Adkins and Michelmore (Child support)
[2024] AATA 1880
•9 April 2024
Adkins and Michelmore (Child support) [2024] AATA 1880 (9 April 2024)
DIVISION:Social Services & Child Support Division
REVIEW NUMBER: 2023/SC026723
APPLICANT: Ms Adkins
OTHER PARTIES: Child Support Registrar
Mr Michelmore
TRIBUNAL:Member F Staden
DECISION DATE: 9 April 2024
DECISION:
The Tribunal sets aside the decision under review and, in substitution, decides that:
For the period 1 July 2022 to 30 June 2023, Ms Adkins’s adjusted taxable income is varied to $152,521;
For the period 1 July 2023 to 31 October 2024, Ms Adkins’s adjusted taxable income is varied to $68,500;
For the period 1 July 2022 to 30 June 2023, Mr Michelmore’s adjusted taxable income is varied to $82,035; and
For period 1 July 2023 to 31 October 2024, Mr Michelmore’s adjusted taxable income is varied to $108,500.
CATCHWORDS
CHILD SUPPORT – departure determination – income, property and financial resources – ground for departure – special circumstance – 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 omitted 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
Ms Adkins and Mr Michelmore are the separated parents of [named children], twins born in 2015 (the children). There has been a child support assessment for this case from 19 November 2021, with care of the children equally shared between the parents since then. Ms Adkins is the parent currently liable to pay child support. Mr Michelmore opted for collection of child support by Services Australia – Child Support (Child Support) from 10 January 2022, with collection of arrears for the period 13 December 2021 to 9 January 2022.
Where care of the children is shared, each parent is assessed as having a child support liability to the other, with the lower rate being subtracted from the higher and the parent with the amount remaining is the parent with a child support liability.
There has been no previous change of assessment decision in this case.
On 29 September 2022, Ms Adkins applied for a change of assessment on the basis that there were extra costs in caring for, educating or training the children in the way both parents intended (Reason 3); the assessment did not correctly reflect Mr Michelmore’s income property and financial resources (Reason 8A); and the assessment did not correctly reflect Mr Michelmore’s earning capacity (Reason 8B).
The assessments in place at the date of Ms Adkins’s application were:
· For the period 31 August 2022 to 30 September 2022, Ms Adkins’s annual child support liability is $14,998 based on Ms Adkins’s 2020−21 adjusted taxable income of $164,430 and Mr Michelmore’s 2020−21 adjusted taxable income of $22,393; and
· For the period 1 October 2022 to 31 December 2023, Ms Adkins’s annual child support liability is $12,990 based on Ms Adkins’s provisional 2021−22 adjusted taxable income of $169,198 and Mr Michelmore’s 2021−22 adjusted taxable income of $46,971.
On 27 April 2023, a Child Support primary decision-maker found Reason 3 and Reason 8A established and Reason 8B not established and made the following decision:
· For the period 1 October 2022 to 31 January 2023, Mr Michelmore’s adjusted taxable income is set at $57,745; and
· For the period 1 February 2023 to 31 August 2024 the annual rate of child support is zero.
Ms Adkins lodged an objection to the 27 April 2023 decision on 11 May 2023. Mr Michelmore responded to that objection on 27 June 2023.
On 28 August 2023, an objections officer found Reason 3 and Reason 8A established and Reason 8B not established. The officer partly allowed Ms Adkins’s objection and made the following decision:
· For the period from 29 September 2022 to 30 September 2022, Ms Adkins’s adjusted taxable income is set at $174,678;
· From 29 September 2022 to 15 January 2023, Mr Michelmore’s adjusted taxable income is set at $50,277; and
· For the period 16 January 2023 to 30 November 2024, Mr Michelmore’s adjusted taxable income is set at $118,581.
On 6 September 2023, Ms Adkins applied to the Social Services and Child Support Division of the Administrative Appeals Tribunal (the Tribunal) for review of the objections officer’s decision.
On 24 January 2024, a telephone directions hearing was conducted with Ms Adkins and Mr Michelmore. Directions were issued on 24 January 2024.
A hearing was held on 6 March 2024. Ms Adkins and Mr Michelmore gave sworn evidence by MS Teams audio. The Tribunal had before it papers from Child Support which were sent in two parts (pages 1 to 504 and pages 505 to 617). Ms Adkins had received both sets of papers. Mr Michelmore said that: he had received the first set; the second set was waiting for collection at the post office; and he was happy to proceed without the second set of papers. All parties received copies of Ms Adkins’s response to the directions (pages A1 to A155) and Mr Michelmore’s response to the directions (pages B1 to B134).
Mr Michelmore did not provide requested information about his company [Business 1] in response to directions. The Tribunal issued post-hearing directions on 7 March 2024. Mr Michelmore provided material in response (pages B135 to B141) and the Tribunal gave Ms Adkins an opportunity to comment on this in writing (pages A156 to A160). A copy of Ms Adkins’s response was provided to Mr Michelmore with this decision.
Relevant aspects of the evidence are referred to in the consideration below.
ISSUES
The rate of child support payable by a liable parent is usually based on an administrative assessment under the Child Support (Assessment) Act 1989 (the Assessment Act). The formula used to calculate the rate takes into account factors such as the number of children, the levels of care provided and the income of each parent.
Under section 98B of the Assessment Act, a liable parent or carer receiving child support can apply to the Child Support Registrar for a determination to depart from the administrative assessment. This is known as a change of assessment.
Under section 98C of the Assessment Act, the Child Support Registrar, here the Tribunal, may change the assessment if the case meets the following three criteria:
· There is a ground to depart from the assessment (subsection 117(2) of the Assessment Act lists those grounds). Only one ground has to be established for the Tribunal to proceed to consider the next criterion (Marsh & Eccles [2008] FMCAfam 1417);
· It is “just and equitable” to make particular changes to the assessment; and
· It is “otherwise proper” to make those changes to the assessment.
CONSIDERATION
Before commencing this consideration, three general points must be made:
· These proceedings are not an opportunity to relitigate the March 2022 property settlement between the parents; both received legal advice before signing the agreement. Final property settlement distributions were made in late May 2022. The Tribunal is therefore confining its consideration to the start of the following financial year, 1 July 2022.
· At various points in the change of assessment process, the parents have raised issues which go to the credibility, behaviour and life choices of the other. Many of these issues are not directly relevant here and so are not considered.
· The Tribunal is not required to undertake a “forensic audit” or major investigation of the financial circumstances of a parent. Rather, the Tribunal must be satisfied on the balance of probabilities as to the party's income, property and financial resources (see for example, Morse & Potts (SSAT Appeal) [2010] FMCAfam 1305 and Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623).
Issue 1: Is there a ground to depart from the administrative assessment?
Subparagraph 117(2)(c)(ia) of the Assessment Act provides a ground for departure exists where, in the special circumstances of the case, the use of the administrative assessment would result in an unjust and inequitable determination of a parent’s child support liability because the income, property and financial resources of either parent are not properly taken into account. Ms Adkins’s application related to the income, property and financial resources of Mr Michelmore.
The term “special circumstances” is not defined in the Assessment Act. In Gyselman and Gyselman [1991] FamCA 93, the Full Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.
Mr Michelmore’s income, property and financial resources
Mr Michelmore provided an undated updated Statement of Financial Circumstances (SoFC) on 13 February 2024. It listed:
· His total assets of $1,514,352 as a $956,143 house deposit; $500,090 in shares; $28,119 in cash; a car valued at $15,000; and household contents of $15,000;
· His total liabilities of $257,582 as a $247,448 margin loan related to a share portfolio and a credit card debt of $134;
· His $2,581 weekly income as $2,019 from employment and $497 in dividends; and
· His estimated weekly household expenses as $2,457, including rent of $815, and his additional weekly expenditure as $1,489 made up of: tax of $514; superannuation of $222; loan repayment of $475; health insurance of $75 and child support of $202 (he was at this time the payer but reverted to payee post Tribunal review).
In this scenario, Mr Michelmore’s weekly outgoings of $3,946 exceed his weekly income of $2,581 by $1,365 a week, $70,980 a year. Removing child support from the calculation results in an excess of expenditure over income of $1,163 a week, $60,479 a year. The Tribunal was not persuaded of the accuracy of Mr Michelmore’s expenditure but appreciates that this can result from the difficulty of estimating/calculating expenses.
Financial resources
A major change to Mr Michelmore’s financial situation since the objection officer’s decision is his receipt of a sizeable inheritance in 2023−24. Mr Michelmore is the executor of his father’s estate, the principal asset of which was a house which sold for $1,275,000 in November 2023. Mr Michelmore reported that he had made an initial distribution of $250,000 each to himself and his sister and he expects to make another such distribution of $350,000 each when the estate is finalised. Mr Michelmore said that he used the $250,000 together with his home deposit savings to assist with the purchase of a house for $1,710,000 and payment of the around $80,000 in stamp duty. Mr Michelmore now has a mortgage of $620,000. He plans to reduce his mortgage with the remainder of his inheritance which the Tribunal regards as a significant financial resource.
The Tribunal noted that Mr Michelmore previously received a smaller inheritance from his mother of around $6,000 but was not persuaded that this should be considered here.
Income
In January 2023, Mr Michelmore commenced work as [an occupation 1] with [Employer 1], earning $105,000 a year. Prior to that, he worked as a freelance [occupation 1] through his own company [Business 1]. It is accepted that [Business 1] lost its main client in 2019−20 which, together with the subsequent impact of the pandemic, resulted in the company experiencing a significant falling off of income.
The 2022−23 [Business 1] profit and loss statement shows income of $9,150. Mr Michelmore said that this was likely his earnings from working in a shop selling [products 1]; he would invoice the shop for his pay of $35 an hour through [Business 1]. Due to a BAS round off correction, [Business 1] had net earnings of $10,986 in 2022−23, despite the offset of $3,972 in expenses, including motor vehicle related, subscription and telephone and internet expenses totalling $2,800, some of which could be argued to have a personal benefit component.
The Tribunal experienced difficulty in reconciling the 2022−23 [Business 1] profit and loss statement with the [Business 1] 2022−23 income tax return which showed total income of $2,423, $6,727 less than the profit and loss statement. The expenses were the same in both documents. The Tribunal noted that the total [Business 1] income figures for 2020−21 and 2021−22 were the same in the profit and loss statement and income tax return for each year.
Mr Michelmore’s personal 2022−23 income tax return showed total income of $101,838: $48,522 from [Employer 1]; share dividends of $31,884; and interest of $21,432. This income was reduced by $16,209 in interest paid on the share-related margin loan; work-related expenses of $1,394; donations of $1,200; and tax management costs of $1,000. The resulting adjusted taxable income was $82,035. There was no reference to income from [Business 1].
In addition to the income described above, Mr Michelmore receives family tax benefit for the children, which is not taxable, plus another Centrelink payment, Mr Michelmore thought it was parenting payment single, which is taxable. In 2022−23, he was receiving the latter payment at a fortnightly rate of $58.66, or $1,525 a year.
Mr Michelmore argued that the interest paid on his saved home deposit should be excluded as income for the purposes of child support. Under the property settlement, Mr Michelmore received more cash than Ms Adkins as she retained the former family home. Mr Michelmore identified funds of $956,143 as a house deposit in his updated SoFC. It took him some time to arrange a mortgage given his employment situation and so he accrued interest of $21,432 which allowed him to keep up with rising house prices. Mr Michelmore has recently fully expended these funds to buy a home.
Conclusion
In 2022−23, prior to any changes being made to the assessment, Mr Michelmore was to be assessed on the basis of an adjusted taxable income of:
· $34,985 for the period 1 July 2022 to 30 August 2022;
· $22,393 for the period 31 August 2022 to 30 September 2022; and
· $46,971 for the period 1 October 2022 to 31 December 2023.
The Tribunal found that the above adjusted taxable income amounts do not adequately reflect Mr Michelmore’s income in 2022−23 and that the difference between these amounts and Mr Michelmore’s actual 2022−23 adjusted taxable income of $82,035 constituted a special circumstance in this case.
While the Tribunal understood Mr Michelmore’s argument in relation to the exclusion of his accrued interest from his 2022−23 adjusted taxable income, it found that its inclusion was balanced out by other income that was not included, for example, from [Business 1], and outgoings that were allowed to stand, for example, expenses with an element of personal benefit.
Given the special circumstance, an application of the administrative assessment would result in an unjust and inequitable determination of financial support for the children, in that Mr Michelmore would be assessed to pay less child support than warranted based on his income. The Tribunal therefore found that a ground for departure, Reason 8A, was established. The issue of whether it is just and equitable to change the assessment in the particular circumstances of this case is considered below.
Issue 2: Is it just and equitable to depart from the administrative assessment?
To decide whether it is just and equitable to depart from the administrative assessment, the Tribunal must consider the matters required by subsection 117(4) of the Assessment Act, plus any other matters raised in the change of assessment application.
Duty of a parent to maintain a child/commitments necessary for self-support or the support of anyone else the parent has a duty to maintain
Section 3 of the Assessment Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain.
Ms Adkins and Mr Michelmore each have the primary duty to financially support the children. Neither parent identified anyone else whom they have a legal duty to maintain.
Ms Adkins provided various evidence related to her health: As a result of rapidly deteriorating vision caused by an eye condition, her high index lens glasses must be updated regularly, following specialist review. She additionally experiences [specified medical conditions]. Ms Adkins is unable to obtain income protection and total and permanent disability insurance as she is felt to be too high a risk. She estimated her annual out-of-pocket medical costs to be $12,266. The Tribunal found that although these costs are not insignificant, they are not currently of an amount that would warrant a change to the assessment.
Mr Michelmore did not identify any personal health-related costs or any other unusual self-support expenses for the Tribunal to consider.
The proper needs of the child
In determining the proper needs of a child, it is necessary to consider any special needs of the child and the manner in which the parents expected the child to be cared for, educated or trained.
The parents are agreed that the children have no special needs-related costs. They are further agreed that they equally share the educational and extracurricular costs of the children. Ms Adkins made it clear that she was no longer seeking a change to the assessment on the basis of Reason 3.
Income, earning capacity, property and financial resources of the children
It is accepted that that the children have no access to income, property or financial resources which could be used for their self-support.
Mr Michelmore’s earning capacity
Since January 2023, Mr Michelmore has been working full time as [an occupation 1]. Ms Adkins accepted that Mr Michelmore has fully exercised his earning capacity from January 2023 and clarified that she no longer wanted to raise the issue of Mr Michelmore’s earning capacity, Reason 8B, in the period prior to that.
Income, property and financial resources and earning capacity of Ms Adkins
At the time of her change of assessment application, Ms Adkins was a full-time director with [Employer 2]. Her 2022−23 adjusted taxable income was $152,521. Ms Adkins provided a 2 October 2023 letter from [Employer 2] which informed her that she had been made redundant for operational reasons from 6 November 2023. Ms Adkins stated that since her redundancy she has actively sought employment, done some training and is reconnecting with her networks. Mr Michelmore said that he accepted that Ms Adkins had been made redundant and was looking for work but expressed the view that was a lack of urgency in her seeking a new position. The Tribunal found no evidence that Ms Adkins was not working despite ample opportunity to do so and thus found no issue with her earning capacity.
On 6 November 2023, Child Support accepted Ms Adkins’s income estimate of $0 from that date, with a year-to-date income of $67,562. Mr Michelmore objected to that decision and on 2 January 2024 an objections officer disallowed his objection. Following Mr Michelmore’s request for further review, on 11 April 2024 this Tribunal, differently constituted, refused Ms Adkins’s estimate. The refusal was based on a confusion whereby Ms Adkins’s income for the period 1 July 2023 to 5 November 2023 was $30,963 and she received a final payment of $36,599 on 15 November 2023, a total of $67,562.
Ms Adkins’s 13 February 2024 SoFC showed:
Income of $60 a week in share dividends plus child support. She intends to make a lump sum claim for family tax benefit at the end of the financial year.
Assets of the family home which she valued at $2,600,000, $141,800 in cash, $95,000 in shares, two cars, one valued at $25,000 and one at $6,000, and $10,000 in household contents. Mr Michelmore queried the value of the $6,000 car, stating that it was worth considerably more. The Tribunal noted that Mr Michelmore had signed off on a value of $6,600 for this car in the property settlement.
Liabilities of a $500,000 mortgage and a credit card debt of $3,000. The mortgage was listed as $611,774 in Ms Adkins’s earlier 17 October 2023 SoFC. She explained that her parents had paid $100,000 off the mortgage in order to assist her financially.
Estimated weekly household expenses of $2,309 plus credit card repayment of $30 a week and health insurance of $69 a week.
The Tribunal accepted Ms Adkins’s evidence that she is meeting her expenses by using up her money in the bank, money she received as part of the property settlement. Mr Michelmore argued that Ms Adkins should realise her assets, including perhaps her equity in the family home. The Tribunal noted that Ms Adkins is already drawing on her cash assets.
Mr Michelmore also raised the issue of monies Ms Adkins has received from her parents. Ms Adkins stated that the bulk of that money was received during the course of her relationship with Mr Michelmore and was taken into account in the property settlement. The Tribunal was not persuaded that, in the context of Mr Michelmore’s inheritance, the more recent financial assistance provided by Ms Adkins’s parents merited an adjustment to the assessment.
The Tribunal was satisfied on the evidence that the above information adequately reflects Ms Adkins’s financial situation for the purposes of considering her change of assessment application.
Direct and indirect costs of providing care for the child incurred by the parent entitled to child support
Neither parent identified any particular costs associated with caring for the children that were outside the usual such costs. They equally share such costs as private health insurance, with the children currently covered by insurance in Mr Michelmore’s name since September 2022 and Ms Adkins making a payment of $74 to him a month. Prior to that the children were covered by Ms Adkins’s health insurance which she paid for.
Other matters
Mr Michelmore raised the issue of his post-separation costs, specifically the about $15,000 it cost him to furnish a unit following his departure from the former family home and then a move to another unit. Ms Adkins argued that Mr Michelmore received an advance payment of $100,000 from the property settlement under November 2021 consent orders to assist him with such costs. Mr Michelmore said that he was forced to spend some of that money on legal fees and livings expenses, including rent. The Tribunal was satisfied that Mr Michelmore’s post-separation costs were dealt with in the context of the property settlement and so will not consider them further here.
What determination should be made taking into account the above factors?
The proposed departure determination is that:
- For the period 1 July 2022 to 30 June 2023, Ms Adkins’s adjusted taxable income is varied to $152,521;
- For the period 1 July 2023 to 31 October 2024, Ms Adkins’s adjusted taxable income is varied to $68,500;
- For the period 1 July 2022 to 30 June 2023, Mr Michelmore’s adjusted taxable income is varied to $82,035; and
- For period 1 July 2023 to 31 October 2024, Mr Michelmore’s adjusted taxable income is varied to $108,500.
The start date of 1 July 2022 is the start of the financial year following the property settlement. The Tribunal noted that Ms Adkins was by then agitating for a change to the child support assessment and that Mr Michelmore would have been aware of this.
The end date of 31 October 2024 is intended to allow both parents time to lodge their 2023−24 income tax returns. The adjusted taxable incomes derived from these can then be used in the assessment.
The income figures for use in 2022−23 are the actual adjusted taxable income figures of the parents for those years.
The annual income figure for Ms Adkins in the period 1 July 2023 to 31 October 2024 is $68,500. This is her likely 2023−24 income from employment of $67,521 plus her stated dividends of $3,120 ($60 a week) less an allowance of $2,414 for management of her tax affairs and limited work expenses. Any change to her adjusted taxable income during this time can be taken into account by the assessment in the period from 1 November 2024.
The income figure for Mr Michelmore in the period 1 July 2023 to 31 October 2024 is $108,500. This is his income from employment of $105,000 plus his stated dividends of $25,844 ($497 a week) less the margin loan interest of $19,812 ($381 a week derived from 29 December 2023 statement) and an allowance of $2,532 for management of his tax affairs and work expenses. Any change to his adjusted taxable income during this time can be taken into account by the assessment in the period from 1 November 2024.
Any hardship resulting from the departure determination
The Tribunal was satisfied that each parent has the financial capacity to meet the annual child support liability determined, $7,092 for Ms Adkins from 1 July 2022 to 30 June 2023 and $4,474 for Mr Michelmore from 1 July 2023 to 31 October 2024. Here the Tribunal observed the significant assets available to each parent as noted above.
Issue 3: Is it otherwise proper to depart from the administrative assessment?
The Tribunal considered the impact of its proposed determination on the balance of financial support provided by the parents on one hand and the taxpayer on the other. It is necessary to decide whether this is a proper outcome given that parents have the primary responsibility to support their children.
The proposed determination may affect the entitlement of the parents to family tax benefit for the children in relation to some or all of the period from 1 July 2022 to 31 October 2024. Whatever the impact, the Tribunal was satisfied that the proposed determination fairly shares the cost of the children’s care between the parents, taking into account the relevant circumstances of each. The Tribunal therefore found that the proposed determination is otherwise proper.
DECISION
The Tribunal sets aside the decision under review and, in substitution, decides that:
For the period 1 July 2022 to 30 June 2023, Ms Adkins’s adjusted taxable income is varied to $152,521;
For the period 1 July 2023 to 31 October 2024, Ms Adkins’s adjusted taxable income is varied to $68,500;
For the period 1 July 2022 to 30 June 2023, Mr Michelmore’s adjusted taxable income is varied to $82,035; and
For period 1 July 2023 to 31 October 2024, Mr Michelmore’s adjusted taxable income is varied to $108,500.
0
3
0