Billing and Tillick (Child support)

[2018] AATA 220

Billing and Tillick (Child support) [2018] AATA 220 (5 January 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/MC012011

APPLICANT:  Ms Billing

OTHER PARTIES:  Child Support Registrar

Mr Tillick

TRIBUNAL:Member P Noonan

DECISION DATE:  05 January 2018

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

• For the period 17 November 2016 to 30 November 2019, Mr Tillick’s adjusted taxable income is varied to $101,242;

• for the period 17 November 2016 to 30 June 2017, Ms Billing’s adjusted taxable income is varied to $82,402.

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

CATCHWORDS

Child Support – Departure determination – Income and financial resources of parents – Business income – Costs of education of children – Period of departure - Decision under review set aside and substituted

REASONS FOR DECISION

BACKGROUND

1. 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 Act also provides for a departure from the administrative assessment in certain circumstances.

2. Ms Billing and Mr Tillick are the parents of the children [Child 1] and [Child 2], currently both aged 14.

3. A child support case was first registered with the Department of Human Services (the Department) [in] April 2007 and child support is registered for collection by the Department. The tribunal noted that the care of [Child 2] is currently recorded as 365 nights per year to Ms Billing and the care of [Child 1] is recorded as 189 nights per year to Mr Tillick and 176 nights per year to Ms Billing.

4. On 17 November 2016 Ms Billing lodged a change of assessment application with the Department. Ms Billing applied on the basis that Mr Tillick’s income and overall access to financial resources was such that application of the administrative assessment resulted in an unjust and inequitable determination of the amount of child support Mr Tillick must pay to her. Ms Billing also applied for a change of assessment on the basis that the costs of maintaining the children are significantly affected because of the costs of educating the children in the manner both parents expected.

5. The liability history screens in respect to this case, as maintained by the Department, show that for the period 26 October 2016 to 22 December 2016 Mr Tillick is assessed to pay child support of $3,818 per year, based on his 2015-16 adjusted taxable income of $63,058 and Ms Billing’s 2015-16 adjusted taxable income of $86,029.

6. On 22 March 2017, a Department decision maker decided that a reason for departure had been established and determined to depart from the administrative assessment such that:

   ·For the period 17 November 2016 until a terminating event for [Child 1] the adjusted taxable income of Mr Tillick is set at $144,841;

   ·For the period 17 November 2016 until a terminating event for [Child 2] the adjusted taxable income of Mr Tillick is set at $144,841.

7. On 12 April 2017 Mr Tillick objected to this decision and [in] June 2017 an objections officer decided to allow in part his objection. The officer decided that a departure determination was appropriate in the following terms:

   ·For the period 17 November 2016 until a terminating event for [Child 1] the adjusted taxable income of Mr Tillick is set at $81,278;

   ·For the period 17 November 2016 until a terminating event for [Child 2] the adjusted taxable income of Mr Tillick is set at $81,278.

8. Ms Billing subsequently applied to this tribunal for an independent review.

9. A hearing for the matter was held by the tribunal on 15 December 2017. The Child Support Registrar did not attend the hearing. Ms Billing attended the hearing in person and gave evidence on affirmation. Mr Tillick attended the hearing by conference telephone and gave evidence on affirmation.

10. In reaching its decision the tribunal considered the verbal evidence of Ms Billing and Mr Tillick, the documentation provided by the Department (numbered 1 to 388), Ms Billing (numbered A1 to A187) and Mr Tillick (numbered B1 to B135).

11. Pursuant to paragraph 98C(1)(b) 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 …

ISSUES

A ground for departure

Mr Tillick’s income and access to financial resources

1. Subparagraphs 117(2)(c)(ia) and (ib) of the Act, commonly referred to as Reason 8, provide as grounds 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….

   (ib) because of the earning capacity of either parent.

2. Mr Tillick is the owner of a [business] called [company name] (the Business). Mr Tillick’s accounts and taxation returns are professionally prepared by his [accountants]. The Business operates through a [trust] (the Trust). The Trust recorded trading income of $505,731 in 2016-17 and gross profit from trading of $331,165. Net profit was $80,132. Mr Tillick’s declared 2016-17 taxable income was $78,567. His income was entirely derived from a distribution from the Trust. He also declared a net rental loss of $375 which must be added back to his income for child support purposes.

3. The tribunal discussed the Business and its performance in some detail with Mr Tillick. The Business has one full-time employee and Mr Tillick who also works full-time in the Business. He informed the tribunal his partner had recently lost her job and was working in the Business since July 2017, however the Business did not have enough money to pay her at the moment.

4. 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).

5. In respect to costs of goods sold the tribunal accepted these as reasonable. In regard to other business expenses the following items were of note:

   ·The tribunal noted that Mr Tillick does not separate his personal spending from his business spending. The objections officer calculated that his personal spending was equivalent to annual personal expenditure in 2016-17 of $75,684. The tribunal noted this was a similar amount to Mr Tillick’s taxable income. The tribunal also considered the following business expenses in the context of whether they potentially add to Mr Tillick’s overall access to financial resources and as such should be added to his taxable income.

   ·Advertising and promotion expenses increased from $6,659 in 2014-15 to $28,259. Mr Tillick noted that he worked in an increasingly competitive environment. The tribunal accepted the level of advertising as reasonable in the context of the Business’ overall income and considering the nature of its industry.

   ·Depreciation claimed was $7,967. Depreciation is a paper expense. A business can claim a depreciation expense in a particular tax year even though the asset in question may have been fully paid for several years earlier. On the other hand the initial capital outlay is not a deductible expense. The Department’s Child Support Guide at 2.6.14 suggests that it is relevant to consider whether claiming depreciation expenses results in a parent having greater financial resources or income than the parent’s taxable income indicates. So, for example, if the amount claimed as a depreciation expense is actually available to the parent and used by them to meet living expenses, it may be appropriate to add back the depreciation amount to the parent’s income for child support purposes. On the other hand, if the amount is used for replacing equipment, then it is unlikely that the depreciation expenses have provided the parent with such a benefit. The business owns two vans and [a] sedan and claims depreciation on these items, some office furniture and the purchase of a business in the past. The tribunal noted capital purchases are an occasional outlay for the business. It appears not to be a capital intensive business and has no ongoing schedule for the renewal or replacement of capital items. There is no regular provision made for such an expense. The tribunal considered it appropriate to add back this expense to Mr Tillick’s income.

   ·Motor vehicle expenses of $16,969. Mr Tillick drives [a] sedan owned by the Business. There is no provision for personal use in respect to this vehicle. Mr Tillick suggested his personal use of the vehicle was no more than 5%. Mr Tillick does not have another vehicle. The tribunal accepted he must travel for business purposes however the Business retains two vans for business purposes. The tribunal considered an add back of 50% of one-third of this claimed expense, or $2,282 was appropriate.

   ·Rent on land and buildings of $33,296. The tribunal noted that in 2014-15 this expense was $5,004. Mr Tillick explained that the Business had rented new commercial premises after previously being run from his home. This was because the children are getting older and he needed the spare bedroom he had been using for the Business. He also needed more room to store equipment. The tribunal accepted this expense as reasonable for a business of Mr Tillick’s scale.

   ·Rates and land tax of $4,528. Mr Tillick explained that he and his partner purchased the commercial property and lease it to the Business. The Business pays these expenses, not himself personally. While this practice is acceptable for taxation purposes, from a child support perspective it effectively transfers personal costs to a tax deductable setting in the Business. Accordingly, the tribunal will add back the tax advantage of 30% (being the corporate tax rate) to Mr Tillick and allocate 50% of this to Mr Tillick being his share of the property. Such an amount is $680.

   ·Other items nominated as staff amenities, staff training, subscriptions, telephone and travel and conferences totalling $13,705. The Business only has one employee. The tribunal will add 10% of these items to Mr Tillick’s taxable income to account for the personal benefit afforded him from claiming items such as phones completely as business expenses. This amount is $1,370.

6. The total added back to Mr Tillick’s 2016-17 taxable income is therefore $12,299, which the tribunal considered provides a reasonable indication of his overall access to financial resources. This raises the assessment of his overall access to financial resources in 2016-17 to an amount reflected by an adjusted taxable income of $91,241. In addition the tribunal noted Ms Billing’s concerns in regard to Mr Tillick’s lack of disclosure in respect to bank account statements.

7. Mr Tillick submitted that he has been subsidising his expenses, in particular school fees, (which he had been paying at an amount of $1,500 per month for many years), from extending his mortgage and drawing upon credit facilities. There were few bank statements before the tribunal in respect to Mr Tillick. A Westpac credit card statement for January 2017 showed a closing balance of $14,906.15 with payments made of $1,699 and no new purchases made. The previous month Mr Tillick made payments of $2,200 with no new purchases. Mr Tillick did not supply bank statements that would enable some verification his claimed liabilities as directed by the tribunal. The tribunal concluded that overall Mr Tillick has sufficient overall access to financial resources, as ascertained earlier in these reasons, to meet his necessary costs for self-support with some surplus for discretionary spending. The tribunal will take an adverse inferences approach and add an additional amount of $10,000 to Mr Tillick’s adjusted taxable income to reflect his lengthy ability to pay school fees and lack of disclosure in respect to bank account statements. This varies the assessment of his overall access to financial resources in 2016-17 to an amount reflected by an adjusted taxable income of $101,241.

Ms Billing’s income, access to financial resources and earning capacity

1. Ms Billing has recently commenced a [business]. She gave evidence that this venture has been financed by the borrowing of $460,000. $375,000 is a refinance loan from [Bank 1] secured against her house. $60,000 is a business loan. She will commence paying rent in respect to the business in March 2018. Mr Tillick submitted that Ms Billing has no experience in this area and generally questioned the basis of her financial projections and priorities in respect to directing finances towards this venture. He noted that Ms Billing had resigned from her previous long term full-time employment at [College 1] in December 2016, which is their children’s school, and commenced working casually. Ms Billing informed the tribunal that she earned around $65,000 at [her previous employment] and the children received a 50% fee bursary upon which she had to pay fringe benefit tax. She had been unhappy in the job for some time and felt the bursary was effectively acting like ‘golden handcuffs’ upon her. She was now working three days a week at [another College  in a similar position and also working casually in another position.

2. 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 criteria in determining that the parent's earning capacity is greater than is reflected in his or her income used in the administrative assessment:

   ·     Whether the parent is:

   o   not working despite ample opportunity to do so (subparagraph 117(7B)(a)(i));  and/or

   o   has reduced their weekly hours of work to below full-time work (subparagraph 117(7B)(a)(ii));  and/or

   o   has changed their occupation, industry or working pattern (subparagraph 117(7B)(a)(iii)); and

   • If the parent’s decision about his/her work arrangements is not justified by either his/her caring responsibilities (subparagraph 117(7B)(b)(i)) or his/her state of health (subparagraph 117(7B)(b)(ii));  and

   • If the parent has not demonstrated that it was not a major purpose of their decision not to work despite ample opportunity to do so or to stop working, reduce their hours of work or change their occupation, industry or working pattern to affect the administrative assessment of child support subsection 117(7B)(c).

3. All three of the above criteria must be met before a departure determination can be made to take into account whether the parties have a greater earning capacity. If the above criteria are satisfied then the tribunal may determine the actual earning capacity of the parent.

4. The tribunal noted that Ms Billing has resumed work since her resignation from full-time employment. She gave evidence that she had been unhappy in her previous role for some time and had persevered with the job purely due to the fee bursary afforded the children. The tribunal found this plausible. Further Ms Billing has also subsequently taken considerable steps towards developing a new business and has submitted detailed business plans and forward projections as prepared by her accountant. On balance the tribunal did not consider affecting child support was a major purpose of her change in employment arrangements.

5. Overall the tribunal considered it appropriate that Ms Billing’s overall access to financial resources be reflected by the application of her most recent adjusted taxable income, which in 2016-17 was $82,402. The tribunal will vary her adjusted taxable income to reflect this as she has provided a much lower income estimate, which has been incorporated into the assessment of child support payable in the period 23 December 2016 to 30 June 2017.

6. Under the original departure determination, the annual rate of child support payable by Mr Tillick was $3,818. The tribunal has found that Mr Tillick’s overall access to financial resources is reflective of an adjusted taxable income of $101,242. The annual amount of child support payable by Mr Tillick, using this figure, and Ms Billing’s adjusted taxable income of $82,402 is approximately $11,193. The tribunal considered such a difference in the child support payable meant that application of the administrative assessment (resulting from the original departure determination) would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Tillick in support of the children. As a result, the tribunal has determined that a ground for departure in subparagraph 117(2)(c)(ia) of the Act does exist.

Other grounds

25.The tribunal noted that Ms Billing also sought a departure from the administrative assessment on the basis of the children’s education costs. Both parents also raised issues in regard to orthodontic and dental costs. However, the tribunal has already determined that there is a ground to depart from the administrative assessment based on the considerations above.

26.In Marsh & Eccles [2008] FMCAfam 1417, Riethmuller FM stated, in regard to determining multiple grounds for departure from the administrative assessment, as follows (at paragraph 13):

Once a ‘special circumstance’ is established, it is then necessary to determine what would be a just and equitable and otherwise proper child support assessment….once a special circumstance has been established for each period, as only one special circumstance in the period is sufficient to satisfy the first step of the departure process.

1. The tribunal will therefore consider the children’s education costs in the context of whether it is just and equitable and otherwise proper to depart from the administrative assessment.

Would departure from the administrative assessment be just and equitable?

Mr Tillick

1. In his Statement of Financial Circumstances Mr Tillick stated that he owns a 50% interest in his business worth $50,000, with the other 50% ownership of the business attributed to his partner. He disclosed his 50% share of his primary residence as being worth around $600,000. He also disclosed household contents worth $2,000 and superannuation worth $120,000. He disclosed no personal vehicle ownership. In regard to his liabilities he disclosed a home mortgage of $750,000 which is entirely in his name. He also disclosed an overdraft of $150,000, credit card debt of $60,000, school fees of $8,000 and a vehicle business lease of $35,000. He disclosed personal expenditure of $1,255 per week, consisting of $450 in tax, $200 in superannuation contributions, $230 in child support payments, $275 in credit card payments and $100 in private health insurance. He disclosed household expenditure of $1,660 per week including $625 per week in mortgage payments, $500 in education expenses and $180 in regard to food. His disclosed weekly costs are therefore $2,885 per week or $150,020 per annum.

2. The tribunal considered that overall Mr Tillick has sufficient overall access to financial resources to meet his necessary costs for self-support after taking out his education expenditure, business expenses and child support expenses.  

Ms Billing

1. In her Statement of Financial Circumstances Ms Billing disclosed she owns a property worth around $750,000. She disclosed funds in the bank of $3,500, a car worth $60,000 and household contents worth $60,000. She has superannuation of $273,946. Her liabilities consist of a mortgage of $375,000, a business loan of $60,000, and credit card debt of $14,000. Her weekly personal expenditure is listed as $130 in tax, $85 in superannuation contributions, $10 in life insurance premiums and $100 in credit card payments. She disclosed household expenditure of $1,469 per week, of which $500 is attributed to education expenses, $350 to mortgage payments and $300 to food purchases. Overall the tribunal accepted Ms Billing’s disclosed assets and expenditure were reasonable on the evidence before it.

The children

1. In determining the proper needs of a child it is necessary to have regard to the manner in which the child is being, and in which the parents expected the child to be, cared for, educated or trained, and any special needs of the child (subsection 117(6) of the Act). In Eades & Cadell (SSAT appeal) [2009] FMCAfam 275 at paragraph [22], Slack FM stated that as follows:

   In considering the proper needs of the child [s 117(4)(b)], the SSAT:

   a.would ordinarily consider the evidence of the parties about the needs of the children to assess the reasonableness and quantum of those needs;

   b.may have regard to published guidelines as to the needs of the children (see Hallinan & Witynski at 94.323).

   c.may also have regard to the costs of children used in the assessment of child support under the existing formula arrangements (although it is not sufficient or appropriate to rely upon the formula to perform that task, Lindenmayer J in Dwyer & McGuire (1993) FLC92-420 (and see also Gyselman (supra) at 79.078).

2. Submissions were made in regard to orthodontic costs. Mr Tillick submitted evidence of past costs he had incurred in respect to [Child 2], which were incurred prior to the current departure application by Ms Billing. The tribunal did not consider backdating a departure determination to take into account these costs (and potentially causing an unforeseen overpayment to Ms Billing) would be appropriate. The tribunal noted that Mr Tillick has previously been advised by the Department of the appropriate application process for having such costs recognised. Ms Billing also raised the prospect of a future cost in respect to braces for [Child 2] however there was no confirmation of such costs having been incurred or agreed to at this stage.

3. In regard to education costs the children are currently being educated privately. Both Mr Tillick and Ms Billing informed the tribunal that the children are being educated in the manner intended by them. Mr Tillick submitted that he could no longer afford the fees associated with the private education of the children. The school has now ceased the bursary arrangement for the children so from 2018 they will be on full fees. While the tribunal accepted that the children are being educated in the manner intended by both parents clearly there has been a recent significant change in circumstances in relation to the school fees payable in that they have doubled. Mr Tillick has informed the school and Ms Billing that he will no longer be paying 50% of the school fees as he has done in the past. In 2018 net school fees for the children’s year 8 education, after government grants are taken into account at the children’s school, will be $31,890 per year per child or $63,760 for the year, which includes various compulsory charges. Ms Billing informed the tribunal that she intended to maintain the children’s enrolment at the school and had come to an arrangement with her father to maintain the payment of school fees. The children were also applying for scholarships which, if successful, will provide a 50% discount on the fees payable. While Mr Tillick is not contributing to the payment of the fees she is very reliant on her father’s support to maintain the children’s enrolment.

4. Overall the tribunal considered each parent should meet the costs of raising the child according to their respective financial capacity as determined by the tribunal. The tribunal considered this an appropriate case to largely distribute the costs of raising the child using the relevant child support formula, which is based on social science research giving the average costs of children in various family income brackets. Under the tribunal’s assessment of Mr Tillick’s overall access to financial resources he would be required to pay approximately $11,193 per annum at the time of Ms Billing’s departure application. While this contribution does not come close to servicing payment of full school fees, the tribunal did not consider Mr Tillick currently has the financial capacity to make a further set contribution over and above the amount of child support payable under the application of the child support formula, applying the relevant adjusted taxable incomes of the parents.

Otherwise proper

1. 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.

2. Ms Billing is eligible to receive family tax benefit in respect of the children. An increase in child support payable by Mr Tillick may decrease the amount of family assistance to which Ms Billing is entitled. As such the tribunal was satisfied that changing the amount of child support payable would not have any adverse effect upon the community. Such a result would be otherwise proper.

Conclusion

1. It is open to the tribunal to vary the rate of child support payable or vary some of the variables that are used in the administrative assessment formula. The tribunal considered Mr Tillick has access to financial resources such that it is reasonable to expect him to provide some child support.

2. The tribunal recognises that the principal object of the Act is to ensure that children receive a proper level of financial support from their parents. Further, the tribunal notes the statements contained in sections 3 and 4 of the Act to the following effect:

   ·Parents of a child have a primary duty to maintain the child;

   ·The duty has a priority over all other commitments of the parent other than commitments necessary for self-support;

   ·The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards; and

   ·The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.

3. Ms Billing submitted that Mr Tillick’s lifestyle indicates he can afford a higher level of child support payable than that reflected by the objections officer’s decision. He has recently gone overseas skiing and had a holiday in Byron Bay. He drives an Audi vehicle and has lodged development plans for his property to develop a multi-unit development. In contrast a lower amount of child support payable will make it more difficult for the children to continue in their schooling. However, she agreed the children would continue in the school due to her father’s support. She submitted this support should be supplied by Mr Tillick.

4. Mr Tillick submitted that the level of child support set under the original departure determination (being around $23,300 per annum) was unpayable by him. He submitted that the skiing holiday was paid for by his partner. Further that the holiday to Byron Bay had been to stay with a friend. His development plans are not going ahead. In contrast he submitted a lower rate of child support payable would not adversely impact on Ms Billing as she has the financial resources to resign from her full-time employment and work part-time while starting a new business.

5. With regard to all of the reasoning, as set out above, the tribunal decided to vary Mr Tillick’s adjusted taxable income to $101,241 for the period 17 November 2016 to 30 November 2019 and vary Ms Billing’s adjusted taxable income to $82,402 for the period 17 November 2016 to 30 June 2017.

6. The departure start date is in line with that adopted by the objections officer, which is reflective of the date that the application for a departure determination was first lodged with the Department. The length of the departure determination will provide both parents with some immediate certainty in planning their respective finances, however it will cease on 30 November 2019. The tribunal considered an assessment of Ms Billing’s business dealings using business financial statements which should be meaningful by then, as well as an appraisal of the overall situation of both parents may well be required at that time.

7. In considering any hardship to Mr Tillick by this departure determination, the tribunal considers he has access to sufficient financial resources, as ascertained earlier in these reasons, to meet this child support requirement. The tribunal considered it just and equitable that Mr Tillick be required to make such a payment of child support that was reasonably reflective of both parents’ current overall access to financial resources and the costs of caring for the children.

8. The tribunal also did not consider that Ms Billing will be placed in undue financial hardship by this decision. She will be paid child support that is commensurate with the tribunal’s analysis of the parents’ current overall access to financial resources, and will be able to budget for the next period with some degree of certainty.

9. Overall the tribunal considered both parents will be provided with certainty in planning their respective finances to adequately support the children by the implementation of this departure determination, and that it is a just and equitable outcome in regard to the respective situations of each parent.

DECISION

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

• For the period 17 November 2016 to 30 November 2019, Mr Tillick’s adjusted taxable income is varied to $101,242;

• for the period 17 November 2016 to 30 June 2017, Ms Billing’s adjusted taxable income is varied to $82,402.