child support assessment (including where Special Circumstances is sought by the other partner). 
• Income earned from inherited assets is usually assessable income and may increase a person’s ability to pay child support. 
• A change in one parent’s financial resources may result in a reassessmen,t which can increase or decrease their child support payment. 

Parental Obligations After Receiving an Inheritance

If you receive an inheritance, notify Services Australia promptly so your child support assessment can be reviewed if needed. If you also receive Centrelink benefits, report the change within the required timeframe, typically 14 days. Keep documents such as probate papers, settlement statements, and investment records. If you have a private child support agreement, consider whether it needs updating to reflect the new financial position.

Practical checklist:

• Inform Services Australia of any inheritance and any new investment income.
• Report to Centrelink within the required timeframe if you receive income or benefits.
• Keep evidence of amounts received and dates, and retain statements for all investment or reinvested funds.
• Review any private agreement or court orders with a family lawyer.

Can Child Support Be Adjusted Retroactively Due to Inheritance?

Yes, in some situations. Assessments can be amended for a past period where a material change occurred and was not disclosed, where information was inaccurate, or where special circumstances justify backdating. This can create arrears or reduce past liabilities depending on the facts. If you disclose promptly and provide evidence, the reassessment usually applies from an appropriate date that reflects when the circumstances actually changed. Early advice helps manage timing, documentation, and the risk of backdated adjustments.

Challenging or Disputing Child Support Assessments in NSW

If you disagree with a child support assessment linked to an inheritance, you can challenge the decision. Start with a written objection explaining why the assessment does not reflect true financial capacity, supported by documents such as probate papers, bank statements and investment records. If the objection is not resolved in your favour, you can seek external review by the Administrative Review Tribunal. Further appeal on a question of law may be available through the courts. Strict time limits apply at each stage, so act promptly and obtain legal advice to strengthen your position.

Helpful preparation:

• Set out the financial change clearly and when it occurred.
• Provide evidence of lump sums, new income streams and liabilities.
• Address how the standard formula is unfair in your circumstances.
• Keep records of all communications with Services Australia and Centrelink. 

Need Advice On Inheritance And Child Support in NSW?

If you have received an inheritance, you must report relevant changes to Services Australia and Centrelink promptly. Failure to disclose can lead to reassessment, debt recovery and penalties. For tailored guidance on the impact inheritance may have on child support, evidence, and time limits, contact Empower Wills and Estate Lawyers on 1300 414 844. We provide clear advice, practical strategy and representation to help you reach a fair outcome.

Liability limited by a scheme approved under Professional Standards Legislation.

Disclaimer: the information in this article relates to NSW law as at the date it was written and is general information only. It does not constitute legal advice and should not be relied upon as legal advice. It may contain information or links to sources which are no longer current. If you have a question or legal issue, we recommend you contact a lawyer and obtain legal advice that takes into account your specific facts, circumstances, needs and objectives.