Albright and Albright (Child support)

[2019] AATA 4856

Albright and Albright (Child support) [2019] AATA 4856 (21 August 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/BC015853

APPLICANT:  Mr Albright

OTHER PARTIES:  Child Support Registrar

Ms Albright

TRIBUNAL:Member K Buxton

DECISION DATE:  21 August 2019

DECISION:

The decision under review is varied so that the administrative assessment of child support in place is departed from as follows:

• For the period 31 July 2018 to 31 October 2020 Mr Albright’s adjusted taxable income is varied to $120,000 per annum;

• For the period 3 September 2018 to 24 July 2019 Ms Albright’s adjusted taxable income is varied to $52,000 per annum and, thereafter, is to be dealt with by application of the administrative formula; and

• The reduction in the annual rate of child support payable by Mr Albright, of $3,000 per annum, ceases to apply to the child support case from 1 March 2018.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – business income of liable parent – ground for departure established – 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. Ms Albright and Mr Albright are the parents of [Child 1], who is now 16 years of age, and [Child 2], who is now 15 years of age. Mr Albright has sought review of a decision of the Child Support Agency (CSA) about the amount of child support which had been assessed as payable by him to Ms Albright in respect of the children who are recorded as in the 100% care of Ms Albright.

2. The administrative assessment of child support has been varied by a previous departure decision, made by an objections officer of the CSA on 12 July 2017, so that, from 1 July 2017 to 31 December 2018 Mr Albright’s adjusted taxable income was set at $200,129 per annum and the annual rate of child support payable by him was reduced by $3,000 per annum (for private school fees he was paying). This led to an annual rate of child support payable by Mr Albright of $38,230 per annum for the period 1 August 2018 to 31 December 2018 (calculated using income of $200,129 for Mr Albright and 2018 adjusted taxable income of $0 for Ms Albright). From when previous departure decision no longer applied to the child support case, for the period 1 January 2019 to 31 October 2019, the administrative formula produced an annual rate of child support payable by Mr Albright to Ms Albright of $30,918 (calculated using 2017/18 deemed income of $138,634 for Mr Albright and 2018 adjusted taxable income of $0 for Ms Albright).

3. On 31 July 2018 Mr Albright applied for a change of assessment, under Part 6A of the Child Support (Assessment) Act 1989 (the Act), on the basis that his business income and Ms Albright’s income from employment were not fairly reflected in the assessment. On 6 November 2018 a delegate of the Child Support Registrar determined that a departure ground existed and decided that, from 1 January 2018 the previous departure decision would no longer apply and, for the period 1 January 2018 to 31 December 2020, Mr Albright’s adjusted taxable income was to be set at $200,000. Further, for the period 3 October 2018 to 31 December 2020 Ms Albright’s adjusted taxable income was to be set at $52,000 per annum.  

4. Mr Albright objected to that decision and, on 10 January 2019, an objections officer partly allowed the objection, deciding to set aside the delegate’s decision and deciding that the reduction in the annual rate of child support of $3,000 set in the earlier departure determination would end on 31 March 2018 and the income set for Mr Albright in that decision would end on 30 July 2018. The objections officer further determined that, for the period 31 July 2018 until a terminating event occurred for the younger child, [Child 2], Mr Albright’s adjusted taxable income would be set at $120,000 per annum and, for the period 3 October 2018 to 31 December 2020 Ms Albright’s adjusted taxable income would be set at $52,000 per annum. The effect of the objection decision was to produce an annual rate of child support payable by Mr Albright to Ms Albright to assist with the costs of the two children of about $25,000 per annum. Mr Albright applied to the tribunal to have the objections officer’s decision reviewed.

5. The tribunal hearing took place on 20 August 2019. Mr Albright and Ms Albright appeared by conference telephone and gave sworn evidence. Mr [A], child support advocate, appeared by telephone and made submissions on behalf of Mr Albright. In reaching its decision, the tribunal has considered the sworn evidence given by Mr Albright and Ms Albright, the documentation provided by the CSA (Exhibit 1), Mr Albright (Exhibit A) and Ms Albright (Exhibit B) and the submissions by and on behalf of each parent.

6. During the hearing both parents accepted that Mr Albright ceased contributing to the children’s school fees in about March 2018 and that the school still bills each parent for those fees, but that neither parent is paying them. Both parents were therefore focussed on the incomes and financial resources of the parents as the only issue requiring consideration by the tribunal.

CONSIDERATION

The 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 Act. A formula is used which takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent. A parent may apply for a departure from the assessment, under Part 6A of the Act, in certain circumstances. However, the legislative intent is that the tribunal will not interfere with the administrative formula result in the ordinary run of cases. Under subsection 98C(1), a change of assessment can be made only if:

   a.    a ground (or more than one ground) for departure exists; and

   b.    departure from the administrative assessment would be:

   i.just and equitable as regards the children and each parent; and

   ii.otherwise proper.

2. If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the tribunal may make one of the range of determinations, prescribed in section 98S of the Act, which include varying the rate of child support payable, the adjusted taxable income or the cost percentage for a child.

Ground for departure

Income, property, financial resources and earning capacity

1. The Act provides, as grounds for departure from the administrative assessment of child support (in subparagraph 117(2)(c)(ia)):

   (c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child: …

   (ia) because of the income, property and financial resources of either parent.

10.  The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. In Gyselman v Gyselman (1992) FLC 92-279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The tribunal will consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence relevant to the parents’ financial positions.

Ms Albright’s income and financial resources

11.  Ms Albright was employed on a full-time basis [from] 3 September 2018 until her redundancy on 24 July 2019. She is now seeking alternative employment. Her income from employment was about $52,000 per annum. Her 2018/19 adjusted taxable income of $45,405 reflected her income from employment for part of that financial year. Ms Albright stated that her income is uncertain and depends on whether she can secure alternative employment. Ms Albright lived in rented accommodation with the children until they relocated to live with her partner in late July 2019. Ms Albright stated that her partner meets many of the household expenses while she is unable to do so, due to her current unemployment.

Mr Albright’s income and financial resources

12.  When Mr Albright applied for a departure, on 31 July 2018, child support was calculated using an income of about $200,000 per annum, set in a previous departure decision. Mr Albright stated in his application that his doctors had recommended that he cease working in his [business] due to mental health issues. He stated that he had employed additional staff in the business and, as a result, he anticipated his income was to be $42,750 per annum from 1 July 2018. Mr Albright stated during the hearing that, whilst the business continues to earn income from the operation of the [Business activity 1], the income from sales commission has significantly decreased and expenses have increased.

13.  During the hearing Mr [A] submitted, on behalf of Mr Albright, that Mr Albright continued to derive income and financial benefits from the business, including having some of his personal expenses met from the cash flow of the business, totalling about $40,000 per annum. Mr Albright reported 2018/19 taxable income of just under $23,000. However, given that Mr Albright stated in a Statement of Financial Circumstances submitted to the tribunal that he meets household expenses of around $700 per week, he would have to earn taxable income of about the level nominated in his departure application, of about $42,750 per week, in order to meet that level of expenditure. Mr [A] submitted that it was the correct or preferable decision to set adjusted taxable income for Mr Albright at around this level, or about $40,000 per annum, from the date of his departure application and for a reasonable period into the foreseeable future.

14.  Ms Albright submitted that the financial disclosure provided by Mr Albright was incomplete and unreliable and that the earlier departure decision was arrived at in order to provide certainty for the parents, and was the correct decision when made. Ms Albright accepted that, in the decision under review, the objections officer had reduced the income, although she did not necessarily agree with that reduction, and she submitted that it was a matter for the tribunal to decide if the underlying assessment was unfair, having regard to the needs of the children who are recorded as in her 100% care.

15.  Mr Albright has produced letters from [psychologist], and Dr [B], general practitioner, in which he is described as suffering symptoms of depression and anxiety. When Dr [B] was first consulted in April 2018 he reported as severely stressed and Dr [B] advised him to reduce his work-related activities in order to improve his health. [Psychologist] described Mr Albright as presenting with severe anxiety and depression in a letter dated May 2018 and she was then seeing him weekly. She described similar symptoms in a letter dated June 2019. Dr [B] reported an exacerbation of Mr Albright’s condition in letters dated November 2018 and again in March 2019 where he stated that Mr Albright may not be able to continue working until he has made adequate recovery.

16.  Mr Albright stated that he has had very little to do with the business since consulting doctors around mid-2018, although he accepts that if the business continues to earn income he is entitled to that income, after the expenses of the business are taken into account. The largest of those expenses in the 2018/19 year was the salary paid to Mr Albright’s 29 year-old daughter, [Ms C], who is employed by the [business] operated by Mr Albright under the business name “[Business 1]”. Mr Albright reported to the CSA that it was never intended that [Ms C] undertake the day-to-day management of the business but that she has had to take on these increased responsibilities due to the recommendations of his doctor that he no longer work. Mr Albright told the tribunal that [Ms C] was “key” to the continued operation of the business and that, without [Ms C], there would be no business. Mr Albright also stated that [Ms C] had threatened to leave the business or to take Mr Albright’s business if he did not pay her what she was “worth”.

17.  [Ms C] has been employed by the business for some years as the [Occupation 1] and was, paid an annual salary of about $70,000 plus superannuation in the 2017/18 year. Her annual salary increased to $150,000 plus superannuation and she was paid annual allowance of $13,000 in the 2018/19 year. The tribunal notes, therefore, that [Ms C]’s remuneration package has more than doubled, having increased by around $100,000 from the beginning of the 2018/19 financial year, at around the time that the departure application was lodged and Mr Albright opined that he was likely to earn around $42,500 per annum for the 2018/19 year. The business also employed another staff member for about six months of the 2018/19 year, who was paid wages totalling just under $20,000. Mr Albright gave sworn evidence that, given his reliance on [Ms C] for the ongoing viability of the business, he regarded the substantial increase in her salary in the 2018/19 year as “value for money”.

18.  The business has historically generated significant income for Mr Albright. Mr Albright had filed a tax return for the 2016/17 year showing income of $135,517. Given the concession made by Mr [A] as to Mr Albright deriving some personal benefits from the business, his true income and financial resources from that business may have been higher, and the earlier departure decision set Mr Albright’s adjusted taxable income at $165,129 from September 2017 to June 2018 in order to reflect those financial resources.

19.  Mr Albright produced to the tribunal financial statements of the business showing that he had profit available to him as income for the 2017/18 year of $239,411. He stated that he had not filed an income tax return for the 2017/18 year as it was not ready. The earlier departure decision set Mr Albright’s adjusted taxable income at $200,129 for the period 1 July 2017 to 31 December 2018. His evidence demonstrates that his income was in fact substantially more during the 2017/18 year, and the effect of the earlier departure and the non-lodgement of his 2017/18 income tax return is that Mr Albright has not been assessed to pay child support on all of the income and financial resources available to him in the 2017/18 year. Had he lodged an income tax return for the 2017/18 year at around the same time as he lodged the departure application, the amount of $239,411 (or thereabouts) would have been used as Mr Albright’s adjusted taxable income for the calculation of child support from 1 January 2019 from when the previous departure decision ceased to apply.

20.  The tribunal notes that Mr Albright listed as a business expense the sum of $12,000 per annum paid to his tax accountants, including for the 2017/18 year when they did not assist him to complete a tax return, but that he was able to lodge an income tax return for the 2018/19 year in which he reported low taxable income of about $22,000. Mr Albright did not provide a compelling explanation for non-lodgement of the 2017/18 income tax return and the tribunal concludes from the available evidence that Mr Albright was desirous of ensuring that this income was not taken into account in the child support assessment and that this was a factor in not lodging his 2017/18 income tax return in a timely manner. Further, the amount paid by the business to accountants, of $12,000 each year, seems excessive where the simplicity of the business is concerned, and when compared to the industry average for service businesses with comparable turnover. Mr Albright stated that he paid his accountants for “advice” in relation to his complex tax affairs and that this may explain the comparatively high level of accountancy expenditure for a business of this nature and size. He did not elaborate on the nature of this complexity in a way which provided compelling evidence that his accountancy costs of $12,000 per annum were entirely necessary as a business expense.

21.  From the available evidence the tribunal concludes that Mr Albright is the decision maker and a controlling mind of the business. He chooses how to incur costs for the business, including by the engagement of accounting services, and through staff remuneration decisions. Although he states that he is no longer working in the business, the office has been relocated from commercial premises to a converted garage at his home, and the manager of the business is his daughter. The tribunal does not accept that Mr Albright has ceased making a contribution to the control and management of the business, and he retains ownership of that business and therefore decision-making control over key issues such as the business, premises, and employees and their remuneration. Although Mr Albright claims that he is medically unfit to work, the letters from his doctor recommend that he reduce his work hours, not cease work altogether. The tribunal accepts that there may be times of higher stress or anxiety when it is unadvisable or simply not possible for Mr Albright to work. His daughter, [Ms C], and other employees are able to operate the business during this time and the evidence points to that current method of operation of the business. Mr Albright alone is entitled to any profits from the operation of the business. The principle source of income is the [Business activity 1] which was managed by [Ms C] in the 2017/18 year and which continues to be managed by [Ms C] in the 2018/19 year. The evidence shows that in the 2018/19 year the business generated very little income from sales, and Mr Albright stated that is due to the fact that he no longer participates in this aspect of the business. However, the business would still have generated significant profits largely from the operation of the [Business activity 1], and even allowing for the reduction in sales commission income, if not for the dramatic increase in wages paid by Mr Albright to his daughter, [Ms C].

22.  Mr Albright stated that, as [Ms C]’s role changed from [Occupation 1] to general manager her increased remuneration package was consistent with the market. In support of this submission he produced statements from two recruitment consultants obtained in July 2019 who quoted a market salary of between $125,000 and $175,000 per annum for the role of general manager of [Business 1]. One recruiter stated that an appropriate candidate would require “significant [experience] as well as previous business leadership or ownership”. The other recruiter likened the role to that of a “CEO or Principal”, in order to meet the requirements of the role and command the recommended salary range. [Ms C]’s previous employment history as [Occupation 1] for her Dad’s business, without significant (or any) sales experience, would not seem to dovetail with those requirements. Nonetheless Mr Albright has chosen to pay [Ms C] (with allowances) at the upper end of the recommended pay scale in the 2018/19 year.

23.  [Ms C]’s increased responsibilities included her role as joint signatory to the trust account, and undertaking the [Occupation 1] role without the assistance of Mr Albright. However, for a least half the year [Ms C] was assisted by another employee. Her increased responsibilities may have justified a modest increase in her salary, perhaps around 10%, or perhaps in line with the car allowance she was paid, but beyond a modest increase to reflect some increased responsibilities, the tribunal concludes that a significant portion, in the order of at least $80,000, in salary expenses for [Ms C] in the 2018/19 year was not a necessary cost of the business and has not been paid to an arm’s length employee. That amount of about $80,000 represents an alienation of the income of the company to a close relative of Mr Albright, his daughter, and can therefore be regarded as improper expenses to be added back to Mr Albright’s available income for child support purposes. As Mr [A] submitted that Mr Albright’s available income was about $40,000, and having regard to the additional financial resources of about $80,000 paid away to Mr Albright’s daughter, the tribunal concludes that Mr Albright should be regarded as having income and financial resources available for child support purposes of at least $120,000 in the 2018/19 year.

24.  The tribunal is unable to predict Mr Albright’s future income and financial resources from the business with accuracy but considers it reasonable to conclude that, for the foreseeable future, Mr Albright will continue to have access to income and financial resources from the business at about the same level as that in the 2018/19 year.

Conclusions in relation to the departure ground

25.  The administrative assessment of child support does not take account of the income and financial resources available to Mr Albright through the operation of the business, or of Ms Albright’s income from employment. The administratively assessed rate of child support payable by Mr Albright, in place around the time when he lodged his departure, until 31 December 2018, was Mr Albright’s adjusted taxable income of $38,230 per annum for the period 1 August 2018 to 31 December 2018 (calculated using income of $200,129 for Mr Albright and 2018 adjusted taxable income of $0 and having been reduced by $3,000 per annum (for private school fees). The tribunal has found that Mr Albright also had access to income and financial resources of about $120,000 in the 2018/19 year and Ms Albright had income of about $45,000 for the same period. If child support was calculated using an income of $120,000 per annum for Mr Albright and $45,000 for Ms Albright, the annual rate of child support payable by Mr Albright for the children would decrease to about $26,000 per annum. The administrative assessment of child support does not fairly reflect incomes and financial resources available to both parents. The existence of those factors together set this case apart from others, making it special.

26.  The tribunal is satisfied that the administrative assessment of child support produces a result which is unjust and inequitable having regard to the parents’ respective incomes and financial resources, particularly having regard to the disparity between the annual rate of child support calculated in the administrative assessment and that arrived at with regard to the actual income and financial resources available to Mr Albright from the business. The tribunal therefore finds that there is a ground to depart from the administrative assessment.

Just and equitable

27.  The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

Mr Albright

28.  Mr Albright lives in a home which he stated is owned by him and over which he has granted security for a home loan to meet tax and other liabilities of the business. There is nothing in the evidence to suggest that the self-support amount allowed for in the formula (of approximately $24,000 per annum) is not an appropriate measure of Mr Albright’s proper needs. Mr Albright’s reported income is below the self-support allowance and it is not possible for him to meet his stated regular expenses based on his disclosed 2019 income.

29.  The tribunal has found that Mr Albright has had income and financial resources from his business of at least $120,000 per annum available to him since 31 July 2018 when he lodged his departure application. As he was assessed on income up to that date which did not capture all of the income and financial resources from the business in the preceding financial year, the tribunal is not satisfied that it is just and equitable to depart from the underlying assessment setting Mr Albright’s income at around $200,000 until the date he lodged his departure application.

Ms Albright

30.  Ms Albright lived with the children in rented accommodation until recently when they moved in with her partner, who now assists in meeting the household expenses, particularly as Ms Albright is no longer working. There is nothing in the evidence to suggest that the self-support amount allowed for by the child support formula (of approximately $24,000 per annum) is not an appropriate measure of Ms Albright’s proper needs. Ms Albright has the children in her 100% care and would benefit from whatever financial support Mr Albright is able to provide to assist in meeting their proper needs.

31.  The tribunal has found that Ms Albright earned income of about $52,000 per annum for the period 3 September 2018 to 24 July 2019 and, from 25 July 2019 to the date of the hearing, her income was $0. Ms Albright stated during the hearing that she hoped to secure further work but had not yet done so as at the date of the hearing. As Ms Albright has lodged her 2018/19 income tax return, it is available to be used in the assessment from 1 September 2019. As Ms Albright’s income from 25 July 2019 has reduced by more than 15% of her previous year’s income Mrs Albright is entitled to lodge an estimate of her income and have the CSA deal with the reduction in her income administratively. It is therefore proper for the tribunal to vary the adjusted taxable income used in the assessment for Ms Albright to $52,000 only for the period 3 September 2018 to 24 July 2019 and thereafter let the formula assessment apply and it is a matter for Ms Albright to lodge an estimate of her income if she wishes to, and depending on her circumstances including whether she resumes work.

The children

32.  Ms Albright stated during the hearing that the children are both enrolled in a private catholic secondary school and, until March 2018, Mr Albright was meeting that cost. Since then, the correspondence indicates that the school sought contributions to the school fees from both parents, but neither parent has been meeting those costs.

Conclusions as to what is just and equitable

33.The tribunal proposes to vary the adjusted taxable income for Mr Albright to $120,000 per annum to reflect the income and financial resources available to him from the business from lodgement of the departure application on 31 July 2018 onwards as, at that time, the adjusted taxable income of $200,000 used for Mr Albright in the child support assessment was no longer reflective of his actual income and financial resources and led to an unfair assessment of child support from that date (but not earlier), having regard to the interests of each parent and the children.

34.The tribunal proposes varying Ms Albright’s adjusted taxable income to $52,000 per annum for the period 3 September 2018 to 24 July 2019 and, thereafter, her income can be dealt with through the application of her taxable incomes, and any estimates of her incomes, to the administrative formula. In order to provide stability for both parents the tribunal proposes varying this income through to 31 October 2020. Either party may apply for a departure if there are genuinely changed circumstances prior to that date.

35.  As neither parent is incurring costs for school fees, it is no longer appropriate that the child support payable by Mr Albright be reduced by $3,000 per annum, as determined in the earlier departure decision. The tribunal proposes to vary the assessment so that that reduction ceases to apply to the child support case from 1 March 2018.

36.  The proposed departure will reduce arrears for Mr Albright. The tribunal is not satisfied that any hardship is created as a result of that reduction of arrears having regard to the nature and quantum of financial resources available to Mr Albright. It is proper that he is assessed on his actual income and financial resources. The tribunal is satisfied that the proposed departure will not cause hardship to either parent or to the children.

Otherwise proper

37.  The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. Varying the income for Mr Albright on which child support is calculated from that used in the administrative assessment, based on his income and financial resources which are not reflected in the administrative assessment will result in an appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

Conclusion

38.  Mr Albright sought a departure from the administrative assessment of child support in November 2017 at a time when Mr Albright was assessed to pay child support calculated using an adjusted taxable income for Mr Albright which did not take into account his actual income and financial resources from his business. The tribunal has found a ground to depart from the administrative assessment and has determined that Mr Albright’s adjusted taxable income should be varied to $120,000 per annum from 31 July 2018 to 31 October 2020, that Ms Albright’s adjusted taxable income should be varied to $52,000 per annum for the period 3 September 2018 to 24 July 2019 and, thereafter, be dealt with by application of the administrative formula. The tribunal has also found that the reduction in child support payable by Mr Albright, of $3,000 per annum, should cease to apply to the child support case from 1 March 2018. The tribunal has found that a departure in those terms is just and equitable and otherwise proper.

39.  As the tribunal has reached the same conclusions as in the decision under review, but varied the timing of the application of the decision to the child support case, the decision under review is varied in order to reflect the tribunal’s findings.

DECISION

The decision under review is varied so that the administrative assessment of child support in place is departed from as follows:

• For the period 31 July 2018 to 31 October 2020 Mr Albright’s adjusted taxable income is varied to $120,000 per annum;

• For the period 3 September 2018 to 24 July 2019 Ms Albright’s adjusted taxable income is varied to $52,000 per annum and, thereafter, is to be dealt with by application of the administrative formula; and

• The reduction in the annual rate of child support payable by Mr Albright, of $3,000 per annum, ceases to apply to the child support case from 1 March 2018.