Attard and Olan (Child support)

[2016] AATA 2003

Attard and Olan (Child support) [2016] AATA 2003 (18 March 2016)

DIVISION:  Social Services & Child Support Division

APPLICANT:  Mr Attard

OTHER PARTIES:  Ms Olan

Child Support Registrar

DECISION DATE:  18 March 2016

DECISION

The Tribunal sets aside the decision under review. It substitutes the decision that Mr Attard’s adjusted taxable income in the assessment for [Child 1] is $47,000 from 10 March 2015 until a terminating event happens.

CATCHWORDS
Child Support - Departure determination - Income and financial resources of parent - Cash income from business - Proper needs of the child - 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

Child support assessments

1. Mr Attard and Ms Olan are the parents of [Child 1] (born 1999). At relevant times, the Department of Human Services made child support assessments for her on behalf of the Child Support Registrar.

2. From 27 February 2015, the Department assessed child support using adjusted taxable incomes of $19,215 for Mr Attard and $39,286 for Ms Olan. Ms Olan’s adjusted taxable income was equal to her 2014 taxable income. Mr Attard’s adjusted taxable income was provisional because the Department did not have his 2014 taxable income. The annual rate was the minimum annual rate of $399.

Change of assessment decision

1. On 10 March 2015, Ms Olan applied for a departure from the administrative assessment of child support (change of assessment). On 24 April 2015, a delegate of the Registrar changed the assessment and decided that Mr Attard’s adjusted taxable income would be $41,000 from 10 March 2010 until the end of the assessment (which is likely to happen when [Child 1] turns 18 or finishes secondary education in 2017).

2. On 24 July 2015, an Objections Officer of the Department disallowed Mr Attard’s objection to that decision.

Application for review

1. On 24 August 2015, Mr Attard applied for review of that decision. The Tribunal heard the application on 11 and 19 February 2016.

RELEVANT LAW AND ISSUES

1. The relevant law is the Child Support (Assessment) Act 1989 (the Act). It requires the Registrar to calculate the annual rate of child support for child support periods. Child support periods usually start soon after the Australian Taxation Office issues a tax assessment for one of the parents.

2. Ordinarily, the Registrar uses a child support formula to calculate the annual rate. The variables include adjusted taxable incomes for each parent. The adjusted taxable incomes used to calculate child support are equal to the taxable incomes and supplementary amounts for the parents for the “last relevant year of income”. That year is the financial year that ended before the start of a child support period (section 43 and section 5).

3. The minimum annual rate usually applies to parents with limited care of a child who have a low adjusted taxable income and receive Centrelink benefits. The fixed annual rate (of $1,352 in 2015) usually applies to parents, such as Mr Attard, with limited care and low adjusted taxable incomes who do not receive Centrelink benefits. It is not apparent from the Tribunal papers why the fixed annual rate did not apply.

4. Either parent may apply to change the formula assessment (section 98B). The Registrar may change the assessment if the case meets the following three criteria (section 98C):

   ·There is a ground for changing the assessment. (Subsection 117(2) of the Act lists the 12 grounds.)

   ·It is “just and equitable” to make particular changes to the assessment.

   ·It is “otherwise proper” to make those changes to the assessment.

5. To make a decision on Mr Attard’s application for review, the tribunal considered whether this case meets these criteria.

CONSIDERATION

Evidence considered

1. The Tribunal considered documents provided by the Department and both parties. At hearing, it heard oral evidence from both parties and from Mr Attard’s [accountant].

Is there a reason to change the assessment?

1. The first step is to decide if there is a ground for changing the assessment.

2. Ms Olan applied for a change of assessment on the ground in subparagraph 117(2)(c)(ia) that the formula assessment:

   in the special circumstances of the case …would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child … because of the income, property and financial resources of either parent.

3. The tribunal considered whether this ground applies because of Mr Attard’s income and financial resources.

4. The principal object of the Act is to ensure that parents provide a proper level of support for their children. The particular objects include ensuring that parents provide support for their children according to their capacity and, in particular, that parents with similar financial capacity provide their children with similar levels of support.

5. To those ends, unless the minimum or fixed annual rate applies, the formula distributes the cost of supporting a child between two parents according to their adjusted taxable incomes and care percentages. The rate of child support is the contribution by the liable parent to support the child while in the other parent’s care. The rate reduces according to that parent’s capacity to provide support. If a carer’s adjusted taxable income is above the self-support amount (about $22,500), the annual rate reduces and they must meet some of the child’s expenses from their own resources while the child is in their care.

6. Mr Attard has operated a small business through his wholly owned [company], , since 2004. It has not made a profit for many years.

7. In the 2015 financial year, Mr Attard had a taxable income of $1,972 and the company made a loss of $52,909. However, it does not follow the company did not provide Mr Attard with income in excess of his adjusted taxable income when Ms Olan applied for the change of assessment.

8. Mr Attard told the Tribunal the company was paid electronically, by cheque and in cash. He identified regular bank deposits into the company account that he said were of cheques and cash. He has a personal bank account that he does not use because the Department recovered money from it. He said he uses the company account (which the Department cannot access) for his personal expenses, as needed.

9. The Tribunal noted there were very few cash withdrawals from the bank account. He told the Tribunal that the business did not bank all the cash it receives and he used that cash for his personal expenses when necessary. However, he said he recorded all the cash it received in the company records and the cash he takes is included in the gross income in the company’s profit and loss statement.

10. On the second day of the hearing, [the accountant] told the Tribunal she used the company records to prepare the 2015 profit and loss statement and she crosschecked them against the company bank account statements. She said that the amounts in the company records equalled the amounts deposited into the bank account.

11. The Tribunal asked Mr Attard about the inconsistency in the evidence. He insisted he recorded all cash in the company records and he resiled from his evidence on the first day of the hearing. He said he took cash out of the account when he purchased groceries rather than taking it from the business. He did not explain why he changed his evidence and the Tribunal prefers the evidence given against his interest on the first day of hearing.

12. In that case, the Tribunal finds Mr Attard does not record the cash he draws from the business in the company records and it is not included in the gross income in the company’s profit and loss statement. It follows that the company receives cash income that it does not bank and does not declare in its records or income tax returns. Mr Attard receives that income and he does not declare it in his personal income tax returns. It follows the company’s financial records are unreliable and his taxable income does not reflect his actual income.

13. In that case, the Tribunal is not satisfied the business operated by the company has operated at a loss, rather than a profit, at any relevant times and it finds Mr Attard has had income in excess of his adjusted taxable income at all relevant times. This takes his case out of the usual run of cases and it is a special circumstance.

14. The Tribunal has no evidence about the level of Mr Attard’s actual income. Indeed, as the company does not record all cash payments, he might not know how much income he receives from it. However, without evidence to the contrary, the Tribunal infers that he has some capacity to provide support for [Child 1]. In that case, the minimum annual rate is not a proper level of support for her because it is a notional contribution only. For that reason, in the special circumstances of this case, the Tribunal finds that rate is unfair to [Child 1] and to Ms Olan. This is a reason to change the assessment.

Would it be fair to change the assessment?

1. The next step is to consider whether it is just and equitable (fair) to make a particular change to the assessment. To do this, the Tribunal considered relevant matters listed under the headings below (as required by subsection 117(4)). It also took account of the following objects of the Act discussed above.

Duty to support the children

1. Section 3 of the Act provides that parents have a primary duty to support their children and that duty has priority over all their other commitments except the commitments they must meet to support themselves and other people they have a duty to support.

2. Other than [Child 1], Mr Attard and Ms Olan have no children or other people that they have a legal duty to support.

Income, financial resources, property and earning capacity of [Child 1] and the parties

[Child 1]

1. [Child 1] is a full-time student and there is no evidence that she has any income, property or access to financial resources. The Tribunal is satisfied she relies entirely on Mr Attard and Ms Olan to meet her proper needs.

Mr Attard

1. The Tribunal has found Mr Attard has income from the company in excess of his adjusted taxable income at all relevant times.

2. Mr Attard’s evidence also demonstrates the company provides Mr Attard with financial resources that are not reflected in his adjusted taxable income. For example, it meets the expenses for his personal use of a motor vehicle. He also told the Tribunal he drew $12,000 on the business loan to pay arrears of child support, which means the company is repaying interest and capital on his personal loan. Ordinary employees meet those expenses from after tax income. As for the cash income, it is not possible for the Tribunal to determine the value of these benefits.

3. Mr Attard is the sole shareholder of the company but it is in debt according to the 2015 balance sheet. He owns his own home that he values at approximately $300,000. It is security for a loan of approximately $300,000 owed by the business. He has about $12,000 in superannuation, approximately $11,000 in shares, household contents and a motor vehicle he values at no more than $5,000.

4. Mr Attard has been operating his business for many years. The Tribunal has no reason to believe he is not fully exercising his earning capacity.

5. Subsection 58(4) of the Assessment Act provides a default position for the Registrar when making a formula assessment without reliable information about a parent’s taxable income for the relevant year of income. It allows the Registrar to determine a parent’s adjusted taxable income to be “equal to two-thirds of the annualised MTAWE[1] figure for the relevant June quarter in relation to the child support period”. This was approximately $47,000 in the 2015 and 2016 calendar years.

   [1] Male taxable average weekly earnings.

6. Mr Attard has not provided reliable information about his capacity to provide support for [Child 1]. In that case, the Tribunal proposes to determine his adjusted taxable income to be $47,000 as this is commensurate with the default position in the Act for persons who have not provided reliable information about their taxable income.

7. By definition, the proposed adjusted taxable income is less than average earnings. In coming to its proposed determination, the Tribunal took account of Mr Attard’s evidence of limited assets and a modest lifestyle. Ms Olan did not dispute that evidence and the Tribunal has no basis to find he has a higher income. 

Ms Olan

1. When she applied for a change of assessment, Ms Olan had income commensurate with her adjusted taxable income from work as a [occupation] and newstart allowance. She has since moved to work in the same position with a different employer. She is no longer receiving newstart allowance and is receiving a similar overall income.

2. She is working nearly full-time and has no capacity to earn a significantly higher income.

3. At the date of hearing, Ms Olan owned her own home that she purchased for approximately $330,000. There is a mortgage of approximately $260,000. She had approximately $60,000 in a mortgage-offset account that she uses to pay [Child 1’s] education expenses and for unexpected expenses. She owns her household contents and a motor vehicle she values at approximately $8,000.

4. The Tribunal is satisfied she has a similar capacity to support [Child 1] as other parents in similar circumstances. The Tribunal does not propose to make any change to her adjusted taxable income.

[Child 1’s] proper needs

1. The formula uses a cost of the child that is determined under the Costs of the Children Table in Schedule 1 to the Act (the Table). The costs vary with age and the combined incomes of the parents. This recognises that older children have different needs and that families with higher incomes spend more money to support their children. The costs include the usual costs that parents must meet to support their children.

2. [Child 1] has the usual day-to-day needs of a child her age and Ms Olan has no special needs. [Child 1] attends a local [school] but this was not a choice made by both Ms Olan and Mr Attard. In that case, the Tribunal disregards those expenses when determining her proper needs (subsection 117(6)).

3. If the Tribunal makes the proposed determination, the cost of the child used in the assessment would be approximately $8,800. The Tribunal is satisfied that reflects the cost of meeting her proper needs.

Hardship/necessary commitments­

1. If the Tribunal made the proposed determination, the annual rate would be approximately $5,200 or about $100 per week. This is a contribution from Mr Attard of approximately 60% of the cost of meeting [Child 1’s] proper needs.

2. Mr Attard does not have any unusual commitments he must meet to support himself. In the absence of reliable evidence from Mr Attard to the contrary, the Tribunal infers it would not cause him hardship to pay about $100 a week to support [Child 1].

3. Ms Olan does not have any unusual necessary expenses. However, she told the Tribunal that she uses [medication] rather than spending money on treatment for a chronic condition that affects her. Her evidence suggests she budgets carefully and the Tribunal is satisfied she could meet her own ordinary needs and [Child 1’s] proper needs from her income, child support and family tax benefits if it made the proposed determination. If the Tribunal did not make the proposed determination, the Tribunal infers she would have to rely on the amount in her mortgage-offset account to meet all of [Child 1’s] proper needs. It either case, she and [Child 1] would not suffer objective hardship.

Conclusion

1. The Tribunal finds making the proposed determination would result in Mr Attard and Ms Olan contributing to the cost of meeting [Child 1’s] proper needs according to their capacities. It is satisfied it would result in a proper level of support and that it is consistent with their primary duty of support. For those reasons, the Tribunal finds it is fair to make the proposed determination.

2. The Tribunal found the parties and [Child 1] would not suffer hardship if the Tribunal made, or did not make, the proposed determination. This does not weigh against making the proposed determination because both parties have a duty of support and making the proposed determination is necessary to ensure that Mr Attard meets a proper share of that financial burden.

3. The Tribunal will start the assessment from the date Ms Olan applied for the change of assessment to be fair to Mr Attard. As noted, the assessment is likely to end in 2017 when [Child 1] turns 18 or on the last day of the school year. The Tribunal finds it is fair to apply the determination until that time so that the parties have some certainty and do not have to go through another change of assessment process, unless there is a change of circumstances.

Would it be otherwise proper to change the assessment?

1. The final step is to decide whether it is otherwise proper to depart from the administrative assessment. To do this the Tribunal must consider the effect the determination will have on the cost to the community of supporting children through payment of family tax benefit. It must decide whether this is a proper outcome given parents have the primary responsibility to support their children.

2. Ms Olan receives family tax benefit and uses it to meet [Child 1’s] needs. If the Tribunal made the proposed determination and Mr Attard met his liability, the rate payable would reduce. This would result in a lower contribution from the community towards the cost of meeting [Child 1’s] proper needs. The Tribunal finds this is consistent with the parties’ primary duty to support [Child 1] and that making the determination is otherwise proper for that reason.

DECISION

The Tribunal sets aside the decision under review. It substitutes the decision that Mr Attard’s adjusted taxable income in the assessment for [Child 1] is $47,000 from 10 March 2015 until a terminating event happens.