Adams and Mackay (Child support)

[2018] AATA 3987

Adams and Mackay (Child support) [2018] AATA 3987 (27 August 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBERS:  2018/MC013912 & 2018/MC013916

APPLICANTS:  Ms Adams

Mr Mackay

OTHER PARTIES:  Child Support Registrar

Mr Mackay

Ms Adams

TRIBUNAL:Member P Glass

DECISION DATE:  27 August 2018

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that from 1 July 2017 to 30 June 2020, Mr Mackay’s adjusted taxable income is varied to $122,500 per annum.

CATCHWORDS
Child support - Departure determination - Cross applications for review - Income, property, financial resources and earning capacity of both parents - Business income - Decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. Mr Mackay and Ms Adams are the parents of [Child 1] and [Child 2]. Mr Mackay is the parent liable to pay child support.

2. On 25 September 2017, Ms Adams applied to the Department of Human Services – Child Support (the Department) for a change to the administrative assessment of child support on the basis that the children have special needs (Reason 2), there are extra costs in educating or training the children in the way both parents intended (Reason 3) and the assessment does not correctly reflect the parents’ income, property and/or financial resources (Reason 8A) or earning capacities (Reason 8B).

3. On 9 January 2018, a decision maker at the Department found that Reasons 8A and 8B were established. Mr Mackay’s adjusted taxable income was varied to $150,000 from 1 July 2017 to 30 September 2017, $153,150 from 1 October 2017 to 30 November 2018 and $154,988 from 1 December 2018 to 29 February 2020.

4. On 19 January 2018, Mr Mackay objected to the Department’s decision.

5. On 21 March 2018, an objections officer at the Department partly allowed Mr Mackay’s objection. From 1 July 2017 to 28 February 2018, Mr Mackay adjusted taxable income was varied to $157,728 and from 1 March 2018 to 28 February 2019 the annual rate of child support payable was set at $0.

6. On 20 April 2018, both Mr Mackay and Ms Adams applied to the Administrative Appeals Tribunal (the Tribunal) for an independent review of the objections officer’s decision. That application was heard on 27 August 2018. Mr Mackay and Ms Adams appeared before the Tribunal and gave sworn evidence. The Department did not participate in the hearing.

7. The Tribunal received into evidence the following documents:

   · Documents produced by the Department pursuant to subsection 37(1) of the Administrative Appeals Tribunal Act 1975 and marked 1 to 750 (Exhibit 1);

   ·       Documents received from Mr Mackay and subsequently marked A1 to A212 (Exhibit 2); and

   ·       Documents received from Ms Adams and subsequently marked B1 to B241 (Exhibit 3).

8. The issues which arise in this case are:

   ·       Whether a ground for departure from the administrative assessment of child support is established; and if so,

   ·       What rate of child support should be paid by Mr Mackay.

LEGISLATIVE FRAMEWORK

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Act). Pursuant to section 98C of the Act, the administrative assessment may be departed from upon satisfaction of three matters:

   a.one, or more than one, of the grounds for departure set out in subsection 117(2) of the Act exists; and

   b.it would be:

   i.just and equitable as regards the children, the liable parent and the carer entitled to child support; and

   ii.otherwise proper to do so.

GROUND FOR DEPARTURE

1. The first relevant ground for departure applies if, in the special circumstances of the case, the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Mackay for the children because of the parents’ income, property and financial resources (subparagraph 117(2)(c)(ia) of the Act).

2. At the time Ms Adams applied to the Department for a change to the administrative assessment of child support on 25 September 2017, its rate was being assessed on the basis of an estimated income for Mr Mackay of $25,000 per annum and Ms Adams’ adjusted taxable income for the financial year ending 30 June 2016 of $144,628.[1]

   [1] Exhibit 1, page 106.

3. In his Statement of Financial Circumstances declared on 8 May 2018, Mr Mackay declared incurring weekly expenditure totalling $837.40.[2] At the hearing, he gave evidence that there is some variation to his health insurance premium which was included in the Statement at $49.40 per week. He also gave evidence that the electricity and water costs included in the Statement, totalling $38 per week, are paid by his brother’s business. Accordingly, Mr Mackay’s evidence is that he meets expenses totalling approximately $799.40 per week or $41,569 per annum from his own resources.

   [2] Exhibit 2, pages A7 and A8.

4. In order for Mr Mackay to meet expenditure at that rate from taxable income, he would need to earn in excess of $50,000 per annum. It is clear that he has income, property and financial resources which he uses to meet personal expenditure in excess of the income used in the administrative assessment of child support. I accordingly find that the administrative assessment results in an unjust and inequitable determination of the level of financial support to be provided by Mackay. In those special circumstances, a ground for departure is established.

JUST AND EQUITABLE

1. In determining what would be just and equitable as regards [Child 1], [Child 2], Ms Adams and Mr Mackay, the Tribunal has regard to the matters prescribed in subsection 117(4) of the Act. Ms Adams and Mr Mackay have the primary duty to maintain the children.

2. Mr Mackay resigned from his employment at [Company 1] [in] September 2016,[3] where he had been paid a salary of $157,728 per annum.[4] It was Mr Mackay’s evidence that he had worked with that organisation for 19 years but was told that he was no longer wanted. He considered his position at [Company 1] was no longer tenable. Although he gave evidence that [Company 1] had no basis to fire him, he resigned on the advice of his lawyer and received a termination payment. A claim subsequently brought by him in the Fair Work Commission[5] resulted in a second termination payment being made to Mr Mackay. From 1 July 2016 to November 2016, [Company 1] paid Mr Mackay a total of $257,166.89, being $150,053.89 net of tax.[6] His eventual taxable income for the financial year ending 30 June 2017 was $254,606.[7]

   [3] Exhibit 1, page 548.

   [4] Exhibit 2, page A111.

   [5] Exhibit 2, pages A116 to A117

   [6] Exhibit 2, page A111.

   [7] Exhibit 2, page A27.

3. Following Mr Mackay’s resignation from [Company 1], he commenced work as [an occupation] for his brother’s business, [Company 2].[8] He gave evidence of working full time for that business despite not having been paid a wage. Although Mr Mackay has no direct interest in [Company 2], he gave evidence of going into the business to “build it up” with the expectation that he would eventually be offered an interest in the business. He accepts that the business is breaking into the market and that he has never been concerned about its future so as to pursue any alternative employment.

   [8] Exhibit 1, page 622 to 623.

4. Ms Adams submits that I should vary the rate of child support by reference to Mr Mackay’s earning capacity. She gave evidence that he has considerable intellectual property as a [professional] in [a business area]. His taxable income in the financial year ending 30 June 2016 was $179,217,[9] and in the preceding four financial years averaged approximately $162,475.[10] Subsection 117(7B) of the Act prescribes conditions precedent to a finding that Mr Mackay’s earning capacity is greater than his income. One such requirement is that he “has not demonstrated that it was not a major purpose” of a decision to change his working pattern “to affect the administrative assessment of child support in relation to the child”.[11] Mr Mackay gave evidence that the reason he resigned from [Company 1] was because he was advised he was no longer wanted and sought to avoid being “performance managed” out of the organisation. Ms Adams gave evidence that she considered Mr Mackay’s continuing employment at [Company 1] would be a sensitive situation following Mr Mackay’s brother’s departure from [Company 1] to set up a competing business. I am satisfied that he has demonstrated that it was not a major purpose of his decision to resign to affect the assessment of child support. I reject Ms Adams’ submission that Mr Mackay’s earning capacity is greater than his income for the purposes of the Act. I note that her current salary of approximately $119,600[12] is less than her taxable income in the financial year ending 30 June 2016 of $144,628.[13]

   [9] Exhibit 2, page A25.

   [10] Exhibit 3, page B106.

   [11] The Act, paragraph 117(7B)(c).

   [12] Exhibit 3, page B239.

   [13] Exhibit 3, pages B124 and B130.

5. With respect to Mr Mackay’s property and financial resources, it is clear that he has made use of those benefits to meet his expenses. It is an object of the Act to ensure that children share in changes to the standard of living of their parents.[14] Despite not drawing a wage from [Company 2], funds have been transferred to Mr Mackay from the business to meet various expenses. In the financial year ending 30 June 2018, deposits totalling $3,796.35 were made directly onto Mr Mackay’s credit cards.[15] Deposits totalling $11,714.90 were paid into Mr Mackay’s personal savings account.[16]

   [14] The Act, paragraph 4(1)(d).

   [15] Exhibit 2, pages A83 and A98

   [16] Exhibit 2, pages A71 to A72.

6. Mr Mackay gave evidence that the expenditure on his credit card with the number ending [number] related to business expenses incurred for [Company 2] for which he was reimbursed. That expenditure includes fuel, car maintenance and registration, telephone, electricity and utility expenses. They are expenses which Mr Mackay would otherwise have to incur and so I am satisfied they represent a benefit to him that he receives from [Company 2]. I will deduct the travel costs Mr Mackay gave evidence of incurring for business travel which amount to $8,101.39.[17] Accordingly, he has received benefits worth $7,409.86 for the financial year ending 30 June 2018.

   [17] Exhibit 2, pages A84 to A88.

7. Since February 2018, Mr Mackay has also had access to a [Company 2] corporate credit card which has been used to meet his fuel, car registration, telephone and other utility costs. Prior to 1 July 2018, aside from international travel costs, he received further benefits totalling $3,521.41 through the use of the corporate credit card which was paid by [Company 2].

8. Over the course of the financial year ending 30 June 2018, Mr Mackay received funds from the Australian Taxation Office, direct credits from third parties and child support into his personal account totalling $23,185.91.[18] At the hearing, Mr Mackay was unable to explain the $4,500 deposit into that account on 30 August 2017,[19] save to say that it must have been an electronic transfer. I accept that explanation in circumstances where a miscellaneous withdrawal for the identical amount appears in the same account on 21 August 2017.[20] Accordingly, Mr Mackay has also had the benefit of $23,185.91 which he has used to meet his expenses in the financial year ending 30 June 2018.

   [18] Exhibit 2, pages A71 to A73.

   [19] Exhibit 2, page A73.

   [20] Ibid.

9. In addition to those funds received  from external sources, in the financial year ending 30 June 2018, Mr Mackay has depleted the savings in his bank accounts by $23,319.[21] Mr Mackay has not paid tax on any of the identified funds used by him for his expenses totalling $57,436. I note that the total expenditure revealed by Mr Mackay’s bank statements over the financial year ending 30 June 2018, excluding work travel expenses, approximates $57,800.[22] In order for Mr Mackay to meet expenditure at that rate from taxable income, he would need to earn approximately $75,000 in taxable income.

   [21] Exhibit 2, pages A69, A74, A75, A77 to A78, A80 to A81 and A89.

   [22] Exhibit 2, pages A38 to A45, A69 to A74, A78, A84 to A89 and A93 to A110.

10. Mr Mackay is also to receive a payment of $47,500 from [Company 2] for his services in the financial year ending 30 June 2018.[23] I assume that any such payment will be subject to income tax. I accordingly consider that Mr Mackay has had property and financial resources available to him to meet his expenses and standard of living in the financial year ending 30 June 2018 equivalent to a taxable income of $122,500 per annum. I consider it is just and equitable that child support be assessed on the basis of Mr Mackay earning an income of that amount.

    [23] Exhibit 2, page A54.

11. Mr Mackay declares having a business interest worth $24,422.[24] He has loaned the sum of $170,000 to [a person] for the purpose of a property development in exchange for which he is entitled to 12% of the net profit following its completion.[25] Mr Mackay gave evidence of expecting to receive approximately $180,000 at the end of 2019. Mr Mackay has also invested the sum of $750,000 for a joint venture property [development].[26] The developed property is currently on the market and Mr Mackay expects completion to be due around the end of 2019.

    [24] Exhibit 2, page A4.

    [25] Exhibit 2, pages A118 to A123.

    [26] Exhibit 2, pages A124 to A144.

12. Mr Mackay owns the property in which resides unencumbered. He estimates its value to be $1,400,000.[27] Ms Adams estimated the value of Mr Mackay’s property to be between $1,600,000 and $1,800,000. Mr Mackay declares having savings of approximately $9,000.[28] He estimates his car and motorbikes to be worth a total of $14,000 and his household contents to be worth $5,000.[29] Ms Adams estimated the value of Mr Mackay’s furniture, contents and tools to approximate $20,000. She estimated his motorbikes to be worth $3,000 and his trailer to be worth $1,000. Mr Mackay had superannuation interests worth $257,414 in June 2017.[30] He estimates having current credit card balances totalling $910.[31]

    [27] Exhibit 2, page A4.

    [28] Exhibit 2, page A4.

    [29] Exhibit 2, pages A4 to A5.

    [30] Exhibit 2, page A5.

    [31] Exhibit 2, page A6.

13. Ms Adams works full time and earns a salary of $119,588 per annum exclusive of superannuation.[32] Her declared weekly expenses (excluding employer superannuation contributions) of $2,366[33] marginally exceed her salary. She also undertakes occasional part time work as a life saver for which she was paid a total of $911 in the financial year ending 30 June 2018.[34] She owns the house in which she resides, which she estimates to be worth $2,500,000.[35] Mr Mackay estimates its value to be closer to $2,700,000. Her home loan balance exceeds her offset balance by approximately $10,000. She owns a motor vehicle and household contents which she estimates to be worth a total of $53,000.[36] She has Australian superannuation and United Kingdom pension interests worth approximately $238,500.[37] Her credit card balance is approximately $500.[38]

    [32] Exhibit 3, page 239.

    [33] Exhibit 3, page B119 to B120.

    [34] Exhibit 3, page B149.

    [35] Exhibit 3, page B116.

    [36] Exhibit 3, pages B116 to B117.

    [37] Exhibit 3, page B117.

    [38] Exhibit 3, page B118.

14. I am required to consider any hardship to the children, Mr Mackay and Ms Adams. An increase in the rate of child support payable by Mr Mackay might cause him hardship. However, his brother states that he will be entitled to a payment of $47,500 in the current financial year.[39] Mr Mackay also had savings of $30,816.50 on 30 June 2018.[40] To the extent that any hardship is created for Mr Mackay, he has contributed to it by his decision to invest approximately $100,000 from his net termination payments from [Company 1] in a property development. It is also relevant that when Mr Mackay was previously working as an employee for a company whose directors included his brother and father, he received gifts totalling $700,000 from his brother following the company’s sale between 2003 and 2006. Mr Mackay has an expectation that he will be appropriately remunerated in the future for the work he has been doing for his brother full time since late 2016. He gave evidence of “going into [Company 2]” to “build it as a business”, despite having no direct interest in it. On the other hand, the absence of adequate child support being paid for the children may result in hardship both to the children and Ms Adams.

OTHERWISE PROPER

[39] Exhibit 2, page A54.

[40] Exhibit 2, pages A69, A75, A77, A80 and A89.

1. In determining whether a departure from the administrative assessment is otherwise proper, the Tribunal has regard to the matters prescribed in subsection 117(5) of the Act. It is necessary to consider the effect of any such departure on entitlements to income-tested pensions, allowances and benefits. Parents, rather than the community, have the primary duty to maintain [Child 1] and [Child 2].

2. Ms Adams does not receive family tax benefit.[41] Any increase in the rate of child support payable by Mr Mackay will not impact the apportionment of financial responsibility between the parents and the community. Nevertheless, I find that such a result would be otherwise proper.

   [41] Exhibit 2, page B3.

3. It is just and equitable as regards to [Child 1], [Child 2], Ms Adams and Mr Mackay, and otherwise proper to depart from the administrative assessment of child support so as to vary Mr Mackay’s income to $122,500 per annum from 1 July 2017 to 30 June 2020. It is open to either party to seek a further departure from the resultant assessment of child support if circumstances change.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that from 1 July 2017 to 30 June 2020, Mr Mackay’s adjusted taxable income is varied to $122,500 per annum.