Bratt and Warwick (Child support)

[2023] AATA 1045

Bratt and Warwick (Child support) [2023] AATA 1045 (3 April 2023)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2022/MC025054

APPLICANT:  Mr Bratt

OTHER PARTIES:  Child Support Registrar

Ms Warwick

TRIBUNAL:Member P Noonan

DECISION DATE:  03 April 2023

DECISION:

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

• For the period 17 March 2022 to 31 December 2024 Mr Bratt’s adjusted taxable income is varied to $82,145 per annum.

• On 1 January 2024, Mr Bratt’s income is to be increased by the relevant child support inflation factor.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business - 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 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 Bratt and Ms Warwick are the parents of three children who are currently relevant to the child support assessment.

2. A child support case was first registered with Services Australia (the Agency) on 11 September 2018 and child support has been registered for collection by the Agency since 19 October 2018. The Agency currently maintains a case completion date for this matter of 9 September 2031.

3. On 1 November 2021 a review of the child support assessment was commenced by the Child Support Registrar and the matter was referred to an Agency decision maker on 17 March 2022. On 26 July 2022, an Agency officer, acting as a delegate of the Registrar, found that a ground for departure was established and decided to depart from the assessment in the following terms:

   ·      For the period 17 March 2022 to 16 March 2024, the adjusted taxable income for Mr Bratt shall be set at $163,000.

4. Mr Bratt objected to this decision and on 21 October 2022 an Agency objections officer part allowed his objection in the following terms:

   ·      From 17 March 2022 to 31 December 2025, the adjusted taxable income for Mr Bratt is set to $106,000;

   ·      On 1 January 2024, Mr Bratt’s income is to be increased by the relevant child support inflation factor.

5. The Tribunal notes that the objections officer stated that their decision would generate an annual child support liability of $14,226 however subsequent assessments generated an annual liability of $20,814 using the income set by the objections officer for Mr Bratt.

6. Mr Bratt subsequently applied to the Tribunal for an independent hearing of the Agency’s decision. A hearing for the matter was held on 3 April 2023 by conference telephone. The Child Support Registrar did not attend the hearing. Both Mr Bratt and Ms Warwick attended the hearing and gave evidence on affirmation.

7. Pursuant to paragraph 98C(1)(b) of the Child Support (Assessment) Act 1989 (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; …

CONSIDERATION

The parents’ incomes 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; or

   (ib) because of the earning capacity of either parent; …

2. The term “special circumstances” is not defined in the legislation. In Gyselman and Gyselman (1992) FLC 92-279, the Full Family Court indicated that for special circumstances to exist, the facts of the case must establish something which is special or out of the ordinary.

3. Mr Bratt is the part owner and sole director of a business called [Business]. It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1998] FamCA 97; Scott and Scott (1994) FLC 92-457; Carey and Carey (1994) FLC 92-489).

4. Mr Bratt informed the Tribunal that the trading nature of the business had dramatically changed over 2021 and 2022. Previously it was a subcontractor, since 2009, for the [Service provider]. He submitted that the terms and conditions imposed on subcontractors had dramatically changed causing him and his partner (who is his cousin) to seek to change the nature of the business. There were new requirements introduced that would require him and his cousin to be registered [Occupation 1]s which they were not. Instead they identified an alternative business to purchase, which was based in country Victoria, and specialised in [Work sector products]. The purchase was finalised in January 2022. Their last vehicle stopped working for [Service provider] that month as well. They used to have four vehicles working and these had gradually stopped from March 2021.

5. Mr Bratt supplied detailed financials for [Business] for the 2020–21 and 2021–22 financial years. He submitted that the business’s performance had been adversely affected by the [Work sector]’s supply, logistics and pricing problems arising from the pandemic. He noted that lately things seem to be getting back on track.

6. [Business] declared 2020–21 income of $675,089 and expenses of $628,452. Vehicle expenses were $59,633. Depreciation was $52,346. There were no wages but this was accounted for by the contract work expenses, which were $304,585. Management fees of $118,000 were paid to a trust from which money was distributed to Mr Bratt, his cousin and other associated family members. In 2021–22 sales were $336,201 with cost of sales of $186,993 and expenses of $615,288. The old services income and other income brought in a further $241,215 resulting in a declared loss of $64,365 which reduced retained earnings from $210,602 to $146,237. Relevant expenses claimed included management fees of $101,890, motor vehicle expenses of $99,666, depreciation of $9,488 and phone expenses of $2,368.

7. The Tribunal noted that [Vehicle 1], a motorbike and [Vehicle 2] have been depreciated using the accelerated write off provisions. Mr Bratt submitted that [Vehicle 1] is his cousin’s vehicle. He stated that [Vehicle 2] has recently been sold. The bike is his own. He has a new vehicle. When his vehicle use was discussed Mr Bratt stated that he commutes for about two hours each way from his residence in Melbourne to the business address in the country around four days a week. He also visits work sites. He charges all petrol and vehicle costs to the business and makes no distinction for personal use. He agreed that the same applies for his phone and internet use. Personal benefit use of these items was discussed with Mr Bratt but he was unable to nominate a figure. He contended that he viewed them as largely business-related expenses.

8. With respect to family member deposits into his bank account as noted by the objections officer Mr Bratt stated that this was to assist him to meet costs associated with his relationship breakdown with Ms Bratt and to assist him with meeting expenses associated with his parents visiting and staying with him for a lengthy period of time. He also drew down money from the business for the relationship costs purpose and repaid this money to the business in May 2022 from money he received from property settlement with Ms Bratt. The Tribunal accepts this evidence as reasonably plausible and does not consider these resources to be available to Mr Bratt for the purposes of supporting the children.

9. The Tribunal then discussed the trust distributions flowing from the management fee expense of [Business]. Mr Bratt confirmed that only he and his cousin have direct roles in the business. However, it is apparent that other family members received distributions. In 2020–21 Mr Bratt received a distribution of $35,000 from trust income of $118,000. A 2021–22 trust tax return was not before the Tribunal. In 2021–22 management fees were $101,890. Accordingly, it is appropriate that 50% of this be attributed to Mr Bratt, being $50,945. It is also clear that Mr Bratt enjoys considerable personal benefit from the use of the business’s motor vehicles and associated fuel costs, a business registered motorbike and phone as he is not required to meet any such expenses form his personal income. Depreciation is also entirely attributed to vehicles that have a significant personal use component. The overall financial benefit of these items to Mr Bratt is by their nature difficult to quantify. The Tribunal notes that Mr Bratt gave evidence that he undertakes significant travel from his place of residence to his place of work. Such travel is not a deductable expense available to the ordinary employed taxpayer. Overall, the Tribunal considers that it is reasonable to apportion a personal benefit for these items, which includes phone and internet, and a fully provisioned vehicle and motorbike, including indirect depreciation benefits, of $600 per week or $31,200 per annum to Mr Bratt. As such the Tribunal considers that Mr Bratt’s income and overall access to financial resources at the time of the review commencement by the Registrar was equivalent to an adjusted taxable income of $82,145 per annum.

10. The Tribunal also reviewed and discussed Ms Bratt’s income and overall access to financial resources. She confirmed that she remains employed as [an Occupation 2] for [Employer]. The Agency retains a 2020–21 taxable income of $50,670 and a 2021‍–‍22 taxable income of $64,578 for Ms Bratt. Mr Bratt raised that Ms Bratt appears to be receiving ongoing financial support from her family. Ms Bratt agreed this is the case however notes the same applies for Mr Bratt. The Tribunal finds that both parents enjoy some ongoing financial assistance from their respective families although the extent of this appears to be nothing more than assisting in meeting day-to-day costs of living and does not constitute an extensive financial resource for either parent. The Tribunal disregards this for the purposes of assessing each parent’s own financial capacity to support the children. Overall, the Tribunal accepts that Ms Bratt’s income and overall access to financial resources is accurately reflected by the inclusion of her declared taxable income into the calculation of child support payable as per the normal dates of the assessment.  

11. Under the administrative assessment the annual rate of child support payable by Mr Bratt, at the time of the review commencement by the Registrar, was approximately $2,790 per annum. Given the above considerations, the Tribunal calculates that the annual amount of child support payable by Mr Bratt is approximately $14,748 per annum. This reduces slightly from 9 November 2022 when Ms Bratt’s higher income of $64,578 is incorporated, to approximately $14,496 per annum. Such a difference in the child support payable constitutes special circumstances as the application of the assessment existing at the time of the review would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Bratt in support of the children. As a result, a ground for departure in subparagraph 117(2)(c)(ia) of the Act exists.

Would departure from the assessment be just and equitable?

1. Both parents submitted a Statement of Financial Circumstances for the Tribunal’s consideration. Mr Bratt disclosed minimal personal assets with most of his assets related to his stake in the business. He disclosed liabilities of some $270,000 including business related loans and personal credit liabilities related to credit cards. He disclosed personal and household expenditure of around $895 per week or $46,450 per annum. He gave evidence that some of his personal expenditure is covered by expensed business items which the Tribunal has already accounted for. Overall, the Tribunal considers that Mr Bratt can afford to pay the assessed annual child support while still meeting his necessary costs for self-support.

2. Ms Bratt disclosed she owns a home worth around $680,000, has a vehicle worth around $12,000 and has a mortgage drawn down by $314,000. She also has a student assistance debt of $13,600. She disclosed personal and household expenditure of around $1,780 per week (although $150 per week was attributed to children’s education costs and the children are not at private school) or $92,560 per annum. As Ms Bratt has three children in her sole care the Tribunal accepts that her statement is reasonable reflective of her overall financial situation. Clearly Ms Bratt requires whatever child support Mr Bratt can afford to pay to assist with her support of the children.

The children

1. In determining the proper needs of the 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 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 publish 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. No special needs costs were raised, although Ms Bratt flagged future potential orthodontic costs however she noted this is still one to two years away. Overall, the Tribunal considers this an appropriate case to largely distribute the costs of raising the children using the Costs of the Children Table maintained by the Agency, which is based on social science research giving the average costs of children in various family income brackets.

Conclusions

1. The Tribunal considers that it is just and equitable to depart from the administrative assessment of child support payable in this matter.

2. With respect to an appropriate date range for this departure determination the Tribunal considers the commencement date of 17 March 2022, as set by the objections officer, is appropriate. While Ms Bratt asked for consideration of backdating due to the apparent ongoing underassessment of Mr Bratt’s income, as discussed at hearing this would create potentially significant arrears which would be unplanned for by Mr Bratt. Given his overall level of debt the Tribunal is not satisfied that this would not cause Mr Bratt significant financial hardship. As a result the Tribunal maintains the date set by the objections officer. Mr Bratt noted that the nature of his business has changed significantly. He also gave evidence that trading conditions are gradually improving after the pandemic downturn. In such circumstances there is an element of uncertainty as to his financial position going forward. As such the Tribunal will shorten the departure determination period to an end date of 31 December 2024. This will allow for two sets of annual financials, reflective of the changed nature of the business, to be produced to provide for a meaningful assessment. In the interim it is appropriate to maintain the departure determination as the Tribunal is satisfied that Mr Bratt’s taxable income will continue to not be reflective of his overall income and access to financial resources for the purposes of assessing his capacity to support the children, and such a period allows for some certainty for each parent in planning their finances for the purposes of supporting the children adequately.

3. As discussed during the hearing 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.

4. The Tribunal is satisfied that an appropriate departure determination in this matter is as follows:

   ·      For the period 17 March 2022 to 31 December 2024 Mr Bratt’s adjusted taxable income is varied to $82,145 per annum.

   ·      On 1 January 2024, Mr Bratt’s income is to be increased by the relevant child support inflation factor.

5. This departure determination will require Mr Bratt to make weekly child support payments of around $280 per week which is less than the $398.90 per week assessment of the objections officer. The Tribunal has considered the respective arguments of the parents with respect to hardship. Neither parent provided compelling evidence that the departure application would cause them undue hardship. The Tribunal is satisfied that neither parent will be placed in undue hardship by this decision. There will be no overpayment generated by this departure determination as Mr Bratt is in considerable arrears. Overall, the Tribunal considers this departure determination is a just and equitable outcome with regard to the respective situations of each parent.

Otherwise proper

1. The Tribunal is satisfied that changing the amount of child support payable will not have any adverse effect upon the community as this decision results in the parents being required to pay child support according to their actual capacity to do so. Such a result would be otherwise proper.

DECISION

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

• For the period 17 March 2022 to 31 December 2024 Mr Bratt’s adjusted taxable income is varied to $82,145 per annum.

• On 1 January 2024, Mr Bratt’s income is to be increased by the relevant child support inflation factor.