Backman and Starkey (Child support) - [2019] AATA 2522

Backman and Starkey (Child support) [2019] AATA 2522 (6 June 2019)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER: 2018/MC014972
2018/MC015032

APPLICANT: Ms Backman
Mr Starkey

OTHER PARTIES: Child Support Registrar
Mr Starkey
Ms Backman

TRIBUNAL:Member R Anderson
DECISION DATE: 6 June 2019
DECISION:

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

the annual rate of child support payable by Mr Starkey is varied to $1,200 per annum in respect of the period 17 January 2017 to 30 June 2017;
the annual rate of child support payable by Mr Starkey is varied to $2,900 per annum in respect of the period 1 July 2017 to 30 June 2018;
the annual rate of child support payable by Mr Starkey is varied to $1,100 per annum in respect of the period 1 July 2018 to 30 June 2019 and
the annual rate of child support payable by Mr Starkey is varied to $1,200 per annum in respect of the period 1 July 2019 to 31 March 2020.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from self-employment - 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

Mr Starkey and Ms Backman are the parents of [Child 1]. According to records of the Department of Human Services – Child Support (the Department), the child support assessment was registered on 15 October 2012, less than 12 months after [Child 1’s] birth. However, it was not until 6 December 2012 that the Department became responsible for the collection of child support from Mr Starkey.
The child support liability is generally calculated in accordance with the administrative assessment, as provided in the Child Support (Assessment) Act 1989 (the Act). In this case there have been numerous departure decisions, the most recent being made in January 2016, whereby the adjusted taxable income of Mr Starkey was varied to $74,400 per annum in respect of the period 1 January 2016 to 30 April 2018. If no departure decision is in place, the administrative assessment reverts to being calculated on the basis of the income recorded by each parent in their most recently completed tax returns, as lodged with the Australian Taxation Office, or the most recent estimate accepted by the Department.
It is open to either parent to lodge an application for a departure from the administrative assessment under Part 6A of the Act if they consider the administrative assessment results in an unfair amount of child support payable by one parent. Mr Starkey and Ms Backman each lodged such an application in March 2018, on the basis that the administrative assessment produced an unfair outcome due to the income, property and financial resources available to Mr Starkey (Reason 8).
Prior to cessation of the departure decision made in January 2016, the annual rate of child support payable by Mr Starkey to Ms Backman in respect of [Child 1] was $5,700. From 1 May 2018, the annual rate of child support payable by Mr Starkey reduced to nil, based on the income as recorded in the 2016/2017 tax returns of Mr Starkey and Ms Backman of $4,046 and $12,117 respectively.
On 30 May 2018, a delegate of the child support registrar found that a ground was established and decided to vary the annual rate of child support payable by Mr Starkey to Ms Backman in respect of [Child 1] to $1,390 for the period 1 January 2018 to 31 March 2018 and to $1,416 in respect of the period 1 April 2018 to 30 November 2019.
While Ms Backman lodged an objection in June 2018, Mr Starkey lodged an objection in July 2018. On 24 August 2018, an objections officer decided to disallow the objections.
On 6 September 2018, Ms Backman lodged an application to this tribunal for an independent review of the Department’s decision. Mr Starkey followed with his application on 14 September 2018. The directions hearing was conducted by telephone with both parties on 26 March 2019. Following this hearing, directions were made to both parties requiring them to provide further information and documents. The hearing was held on 14 May 2019. Both parties participated by conference telephone and gave oral evidence on affirmation.
The tribunal considered information in the documents provided by the Department in accordance with the Administrative Appeals Tribunal Act 1975 numbered 1 to 313, documents lodged by Mr Starkey numbered A1 to A72, documents lodged by Ms Backman numbered B1 to B55 and further documents from Centrelink numbered D1 to D53. All of the documents were provided to all parties prior to the hearing. Following the hearing, Ms Backman provided further evidence, numbered B56 to B58 which was sent to Mr Starkey directing a response by 24 May 2019. Consequently, the tribunal decided to defer making a decision in this matter. A response was received, numbered A73 to A110 and sent to all parties. As no further comments were received, the tribunal proceeded to make a decision on 6 June 2019.

ISSUES

When calculation of the rate of child support is based on the usual administrative formula as discussed above, it also takes into account, relevantly, factors such as the number of children, the level of care provided, the costs of the children, the costs of self-support of each parent and the income of each parent. Section 98C of the Act allows for a decision maker to depart from the usual manner of calculating the rate of child support payable by one parent to the other parent for a child after considering the following issues:
·         whether a ground exists to depart from the administrative assessment; and if so
·         whether any proposed departure is fair to Mr Starkey, Ms Backman and [Child 1]; and if so
·         whether any proposed departure is fair to the public.

CONSIDERATION

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

The grounds for departure are set out in subsection 117(2) of the Act. Each ground is prefaced by the words ‘in the special circumstances of the case’. The meaning of this expression is not defined in the Act. However, the tribunal was guided by the courts, which have concluded that the expression relates to the facts peculiar to each case such that those facts are ‘out of the ordinary’ and set the case apart from the usual case (Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) and Philippe and Philippe (1978) FLC 90-433).

Reasons 8A and 8B – the earning capacity, income, property and financial resources of each parent

Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, use of the administrative assessment would result in an unfair level of child support payable by Mr Starkey because of the available income, property and financial resources available to him. The Act goes on to state in subsection 117(7A) that the decision maker must have regard to ‘the capacity of the parent to derive income, including any assets of, under the control of, or held for the benefit of the parent that do not produce, but are capable of producing, income’ and disregard ‘the income, earning capacity, property and financial resources of any person who does not have a duty to maintain the child’. Clearly, Mrs Starkey has no legal duty to provide for [Child 1]. Nor does the partner of Ms Backman, [Mr A], have a legal duty to provide for [Child 1]. However, both parties have a legal duty to provide for their biological children from their present relationships.
Mr Starkey submitted that his child support liability resulting from the previous departure decision has been grossly over-stated since the fall in [commodity] prices which commenced around February 2016. As such, he considers the child support assessment to be unfair until cessation of the departure decision on 30 April 2018. In response to a question from the tribunal, Mr Starkey stated that he does not dispute that a nil child support assessment from 1 May 2018 is unfair. He acknowledges the variance in care and is happy to contribute to the care of [Child 1] in accordance with his capacity.
Ms Backman contended that the changes in the operation of the [farm] from a sole trader to a partnership since [January] 2017 have largely resulted in “paper” changes and not “practical” changes. Ms Backman acknowledged the decline in [commodity] prices and the increase in grain prices that have negatively impacted [his specified] industry.
Mr Starkey gave oral evidence that he grew up on a [farm] operated by his parents and [a relative]. Following the passing of [that relative] in 2006, Mr Starkey commenced farming the property in [named town]. Mr Starkey explained that the title initially consisted of three parcels of land, being 100 acres (including the house), 80 acres and 30 acres. Subsequently, he and his mother jointly purchased the neighbouring 40 acre property, subdivided and in January 2017 sold the farm house and five acres, adding the remaining 35 acres to the 100 acre parcel of land. As a result, Mr Starkey maintains that he now owns 17.5 acres of the 135 acre parcel of farm land, or 12.9% and 0% of the remaining 80 acre and 30 acre parcels of land. However, a title search completed on 1 May 2019 records all three parcels of land as being held equally between Mr Starkey and his parents, that is, 33.33% each.
The council rates notice combines all three parcels of land and records the capital improved value of the farm at $1,824,000. Mr Starkey gave oral evidence that this was not his understanding of the ownership and he would need to confirm this with his parents. While the tribunal acknowledges the discrepancy, as discussed at hearing, the farm is central to the operation of the farming business of Mr Starkey and as such, is not an asset that can be readily liquidated.
Mr Starkey initially operated the [farm] in partnership with his parents for many years. The partnership was made up of Mr Starkey, as a sole trader, and his parents as a separate partnership. Following his marriage in February 2016, Mr Starkey formed a partnership with his wife, Mrs Starkey, (the Partnership) which operated the [farm] (the Business) in partnership with the partnership of his parents. The tribunal notes that a further 60 acre property, owned by Mr Starkey’s parents is also farmed by the Business. A Partnership Agreement in relation to the Business was before the tribunal. Essentially Mr Starkey’s parents own the majority of the property and the [stock], while the Partnership operates the [farm]. The Partnership Agreement allows for all [stock] sale profits to be attributed to Mr Starkey’s parents and equal shares of the [commodity] sales and other income. Mr Starkey’s parents have full responsibility for maintaining and meeting all costs in respect of the buildings on the property, including the farm house where Mr Starkey and his family reside. The Partnership has full responsibility in respect of shed light/power, labour costs and [farm] supplies, while all remaining farming expenses are shared equally.
Mr Starkey told the tribunal that his role involved everything on the farm; [farm work], all purchases, and maintenance of machinery and administration duties. He further stated that following commencement of the Partnership, his role did not change. Rather, he simply shared all of the duties with his wife. Mr Starkey explained that his wife is a qualified [occupation 1] and is capable of performing all of the farm duties. In response to a question from the tribunal, Mr Starkey stated that since the birth of [Child 2], who is now [age] old, he and his wife share caring responsibilities, freeing up the other to do whatever tasks are required on the farm. In addition, while limited, Mrs Starkey also performs occasional [occupation 1] work through her own sole trader business.
It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott v Scott [1994] FLC 92-457; Carey v Carey [1994] FLC 92-489). As discussed at hearing, the role of the tribunal is not to conduct a forensic audit (Podmore & Pillai [2011] FMCAfam 952 and Frost and Frost [2011] FMCAfam 1311). Rather, it is to determine from the available evidence before it the financial resources available to the parties for child support purposes, such that a fair decision can be made in respect of the child support liability.
As also discussed at hearing, consideration of income pursuant to a change of assessment application is not restricted to the concept of taxable income under taxation legislation. Nor is it necessarily aligned to the concept of income under the social security legislation in respect of farm household assistance (FHA) applications.
The tribunal examined the profit and loss statements as recorded in the tax returns of the sole trader and Partnership in respect of the 2015/2016, 2016/2017 and 2017/2018 years. In addition, Mr Starkey provided a software generated profit and loss statement in respect of the Partnership from 1 July 2018 to 16 April 2019.
It is well documented and the tribunal accepts that [commodity] prices declined significantly in the second quarter of the 2015/2016 year. Accordingly, the tribunal considers the 2016/2017 year to give a more accurate indication of the financial position of Mr Starkey’ sole trader business in the period from February 2016 to 30 June 2016. Mr Starkey did not dispute the tribunal’s observation that while [commodity] prices initially declined, they appear to have since returned to similar prices to those prior to the collapse in February 2016. The increase in the value of [commodity] sales is also evident in comparative sales recorded on the business activity statements in the first three quarters of the 2018/2019 year. However, it was also evident that the costs for fodder increased significantly in the 2016/2017 year and has continued to do so, as have seed and fertiliser costs. This has resulted in a return to similar net losses in the current year as was recorded in the 2016/2017 year.
The tribunal discussed the existence of benefits received by Mr Starkey and his family through the Partnership. The most obvious is clearly the provision of a home. Mr Starkey pays no rent, rates or maintenance costs in respect of the farm house. Upon closer examination of the profit and loss statements, it was evident that rates of $2,074 in respect of the 2016/2017 year are not the responsibility of Mr Starkey.
The tribunal discussed the electricity and gas expenses which are in the vicinity of $12,000 per annum. Mr Starkey gave oral evidence that he considers that the majority of the costs are related to the farm, in particular the [specified equipment]. He estimated the electricity/gas costs in respect of the farm house to be $2,000 per annum. He further stated that he did not agree with the previous decisions to attribute 50% of the electricity/gas costs to him as a benefit. While Ms Backman agreed with the tribunal’s observation that the annual electricity/gas costs in respect of the farm house alone would be unlikely to reach $6,000, she stated that the farm house is large with under-floor electric heating and she would expect that the annual electricity/gas costs would exceed $2,000. The tribunal considers 30% to be a fair attribution, approximating $3,400 in the 2016/2017 and 2017/2018 years and $3,750 in the 2018/2019 year.
According to the depreciation schedule before the tribunal, the bigger items are largely directly farm related, such as a tractor and baler. Mr Starkey told the tribunal that the related finance contracts have all been fully paid. Other items include a [Vehicle 1], [Vehicle 2] and several motor bikes. It was evident that a [Vehicle 3] was purchased on finance [in] June 2018 for $30,000 and Mr Starkey gave oral evidence that he recently purchased a $10,000 trailer. Mr Starkey maintains that he is living off the overdraft account. Clearly, he has no funds set aside to purchase replacement farming equipment in the future. As such, it is likely that equipment purchases in the future will be purchased on finance, as has been the case historically. As the [Vehicle 3] was purchased under finance in June of 2018, no repayments were required until July 2019. Therefore, with no cash outlays, the tribunal is satisfied that it is appropriate to add back the depreciation in respect of all items, equating to $19,085 in the 2016/2017 year and $24,205 in the 2017/2018 year.
It is noteworthy that in the 2018/2019 year the depreciation and interest in respect of the [Vehicle 3] is likely closely aligned to the actual cost incurred in respect of the finance payments of $556 per month. As the 2018/2019 profit and loss statement does not appear to include depreciation and interest on the finance contract, there is nothing to adjust apart from allowing for the actual finance repayments of $556 per month or $6,672 per annum.
In respect of the [Vehicle 1] and the [Vehicle 3], Mr Starkey estimated his private use to be 30% and 5% respectively. He further stated that as [Child 2’s] safety seat is only able to be fitted in the [Vehicle 1]; his wife uses the [Vehicle 1] around the farm when taking [Child 2] with her. In response to a question from the tribunal, Mr Starkey stated that it is common practice for use of the vehicles for private purposes, such as visits into town, to be combined with farming business. While this may be so, there is no question that there is a private use component to the use of both motor vehicles. Given that the expenses in respect of the [Vehicle 1] and [Vehicle 3] are not segregated, in the tribunals’ view, a fair attribution of private use of the vehicles is 30% overall. In respect of the 2016/2017 year when depreciation in respect of the [Vehicle 1] has already been added back, this represents motor vehicle expenses and insurance of approximately $2,000 and in respect of the 2017/2018 year, $2,200. In respect of the 2018/2019 year, after allowing for the finance repayments, this represents motor vehicle expenses of approximately $4,500. These clearly represent a benefit provided to Mr Starkey by the sole trader business and the Partnership.
Mr Starkey told the tribunal that the house and contents component of the insurance expense paid by the Partnership in 2018/2019 was $413. It is unlikely that this amount would be significantly different in prior years. The tribunal is satisfied that such payment by the sole trader business and the Partnership provides a benefit to Mr Starkey.
The tribunal is satisfied that private use of telephone and internet by Mr Starkey exists. However, given the total costs of less than $1,000 per annum, the value of such a benefit is negligible. The tribunal found the remaining expenses to be unremarkable.
As discussed at hearing, incidental benefits through the private use of farm motorbikes and the like are not considered to be a special circumstance in this case. Clearly, Ms Backman receives similar benefits in respect of vehicles used on the farm operated by her husband. However, given that Ms Backman lives off-farm, the remaining benefits received by Mr Starkey such as electricity, gas, internet and insurance are unlikely to be duplicated in the instance of Ms Backman.
Therefore, the tribunal estimates the adjusted income and benefits from the sole trader business and Partnership in the 2016/2017 year to approach $14,000 and finds accordingly ($16,206-$29,416+$2,074+$3,400+$19,085+$2,000+$413).

In respect of the 2017/2018 year, the tribunal estimates the adjusted income and benefits from the Partnership to exceed $30,000 and finds accordingly (-$102 + $3,400+$24,205+$2,200+$413).
Based on the interim profit and loss statement provided, the tribunal estimates the adjusted income and benefits from the Partnership at 16 April 2019 to exceed $20,000. It is clear that fodder cost has continued to increase in the 2018/2019 year. Such costs and the purchase of a $10,000 trailer will eat into the profits (excluding [stock] purchases) recorded at 16 April 2019, noting that the latter expense is a capital cost which is not incurred on an annual basis. The tribunal accepts that by 30 June 2019 the Partnership will have likely incurred a net loss.
Mr Starkey gave oral evidence that in his view the profits/losses of the Partnership should be shared equally between him and his wife, as they are in their respective tax returns. Ms Backman questioned the capability of Mrs Starkey to contribute equally to the farm duties with [an age] old baby. As discussed at hearing, attribution of profits/losses in accordance with taxation law does not necessarily equate to a fair outcome for child support purposes. While the tribunal accepts that Ms Backman makes a regular and valued contribution to the operation of the farm, in the tribunal’s view it is unlikely that the farming duties are shared equally between Mr Starkey and his wife. This is particularly so during the later months of pregnancy and the earlier months of [Child 2’s] life. On balance, the tribunal considers a fair attribution between Mr Starkey and Mrs Starkey to be 70% and 30% respectively.
Based on the income tax returns of Mr Starkey, other sources of income consist of rental income from a property in [Town 1], owned solely by Mr Starkey. While it is positively geared for tax purposes, after accounting for the principal component of the mortgage repayments, the tribunal calculates that Mr Starkey must meet an annual shortfall approaching $9,000. It is evident that the annual income generated from a share portfolio is minimal, in the amount of less than $200 in the 2017/2018 year.
According to Centrelink information, Mr Starkey was granted FHA payments in February 2018, effective from 26 April 2017. This is a taxable government benefit and is therefore reflected in Mr Starkey’s annual tax returns. In respect of the 2017/2018 year, Mr Starkey received $14,063. Based on Centrelink records, the tribunal estimates that Mr Starkey will likely receive FHA in the vicinity of $14,000 in the 2018/2019 year.
Mr Starkey is in receipt of family tax benefit payments in respect of [Child 1]. As an income-tested benefit, it is not defined as a tax-free benefit under section 5 of the Act to be included in adjusted taxable income (paragraph 43(1)(e) of the Act). Consequently, for child support purposes, it is not considered to be a part of Mr Starkey’s adjusted taxable income (subparagraph 117(7)(b)(ii) of the Act).
A parent’s earning capacity can only be taken into account in limited circumstances, as set out in subsection 117(7B) of the Act which requires the tribunal to consider three matters in determining that the parent’s earning capacity is greater than is reflected in his or her income used in the administrative assessment. Neither party has raised the issue of earning capacity and the tribunal is satisfied that it is not applicable in this case to either party.
The tribunal accepts the written evidence of Mr Starkey that at 15 April 2019, he held a balance in his [Superannuation] account of $40,365. The tribunal is satisfied that no personal contributions have been made by Mr Starkey in recent times.
The tribunal considered the assets and liabilities of Mr Starkey. According to his Statement of Financial Circumstances, completed 3 October 2018, Mr Starkey’s assets consist largely of property. Based on the council rates notice, the value of the investment property in [Town 1] is $319,000. The corresponding mortgages at 31 December 2018 totalled $216,400, leaving current equity in excess of $103,000. A mortgage in the amount of $145,000 corresponds to Mr Starkey’s part ownership of the 135 acre parcel of farm property. As discussed above, his legal entitlement in respect of the total 245 acres is disputed. With no further confirmation of ownership received by the tribunal, it concludes that Mr Starkey is a one third legal owner of the three properties which make up 245 acres. Based on the council rates notice, the tribunal calculates his share to approximate $608,000. Mr Starkey holds a share portfolio valued at $4,199. The [Vehicle 1] and [Vehicle 3] have been discussed above. As the [Vehicle 3] is in the early years of a finance contract it holds little value. The written down value of the [Vehicle 1] at 30 June 2019 will approximate $1,000.
Mr Starkey gave oral evidence that the overdraft account of the Partnership is used to meet all of the farm and family expenses. It was evident that income consisted of [commodity] sales, FHA and family tax benefit. The family and farming expenses are well blurred in the overdraft account. Mr Starkey estimated that the overdraft account was currently in a debit balance of $15,000, noting a further payment of approximately $6,000 is due shortly for the trailer and a further $20,000 for fodder. He is expecting one further [commodity] sales payment in the current financial year of approximately $12,000. He further stated that his credit card is paid off in full each month. Overall, the tribunal is satisfied that the net asset level of Mr Starkey exceeds $550,000.
Mr Starkey told the tribunal that he shares the farm house with his wife, [Child 2] and [Child 1] for 38% of the time. After adjusting the average weekly expenses to include the rental property shortfall, removing the expenses met by the Partnership and adding back the private use benefit of those expenses, the estimated average weekly household expenses approximate $673, or almost $35,000. Of this, discretionary costs in respect of the rental property shortfall, entertainment, holidays, books and magazines are around $200, of which $178 are attributable to Mr Starkey. Accordingly, the estimated average weekly “necessary” costs as recorded by Mr Starkey approximate $188, or $9,776 per annum. This is significantly lower than the self-support amount used in the administrative formula in the 2019 year of $25,038. This is largely due to the fact that the household is not meeting rental or mortgage costs, noting that the mortgages are in respect of the rental property and farming land, the latter accounted for in the Partnership. As discussed at hearing, Mr Starkey’s discretionary spending also includes regular Tatts Lotto tickets and Netflix.
Mr Starkey gave oral evidence that he is in good health, as are his wife, [Child 2] and [Child 1]. In response to a question from the tribunal, Mr Starkey replied that he is barely able to meet the costs of the household and does so by using the overdraft account. The tribunal notes the oral evidence of Mr Starkey that his wife’s FHA application is currently being assessed, following the recent cessation of her paid parental leave. As Mr Starkey expects her FHA allowance to be somewhat similar to his own, this will be a further $500 per fortnight available to assist her in meeting her share of household expenses and her contribution to those of [Child 2].
Irrespective of whether the percentage of income from the Partnership attributed to Mr Starkey is 50%, as he contends it should be, or 70%, in the period under review it is either below or not significantly above the self-support amount. According to information provided to Centrelink in respect of his FHA application, the overdraft liability was around $10,000 in 2017, a credit balance of $4,500 in October 2018 when his Statement of Financial Circumstances was completed and in debit once more at the date of hearing by approximately $15,000. Given the blurring of private and business expenses it is difficult to accurately assess the income, benefits and financial resources available to Mr Starkey. However, what is certain, is his capacity to meet discretionary expenses of $178 per week, or $9,256 per annum. In addition, he also meets his share of private health insurance premiums of $50 per week. As such, the tribunal finds that when the overdraft account moves into a debit balance it is largely as a result of Mr Starkey’s discretionary spending.
The tribunal considered the financial circumstances of Ms Backman. Mr Starkey told the tribunal that he is not questioning the income and financial resources available to Ms Backman. Ms Backman gave oral evidence that she is a stay-at-home mum caring for two young toddlers. The tribunal accepts the oral evidence of Ms Backman that while a qualified [occupation], she has not earned an income through her sole trader business or any other source since prior to the birth of [Child 3] and [Child 4]. It is noteworthy that she was in receipt of paid parental leave in the 2016/2017 year, as reflected on her tax return.
Based on the income tax returns of Ms Backman and departmental records, it is clear that her income and financial resources have remained below the self-support amount since the 2015/2016 year. Given the young ages of [Child 3] and [Child 4] there is no expectation of a significant change going forward. As discussed at hearing, given that Ms Backman has 62% care of [Child 1], her earnings would need to well exceed $30,000 before any substantial impact on the child support assessment would occur.
According to Centrelink information, Ms Backman currently receives family tax benefit on an annual basis following reconciliation of her and her husband’s annual tax returns. As discussed in respect of Mr Starkey, for child support purposes, family tax benefit is not considered to be a part of Ms Backman’s adjusted taxable income (subparagraph 117(7)(b)(ii) of the Act).
The tribunal accepts the written evidence of Ms Backman, that at 29 March 2019, she held a balance in her [superannuation] accounts of $14,130. The tribunal is satisfied that no personal contributions have been made by Ms Backman in recent times.
The tribunal considered the assets and liabilities of Ms Backman. She shares her residence with her husband, [Child 3], [Child 4] and [Child 1]. While the home is owned by Ms Backman’s parents, she pays rent of $250 per week. According to her Statement of Financial Circumstances and oral evidence, her assets consist of a small bank balance ($270) and household contents ($5,000). [Professional] equipment is valued in the depreciation schedule at 30 June 2018 at over $5,000. Ms Backman told the tribunal that she drives her husband’s vehicle and is unsure of whether it is registered in his name or one of the businesses he operates through a company and trust. There is no evidence before the tribunal to indicate that Ms Backman has any legal connection to any of the businesses operated by [Mr A]. Other than a loan owed to her parents of $26,885 which was the result of set-up assistance when she was first a single mother with [Child 1], Ms Backman has no other liabilities. Ms Backman confirmed that there is no legal document in respect of a repayment arrangement to her parents. Therefore, the tribunal finds that Ms Backman has an asset base in the vicinity of $10,000.
In respect of her expenses, Ms Backman estimated her current average weekly expenses to be $244, or $12,688, of which there are minimal discretionary costs in respect of entertainment. While this is less than the self-support amount used in the administrative formula in the 2019 year of $25,035, it is essentially the result of allocating 60% of the rent to the children. In response to a question from the tribunal, Ms Backman stated that the family are able to comfortably meet their weekly expenses. According to her Statement of Financial Circumstances, [Mr A] earns gross weekly income of approximately $1,900.
Ms Backman gave oral evidence that she is recovering from major [surgery]. While the additional expenses in respect of childcare averaging $700 per week and additional medical and pharmacy costs in the vicinity of $449 per week have now ceased, such costs were particularly burdensome during a period of over two months in 2018. Furthermore, Ms Backman’s husband was unable to work and earn an income during this time while caring for her. Ms Backman submitted that such costs should be considered in the overall picture, in particular when considering Mr Starkey’s request to override the previous departure decision from mid-2016.
Based on the tribunal’s findings above it is clear that the income and benefits available to Mr Starkey have been well below $74,400 since mid-2016. The previous departure decision is based on such an income level until 30 April 2018. However, it is also clear that Mr Starkey has had the ability to meet significant discretionary expenses throughout the entire period under review and continues to do so, albeit on occasion through use of the overdraft account. As noted in Hampson & Bailey [2013] FCCA 1004, “contributions by parents to the support of children is not based solely on the income of the parent but also on property and financial resources.”
While the period will be discussed latear in these reasons for decision, the tribunal finds that an annual rate of child support payable by Mr Starkey in excess of $5,000 per annum in the period leading up to 30 April 2018 is over-stated. Yet, a child support assessment of $0 commencing 1 May 2018 is clearly significantly less than what it should be. This fact is not disputed by Mr Starkey who considers an annual rate of child support in the vicinity of $600-$700 to be fair. Therefore, the tribunal finds that special circumstances do exist in this case, in that the administrative assessment results in an unfair outcome. As such, the tribunal is satisfied that a ground for departure is established in relation to subparagraph 117(2)(c)(ia) of the Act.

Issue 2 – Is it fair or ‘just and equitable’ in relation to Mr Starkey, Ms Backman and [Child 1] to make a particular departure determination?

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 fair as regards the parents and the children to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act. This in turn requires the tribunal to have regard to a range of factors, including but not limited to those set out in subsections 117(4) and (6) to (8) of the Act, such as the needs of the children, the parents’ assets, liabilities, income and commitments and any hardship that would be caused by departing or not departing from the formula. The tribunal does not propose to explore every matter in detail, but will discuss those it regards as pertinent to this application (Gyselman).

The needs of the children

Section 3 of the Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain (Ashcroft and Ashcroft (SSAT Appeal) [2008] FMCAfam 1250). In this case Mr Starkey and Ms Backman have the primary duty to financially support [Child 1] and their other relevant dependent children. It is noteworthy that in this case there is sufficient allowance in the administrative assessment for the costs of relevant dependent children.
In determining the proper needs of [Child 1], it is necessary to have regard to the manner in which they are being, and in which the parents expected them to be, cared for, educated or trained, and any special needs (subsection 117(6) of the Act). There was no dispute that [Child 1] is in good health. He is currently in Year 2 and attends a government primary school. There is no evidence before the tribunal to suggest that special circumstances exist in respect of his needs. Based on the estimates of Mr Starkey and Ms Backman, the tribunal calculates the “necessary” costs of [Child 1] to approximate $280, or $14,560 per annum. Even if the adjusted taxable income of Mr Starkey were assessed at $74,400, the costs for [Child 1] according to the costs of children table are $7,600 per annum. It is evident that the necessary and discretionary costs of [Child 1] are being prioritised and are likely over-stated.

The earning capacity, income, property and financial resources and commitments of each parent

As found earlier in these Reasons for Decision, the tribunal is satisfied that Mr Starkey had access to income and benefits of little more than the self-support amount throughout the 2016/2017 year. However, in respect of the 2017/2018 year, the Partnership operations clearly recovered, while Mr Starkey was also in receipt of FHA and a small return from his share portfolio. In the 2017/2018 year, the tribunal calculates his income, benefits and financial resources to exceed $35,000 ($30,000 x 70% + $14,063 + $194). Largely driven by increased fodder costs, it appears that the Partnership operations have again declined in the 2018/2019 year. While Mr Starkey continues to receive FHA in the vicinity of $14,000 and a small return from his share portfolio, overall his income, property and financial resources will again fall below the self-support amount. However, given the equity in his rental property of in excess of $100,000 and a share portfolio in excess of $4,000, the tribunal does not accept that Mr Starkey’s only option to meet the ”necessary” expenses of him and the children is through additional drawings on his overdraft account. It is open to him to arrange his financial circumstances such that he is able to meet the “necessary” expenses of him and the children without relying on borrowed funds.
The tribunal also found earlier that Ms Backman’s income and financial resources remain below the self-support amount from mid-2016 and are likely to remain as such over the next few years while the children are so young.

Conclusion

After consideration of the income, resources, benefits and assets together with the commitments and liabilities of Mr Starkey and Ms Backman and the needs of the children, the tribunal considers it is just and equitable to make a departure determination from the current administrative assessment in accordance with section 98S of the Act. The tribunal was particularly mindful of the level of discretionary spending maintained by Mr Starkey of in excess of $178 per week, largely in respect of his investment property and his reduced “necessary” costs.
While the “necessary” costs of Ms Backman’s household are readily met, this in no way negates the obligation of Mr Starkey to contribute to the needs of [Child 1], in accordance with his capacity.
The tribunal may make one of the determinations set out in section 98S of the Act. Section 98S sets out a range of determinations, including varying the annual rate of child support payable, the adjusted taxable income of a parent, or the costs of self-support. The tribunal may not make a determination in respect of any period more than 18 months earlier than the date on which the application for a change in the way the child support liability is calculated was made (subsection 98S(3B)). In this case, that date is 21 September 2016.
The tribunal accepts that the previous departure decision over-stated Mr Starkey’s income and financial resources from around February 2016, resulting in his child support liability being over-assessed. However, Mr Starkey did not lodge a departure application until 21 March 2018, following initial discussion with the Department in January 2018. The tribunal does not consider it just and equitable that Mr Starkey should be in a state of overpayment, Ms Backman being within her rights to rely on the child support assessment as applied unless otherwise put on notice that it may change. The tribunal is also cognisant of providing some degree of certainty for the parties moving forward.

Therefore, the tribunal proposes to commence the departure decision at 17 January 2017 and end it on 31 March 2020. At this point, the parties have ample time to complete their taxation affairs in respect of the 2018/2019 year. The half-year financials in respect of the 2019/2020 year should also be available in respect of the Partnership, thereby allowing a more accurate assessment to be carried out. Unfortunately, in circumstances such as this where a parent operates a business, a departure application and the subsequent inquisitorial process is always going to be necessary.
The tribunal proposes to vary the annual rate of child support payable by Mr Starkey to Ms Backman in respect of [Child 1] to $1,200 per annum in respect of the period 17 January 2017 to 30 June 2017, to $2,900 per annum in respect of the period 1 July 2017 to 30 June 2018, to $1,100 per annum in respect of the period 1 July 2018 to 30 June 2019 and to $1,200 per annum in respect of the period 1 July 2019 to 31 March 2020. Both parties agreed at hearing that Mr Starkey had current outstanding child support arrears in the vicinity of $3,000. The proposed decision will result in almost eradicating those arrears.
Subsection 117(4) of the Act requires the tribunal to consider whether any departure determination or failure to make a departure will cause any hardship to the children, the carer, the liable parent or any other person the liable parent has a duty to support.
While Mr Starkey stated that he considered a child support liability in excess of $700 per annum would cause him hardship, given his lifestyle choices, Ms Backman did not accept such a statement. Ms Backman further stated that she would manage regardless of the child support liability. However, in her view the administrative assessment of $0 per annum and a rate of $700 per annum is unfair.
Given the equity in the investment property and his share portfolio, the tribunal does not consider that going forward, child support at the rate of $21 per week will cause hardship to Mr Starkey. It is open to Mr Starkey to arrange his financial circumstances in such a way that he is able to meet his child support obligations.

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

The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act. Subsection 117(5) sets out the matters that must be considered when deciding whether it would be ‘otherwise proper’ to make a departure determination.
In this case Mr Starkey and Ms Backman are in receipt of family tax benefit Part A and Part B. As both are partnered, the income of their respective spouses also impacts on their family tax benefit entitlements. Furthermore, an increase in the child support payable by Mr Starkey will only serve to reduce Ms Backman’s family tax benefit entitlement. This will likely offset any increase in the earlier period through a decrease in the child support liability of Mr Starkey. Consequently, there is little or no cost to the public purse. Therefore, the tribunal considers that it is otherwise proper to make the particular proposed determination.
It is open to either party to lodge a further change of assessment application should the future circumstances of either party change significantly from the circumstances upon which this decision is based.

DECISION

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

the annual rate of child support payable by Mr Starkey is varied to $1,200 per annum in respect of the period 17 January 2017 to 30 June 2017;
the annual rate of child support payable by Mr Starkey is varied to $2,900 per annum in respect of the period 1 July 2017 to 30 June 2018;
the annual rate of child support payable by Mr Starkey is varied to $1,100 per annum in respect of the period 1 July 2018 to 30 June 2019 and
the annual rate of child support payable by Mr Starkey is varied to $1,200 per annum in respect of the period 1 July 2019 to 31 March 2020.