Bai and Reddy (Child support)

[2019] AATA 5946

Bai and Reddy (Child support) [2019] AATA 5946 (10 December 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/MC016484

APPLICANT:  Mr Bai

OTHER PARTIES:  Child Support Registrar

Ms Reddy

TRIBUNAL:Member F Hewson

DECISION DATE:  10 December 2019

DECISION:

The tribunal decided to affirm the decision under review.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – no ground for departure – decision under review affirmed

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. Mr Bai and Ms Reddy are the parents of a son and daughter (the children), aged six and four respectively, in respect of whom there is a child support assessment. The child support case commenced in May 2017. Mr Bai is assessed as liable to pay child support to Ms Reddy.   

2. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The child support liability is assessed on the basis that Mr Bai has a percentage of care of the children of 28% and Ms Reddy has a percentage of care of 72%.

3. The Act provides for a departure from the administrative assessment of child support in certain circumstances. The administrative assessments are as follows:

• In the period from 23 August 2018 to 30 June 2019 Mr Bai was assessed to pay an annual rate of child support of $11,670 per annum, on the basis of his adjusted taxable income for 2016/17 of $95,092 and an adjusted taxable income for 2016/17 for Ms Reddy of $37,392.

• In the period from 1 June 2019 to 31 August 2020, Mr Bai is assessed to pay an annual rate of child support of $8,860 per annum on the basis of a derived income for 2017/18 of $101,103, and an adjusted taxable income for 2017/18 for Ms Reddy of $93,279.

1. On 8 October 2018 Mr Bai lodged a departure application on the basis that the assessment is not fair because of the income, property, financial resources and earning capacity of Ms Reddy and on the basis of his necessary commitments of self-support (Reasons 8A and 7).

2. On 14 January 2019 a decision maker of the Department of Human Services – Child Support (the Department) concluded that a ground for departure was not established and decided not to depart from the administrative assessment of child support. Mr Bai lodged an objection to the decision and on 9 April 2019 an objections officer disallowed the objection.

3. On 6 May 2019 Mr Bai lodged an application for review by the Social Services and Child Support Division of the Administrative Appeals Tribunal. The application was heard on 3 and 31 October 2019. Mr Bai spoke to the tribunal by conference telephone. Ms Reddy also spoke to the tribunal by conference telephone. The Child Support Registrar did not attend the hearing.

4. In reaching its decision the tribunal had regard to the evidence of Mr Bai and Ms Reddy at the hearing as well as the documentation provided by the Department, Mr Bai and Ms Reddy. 

ISSUES

1. Pursuant to section 98C of the Act, a decision to depart from the administrative assessment may be made if the following requirements are met:

   (i)that one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and

   (ii)that it would be:

   (A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)otherwise proper;

   to make a particular determination under this Part …

2. Subparagraph 117(2)(c)(ia) of the Act, commonly referred to as Reason 8A, provides as a ground for departure:

   (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; or

3. Sub-subparagraph 117(2)(a)(iii)(A), commonly referred to as Reason 7, provides that a ground for departure from the administrative assessment may be established if, in the special circumstances of the case, the capacity of either parent to provide financial support for the child is significantly reduced because of their commitments which are necessary to enable them to support themselves.

4. In this case the tribunal must determine whether a ground for departure from the administrative assessment of child support is established on the basis of Ms Reddy’s income, property and financial resources or Mr Bai’s necessary commitments for self-support, and if so, whether it would be just and equitable and otherwise proper to make a particular determination.

CONSIDERATION

1. The tribunal considered whether a ground for departure is established on the basis of Ms Reddy’s income, property and financial resources (Reason 8A).

2. In his change of assessment application, Mr Bai stated that Ms Reddy’s employment income is approximately $63,000 (including salary sacrificing) and her rental income is at least $30,160. He argued that the child support liability should be assessed on an income of $93,000 for Ms Reddy.

3. In her Statement of Financial Circumstances, completed on 24 May 2019, Ms Reddy stated that her income from employment [in a position] is about $1,451 a week; her rental income is $580 a week; and she receives income from dividends of about $12 a week. The tribunal notes that the rental income declared is the gross amount received, and does not include deductions for expenses incurred in deriving that income.

4. The documents provided by the Department show the adjusted taxable incomes for Ms Reddy and Mr Bai used in the child support assessments:

ADJUSTED TAXABLE INCOMES ($)
Financial Year	Ms Reddy		Mr Bai		Period to which applied
2016/17	37,392	taxable	95,092	taxable	1 April 2018 to 31 May 2019
2017/18	93,279	taxable	101,103	provisional	1 June 2019 to 31 August 2020

1. Ms Reddy said her income for 2017/18 is inflated because it includes an amount for capital gains, in relation to an investment property sold in accordance with the property settlement with Mr Bai, who will also have a capital gain for 2017/18.

2. Ms Reddy said she returned to work in about October 2016 after a period of maternity leave. She was working part-time in two roles; eight hours per week in one and 15.2 hours in the other. About 12 months ago her hours increased to 15.2 and 12 in those positions. Her annual salary, as shown on her recent payslips, is $69,077 (about $72,000 with allowances). Ms Reddy said under her Enterprise Bargaining Agreement she can salary package up to $9,009 per year, which is recorded as $17,000 in her tax return. She said she simply has to declare that she has expenses. She is not limited to particular categories of expenses. Mr Bai queried whether Ms Reddy was still using a “meal/entertainment card”, as she had in the past. Ms Reddy said the rules in relation to the card changed a few years ago and it was no longer beneficial for her to use the card, because it was a reportable fringe benefit. She confirmed that she no longer has the card.

3. In relation to her income for 2017/18, Ms Reddy said her taxable income (after deductions of $1,452) was assessed to be $71,262. As well as her salary ($34,392) and dividends ($921) she had supplementary income of $37,464 (net capital gain of $43,162 – net rental property loss of $5,697). Ms Reddy’s adjusted taxable income of $93,279 comprises the taxable income of $71,262, the net rental property loss of $5,697 and a reportable fringe benefit amount of $16,320 related to her salary packaging.

4. Mr Bai said he thought the amount of deductions against the rental income received by Ms Reddy was excessive. Ms Reddy said there were some larger expenses in the 2017/18 year, related to work on the property. She also thought the amount for land tax may have been larger than usual because it was incorrectly assessed for a period, and she had to pay an arrears amount.

5. The gross rental income for Ms Reddy’s investment property in [City 1] was $30,158 in 2017/18. The rental property schedule shows that the largest expense was for interest ($13,958) on the mortgage against the property. The land tax was $1,389. Other expenses included council rates, insurance, repairs and maintenance, capital works deduction, water charges, sundry rental expenses (surveying fee) and depreciation ($3,365). The net rent from [City 1] property was $4,090. Ms Reddy’s tax return also included rental property expenses related to the property in [a city], which was sold in November 2017 and to which the capital gain was related. As the expenses for that property resulted in a loss, Ms Reddy’s net rental property loss was $5,697.

6. As noted above, Mr Bai said he thought the expenses claimed by Ms Reddy in relation to her rental income are excessive. The main expense is for interest payments on the mortgage against the property and there are no unusual or unexplained expenses. Having considered the available evidence, the tribunal concluded that there is nothing unusual about the expenses claimed by Ms Reddy or of the overall impact of the investment property on her income.[1] It notes that the depreciation expense is likely an amount that was available to Ms Reddy for her own use, as it is a “paper” expense and there is no evidence that an amount has specifically been set aside to replace the depreciated items, including an oven/stove, which is not likely to be replaced for some years. Mr Bai also has an investment property which would attract similar tax treatment, but as he has not completed his income tax return for 2017/18 it was not possible to compare.

   [1] It is also noted that according to the Treasury over 1.9 million Australians earned rental income in 2012/13, and of those 1.3 million reported a net rental loss ( In May 2019, the Australian Financial Review reported that the average net rental property loss in 2017/18 was $8,800 (>

   In the child support period from 23 August 2018 to 31 May 2019, Mr Bai was assessed to pay child support of $11,670 per annum, using the adjusted taxable incomes for 2016/17. The amount assessed for the period 1 June 2019 to 31 August 2020 is $8,860 per annum, using the 2017/18 incomes, which at the date of the hearing was a provisional income for Mr Bai as he has not completed his 2017/18 income tax return.

7. It is clear from the available evidence that the 2016/17 adjusted taxable income used for Ms Reddy in the child support formula from 23 August 2018 to 31 May 2019 was significantly lower than her then current income, because the 2016/17 year included several months when she was on maternity leave. Having regard to the incomes for both parties for 2017/18 (which is a provisional income for Mr Bai), and taking into account the amount of care each party has of the children, the tribunal calculated that the impact on the child support assessment is about $1,000 per annum. 

8. Ms Reddy said she incurs expenses in relation to the older child’s special needs, related to his [medical condition], including for the paediatrician he sees every three months (out of pocket amount of about $400 per annum); for glasses (about $300); and for [a service] to assist him with his reading difficulties[2] ($1,150 in 2019). Ms Reddy also incurs out of pocket expenses for child care for the younger child, which she said amounted to about $3,900 in the period from August 2018 to August 2019, which she said are greater than 5% of her income. Mr Bai argued that the child care expenses are less than the 5% threshold for a departure from the administrative assessment, based on an income for Ms Reddy of $93,000.

   [2] Ms Reddy said the school was not providing sufficient support for the child’s needs. [Various medical professionals] indicated it would be beneficial, but there is no written recommendation. She plans to ask for it to be included in his next NDIS review, but it is not currently.

9. Ms Reddy’s income is discussed in detail above. Having regard to the overall circumstances, including the uncertainty in relation to Mr Bai’s 2017/18 income, because he has not completed his tax return, the relatively small impact of a departure from the 2016/17 income in the period from 23 August 2018, and the expenses Ms Reddy is incurring, the tribunal was not persuaded that there are special circumstances to depart from the administrative assessment of child support on the basis of Ms Reddy’s income, property and financial resources.

10. For completeness, the tribunal notes that it considered whether special circumstances exist such that another ground for departure from the administrative assessment of child support is established under subsection 117(2) of the Act (e.g. in relation to the special needs of the older child or in relation to the child care expenses incurred by Ms Reddy, or in relation to Mr Bai’s necessary commitments for self-support). In relation to the special needs, the expenses incurred are not of such a magnitude as to warrant a departure, and if the child care expenses meet the 5% threshold, it is by a small margin and Ms Reddy has had the benefit of being assessed on the lower income, as discussed above. In relation to Mr Bai’s necessary commitments for self-support, raised in his original change of assessment application, this related to legal expenses he is incurring in relation to property and child proceedings. Ms Reddy is also incurring legal expenses. The tribunal concluded they are not a necessary commitment for self-support and are being incurred by both parties. The tribunal was not persuaded that another ground for departure from the administrative assessment exists in the particular circumstances of this case.

11. The tribunal decided not to depart from the administrative assessment of child support. As this is consistent with the decision made by the Registrar, the tribunal decided to affirm the decision under review.

DECISION

The tribunal decided to affirm the decision under review.