Beringer and Armistead (Child support)

[2019] AATA 5736

Beringer and Armistead (Child support) [2019] AATA 5736 (19 November 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/BC015844

APPLICANT:  Mr Beringer

OTHER PARTIES:  Child Support Registrar

Ms Armistead

TRIBUNAL:Member K Buxton

DECISION DATE:  19 November 2019

DECISION:

The decision under review is varied so that, from 20 August 2018 until a child support terminating event occurs and the child support case ends for the child, [Child 2], Mr Beringer’s adjusted taxable income is varied to $170,000.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business – adjusted taxable income of the liable parent varied - decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. Ms Armistead and Mr Beringer are the parents of [Child 1], aged 17 and [Child 2], aged 14. Mr Beringer has sought review of a decision of the Child Support Agency (CSA) about the amount of child support which had been assessed as payable by him to Ms Armistead in respect of [Child 1] and [Child 2] who are recorded as in the primary care of Ms Armistead.

2. The administrative assessment of child support for 30 July 2018 to 30 November 2018 required Mr Beringer to pay to Ms Armistead child support at the annual rate of $13,270 based on 2018/19 estimated incomes of $70,253 for Mr Beringer and $21,900 for Ms Armistead. Following a small adjustment to the amount allowed in the formula for the parents’ self-support, the annual rate of child support changed to $13,170 for the period 1 December 2018 to 30 June 2019.

3. On 20 August 2018 Ms Armistead applied for a change of assessment, under Part 6A of the Child Support (Assessment) Act 1989 (the Act), on the basis that Mr Beringer’s available income and financial resources were not fairly reflected in the assessment. On 15 October 2018 a delegate of the Child Support Registrar refused the application on the basis that no departure ground existed.

4. Ms Armistead objected to that decision and on 31 January 2019, an objections officer allowed the objection, deciding that for the period 1 November 2018 to 30 November 2019 Mr Beringer’s adjusted taxable income would be set at $140,200 per annum. Mr Beringer applied to the tribunal to have the objections officer’s decision reviewed.

5. The tribunal hearing took place on 19 November 2019. Mr Beringer and Ms Armistead appeared by conference telephone and gave sworn evidence. In reaching its decision, the tribunal has considered the sworn evidence given during the hearing together with the documentation provided by the CSA (Exhibit 1), Mr Beringer (Exhibit A) and Ms Armistead (Exhibit B).

CONSIDERATION

The legislative framework

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. A formula is used which takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent. A parent may apply for a departure from the assessment, under Part 6A of the Act, in certain circumstances. However, the legislative intent is that the tribunal will not interfere with the administrative formula result in the ordinary run of cases. Under subsection 98C(1), a change of assessment can be made only if:

   a.    a ground (or more than one ground) for departure exists; and

   b.    departure from the administrative assessment would be:

   i.just and equitable as regards the children and each parent; and

   ii.otherwise proper.

2. If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the tribunal may make one of the range of determinations, prescribed in section 98S of the Act, which include varying the rate of child support payable, the adjusted taxable income or the cost percentage for a child.

Ground for departure

Income, property, financial resources and earning capacity

1. The Act provides, as grounds for departure from the administrative assessment of child support (in subparagraph 117(2)(c)(ia)):

   (c)that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child: …

   (ia) because of the income, property and financial resources of either parent.

2. The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. In Gyselman and Gyselman (1992) FLC 92-279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The tribunal will consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence relevant to the parents’ financial positions.

Ms Armistead’s income and financial resources

10.  Ms Armistead is a university student and, until recently, also worked casually in [work sector]. Ms Armistead reported 2018/19 taxable income of $23,949 which included her income from casual work and income support payments from Centrelink. Ms Armistead stated that her income is likely to reduce from that level in the current financial year as she has resigned from her employment for medical reasons. Ms Armistead gave sworn evidence during the hearing that she was assaulted by her ex-partner, who was then incarcerated, and she suffered anxiety which has impacted her ability to work. Ms Armistead stated that she is receiving medical treatment and ongoing care for her condition. Ms Armistead also explained that, before her ex-partner was incarcerated, he shared the care of their three year old child but she now has 100% care of that child.

11.  During the hearing Mr Beringer raised the issue of Ms Armistead’s unexercised earning capacity, stating that he has “had to work, so why shouldn’t (Ms Armistead)?” The tribunal can consider unexercised earning capacity if a parent changes their working arrangements or voluntarily ceases employment. However, the tribunal cannot consider such earning capacity if those changes in arrangements were justified either as a result of the parent’s health issues or their caring responsibilities. Here, the tribunal is satisfied that Ms Armistead’s decision is justified on both bases and the child support legislation does not permit consideration of any unexercised earning capacity of Ms Armistead.

12.  The tribunal concludes from the available evidence that Ms Armistead’s income from employment (from time to time) and her income support payments have been reflected in the child support case intended by the child support formula. If Ms Armistead anticipates a drop in her income of more than 15% from the income used in the formula it is open to her to lodge an income estimate with the CSA. However, given that the children are recorded as in her primary care, and her income is only just above the amount allowed in the formula for self-support, this is unlikely to significantly alter the assessment of child support.

Mr Beringer’s income and financial resources

13.  When Ms Armistead applied for a departure, in August of 2018, the administrative assessment of child support required Mr Beringer to pay to Ms Armistead child support at the annual rate of $13,270 based on 2018/19 estimated incomes of $70,253 for Mr Beringer and $21,900 for Ms Armistead. Mr Beringer has now reported taxable income of $138,999 for the 2018/19 year. Mr Beringer is [an Occupation] and earned income in the 2018/19 year from [Government Department], from engagement as a contracted service provider and through his own company, [Business Name]. Through that company Mr Beringer has now purchased a [professional] practice in which he works, and in which he is hoping to employ or contract other [professionals] to provide services.

14.  Mr Beringer submitted to the tribunal the 2018/19 income tax returns for himself and his partner Ms [A] and the financial statements and income tax returns for [Business Name]. Those documents show the following information for the 2018/19 year:

·[Business Name] received gross income of $197,811 and claimed expenses totalling $197,823.

·Those expenses included employment expenses totalling $92,776, and these expenses were split between Mr Beringer and his partner, Ms [A].

·[Business Name] paid to Ms [A] the sum of $11,700;

·[Business Name] paid to Mr Beringer income of $73,027;

·Further expenses claimed by [Business Name] included vehicle expenses of $9,917 and depreciation expenses of $4,489;

·Mr Beringer received total income of $162,052 (from the three sources identified above) and claimed deductions and losses totalling $23,053 against that income, leading to taxable income of $138,999;

·Those deductions comprised work-related car expenses of $3,400; laundry and clothing expenses of $750; depreciation expenses of $2,270 and other work-related expenses of $16,138.59.

15.  Mr Beringer stated that [Business Name] was his own company originally but that he has now made his partner, Ms [A], a 40% shareholder in March 2019. He stated that he wished to purchase a [professional] practice and that Ms [A] had qualifications and experience that could assist him in setting up that business. Mr Beringer purchased the business in October 2019, although it is unclear whether Mr Beringer was contracting at that practice prior to the purchase. Mr Beringer produced to the tribunal a letter signed by his partner, Ms [A], as “practice manager”, stating that Mr Beringer “is employed at [Employer] on a salary of $110,000 per annum from date 1 July 2019 and is contracted on a full-time 38 hr week basis until the end of 2020.” The tribunal notes that this letter does not make any mention of Mr Beringer’s ownership of the practice from October 2019, nor does it take account of any other income or financial resources available to Mr Beringer from the operation of the business. Mr Beringer submitted during the hearing that $110,000 per annum in income was a reasonable figure to attribute to him and that further account could be taken of any additional income earned when that had been ascertained. However, in order to determine whether a ground exists to depart from the administrative assessment of child support the tribunal is required to consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence available to the tribunal as to the parents’ financial positions. The administrative assessment in place in August 2018 used an estimate of income provided by Mr Beringer for the 2018/19 which, in the event, grossly underestimated his available income and financial resources. The tribunal finds that the letter from Mr Beringer’s partner stating that his income is $110,000 per annum from 1 July 2019 to the end of 2020 to be most uncompelling.

16.  In addition to the income disclosed in Mr Beringer’s income tax return Mr Beringer had access to additional financial resources from the operation of his business. In the 2018/19 year Mr Beringer stated that his partner, Ms [A], had an “undefined role” in the operation of [Business Name] that was “initially advisory”. When asked during the hearing why she has been paid $11,700 by [Business Name] in the 2018/19 year Mr Beringer responded “I’m no accountant” and stated that he could not interpret the tax returns in a way that explained the payment to Ms [A]. Ms [A] could not have become the practice manager of the practice purchased by Mr Beringer until October 2019, in the following financial year, and Mr Beringer seemed unsure during the hearing why his partner had been paid by [Business Name] at all during the 2018/19 year. [Business Name] generated its services income in the 2018/19 year by Mr Beringer providing contract [professional] services. There is no evidence available to the tribunal to indicate that Ms [A] was involved in the provision of those services or the generation of that income and Mr Beringer accepted this during the hearing. Despite Mr Beringer having been provided ample opportunity during the hearing to explain why Ms [A] had been paid by [Business Name] during that financial year, no explanation was forthcoming, other than that she had become a 40% shareholder in March 2019 and was undertaking an “advisory” role. In those circumstances it is proper to conclude that the payments made by [Business Name] to Ms [A] as employment expenses were in the nature of an alienation of Mr Beringer’s income to his partner and the amount of $11,700 is to be added back to Mr Beringer’s available financial resources for child support purposes for the 2018/19 financial year.

17.  Mr Beringer gave evidence during the hearing that motor vehicle costs of $9,917 (incurred by [Business Name] in the 2018/19 year) were for the [motor vehicle] driven by Ms [A]. Ms [A]’s motor vehicle expenses were of a personal nature but met from the income of [Business Name] during a period when Ms [A] did not contribute to the generation of that income. It is therefore proper to add back the amount of $9,917 to Mr Beringer’s available financial resources for child support purposes for the 2018/19 financial year.

18.  [Business Name] reported depreciation costs in the 2018/19 year of $4,489. Mr Beringer also claimed depreciation of $2,270 in his personal income tax return for his chair and desk and various [computers] and devices. Whilst it may be legitimate for tax purposes to reduce income by an amount that represents the notional diminution in value of certain assets, depreciation of existing assets is not generally a cash expense and the claimed depreciation amounts are still available for distribution to a business owner, or to a taxpayer, in the amounts claimed.  It is therefore proper to add back the total depreciation costs claimed of $6,759 to Mr Beringer’s available financial resources for child support purposes for the 2018/19 financial year.

19.  [Business Name] claimed various “other” business expenses including cleaning costs of $1,592, although the purpose of those cleaning costs is unclear (given laundry costs are separately claimed and the business did not operate from premises in the 2018/19 year). If it is cleaning of the home office, the costs of which are deducted in Mr Beringer’s personal income tax return, it represents a further personal benefit provided to Mr Beringer by the operation of his business. Domestic and International travel expenses totalling just over $3,000 are also claimed. The tribunal notes that Mr Beringer’s personal tax return includes deductions of $847 for a home office and $1,400 for meals. Together, these deductions total almost $7,000 in a single financial year. Whilst they may be legitimate for tax purposes, it is likely that at least some personal benefit was also obtained by Mr Beringer as a result of expenditure of that nature.

20.  Mr Beringer has disclosed taxable income of about $139,000 for the 2018/19 year. In addition, the tribunal has found that he has had access to additional financial resources of about $28,000 and some personal benefit from further expenditure in the order of $7,000. Having regard to this evidence together, it is reasonable to conclude that Mr Beringer’s available financial resources for the 2018/19 year were in the order of $170,000. The tribunal notes that this figure is similar to his adjusted taxable income of $176,777 for the previous 2017/18 financial year which would have been used in the administrative assessment of child support from October 2018 onwards had Mr Beringer not lodged an income estimate of $70,253 prior to lodging his income tax return for the 2017/18 year.

21.  Mr Beringer explained during the hearing that he was unsure what his income would be for the 2018/19 financial year as his health was uncertain. Mr Beringer had required surgery in early 2019 and was unsure at that time how this would impact his income. Mr Beringer also explained that he has ceased further specialist training as a surgeon, also as a result of his health and that he has been diagnosed with [a medical condition]. Mr Beringer explained that his purchase of the [professional] practice was a response to those health concerns and that he can no longer [physically do something] for the extended periods that would be required of a [specialist professional]. Mr Beringer stated that he had hoped to retain the [professionals] on staff at his new practice when he purchased it but that they had all decided not to stay on and, as a result, he was looking for new [professionals] and undertaking a heavier workload himself until he is able to recruit suitable others.

22.  The tribunal is unable to predict Mr Beringer’s future income and financial resources from the business with absolute accuracy. Mr Beringer stated that, if he is able to find [professionals] to join his practice, he will generate income by receiving a service fee or other payment from those [professionals]. In the meantime, he is not sharing the income he generates with other [professionals] and is undertaking additional work, generating additional income. Either way, the tribunal considers it reasonable to conclude that, for the foreseeable future, Mr Beringer will continue to have access to income and financial resources from the business at about the same level as that in the 2018/19 year.

Conclusions in relation to the departure ground

23.  The administrative assessment of child support does not take account of all the financial resources available to Mr Beringer. The administrative assessment of child support in place around the time when the departure application was lodged in August 2018 required Mr Beringer to pay to Ms Armistead child support at the annual rate of $13,270 based on 2018/19 estimated incomes of $70,253 for Mr Beringer and $21,900 for Ms Armistead.

24.  The tribunal has found that Mr Beringer has had access to income and financial resources of about $170,000 per annum during the 2018/19 year. If child support was calculated using an income of $170,000 per annum for Mr Beringer and $21,900 for Ms Armistead, the annual rate of child support payable by Mr Beringer for the children would increase to about $37,000 per annum. The administrative assessment of child support does not fairly reflect the income and financial resources available to Mr Beringer and the existence of these factors, and the marked difference in child support payable to Ms Armistead when they are considered, sets this case apart from others, making it special.

25.  The tribunal is satisfied that the administrative assessment of child support produces a result which is unjust and inequitable having regard to the parents’ respective incomes and financial resources, particularly having regard to the disparity between the annual rate of child support calculated in the administrative assessment and that arrived at with regard to the actual income and financial resources available to Mr Beringer. The tribunal therefore finds that there is a ground to depart from the administrative assessment.

Just and equitable

26.  The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

Mr Beringer

27.  Mr Beringer lives in a home which he has estimated is valued at about $930,000, owned jointly with his partner. His partner and her children also live in the home. There is nothing to suggest that the self-support amount allowed for in the formula (of approximately $24,000 per annum) is not an appropriate measure of Mr Beringer’s proper needs.

Ms Armistead

28.  Ms Armistead lives with [Child 1] and [Child 2] and her three-year old child in a home which she has estimated is valued at about $570,000, owned jointly with her ex-partner. There is nothing in the evidence to suggest that the self-support amount allowed for by the child support formula (of approximately $24,000 per annum) is not an appropriate measure of Ms Armistead’s proper needs. Ms Armistead has the children in her 100% care and would benefit from whatever financial support Mr Beringer is able to provide to assist in meeting their proper needs. The tribunal has found that Ms Armistead has had income and financial resources commensurate with the adjusted taxable incomes she has reported from time to time.

The Children

29.  The children have been privately educated at [School]. The children of Mr Beringer’s partner, Ms [A], attend the same school. Information provided by Mr Beringer to the CSA in a previous departure application indicated that he was meeting the costs of Ms [A]’s children’s school fees in addition to those of [Child 1] and [Child 2]. Mr Beringer produced recent statements from the school to show that he is still making those payments. As Ms [A]’s taxable income for the 2018/19 year was $17,845 it is likely that she would continue to benefit from Mr Beringer’s financial support in meeting her children’s education costs, even if that is undertaken as a sharing of total household costs. However, Mr Beringer does not have a duty to meet the education costs of his partner’s children. The parents have primary responsibility to meet the proper needs of their children and in the case of the [Child 1] and [Child 2] this has included their education costs.

30.  Mr Beringer submitted that the rate of child support payable by him to Ms Armistead for [Child 1] and [Child 2] should be reduced by way of a contribution to the school fees. However, the evidence clearly demonstrates that Ms Armistead does not have the capacity to meet school fees from her already straitened financial resources. Further, Mr Beringer has demonstrated the capacity to meet not only his own children’s private school fees but those of his partner’s children. The child support legislation provides that the children are entitled to benefit from the financial resources of each parent regardless of whose care they may be in. The tribunal is not satisfied that a reduction in the rate of child support payable by Mr Beringer to Ms Armistead for the children to meet their proper needs is just and equitable having regard to the objects of the Act and the financial resources available to both parents.

Conclusions as to what is just and equitable

31.  The tribunal proposes to vary to $170,000 per annum the adjusted taxable income for Mr Beringer that is used to calculate the rate of child support payable by Mr Beringer to Ms Armistead for [Child 1] and [Child 2] from 20 August 2019 until the child support case is to end for [Child 2]. This will provide certainty for the parents and allow them to make proper provision for the children’s needs. Either party may apply for a further departure if there are genuinely changed circumstances prior to that date.

32.  The proposed departure will create arrears for Mr Beringer when compared with the administrative assessment. The tribunal is not satisfied that any hardship is created as a result of those arrears having regard to the nature and quantum of financial resources available to Mr Beringer. It is proper that he is assessed on his actual income and financial resources. The tribunal is satisfied that the proposed departure will not cause hardship to either parent or to the child.

Otherwise proper

33.  The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. Varying the income for Mr Beringer on which child support is calculated from that used in the administrative assessment, based on his income and financial resources which are not reflected in the administrative assessment will result in an appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

Conclusion

34.  Ms Armistead sought a departure from the administrative assessment of child support in August 2018. The tribunal has found a ground to depart from the administrative assessment and has decided to vary the adjusted taxable income of Mr Beringer to $170,000 per annum from 20 August 2018 until the child support case ends for [Child 2]. The tribunal has found that a departure in those terms is just and equitable and otherwise proper.

35.  As the conclusion reached by tribunal differs from the decision under review as to the adjusted taxable income for Mr Beringer, that decision is varied in order to reflect the tribunal’s findings.

DECISION:

The decision under review is varied so that, from 20 August 2018 until a child support terminating event occurs and the child support case ends for the child, [Child 2], Mr Beringer’s adjusted taxable income is varied to $170,000.