Alley and Alley (Child support)

[2018] AATA 5032

Alley and Alley (Child support) [2018] AATA 5032 (28 November 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/SC014182

APPLICANT:  Mrs Alley

OTHER PARTIES:  Child Support Registrar

Mr Alley

TRIBUNAL:Member A Schiwy

DECISION DATE:  28 November 2018

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that:

·       For the period 1 October 2017 to 31 December 2022, Mr Alley’s annual rate of child support is varied to $100,000.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – multiple sources of business income – ability to service a loan – failure to make full and frank disclosure – 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. This application for review is about the amount of child support payable by Mr Alley to Mrs Alley and whether a departure should be made from the child support formula assessment.

2. Mr Alley and Mrs Alley are the parents of five children aged between 8 and 15 years.  A child support case was registered in 2012.

3. The Department of Human Services (Child Support) has recorded that Mrs Alley has 58% care of the children and Mr Alley has 42% care.  Mr Alley is the parent liable to pay child support. 

4. Mr Alley’s taxable income was nil in 2015-16 and 2016-17 and the administrative assessments for child support have been based on this level of income.  As a result, the amount of child support payable by Mr Alley has been assessed at nil for the period 1 October 2017 to 28 February 2018 and from 1 March 2018 to 28 February 2019.  Mrs Alley’s adjusted taxable income has been below the self-support amount.

5. There have been a number of departure determinations made since the child support case was registered and previous applications for review made to this tribunal.  On the 8 April 2016 the Administrative Appeals Tribunal (differently constituted) made the following decisions:

   ·For the period 5 February 2014 to 4 February 2015 Mr Alley’s annual rate of child support be reduced by $869; and

   ·For the period 1 January 2015 to 30 September 2017 Mr Alley’s adjusted taxable income is varied to $120,000.

6. On 13 October 2017, Mrs Alley applied to Child Support for an increase to the assessed rate of child support on the ground that in the special circumstances of this case, the administrative assessment results in an unjust and inequitable level of child support because of Mr Alley’s income, property and financial resources and his earning capacity.  .

7. On 20 December 2017, a Child Support case officer, delegate of the Child Support Registrar, considered the departure application and decided that there was a ground to depart from the administrative assessment.  The officer decided that for the period 1 October 2017 to 28 February 2019, the adjusted taxable income of Mr Alley is varied to $88,800.

8. On 31 January 2018, Mr Alley objected to this decision. On 11 May 2018, the objections officer decided to allow the objection in part and made a departure determination that for the period 1 October 2017 to 30 September 2020 the adjusted taxable income of Mr Alley is varied to $88,986.

9. On 25 May 2018 Mrs Alley lodged an application for a review with the Administrative Appeals Tribunal (the tribunal) seeking review of the decision of Child Support.

10. Prior to the hearing of the application for review, directions were issued to both Mr Alley and Mrs Alley to provide the tribunal with specified documents. Mrs Alley provided the tribunal with documents (folios A1 to A16). Mr Alley provided the tribunal with documents (folios B1 to B1056). Both parties were provided with a copy. The tribunal and the parties also had access to the statement and documents provided by Child Support under subsection 37(1) and section 38AA of the Administrative Appeals Tribunal Act 1975 (folios 1 to 711 ).

11. The matter was heard on 27 November 2018. Both Mr Alley and Mrs Alley attended the hearing by conference telephone and gave evidence on affirmation.  Mr Alley was then given the opportunity to provide further documents which he had stated had been provided before.  He provided further documents on 28 November 2018 (B1057 to B1088). 

ISSUES

1. The statutory provisions relevant to this review are found in the Child Support (Assessment) Act 1989 (the Assessment Act). The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Assessment Act. This requires the application of a statutory formula, which takes into account such factors as the number of children, the level of care provided, the income of each parent and the costs of the children.

2. The liable parent or carer may apply to the Child Support Registrar for a determination to depart from the administrative assessment under Part 6A of the Assessment Act (section 98B). Section 98C provides that the Registrar may make a determination to depart from the formula assessment and establishes a three-step process. In the first instance, a ground for departure from an administrative assessment must be established. The grounds are set out in subsection 117(2) of the Assessment Act. If satisfied that:

   ·a ground or grounds exist (step one); and

   ·that it would be just and equitable (step two); and

   ·otherwise proper to make a particular determination (step three);

   the tribunal may make one of the determinations prescribed in section 98S of the Assessment Act. Section 98S permits a range of determinations, including varying the annual rate of child support payable and/or the adjusted taxable income of a parent.

CONSIDERATION

Issue 1 – Does a ground exist to depart from the administrative assessment?

1. Subparagraph 117(2)(c)(ia) of the Assessment Act provides that a ground for departure exists where, in the special circumstances of the case, application of the provisions of the Assessment Act relating to the 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 children because of the income, property and financial resources and earning capacity of either parent.

2. The term ‘special circumstances’ is not defined in the Assessment Act. In Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) 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 Alley’s income and financial resources

1. Mrs Alley has submitted that Mr Alley has had nil taxable income for several years and yet he has been able to meet mortgage commitments on a loan of over $1.1m.  She said he is a qualified [trade person] as well as being a real estate agent.

2. Mr Alley has stated that his income has declined, particularly in 2017-18 and he is in financial hardship.  He has claimed financial hardship on his mortgage and credit card and has several unpaid bills.  There was a fire in his home in March 2017 and he is currently living in a shed.

3. Mr Alley has several reported sources of income:

   ·licensed real estate agent with management of a rent roll

   ·contracts out project management services

   ·buys and sells [products]

   ·employment income

   ·income from the farm - leases storage on his property, agistment of horses and provision of facilities for recreational riding.

4. His taxable incomes in recent years have been:

   ·2013-14    $12,895

   ·2014-15    Nil

   ·2015-16    Nil

   ·2016-17    Nil

   ·2017-18    ?

Real estate agent

1. Mr Alley is a real estate agent and for a number of years he has run a real estate business through ([COMPANY 1]).  Mr Alley is the sole shareholder and director of [COMPANY 1].

2. Mr Alley has stated that due to having his children on the weekends he ceased selling properties a few years ago. 

3. [COMPANY 1] purchased a rent roll several years ago and since then has increased the rent roll with further purchases and through added clients/properties.  At its peak [COMPANY 1] managed 90 properties.  Mr Alley said the roll has been declining since separation.  In mid-2016 [COMPANY 1] managed approximately 50 properties for 40-45 landlords.  The business has declined further and is now down to managing 32 properties.  

4. The rent roll business involves finding tenants, collecting rent, paying some charges such as water bills for some properties, and sending payments to the landlord.  [COMPANY 1] receives, on average, about 6% of the gross rent received. Mr Alley said he is rarely required to attend the properties as tenants are long term; it has been two years since he conducted routine inspections.  He may have to attend if repairs are needed.

5. Most of the tenants pay their rent to a third party, [Company 2].  [Company 2] offers payment options for tenants and sends daily files to clients with details of cleared payments and those that failed.  Payments are sent to the [COMPANY 1] ‘rental trust account’.  Only two clients pay directly into the rental trust account.  Twice a month [COMPANY 1] pays landlords their net rent.  This is done using software that batches up the payments and the bank account shows one withdrawal.  The software disburses this withdrawal via EFT to the landlords.

6. Mr Alley confirmed that managing the rent roll mostly involved accounting for payments.

7. The original rent roll was financed by borrowing $120,000 on the residential mortgage.  [A BANK 1] loan was later taken out by [COMPANY 1] and repaid the housing loan.

8. In 2017-18 [COMPANY 1] returned gross income from property management of $62,338; a decline of around $36,000 from the previous year.  It was difficult to determine how this figure was ascertained from the bank accounts provided by Mr Alley.  The software used to disburse payments to landlords is also used to transfer funds to accounts held by Mr Alley.  Mr Alley said the net income from property management went to [COMPANY 1]’s working account [however] there were deposits from the rental trust account to other accounts held by Mr Alley.

Project management and contracting services

1. In July 2015 [COMPANY 1] registered a trading [name].  Mr Alley stated that due to the downturn in the real estate market he tried to provide contract services and he initially contracted to [Company 3]. 

2. At the tribunal hearing held on 8 April 2016, Mr Alley told the tribunal that [COMPANY 1] had been contracting to [Company 3] providing call out work for breakdowns, installations, quote and site measurements, as well as administrative services.  He said [Company 3] paid him $60 per hour plus travel costs. 

3. At hearing Mr Alley said he had a lot of expenses that he had to pay for himself and then invoice [Company 3] for them and he estimated he had expenses of around $50,000 a year on behalf of [Company 3]; things like nuts and bolts and staff lunches.  He stopped working for [Company 3] prior to working for [Company 4] in late 2016.

4. Mr Alley said he was working for [a new company].  He was very vague about what was involved. He said he contracted for this company during 2017-18.

5. When asked why [COMPANY 1] paid him $31,200 storage fees he said this was for storage of projects he had been working on. 

Selling of [products]

1. [COMPANY 1] registered a trading name [Trade name 1].  Mr Alley said he purchases [products] on demand for clients through PayPal.

2. A [BANK 1] account [was] opened in [COMPANY 1]’s name [in] January 2017.  In 2016-17 a total of $7,092 was deposited to the account; $2,560 from [COMPANY 1] and [BANK 2] accounts and $1,863 from the [COMPANY 1] rental trust account.  A total of $4,051 was deposited in 2017-18 with $2,000 being transfers from [COMPANY 1] and [BANK 2] accounts. 

3. The 2017 and 2018 [COMPANY 1] accounts included other income of $132,751 and $80,767; some of this includes the [Trade name 1] income.  It is assumed by the tribunal that the income for this business was around $7,092 and $4,051 as this was the amount deposited to the business account.  The expenses included direct costs of $16,327 and $11,672 for [Trade name 1].  The business is therefore running at a loss which is difficult to understand given Mr Alley purchases stock on demand.  Mr Alley said he often makes losses on items purchased.

4. The tribunal was not convinced that Mr Alley is actually running a business.  His family are heavily involved in go-kart racing and he is building a track on his property.  It is more than likely that some of the costs involved are actually for private expenditure. 

Farm income

1. Mr Alley owns a [property] which used to be owned jointly with Mrs Alley.  The property has a residence, an industrial size awning, several sheds, a round yard (used for lunging) and an arena for horse riding.  He is currently building a go kart track on the property.

2. Mr Alley said that they purchased the property in 2004 for around $895,000 and borrowed around $500,000 from [Company 5].  The property has a 90 square meter fibro house and it was in disrepair.  They spent about $5-10,000 doing it up (new [kitchen] and painting).  They converted a shed on the property to live in for about $5,000.  The shed is not a house that can be legally rented out. 

3. [COMPANY 1] spent $22,000 building a site office which Mr Alley said he has been living in since there was a house fire in March 2017. 

4. Other improvements include the arena ($20,000), round yard ($15,000) levelling off a site for a new house, hedging, fencing ($50,000) and repairing the stables ($10,000 to $15,000).  Over time they borrowed another $424,000 and it was used for these improvements.  The improvements listed by Mr Alley only totalled around $137,000 so it is unclear what the other borrowings are for.

5. Mr Alley said his accountant determined that 80% of his mortgage was related to his business/rental income.

Agistment

1. Mr Alley has been agisting horses on his property for many years and he and Mrs Alley ran the business through a partnership prior to separation.  He now runs the business as a sole trader.

2. Mr Alley charges $25 per week to paddock the horses; $50 if they are in the yard and $100 for a full service including feed.

3. Mr Alley estimated that around two years ago he would have had 15 horses on his property and currently he has one horse.  He said all clients pay through [Company 2] and therefore their income is initially banked to the [COMPANY 1] rental trust account.  Mr Alley said the payments are then transferred to his [Bank 3] account (and now his [BANK 2] account).

4. Mr Alley said the recreational riding business is merely the agistment business.  The clients’ fees give them the right to come and ride their horses on his property.

Rental income

1. Mr Alley has rented out a large awning to [Company 6] for $1,500 per month since around 2008.  The company stores machinery on the property.  The payments go through to [Company 2].

2. Mr Alley has also rented out storage space to a [Mr A] for $380 per week.  He said this was paid to [Company 2].  [Mr A] stored [products] on the property. 

3. Mr Alley said that in 2017-18 the total income from rent was $34,890 which included $18,000 from [Company 6].  This leaves $16,890 from [Mr A].  Mr Alley said [Mr A] was in arrears. 

Total income and expense for farm business

1. In 2017 the gross income from the farm included in Mr Alley’s income tax return was $59,239.  This included $31,200 claimed as an expense by [COMPANY 1].  After accounting for $18,000 from [Company 6] this leaves $10,039 for income from agistment and [Mr A].  [Mr A] is being charged $19,760 per annum but it may be that he was not renting for the full year. It is not clear if any agistment income was returned.

2. In 2017 Mr Alley claimed expenses of $76,122 for the farm business including $56,610 for interest.  Total interest and charges for the mortgage was $70,788; therefore 80% of the costs have been claimed.

Go-kart track

1. Mr Alley said he is building the track himself and so far has only excavated the land.  A friend of his runs a company [and] he has provided excavators, a dump truck and graders free of charge to assist Mr Alley with this project.  [The company] sponsors the children’s go-kart racing.

Employment income

1. Mr Alley stated to Child Support that he was employed by [Company 4] on a salary of $38,000 per annum; commencing in October or November 2016 but he was ‘let go’ in June 2017.  In December 2017 he told Child Support he had been re-employed about three weeks ago.  He does [certain] work.

2. Mr Alley’s bank account ([BANK 2 account]) shows deposits from [Company 4] over the period November 2016 to May 2017.  He received net payments of $29,265 over 14 pay periods.  His income tax return for 2016-17 shows gross income of $38,508 (net of $29,265).  Mr Alley was therefore grossing around $71,515 per annum from [Company 4].

3. Two further deposits were made to the [BANK 2] account from [Company 4].  $13,101 in December 2017 and $8,382 in May 2018.  This does not appear to be salary and wage income given the high amounts.  It is not clear why there were no payments received into the bank account between December 2017 and May 2018 or thereafter.

Future income

1. Mr Alley said he has been looking for employment.  He initially said the farm would never make money.  He then said if he can fix the bore he will plant Lucerne and this might result in agistment income of $50,000 per annum from late 2019.  He is trying to sell the rentroll and hopes to get around $110,000.  He has been on newstart allowance since 11 November 2018.

Review of business and rental profit and loss

1. Mr Alley runs his real estate business, contracting and [product] sales through [COMPANY 1]; and the farm business as a sole trader.  A summary of his profit and losses from these ventures for the last three financial years is as follows:

[COMPANY 1]	2016	2017	2018
Property management fees	108,816	98,318	62,338
Contracting and [product] sales	39,273	132,751	80,767
Exps Contracting	27,765	55,138	25,668
Exps [product] sales	4,662	16,327	11,672
Depreciation	23,303	13,958	0
Power	3,937	4,544	4,474
Interest	14,784	27,121	28,153
Legal	15,118	136	6,255
MV	25,491	19,515	14,224
Repairs	638	7,668	3,213
Storage	20,900	31,200	0
Phone	8,622	7,058	3,213
Total expenses (not all listed above)	208,431	233,543	126,273
Loss	60,342	2,381	Profit 16,834

Farm
Income	69,230	59,239
Interest	54,803	56,610
Loss after all expenses	11,220	16,883

1. The [COMPANY 1] income tax returns show that the company has carry forward losses as at 30 June 2018 of $402,025.

2. Mr Alley keeps the rental trust account, purportedly for rental income from the rent roll but then stated that his own tenants and clients pay into the account.  The batch payments going out are not just to landlords; there are clearly transfers to his other accounts.  Mr Alley has three other [BANK 1] accounts, a [Bank 3] account and two [BANK 2] accounts.  He also has the [Company 5] loan, a credit card, and [BANK 1] loan.  It was not possible to reconcile deposits to his accounts to his stated income.

3. Mr Alley said he receives very little cash and if he does it is banked to his business accounts.  The tribunal noted some cash deposits.

4. Mr Alley’s expenses seem very high for the type of businesses he is running.  His rental roll business is claiming significantly high costs and yet it appears to be a business that would have few costs apart from the need to subscribe to realestate.com, have professional indemnity insurance, and interest on the loan to purchase the rent roll.  It is also hard to understand how he would not be making a profit on his contracting business given he is paid by the hour and reimbursed for expenses.

1. There appear to be significant amounts of private expenditure going through the credit card and bank accounts and it is more than likely Mr Alley is claiming private costs as business expenses.  Hardware costs for example may be going on rebuilding his house since the fire.  He had a legal cost for child support advice of $4,600 and this was paid by [COMPANY 1] and legal fees of $6,255 were claimed. It would appear that [COMPANY 1] has claimed the child support legal advice costs.

2. His interest expenses for [COMPANY 1] are very high.  His [BANK 1] loan had interest costs of $6,074 in 2018 and his credit card interest was $5,455 giving a total of $11,529.  He has claimed interest of $28,153.  The balance sheet indicates that two loans, one from Mr Alley’s brother to pay an ATO debt and one from family have increased by $18,293.  Presumably this is for accrued interest not paid.  It is highly doubtful that any interest has accrued on the ‘family’ loan.

3. His motor vehicle repayments are $280 per month ($3,360) and it is possible he has included this as well but this is unlikely given the high amount claimed for motor vehicle expenses.  The tribunal concluded that as well as claiming 80% of the mortgage costs for the farm business; Mr Alley is claiming more for [COMPANY 1].

4. The tribunal could not determine what a reasonable percentage of the mortgage would be for business purposes. It would need to be ascertained what the original loans were actually used for and the purpose of each subsequent addition.  Income tax legislation requires that where a home loan is used for business, it is only that proportion of the property that is used exclusively for the business that is claimable.  There is insufficient information to determine the value of the property that is used exclusively for business/rental purposes.

Summary

1. Despite [COMPANY 1] and the farm businesses making losses Mr Alley has been able to reduce his loan balances (see below) and support himself and the children who are in his care for 42% of the time.  His only apparent source of income is family tax benefit.

2. He has three main loans and car finance.  His mortgage reduced from $1,128,000 in December 2015 to $1,107,832 as at 30 June 2018; a reduction of $20,168 in two and half years. His [BANK 1] loan has reduced from $154,800 as at July 2016 to $61,200 owing in October 2018; a reduction of $93,600 in just over two years.  His credit card had $30,129 owing at June 2016.  It had increased to $41,572 by June 2018; an overall increase of around $11,000 in two years.  (The balance was cleared by a payment in July 2018.).  Overall, despite making losses, Mr Alley has been able to reduce his overall debt over two years and support himself.

3. The tribunal concluded that Mr Alley has either overstated his expenses, understated his income, or both.  This conclusion is supported by a finding by the tribunal that Mr Alley is not considered to be a credible witness – see below.

Mr Alley’s credibility

Loan applications

1. In December 2015 Mr Alley refinanced his two mortgages and obtained finance to pay $100,000 to Mrs Alley in accordance with their property settlement.  He applied for a loan of $1,128,800 through [Company 5].  The loan application stated that Mr Alley made a net profit before tax as a real estate agency manager of $255,000.  He stated his property was worth $1,400,000, he had superannuation of $74,000 and shares worth $26,000.  He said he owed $17,630 on his credit card.  Mr Alley signed the application on 17 December 2015.  At hearing Mr Alley was asked about this application.  He stated that his mortgage broker sent him a blank form and he was asked to sign it, leave it blank, and return it to his broker.  He said his broker then filled out the form.  Mr Alley provided a copy of an email from his broker dated 29 September 2015 together with a [Company 5] application form with his signature on it.  The email asked Mr Alley to sign the form “where indicated”.  The tribunal noted that the signed application form Mr Alley submitted as evidence (B388 to B405) does not match up with the form provided by [Company 5] to Child Support, and in fact appears to be a different form.  The form provided by [Company 5] to Child Support (pages 283-294) shows Mr Alley signed and dated the form whereas the form provided Mr Alley is undated and is in a different format.

2. It was pointed out to Mr Alley that for the tribunal hearing held on 8 April 2016 he had submitted that he did not understand what he was signing and thought he was providing information about gross income.  Mr Alley then said that the mortgage broker rang him and asked him to answer the questions over the phone.  That is, the broker did not complete the form in isolation.   

3. The tribunal then asked Mr Alley how he planned to service the loan given his business loss history and he pointed out that around $60,000 of the $80,000 interest is covered by the income on the farm.  However this still leave $20,000 to be covered by Mr Alley together with meeting the capital repayments, other costs claimed by the farm, and losses incurred by [COMPANY 1].  Mr Alley said he believed he could meet the payments as he was hopeful that things would improve.

4. Mr Alley said his mortgage broker put in a value of $1.4m for the property as this would meet the LVR requirements.

5. The tribunal concluded that it was more likely than not that Mr Alley believed he could service a loan of over $1.1m as his net income was much higher than he was reporting in his taxation returns.  Having said that, the tribunal did not conclude that his net income was $255,000; it is most likely that Mr Alley overstated his actual net income to ensure he would receive the loan.

Compliance with directions

1. A telephone directions hearing was held on 24 September 2018 and amongst other things Mr Alley was directed to provide:

   ·bank statements for all accounts held by himself and [COMPANY 1] for the period 1 July 2016 to 31 August 2018;

   ·The name and account number of the bank into which his employment income from [Company 4] was paid during 2016-17;

   ·Copies of correspondence between himself and his insurer about his insurance claim following the house fire in March 2017. 

2. During the telephone directions hearing, Mr Alley was advised that failure to comply with the directions could result in an adverse inference being made by the tribunal.  He was also advised of this in the written directions.

3. Mr Alley provided copies of receipts from [Company 7] (house insurers) showing various payments made to Mr Alley in April 2017, August 2017 and July 2018; totalling $298,526.    These indicated that the payments were made to [BANK 2] account.  Mr Alley provided a copy of transaction searches on two [BANK 2] accounts held by [COMPANY 1] and [COMPANY 1] for the period 1 July 2016 to 31 August 2018.  The first account ([Bank 2 account]) only showed transactions from 17 October 2018 to 19 October 2018 (outside of the search parameters) and appear to be payments on a Visa credit card [which] has not been disclosed.  The second account [showed] the result “There is no data to display”.  There was a current balance of $119,556.

4. Mr Alley was asked at hearing where the actual statements were and he said he had provided them as directed.  He was informed that the tribunal received no such statements and he was provided with the opportunity to send in the statements that day (this was considered reasonable given that Mr Alley said he had already provided the statements and he would merely have to re-email them).  He was advised that failure to provide these statements may result in an adverse inference being made. Later that day he provided a missing [BANK 1] account and some financial accounts and explained that [BANK 2] were having technical difficulties and he would provide their statements as soon as possible.  On 28 November 2018 he provided statements for [Bank 2 account] but nothing for [the second account] which is the account that the insurance was paid into.

5. Mr Alley stated in an email to the tribunal sent after the hearing:

   As per Page B622 and Page 626 I have entered the start and end dates of 1/7/2016 and the 31/8/2018 and then printed the search to a pdf file and emailed to the AAT.

   This information was supplied as far as I was concerned but due to an issue with there system it did not print all of the statements to PDF.

6. The tribunal did not think it was credible that Mr Alley did not realise that the information supplied initially did not contain all the transactions for each account.  There are numerous transactions on the account he eventually provided.  The tribunal also decided that Mr Alley has deliberately failed to provide the second [BANK 2] account into which the insurance funds had been deposited to obscure what has been done to the funds and possibly other transactions that the account has been used for.  Mr Alley said at hearing he had only spent about $20,000 of the insurance money to date and that was for new house contents.  Mr Alley received $206,441 from [Company 7] on 19 July 2018 and only $119,000 was in his account in October 2018.  He repaid $41,000 on 20 July 2018 but it is unclear what happened to the rest.

7. Mr Alley also failed to provide details of the account into which his employment salary was paid.  He said he didn’t bother as it would be obvious when the tribunal reviewed the [BANK 2] statements (however, as discussed, these were not provided initially).  The tribunal concluded that he did not comply with this direction as he did not want to reveal the contents of his [BANK 2] account.

Statement about insurance claim

1. On 11 May 2018 Child Support recorded that they contacted Mr Alley to discuss the objection before finalising the matter.  The objections officer pointed out that Mr Alley had not provided the bank statements that he was requested to provide.  The objections officer recorded the following “I asked when the house fire occurred but [Mr Alley] did not advise me – I said it would be useful to know the payments he received from the insurers including living expenses for when the house was uninhabitable – [Mr Alley] said he hasn’t received anything yet.”  (refer to page 538 of the Child Support papers).

2. As at 11 May 2018 Mr Alley had received $92,085 from [Company 7].

Claims of hardship

1. Mr Alley stated that he had claimed hardship with his mortgage provider.  He provided evidence that [Company 5] gave him a two month payment holiday in April and May 2017 following the fire.  Mr Alley signed a Statement of Financial Circumstances form on 2 July 2018 and stated that between 24 March 2017 and 9 February 2018 there had been no personal mortgage payments. However, the evidence provided shows that apart from the two payments in April and May 2017 the mortgage payments have all been made.  At hearing he said that the payments he made were for the business proportion.  This was considered to be illogical; Mr Alley was required to pay a certain amount off the loan each month and he did that. Mr Alley’s statement was misleading.

2. Mr Alley stated that he had claimed hardship with his credit card provider.  He provided evidence that the [Bank 3] gave him a repayment holiday for two months following the fire.  He has exceeded his limit on occasion but despite significant spending on the card the overall balance only increased by $11,000 over two years.  This is roughly equivalent to the interest charges made on the card.  In other words, Mr Alley has been able to meet the repayments for the goods and services charged to the card. 

3. Mr Alley did not reveal that he had received three payments from his insurer until directed to provide this information. 

4. Mr Alley said he could not afford to repair his [car], fix the mower or the bore pump.  He said that MyBudget.com.au and other similar debt help centres were unable to help him due to him not having a fixed or constant income stream to enable him to set a budget.  He said he did not have the funds available to get his tax returns done and therefore could not apply for newstart allowance.  When he made these statements he had received nearly $300,000 in insurance payouts and as at October 2018 he had $119,000 deposited in an account.  Mr Alley said he is only using the insurance payments for rebuilding the house.  This does not correspond with his evidence that he has only spent $20,000 on the house to date given he only has $119,000 left in his [BANK 2] account.

5. There is no evidence that Mr Alley received any significant financial assistance over the last two years.  Mr Alley did not provide a statement setting out financial gifts and loans received, as directed; but instead provided various bank account statements of his children’s accounts showing transfers in and out to his bank account.  It would appear that all of the amounts taken from the children’s accounts were returned.  He stated at hearing that the only other support may have been $3,000 from his ex-partner [but] he did not have the details to hand.

Gift to the children

1. Mrs Alley provided a picture of one of her children sitting in a specialised gaming chair playing a computer game.  She said Mr Alley bought this for her children for Christmas (2017) and it cost around $6,000.  Mr Alley denied this saying he only spent a total of [$1,199]. .  When Mr Alley provided some of the [BANK 2] statements after the hearing the tribunal noted that on the same day as he spent [$1,199] (22 December 2017) he spent [$4,316]. .  This business sells computer gear including gaming equipment.  The tribunal decided that it was more likely than not that this was part of the package given to his children for Christmas and Mr Alley deliberately misled the tribunal about this during the hearing at a time when the [BANK 2] statements had not been made available.

2. Mr Alley said he was merely replacing what the children had lost in the fire.  However, if a person is in severe financial hardship it is unlikely, or imprudent, to be spending such a high amount on toys.

Summary

1. The tribunal found that Mr Alley misled [Company 5] about his financial position when applying for a loan and/or was earning a higher net profit than disclosed in his tax returns.

2. The tribunal found that Mr Alley misled the tribunal and Child Support by:

   ·Failing to disclose all of his bank accounts;

   ·Failing to disclose details of his insurance payments;

   ·Obscuring information about what has happened with the insurance payments; and

   ·Claiming financial hardship when he was not in hardship.

Conclusion about Mr Alley’s income and financial resources

1. The tribunal decided that Mr Alley is earning a much higher net profit from his various businesses than he is declaring.  It is difficult to ascertain what his actual earnings and financial resources are and to do so would require a full audit into his financial affairs.

2. Mr Alley has reduced his [BANK 1] business loan by $43,200 per year for several years.  His [Company 5] loan decreased by $20,168 over 2.5 years; an average of approximately $8,000 per year.  His total loan capital reduction per year is therefore an average of around $51,000.  He also had to finance personal interest on the mortgage of around $14,200 in 2016-17 and presumably slightly less now.  In addition to this, Mr Alley has had to support himself and the children.  The tribunal therefore found that Mr Alley would need to earn at least $100,000 per annum to meet these costs ($65,000 for loan capital payments and private interest and $35,000 for private expenses.

3. Mr Alley is currently assessed to pay no child support.  The tribunal has decided that he has an income of at least $100,000.  In 2018, child support payable on this level of income and an adjusted taxable income of $32,065 for Mrs Alley would result in a child support liability of $12,905 per annum.

4. The tribunal was therefore satisfied that there are special circumstances in this case and finds that the ground for departure in subparagraph 117(2)(c)(ia) does exist in relation to the income and financial resources of Mr Alley. 

5. As a ground for departure has been established, the tribunal then considered whether or not it would be just and equitable to make a departure determination.

Issue 2 – Would it be just and equitable to make a particular departure determination?

1. As the tribunal is satisfied that there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to make a particular departure determination. In doing so, the tribunal must have regard to a number of matters in subsections 117(4) to (9) of the Assessment Act. In summary, this requires consideration of the parents’ duty to support the children, the income, assets and financial resources of the children and of the parents, the children’s proper needs and the self-support costs of either parent. The tribunal is not limited to exploring these parameters and is required to consider the global circumstances (Gyselman).

2. The tribunal had regard to the evidence which was presented, including the evidence which has been discussed above. This evidence is further considered below.

The duty to maintain the children

1. Mrs Alley and Mr Alley each have a duty to maintain the children. Further, the tribunal notes the statements contained in sections 3 and 4 of the Assessment Act to the following effect:

   ·       Parents of a child have a primary duty to maintain the child and this has a priority over all commitments of the parent other than commitments necessary for self-support;

   ·       The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards;

   ·       The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.

Proper needs of the children and the income, property, financial resources and earning capacity of the child

1. There was no evidence presented to the tribunal that the children have anything other than the usual expenses and needs of children their age, expenses that are dealt with in the administrative assessment and addressed in the Costs of the Children Table.

100.There was no evidence that the children currently have significant independent income or resources.

Other party receiving money, goods and property for the benefit of the child

101.Given the available evidence, the tribunal concludes that neither party received money, goods or property for the benefit of the children which impacts on their respective abilities to support them.

Income, property, financial resources and earning capacity of each parent

Mr Alley’s income, property, financial resources and earning capacity

102.Mr Alley’s income has been discussed above.  The tribunal concluded that he earns at least $100,000 per annum.  The tribunal accepted, given the number of business activities he is involved in, that he has no further earning capacity.

103.Mr Alley has a number of debts.  His loans with [Company 5] and [BANK 1] have been discussed. 

104.In 2014 Mr Alley’s brother lent him $189,915 to pay out an ATO debt.  The loan was to be repaid when the rent roll sold but this has not occurred to date.  Mr Alley provided a letter from his brother’s solicitor dated 5 May 2016 stating that the total owing with interest was $205,917.  The loan is booked at $234,362 in the [COMPANY 1] 2017-18 accounts and presumably includes accrued interest. 

105.Mr Alley has stated that he has personal loans of $123,443; presumably from family members.

106.Mr Alley has valued his property at $1,000,000.  He purchased the property 14 years ago for $895,000 and stated he has undertaken many improvements to the property.  Even with a recent downturn in the market it is not clear how the property would only be worth $1,000,000 today.  He valued it at $1,400,000 in his loan application in December 2015.

107.Mr Alley provided evidence that he owes $648 to the council as at May 2018, $1,320 to Alinta Energy as at May 2018 and other small amounts to AGL and Telstra.  It is not clear if he repaid these when he received his latest insurance payments.

108.Mr Alley stated in his Statement of Financial Circumstances that he spends $469 per week on household expenses with no discretionary or extraordinary expenses listed.  This seems very low given he has the five children in his care for 42% of the time.  He stated he only spends $175 per week on food.

109.Mr Alley had Child Support arrears of $52,841 as at 7 June 2018 ($78,722 with penalties) and $952.50 per month has been accumulating since then. 

110.Mr Alley received nearly $300,000 from [Company 7] and he said he spent $20,000 of this on the house and the evidence shows he spent $42,000 on his credit card.  Only $119,000 is left and there is no evidence to indicate that he has put the remaining funds (around $118,000) into supplementing his business or living costs.  It is not known where this money has gone.

111.Mr Alley had $119,000 in an [BANK 2] account in October 2018.  It is accepted that Mr Alley needs to repair his house and it would appear from photos he provided that he has been undergoing some building work.  It is unknown what the actual costs will be to make the house liveable.

Mrs Alley’s circumstances

112.Mrs Alley is an [Occupation 1].  Her taxable incomes in recent years have been:

·2014–15   $20,133

·2015–16   $20,167

·2016–17   $19,642 (provisional only)

·2017-18    $32,065

113.Mrs Alley works on a casual basis and estimates she is currently earning an average of $400 per week.  As at 12 September 2018 her year to date earnings were $5,235 and this extrapolates to around $22,700 per annum.  She said her hours had been restricted and she has applied for newstart allowance (she was previously receiving parenting payment).  It is not clear if her income will increase after September 2018 but this is a possibility. 

114.Given that Mrs Alley is caring for five children for 58% of the time and is working part time the tribunal found that she did not have any other earning capacity.

115.Mrs Alley has no substantive assets and only around $1,100 in superannuation. She has a few small debts owing; a total of $2,458. 

116.Mrs Alley received $100,000 from the marital property settlement and used the money to pay legal fees, purchase a [car], and supplement her living costs.  The money has now been spent.

117.In her Statement of Financial Circumstances Mrs Alley stated that she spends $1,093 per week on household expenses including $420 per week for rent and $250 for food.  She had very little discretionary expenditure listed ($10 for gifts).There were no extraordinary expenses listed.  She also pays tax of around $100 per week (which seems high given her income).   Mrs Alley’s income is supplemented with family tax benefit and income support payments. 

118.The tribunal concluded that Mrs Alley has a very low income and no substantial assets or additional earning capacity.  She stated that she has to do without a lot of things and finds it difficult to manage.  The tribunal accepted that Mrs Alley is suffering financial hardship.

Necessary commitments to support themselves

119.The self-support amount used in the administrative assessment is approximately $24,500. On the documentary evidence available to the tribunal, including the Statement of Financial Circumstances completed by both parties, the tribunal was satisfied that both Mrs Alley and Mr Alley have sufficient funds at their disposal to meet their necessary commitments, none of which are extraordinary.

Hardship that would be caused to the parents and the child

120.The tribunal considers Mr Alley would not suffer financial hardship if required to pay $12,905 per annum in child support.  As discussed his income is found to be at least $100,000 per annum and he does not pay any income tax.  He decided in late 2015 that he could run the farm as a going concern (when he refinanced the mortgage and decided to keep the family home) and he has been earning money contracting his services and managing a rent roll.  

121.Mrs Alley is on a relatively low income, and the tribunal was satisfied that she would, and does, experience financial hardship if assessed to receive nil child support. 

122.The proposed change in the child support assessment will ensure that both Mr Alley and Mrs Alley share in the costs of caring for the children at a level commensurate with their resources.

123.Mr Alley has child support arrears and the proposed change will increase those arrears by approximately $1,500 to $2,400 per annum from the date of departure.  However as stated above, it appears that Mr Alley has significant funds remaining from his insurance payment and the tribunal was satisfied that these could be used to reduce his liability. 

124.After consideration of all of the factors in subsection 117(4), the tribunal is satisfied that it is just and equitable to depart from the administrative assessment. Having regard to all of the evidence, the tribunal considered that the decision under review should be set aside and a decision made to vary Mr Alley’s adjusted taxable income to $100,000.

125.The tribunal then considered what an appropriate start and end date would be for a departure determination.

126.The previous departure determination ended on 30 September 2017 and Mrs Alley made her application on 13 October 2017; only two weeks after the end date.  The tribunal decided that an appropriate start date would be from 1 October 2017.

127.Mr Alley’s taxable incomes have not reflected his actual incomes for many years and they are unlikely to do so in the future.  The tribunal therefore decided that the departure determination should be for a significant period of time to provide Mrs Alley with some certainty of income.  The tribunal decided the end date should be 31 December 2022 which allows for around four years from the date of this decision.  

128.In the event that either party’s circumstances change significantly during the assessment period, they have the opportunity to lodge a further change of assessment application. The tribunal considers these dates to be in the best interests of the child and the parents as they promote certainty and consistency for those concerned.

Issue 3 – Would it be otherwise proper to make a particular departure determination?

129.The final step for the tribunal to undertake is to determine whether it is ‘otherwise proper’ to make a particular departure determination (subsection 117(5) of the Assessment Act). It is a prime objective of the child support legislation that parents should be obliged to support their own children to the extent of their real capacity, and that that obligation should not be unnecessarily abrogated to the public welfare system when the parents themselves have the capacity to maintain their children. Mrs Alley receives family assistance. The proposed departure determination may decrease Mrs Alley’s entitlement to family assistance but will reflect the parties’ real capacities to support the child. The tribunal concludes that it is otherwise proper to depart from the administrative assessment.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that:

·       For the period 1 October 2017 to 31 December 2022, Mr Alley’s annual rate of child support is varied to $100,000.