Anand and Samara (Child support)

[2020] AATA 2172

Anand and Samara (Child support) [2020] AATA 2172 (17 June 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/SC018270

APPLICANT:  Mr Anand

OTHER PARTIES:  Child Support Registrar

Ms Samara

TRIBUNAL:Member K Buxton

DECISION DATE:  17 June 2020

DECISION:

The decision under review is set aside and a decision substituted that:

• for the period 1 January 2019 to 30 June 2019 Mr Anand’s adjusted taxable income is varied to $57,600 per annum; and

• for the period 1 July 2019 until the child support case has ended for the child [Child 1], Mr Anand’s adjusted taxable income is varied to $75,000 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - adjusted taxable income of the liable parent varied - 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 Samara and Mr Anand are the parents of [Child 1], who was born in August 2002 and [Child 2], who was born in February 2001. As [Child 2] is now over the age of 18 years of age the child support case for her has ended. Mr Anand 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 Samara in respect of the children, who were recorded by the CSA as in the 100% care of Ms Samara.

2. The administrative assessment of child support for the period 1 August 2018 to 28 February 2019 required Ms Samara to pay to Mr Anand an annual rate of child support for the following periods:

   ·For the period 1 December 2017 to 24 January 2019 the annual rate of child support is $3,938 calculated using Mr Anand’s 2016/17 adjusted taxable income of $40,510 and Ms Samara’s 2016/17 adjusted taxable income of $0;

·For the period 25 January 2019 to 26 February 2019 the annual rate payable is $3,464. This rate is based on the same incomes for the parents but with a decrease when [Child 2] ceased to be included in the assessment;

·For the period 27 February 2019 to 28 February 2019 the annual rate payable is $2,746. This rate is based on the same incomes for the parents but with a further change to the allowance in the formula for Mr Anand’s other dependents;

·For the period 1 March 2019 to 31 May 2020 Mr Anand is assessed to pay an annual rate of child support at the minimum annual rate of $435 calculated based on Mr Anand’s 2017/18 adjusted taxable income of $20,008 and Ms Samara’s 2017/18 adjusted taxable income of $0.

1. On 7 January 2019 Ms Samara applied for a change of assessment, under Part 6A of the Child Support (Assessment) Act 1989 (the Act), on the basis that Mr Anand’s income and financial resources from his business, and his earning capacity, were not fairly reflected in the assessment. On 9 August 2019 a delegate of the Child Support Registrar determined that a departure ground existed but decided that it would not be just and equitable to change the assessment. Ms Samara objected to that decision and, on 4 December 2019, an objections officer partly allowed the objection and decided that;

   ·For the period 1 January 2019 to 5 May 2019 Mr Anand’s adjusted taxable income is set at $119,581; and

   ·For the period 6 May 2019 to 15 August 2020 the annual rate payable by Mr Anand is set at $7,620.

2. Mr Anand applied to the tribunal to have the objections officer’s decision reviewed. A directions hearing took place on 21 April 2020 in which both Mr Anand and [Ms A], who is the sister of the second party and held her power of attorney for, and was the representative of, Ms Samara in this review application, appeared at that directions hearing by conference telephone. During that directions hearing both Mr Anand and [Ms A] consented to the review application being determined without the need for an oral hearing, and consent to proceed in this was way subsequently given by the Child Support Registrar. Mr Anand and Ms Samara produced documents to the tribunal and each provided written submissions. In reaching its decision, the tribunal has considered the documentation provided by the CSA (Exhibit 1), Mr Anand (Exhibit A) and Ms Samara (Exhibit B) and the written submissions of Mr Anand and made on behalf of Ms Samara.

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) of the Act, 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.

2. 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 and 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 Samara’s income and financial resources

1. Ms Samara does not work due to her health and receives a disability pension from Centrelink. Ms Samara receives assistance from her family to meet her own costs and those of the children. She would benefit from whatever financial assistance Mr Anand is able to provide in order to meet those costs.

Mr Anand’s income and financial resources

10.  When Ms Samara applied for a departure in January 2019, child support was calculated using a 2016/17 adjusted taxable income of $40,510 for Mr Anand until 1 April 2019 when it was replaced with a 2017/18 adjusted taxable income of $20,008.

11.  Mr Anand operates a business through a company called [name]. Mr Anand has accepted that he is the beneficial owner and that he generates the income of that business. The tribunal is satisfied that any financial resources of the business are available to Mr Anand in order to meet his own expenses and to contribute to the needs of the children. Mr Anand has produced to the tribunal profit and loss statements for his business for the 2018/19 year and quarterly business activity statements for the 2019/20 year. The CSA reproduced extracts from the business’ bank account. The tribunal has considered these documents in determining the income and financial resources available to Mr Anand from his business.

12.  Mr Anand has informed the CSA that he was unwell during 2018 and did not work as much. This, he has stated, was the reason for the reduction in his 2017/18 income. Mr Anand informed the CSA that the business has performed better in the 2018/19 year and that he currently pays himself a salary from the business of about $50,000 per annum. This is consistent with the financial information reflected in quarterly Business Activity Statements provided to the Australian Taxation Office.

13.  Extracts from the bank accounts of the business are reproduced in the CSA papers and these show that Mr Anand’s motor vehicle expenses are met by the business. The financial statements for the 2018/19 year showed total turnover of $91,346 and reported expenses of the same amount.

14.  The financial statements indicate that the business met telephone costs in the 2018/19 year and it is reasonable to conclude that these were for Mr Anand. The tribunal considers that it is proper to include the sum of about $966 in his available financial resources. Whilst there may be an element of business use in the telephone costs reported by the business there is no evidence that additional costs were incurred by the business above those that Mr Anand would have incurred in any event for personal telephone use.

15.  The business also met all the car payments, registration, insurance, maintenance and fuel costs for the motor vehicle operated by Mr Anand and payments were made from the company bank account for these purposes. In the 2018/19 year the business has claimed the total sum of around $8,236 in vehicle expenses including interest payments, registration, insurance, repairs and fuel. The vehicle is a [brand name]. The tribunal accepts that Mr Anand would use the vehicle for business as well as personal purposes but notes that Mr Anand does not own another vehicle. Therefore, apart from the petrol used in earning the income of the business, all the expenses associated with the operation and maintenance of the vehicle are the type of expenses that would be incurred by an ordinary taxpayer who wished to enjoy the convenience of car ownership. Such expenses would ordinarily be met from post-tax income. Even attributing the majority of the fuel costs (say, $3,000 of $3,667 expended during the 2018/19 year) to the generation of business income, it is still reasonable to conclude that the remaining $5,236 in personal vehicle expenses for Mr Anand are met by the business. It is therefore proper to regard this amount as a financial resource available to Mr Anand in the 2018/19 year.

16.  In the 2018/19 year the business had claimed as a deduction the sum of $2,097 for home office expenses. Mr Anand lives in his own home and, whilst it may be legitimate for tax purposes to reduce the profits of a business by claiming for home office costs, there is no evidence to suggest that these claims constitute a cash expense and, therefore, these amounts should be added back to the available profits of the business and included in the financial resources available to Mr Anand in the 2018/19 year.

17.  In the 2018/19 year the business had claimed as a deduction an expense depreciation for the motor vehicle ($8,314) and plant and equipment ($1,875). Although it may be legitimate for tax purposes to reduce the profits of a business through the book entry of depreciation there is no evidence to suggest that these claims constitute a cash expense and, therefore, these amounts would be available from the turnover of the business. It is therefore proper to include these amounts in the financial resources available to Mr Anand in the 2018/19 year.

18.  Considered together this amounted to around $19,000 in additional financial resources available to Mr Anand as a result of the motor vehicle, telephone and depreciation expense in the 2018/19 year. Mr Anand disclosed additional income of $2,160 in his 2018/19 income tax return plus his salary of $31,500 from the business. The tribunal has therefore found that, in the 2018/19 year, Mr Anand had access to financial resources from the business and from employment equal to about $52,000. The tribunal notes that adjusted taxable incomes are ordinarily used in the child support assessment and Mr Anand has not been assessed to pay personal income tax on all of the financial resources available to him as he was assessed to pay only $4,396 in tax based on reported taxable income for the 2018/19 year of $32,905. Were the marginal tax rates of 18% to $37,000 then 32.5% to be applied to the further approximately $19,000 in additional income Mr Anand would have been assessed to pay about an additional $5,600 in tax. In order to compare him to other taxpayers, this “grossed up” level of income of $57,600 is a more accurate indication of Mr Anand’s available income and financial resources for child support purposes for the 2018/19 year.

19.  Mr Anand has provided quarterly business activity statements for the first three quarters of the 2019/20 year and has stated that turnover is higher in this financial year than the previous 2018/19 year. The total turnover of the business for the first three quarters of 2019/20 together was $93,438. This would annualise to a total of $124,584 for the full financial year and constitute an increase of about 36% from the previous year’s figures. The tribunal notes that the 2019/20 year is not yet complete but the increase in turnover for the first three quarters is consistent with Mr Anand’s statement that business has improved sufficiently to allow the business to pay him a salary of $50,000. It is reasonable to assume that the business will continue, in the 2019/20 year, to meet vehicle and telephone expenses for Mr Anand and claim depreciation and home office expenses similar to those claimed in the 2018/19 year. If the sum of about $19,000 in additional financial resources were added to the salary of $50,000 received by Mr Anand from the business in the 2019/20 year this would lead to income of about $69,000, or “grossed-up” income of around $75,000 using the same approach as set out above for the 2018/19 year (32.5% tax on amounts over $37,000) and assuming that Mr Anand’s reported taxable income will not include those additional resources. This increase would constitute about a 30% increase in Mr Anand’s available income and financial resources when compared with the previous financial year which is slightly less than the 36% increase in the turnover of the business from the 2018/19 year to the 2019/20 year. It is reasonable, having regard to all of the evidence, to conclude that Mr Anand has had access to income and financial resources from the business which should be regarded, for child support purposes, as about $57,600 per annum in the 2018/19 financial year and about $75,000 per annum in the 2019/20 financial year.

20.  The tribunal is unable to predict Mr Anand’s future income and financial resources from the business with accuracy but considers it reasonable to conclude that, for the foreseeable future, Mr Anand will continue to have access to income and financial resources from the business at about the same level as that in the 2019/20 year.

21.  Written submissions made on behalf of Ms Samara by her sister sought to introduce historical issues such as the way in which properties were bought and sold by the parents, and the use made by Mr Anand of the proceeds of those sales many years ago, both before and after the parents had separated.  Those issues were matters to be dealt with in the property settlement between the parents and are not issues that it is proper for the tribunal to consider as part of this departure application.

Conclusions in relation to the departure ground

22.  The administrative assessment of child support does not take account of the income and financial resources available to Mr Anand through the operation of his business. The administratively assessed rate of child support in place from 1 December 2017 to 24 January 2019 required Mr Anand to pay to Ms Samara child support at the assessed rate of $3,938 based on Mr Anand’s 2016/17 adjusted taxable income of $40,510 until 1 April 2019 when it was replaced with a 2017/18 adjusted taxable income of $20,008.

23.  The tribunal has found that, at that time, Mr Anand had access to income and financial resources of about $57,600 per annum until 30 June 2019 and, from 1 July 2019 onwards, of about $75,000 per annum and Ms Samara had had income of $0 throughout the same period. If child support was instead calculated using incomes for Mr Anand at those levels, and having regard to the allowance made in the formula for Mr Anand’s other dependent children, Mr Anand would be assessed to pay child support to Ms Samara for [Child 2] and [Child 1] at the rate of about $6,400 per annum in January 2019. From February 2019, when [Child 2] ceased to be a child of the assessment, the annual rate of child support would reduce to about $5,000 per annum and would increase to about $7,800 per annum from 1 July 2019.

24.  The administrative assessment of child support in place at the time of lodgement of the departure application did not fairly reflect incomes and financial resources available to the parents and lead to a significantly lower rate of child support payable by Mr Anand than would have been assessed had his actual incomes and financial resources been considered in the assessment. The existence of those factors together set this case apart from others, making it special.

25.  The tribunal notes that Mr Anand is working in his chosen field and generating significant income. Therefore, although this issue of his unexercised earning capacity was raised in the departure application it is not necessary to further consider this issue and it is appropriate to consider the actual income and financial resources available to Mr Anand from the operation of his business.

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 Anand from his 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 Anand

28.  Mr Anand lives with his wife and their children in a home and he makes repayments of their home loan which is secured by a mortgage over the property. There is nothing in the evidence to suggest that the self-support amount allowed for in the formula (of approximately $25,000 per annum) is not an appropriate measure of Mr Anand’s proper needs. The child support formula makes allowances from Mr Anand’s other dependent children.

Ms Samara

29.  Ms Samara lives in a rented home. There is nothing in the evidence to suggest that the self-support amount allowed for by the child support formula (of approximately $25,000 per annum) is not an appropriate measure of Ms Samara’s proper needs. Ms Samara receives family assistance which, whilst not income, would assist her in meeting the needs of the children.

The children

30.  There is nothing in the material suggesting that the children have needs other than those which would be typical of children of their ages. [Child 2] turned 18 years of age two months after the departure application was lodged. The CSA papers indicate that she had some part-time work at that time but that her income was not sufficient at that time to enable her to financially support herself.

31.  [Child 1] left school to commence an apprenticeship as [an occupation 1] during 2018. Mr Anand has submitted that [Child 1] is financially independent and has had sufficient financial resources available to him from which his needs can be met since well before the departure application was lodged.

32.  Mr Anand provided to the tribunal a copy of the PAYG statement for [Child 1] for the 2018/19 year in which [Child 1] received a total of $12,360. He also provided more recent payslips showing that in March 2020 [Child 1] was being paid the far more substantial wage of about $900 per week. Ordinarily, the question would arise whether [Child 1] has sufficient financial resources available to him such that he is financially independent of Ms Samara and not reliant on her for support. However, the information provided by Mr Anand to the CSA, and to the tribunal, indicates that [Child 1’s] wages are not paid to [Child 1]. In fact, they are paid into an account controlled by Mr Anand. Mr Anand submitted that this pattern was adopted in order to assist [Child 1] with his savings goals. However, it follows that if [Child 1] does not have access to the income he generates from his work then it cannot be used by him to meet his essential costs.

33.  [Child 1] is recorded as in the 100% care of Ms Samara. It would follow from this that Ms Samara remains responsible for directly meeting all of [Child 1’s] costs of accommodation, utilities, food, clothing and many other regular expenses. There is no evidence that [Child 1] meets these expenses himself. To the contrary, the evidence provided by Mr Anand is to the effect that [Child 1] cannot possibly meet his expenses himself because his income is controlled by Mr Anand. In those circumstances it is somewhat surprising that Mr Anand would submit, as he has done, that the rate of child support payable by him should be reduced as a result of the income generated by [Child 1]. The tribunal finds that there is no basis to depart from the administrative assessment of child support as a result of any income and financial resources of the children, including [Child 1’s] income from his employment.

Conclusions as to what is just and equitable

34.  From 1 January 2019 the tribunal proposes to vary the administrative assessment of child support by varying the adjusted taxable income for Mr Anand to $57,600 until 30 June 2019 and to $75,000 from 1 July 2019 until the child support case has ended.

35.  The tribunal has determined that the just and equitable departure from the administrative assessment of child support in this case is to determine that, from 1 March 2019, neither parent is liable to pay child support to the other, and that this decision applies for a reasonable time into the future in order to provide certainty for the parents, whose financial positions are likely to remain comparable for the foreseeable future.

36.  Ms Samara submitted that the decision should have a retrospective effect. She referred to the property settlement between the parents and submitted that it was unjust. Mr Samara also submitted that Mr Anand had not contributed sufficiently to child support for the children for past periods. The tribunal notes that it was open to Ms Samara to lodge a departure application earlier. However, Ms Samara did not do so. The parties’ rights for past periods in question have been long settled by that decision. Instead, Ms Samara waited to apply for a further departure until March 2019. It is therefore proper for the tribunal’s decision in this application to take effect from March 2019 but not earlier.

37.  The proposed departure will create arrears for Mr Anand when compared with the administrative assessment. The tribunal is not satisfied that any hardship is created as a result of those arrears having regard to the nature and quantum of financial resources available to Mr Anand. It is proper that both parents be assessed on their 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

38.  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 on which child support is calculated for Mr Anand from that used in the administrative assessment, based on Mr Anand’s 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

39.  Ms Samara sought a departure from the administrative assessment of child support in January 2019 at a time when child support was assessed using adjusted taxable incomes for Mr Anand which did not take into account his actual income and financial resources. The tribunal has found a ground to depart from the administrative assessment and has decided to vary the adjusted taxable income used in the child support assessment for Mr Anand for the period 1 January 2019 to 30 June 2019 to $57,600 per annum and to $75,000 per annum for the period 1 July 2019 until the child support case has ended for [Child 1]. The tribunal has found that a departure in those terms is just and equitable and otherwise proper.

40.  As the tribunal has reached conclusions that differ from those in the decision under review, that decision is set aside and a decision substituted that reflects the tribunal’s findings.

DECISION

The decision under review is set aside and a decision substituted that:

• for the period 1 January 2019 to 30 June 2019 Mr Anand’s adjusted taxable income is varied to $57,600 per annum; and

• for the period 1 July 2019 until the child support case has ended for [Child 1] Mr Anand’s adjusted taxable income is varied to $75,000 per annum.