Basford and Jowett (Child support)

[2021] AATA 1538

Basford and Jowett (Child support) [2021] AATA 1538 (8 April 2021)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/MC019853

APPLICANT:  Mr Basford

OTHER PARTIES:  Child Support Registrar

Ms Jowett

and

REVIEW NUMBER:  2020/MC019854

APPLICANT:  Ms Jowett

OTHER PARTIES:  Child Support Registrar

Mr Basford

MTRIBUNAL:  Member M Martellotta

DECISION DATE:  08 April 2021

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – income derived from business – ground for departure established – decision under review affirmed

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted 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 Basford and Ms Jowett are the parents of three children who are relevant to an administrative assessment of child support.[1]

   [1] Born on 2 October 2003 ([Child 1]); 23 March 2008 ([Child 2]) and 2 April 2011 ([Child 3])

2. On 29 January 2020, Ms Jowett lodged a change of assessment application with Services Australia (the Agency). That application was on the grounds of Reasons 3, 5, 8A and 8B.

3. In terms of the grounds identified by the parties:

   ·     Reason 2 – costs of caring for the child are affected by their special needs.

   ·     Reason 3 – costs of caring for, educating or training the children in a manner intended by the parents.

   ·     Reason 5 – a parent has provided money, goods or property for the children’s benefit.

·     Reason 8A – that the assessment does not reflect the parents’ income, property and financial resources.

1. At the time of the application for change of assessment ,the eldest child was recorded as being in Mr Basford’s 100% care, the second child and youngest child in Mr Basford’s 28% care and Ms Jowett’s 72% care.  A subsequent change in care recorded by the Agency reflects that as from 11 April 2020 Mr Basford has 0%  and Ms Jowett 100% care of the youngest child and Mr Basford has 100% and Ms Jowett 0%  care of the  eldest and second child.

2. The assessments in place were as follows:

   ·     From 26 November 2019 to 10 April 2020 Mr Basford was assessed to pay an annual rate of $1,438 based upon his 2018/19 adjusted taxable income (ATI) of $34,663 and Ms Jowett’s 2019/20 estimate of $20,726.

   ·     From 11 April 2020 to 30 June 2020 Mr Basford’s liability was reduced to $946 per annum due to the change in care.

   ·     From 1 July 2020 to 31 December 2020 Mr Basford was assessed to pay $946 per annum based upon his 2018/19 adjusted taxable ATI of $34,663 and Ms Jowett’s 2019/20 estimate of $0.

3. On 10 June 2020 a decision maker, decided that grounds 2 and 8A had been established and departed from the administrative assessment so that for the period 25 February 2020 to 31 December 2021 Mr Basford was to be assessed on an ATI of $69,308.

4. Mr Basford and Ms Jowett both objected to the decision.  On 14 August 2020 the objection officer decided to depart from the administrative assessment so that for the period 25 February 2020 to 31 December 2021 Mr Basford was to be assessed on an ATI of $75,236.

5. Mr Basford and Ms Jowett each lodged an application with the tribunal seeking independent review. The tribunal convened a telephone directions hearing on 21 February 2021 following which it issued directions. 

6. The tribunal convened a hearing on 8 April 2021.  Mr Basford and Ms Jowett participated by conference telephone and gave evidence under affirmation.  Documents[2] provided to the tribunal and parties relevant to this application included:

   ·Statement and documents provided by the Department (666 pages)

   ·Documents provided by Mr Basford (A1–A100)

   ·Documents provided by Ms Jowett (B1–B87)

ISSUES

[2] At hearing Mr Basford advised he did not have the documents before him and had not received the supplementary documents – he did not seek to have the hearing deferred.

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act).

2. Child support legislation is interpreted by the Agency with the aid of the Child Support Guide (the Guide). The tribunal is not bound by law to apply the policy as set out in the Guide but provided the policy is consistent with the legislation, it is required to have regard to it and in the ordinary course follow it.[3]

   [3] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634.

3. The issues for the tribunal to determine in this case are:

   ·     Does a ground for departure exist? if so,

   ·     Would it be just and equitable as regards the child, the liable parent, and the carer entitled to child support to depart from the administrative assessment of child support?

   ·     Is it otherwise proper to make a particular departure determination?

CONSIDERATION

Issue 1 – Is there a ground to depart from the administrative assessment?

1. The rate of child support payable by a liable parent is usually based on an administrative assessment calculated using the relevant formula under Part 5 of the Act. This involves the application of a statutory formula, which takes into account factors such as the number of children, the age of each child, the level of care provided and the income of each parent. The income used in the calculation has a number of components making up the adjusted taxable income, which is worked out using section 43 of the Act. The general approach is that the Child Support Registrar (the Registrar) will utilise a parent’s ATI as assessed by the Australian Taxation Office (ATO) for the last relevant year of income.

2. Part 6A of the Act allows for a departure from an administrative assessment (a process commonly known as a change of assessment). The liable parent or carer may apply to the Registrar for a determination to depart from the child support administrative assessment under Part 6A of the Act (section 98B). Section 98C of the Act provides that the Registrar may make a determination to depart from the formula assessment and as noted, establishes a three-step process.

3. The grounds for departure from the administrative assessment are set out in subsection 117(2) of the Act. Only one ground is required in the special circumstances of the case to depart from the administrative assessment and thereby satisfy the requirements of subsection 117(2) of the Act.[4] In this matter the only ground contested at hearing was whether a ground for departure is established pursuant to reason 8A.

   [4] The phrase “special circumstances of the case” is not defined in the Act. However, the Family Court has held that “it is intended to emphasise that the facts of the case must establish something special or out of the ordinary” (Gyselman and Gyselman (1992) FLC 92–279). Likewise, in Phillippe and Phillippe (1978) FLC 90-433 the Court held that “special circumstances” are “facts peculiar to the particular case which set it apart from other cases”.

Reason 8A – income, property and financial resources of the parties

1. This ground was the main issue raised in the hearing.  Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, application of the provisions of the Act relating to the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of the income, property and financial resources of either parent.

Mr Basford

1. Mr Basford earns his income as [an Occupation]; income is also derived from selling [product 1]. He told the tribunal that prior to separation from Ms Jowett they operated the business as a partnership, but the partnership has since been dissolved and he now operates as a sole trader. He operates the business from [a property] that he leases as well as from [a property] that he has financed with a [bank] loan.

2. Mr Basford told the tribunal that he disagreed with the decision made by the Agency however he did not have a clear view as to what his ATI should be for child support purposes. He said that he drew about $800 a week from the business which over a year would give him a base income of about $40,000 and he probably derived a further personal benefit from his business of about $10,000 per annum giving him an overall annual income of about $50,000.

3. Mr Basford was unable to provide any clear evidence regarding various aspects of the financial statements for his business.  In effect he said that he only signed the paperwork produced by his accountant but could not answer any specific questions.  In relation to those financial statements for the business Mr Basford was however able to clarify the following:

   a)His depreciation costs in the last financial year had significantly increased because he took advantage of the write off allowances introduced by the Federal Government in response to the COVID-19 pandemic and he purchased a [Vehicle 1] and vehicle and was able to write off 100% of that capital expenditure.

   b)He pays wages to one employee who works part time from time to time as required. 

   c)Mr Basford agreed with evidence provided by Ms Jowett that he also employs other people in the business from time to time but he pays them in kind (such as giving them [product 2]).

4. Mr Basford did not dispute that as part of the financial settlement of his separation from Ms Jowett that he was paid her share of the 2018/19 partnership profits.

5. According to a statement of financial circumstances provided by Mr Basford his main asset is the [property] valued at $760,000 which is subject to a $750,000 mortgage. He owns a motor car ([Vehicle 2]) which is used for both business and personal use.  He has superannuation of about $27,000.

6. Mr Basford did not make any detailed submissions in relation to Ms Jowett’s financial circumstances.

Ms Jowett

1. Ms Jowett told the tribunal that since separation and leaving the family business her source of income has been a combination of casual work and jobseeker payments.  She has started a small business providing services withing [a service] sector. At the moment that work is intermittent and she probably on average works about two days a week. She said her income from the venture is uncertain but says she may earn about $35,000 per annum.

2. Ms Jowett provided a summary of her income from her business which states that in the six months from 1 July 2020 to 31 December 2020 she earned $29,245 less unspecified expenses of $15,473 (these were generally described as insurance, vehicle and related outgoings) and tax of $4,890 which left her with a profit of about $8,882.  Ms Jowett indicated that those expenses did not include personal benefits derived from items such as motor vehicle costs.

3. Ms Jowett provided a Statement of Financial Circumstances which show her main asset is her home which she values at $235,00 and [a second property] valued at $225,000.  She services a home mortgage of $100,000. She estimates the value of her superannuation to be about $7,000.

4. She did not receive an income from the [business] in 2018/19 as orders made on 16 August 2018 provided that Mr Basford was to receive 100% of the profits in that year.

5. Ms Jowett’s main submissions went to Mr Basford’s financial circumstances.  She said that whilst she could not specify an income amount for child support purposes she is of the view that the Agency’s decision failed to take into account the following factors:

   a)Mr Basford has inflated the business expenses by paying workers in kind rather than in wages;

   b)Mr Basford has included as a business expense the repayments on her [Vehicle 3] which as part of the settlement orders he was required to meet the costs for;

   c)the child [Child 1] who lives with Mr Basford works full time and is not financially dependent;

   d)Mr Basford has been able to purchase significant assets including a [Vehicle 2] and [Vehicle 1] and [Vehicle 4];

   e)Mr Basford receives cash for sale of [product 1], she gave the example of a statement provided by an individual who stated he purchased 10 [units] from Mr Basford for $250 cash and the balance paid as bank deposit;

   f)Mr Basford received the total profits from the last year of their business partnership.

6. According to information provided by the Agency and parties in response to tribunal directions the tribunal notes the following:

   a)The 2018/19 partnership tax return recorded a total turnover of $569,984 less expenses of $500,676 leaving a profit of $69,308 which was equally distributed between Mr Basford and Ms Jowett.

   b)Mr Basford’s individual tax return for 2018/19 recorded an adjusted taxable income of $34,663.

   c)Mr Basford’s individual tax return for the 2019/20 financial year recorded total income (from the business) of $578,578 less total expenses of $555,578 leaving a net profit and income for Mr Basford of $23,000.

   d)Ms Jowett’s notice of assessment for the year ending 2019 shows a taxable income of $39,704 and in the year ending 2020 a taxable income of $17,311. This was later amended to a taxable income of $11.

   e)According to the Agency records Ms Jowett provided a nil estimate for the 2020/21 financial year and assessments issued for the period 1 July 2021 to 1 October 2021 utilise a provisional ATI figure of $20,128.

   f)Family Court orders confirming transfer of undistributed profits from the partnership from Ms Jowett to Mr Basford and the requirement that Mr Basford pay the loan on the [Vehicle 3].

7. It is recognised that parents who run their business through entities may also personally benefit from certain costs being met through business expenses. As noted at 2.6.14 of the Guide is consistent with relevant legislation:

   Expenses partly for business purposes & partly for private purposes

   Where an expense is partly business and partly private the expenses must be apportioned for taxation purposes. Parents who are self-employed or who operate a business might claim expenses that may otherwise be considered private as a legitimate income tax deduction. Examples include the fixed-costs component of telephone expenses such as the rental and connection fees, home office expenses or motor vehicle expenses. These deductions are generally not available to parents who derive income solely from salary and wages.

8. In this case there is evidence that both parties derive income from businesses that they conduct as sole traders.  It is apparent that the business operated by Mr Basford is well established and has recently changed from a partnership to sole trader.  Ms Jowett by comparison has more recently started a  new venture for  which has at this point in time there is limited financial information available.

9. As a starting point the tribunal is satisfied and finds that in the 2018/19 financial year Mr Basford received 100% of the undistributed profits from the then partnership of $69,308. Mr Basford’s evidence at hearing was that he would probably also derive about an additional $10,000 in personal benefits from the business.  This results in income and financial resources of about $79,308 for the 2018/19 financial year.

10. In the following financial year of 2019/20 Mr Basford commenced operations in his sole name.  His evidence was that he draws wages of about $800 a week.  Annualised this comes to about $41,600.  In addition to this Mr Basford says he derives about $10,000 in personal benefits resulting in an annual income of about $51,000. In addition to this Mr Basford has the benefit of the profit from his business which in that year was $23,000 the tribunal finds that this resulted in an annual income of about $74,000 in the 2019/20 financial year.

11. The tribunal is satisfied that the allocation of $10,000 as personal benefits derived from the business is reasonable (it is about $200 per week). The tribunal also concluded that on the presented evidence it was not satisfied that it was appropriate to regard depreciation costs claimed by Mr Basford as financial resources relevant to the assessment.

12. In terms of Ms Jowett, the tribunal notes that the administrative assessment was based upon her estimated income of $20,726 for the 2019/20 financial year.  Ms Jowett’s amended taxable assessment for that year was $11. In the current financial year of 2020/21 Ms Jowett has established a small business, at this point there is limited information about the turnover for that business. Ms Jowett’s income is currently derived from a combination of income support and part-time work. The assessment is currently based upon a provisional income.  The tribunal is satisfied that at this point in time Ms Jowett’s income, financial resources and property is that as reflected in her personal income tax returns and will be reconciled in due course with the estimates she has provided.

13. In this matter the tribunal has found that Mr Basford had relevant income of about $79,000 in the 2018//19 financial year and in the 2019/20 financial year of about $74,000. Utilising these amounts in the assessment would result in a significant change in the level of child support payable by Mr Basford.

14. For this reason, the tribunal concludes that a ground of departure exists because in the special circumstances of the case, application of the provisions of the Act relating to the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of the income, property and financial resources of the parents.

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

1. As the tribunal is satisfied that there is a ground to depart from the assessment of child support as set out above, the next step for the tribunal is to consider whether it is just and equitable as regards the child and the parental parties 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 consider the matters set out in subsection 117(4) of the Act, which is discussed in the following paragraphs.[5]

Proper needs of the child

[5] The tribunal notes the Federal Magistrates Court case of Tyagi & Meares [2008] FMCAfam 886 which directs that in considering the matters set out in subsection 117(4) the section need not be ‘slavishly followed, each of the relevant factors listed … should be considered’.

1. In determining the proper needs of the child it is necessary to have regard at a broad level to the manner in which the child is being, and in which the parents expect the child to be, cared for, educated or trained, and also any other needs of the child.  

2. At hearing Ms Jowett advised the tribunal that due to the changes in care arrangements she  no longer would be pursing the issue of out-of-pocket expenses relating to the special needs of their second child who now resides on a full-time basis with his father.

3. There were no other submissions presented on this aspect.

Income, earning capacity, property and financial resources of the child

1. In having regard to the income, earning capacity, property and financial resources of the child the tribunal must disregard any entitlement of the child or the carer entitled to child support to an income tested pension, allowance or benefit (subparagraph 117(7)(b)(ii) of the Act).

2. Ms Jowett told the tribunal that their eldest child who resides with Mr Basford is now working full time in an apprenticeship. Mr Basford confirmed this. According to information provided by Ms Jowett their son earns about $900 a fortnight (about $450 per week).

3. According to the Guide:[6]

   [6] 2.6.10

Significant income

If a parent applies for a change of assessment because their child receives more than a minimal income, the Registrar will consider whether that income is significant to warrant a change to an assessment. This will depend upon the income of the child, the financial circumstances of the parents, the amount of child support payable under the assessment and the circumstances of the case. However, generally the Registrar will not be satisfied that a child's income is sufficient to warrant a change to the assessment unless that income is regular and exceeds the equivalent of the maximum basic rate of youth allowance.  This means, for example, that as at 1 January 2021, a child would generally need to earn or receive a gross income of at least $345.10 per week for the earnings to be considered so significant as to be capable of affecting the assessment.

However, this is only a guide, and in certain circumstances, the Registrar may determine that the child's income is significant even if it is below this amount, or is insignificant even though it is above this amount. The figure will change periodically in line with changes to payment rates for youth allowance. The Registrar will also consider the needs of the child including the costs incurred by the child, or the parents, in earning the income, e.g. transport and clothing costs.

1. Whilst the child’s financial resources may be a relevant consideration in this matter the tribunal concluded that it should not be a factor in this particular case.  In reaching this conclusion the tribunal notes that the child has recently started an apprenticeship and is, on the available evidence, earning a modest amount of income.  Mr Basford since April 2020 has 100% care of two of the children, including the child for whom Ms Jowett previously sought adjustments be made due to costs associated with that child’s special needs.  Mr Basford has not sought any adjustments be made on that basis despite assuming care.

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

1. Neither party made submissions in this regard and the tribunal concludes there is no basis for any adjustment pursuant to this consideration.

The income, property and financial resources of each parent who is a party to the proceeding

1. In this matter the tribunal has made findings in relation to the income and financial resources of the parents and does not repeat those findings.

Earning capacity

1. A ground for departure exists if, in the special circumstances of the case, the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of the earning capacity of either parent (subparagraph 117(2)(c)(ib)). Neither party made submissions in this regard and the tribunal concludes there is no basis for any adjustment pursuant to this consideration.

The commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support himself or herself, or any other child or another person that the person has a duty to maintain

1. The tribunal is satisfied taking into account the relevant costs of self-support utilised in the assessments and based upon evidence provided at hearing and in the parties’ Statements of Financial Circumstances and evidence presented at hearing that neither party has extraordinary costs of self-support that are relevant to the assessment.

Any hardship that would be caused

1. As noted, the tribunal can vary the rate of child support payable or it can vary some of the variables that are used in the administrative formula.  Mr Basford declined to make any submissions on this aspect.  Ms Jowett said that she wanted an outcome that gave her at least $100 a week and that she would otherwise take care of the youngest child’s costs and Mr Basford would take care of the second child’s costs.

2. In this matter the tribunal has concluded that the administrative assessment does not reflect relevant income and financial resources available to Mr Basford who is able to derive some additional benefit from operating a business.  The tribunal has found that Mr Basford had relevant income of about $79,000 in the 2018//19 financial year and in the 2019/20 financial year of about $74,000. Averaged over the last two available financial year figures, this results in an average annual income of $76,500.

3. The Agency in their departure decision decided that a  figure of $75,326 should be utilised.  Substituting the tribunal’s conclusion of a relevant income of about $76,500 with that as found by the Agency will not result in any significant change to the assessment. For this reason the tribunal concluded that the departure determination as determined by the Agency in their decision of 14 August 2020 in which for the period 25 February 2020 to 31 December 2021 Mr Basford’s ATI is varied to $75,236, should remain in place.

4. In terms of Ms Jowett the tribunal has concluded that the usual operation of the administrative provisions should apply.  This means that Ms Jowett’s estimates of income will be reconciled with a parent’s actual relevant ATI once assessed by the ATO and at this point in time there is no reason to depart from this.

5. In reaching this conclusion, the tribunal has considered both parties and in particular Ms Jowett’s submissions.  The tribunal on balance however concluded that in all the circumstances of the case a departure in the proposed terms would be just and equitable when taking into account the relative financial positions of the parties.  In tribunal’s view whilst Mr Basford is earning a higher income - Ms Jowett has assets in the form of two properties subject to a relatively modest encumbrance.  Mr Basford main asset is the [property] which is subject to a significant loan.  The tribunal has not made any findings in relation to possible personal benefits that Ms Jowett may derive from the operation of her new business.  Mr Basford has not pursued any submissions for an adjustment to be made for the special needs of their second child who is now in his full-time care.

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

1. The final step is for the tribunal to determine whether it is ‘otherwise proper’ to make a particular departure determination.  Subsection 117(5) requires the tribunal to take into account whether the proposed departure is proper in the context of public interest and the welfare expenditure of the community.  A prime objective of the legislation is that parents are obliged to support their own children to the extent of their real capacity and such obligation should not be unnecessarily abrogated to the public welfare system.

2. According to the Statement of Financial Circumstances both parents are in receipt of family assistance. The proposed departure in this regard has relevance to the impact on the public purse and as such the tribunal finds that the requirements under paragraph 117(5)(a) of the Act are met. 

DECISION

The decision under review is affirmed.