Brown and Brown (Child support)

[2019] AATA 3852

Brown and Brown (Child support) [2019] AATA 3852 (11 June 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/SC015948

APPLICANT:  Mr Brown

OTHER PARTIES:  Child Support Registrar

Ms Brown

TRIBUNAL:Member M Douglas

DECISION DATE:  11 June 2019

DECISION:

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

• the adjusted taxable income for Mr Brown is varied to $135,200 for the period 11 May 2018 to 31 December 2019; and

• the adjusted taxable income for Ms Brown is varied to $27,200 for the period 11 May 2018 to 30 June 2018, to $69,000 for the period 1 July 2018 to 30 June 2019 and to $47,600 for the period 1 July 2019 to 31 December 2019.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – benefits derived from business by the liable parent – decision to make a departure determination – 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. Mr Brown and Ms Brown are the separated parents of [Child 1], [Child 2] and [Child 3].  [Child 1] resides with Mr Brown and the other two children reside with Ms Brown. 

2. On the application of Ms Brown, the Child Support Registrar has issued administrative assessments of child support for those children, commencing 11 May 2018.  The Registrar acts through the Child Support Agency, and hereafter the Tribunal shall refer to the Registrar as the Agency.

3. The assessments were made in accordance with provisions in Part 5 of the Child Support (Assessment) Act1989 (the Act).  The extant assessments as at 24 August 2018 were calculated on the following adjusted taxable incomes and obligated Mr Brown to pay child support to Ms Brown at the following annual rates:

Period	Adjusted taxable incomes	Annual rate of child support
11 May 2018 to 2 August 2018	$56,160 for Mr Brown (being his 2016/17 taxable income) $32,500 for Ms Brown (being an amount the Agency set under s58 of the Act)	$4,963
3 August 2018 to 31 August 2018	$56,160 for Mr Brown $20,470 for Ms Brown (being her 2016/17 taxable income)	$5,962
1 September 2018 to 30 July 2019	$57,452 for Mr Brown (being an amount the Agency set under s58 of the Act) $20,366 for Ms Brown (being her 2017/18 taxable income)	$5,926

1. On 24 August 2018, Ms Brown applied to the Agency under subsection 98B(1) of the Act for a determination to be made under subsection 98S(1) to depart from the provisions of the Act with respect to the assessment of child support.  The Agency describes such an application as a “change of assessment” application. 

2. On 5 November 2018, the Agency determined that there should be departure and varied Mr Brown’s adjusted taxable income to $206,310 for the period 11 May 2018 to 31 December 2022 and Ms Brown’s adjusted taxable income to $29,068 from 11 May 2018 to 14 August 2018 and then to $68,484 until 31 December 2022.  The Agency also determined that those income amounts were to be further varied in accordance with the CPI in each March quarter. 

3. That determination had the effect of increasing the annual rate at which Mr Brown was to pay child support to $28,370 from 11 May 2018 to 14 August 2018 and then to $20,846 until the end of August 2018 and then, from 1 September 2018, to $20,846.

4. Mr Brown objected to that decision, and on 24 January 2019 the Agency “partly allowed” his objection and decided to vary its earlier determination with respect to the adjusted taxable incomes for Ms Brown by changing the amounts to $29,692 from 11 May 2018 to 14 August 2018 and to $69,004 from 15 August 2018 to 31 December 2020.   The other terms of its earlier decision of 5 November 2018 were not varied.  This objection decision resulted in Mr Brown having to pay Ms Brown child support at annual rate of $28,226 from 11 May 2018 to 14 August 2018 and at an annual rate of $20,762 from 15 August 2018.

5. Mr Brown has applied to the Tribunal for review of the objection decision.  His application was heard on 11 June 2019.  Both he and Ms Brown participated in the hearing by telephone and both gave sworn oral evidence.  The Agency did not appear.

6. Mr Brown and Ms Brown also provided documents to the Tribunal which were received into evidence. Mr Brown’s documents are marked A1-204 and Ms Brown’s documents are marked B1-95. 

7. The Tribunal also received into evidence documents the Agency provided, in accordance with its obligation under subsection 37(1) and section 38AA of the Administrative Appeals Tribunal Act 1975. These are paginated 1-802. 

8. The Tribunal has had regard to this evidence.

RELEVANT LAW AND ISSUES

1. A liable parent or the carer entitled to child support may, if there are special circumstances, apply to the Agency under subsection 98B(1) of the Act for a determination to depart from the provisions of the Act relating to an assessment of child support.  The Agency, or the Tribunal in the Agency’s place, if satisfied that the criteria of subsection 98C(1) are met, can make one or more of the determinations listed in subsection 98S(1) to depart from the provisions of the Act relating to an administrative assessment of child support. The criteria specified in subsection 98C(1) are:

   i.that one, or more than one, of the grounds for departure referred to in subsection (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 determination (under subsection 98S(1)).

2. The grounds for departure referred to in subsection 98C(2) are those set out in subsection 117(2) of the Act. The matters that the Tribunal must consider in deciding whether it is just and equitable to make a determination to depart from the provisions of the Act are listed in subsection 117(4) of the Act. The matters the Tribunal must consider in deciding whether it is just and equitable to make a determination to depart from the provisions of Part 5 are listed in subsection 117(5) of the Act.

CONSIDERATION

Is a ground for departure established?

1. In her change of assessment application, Ms Brown relied on the ground for departure provided in subparagraph 117(2)(c)(ia), to which the Agency refers as reason 8A.  That provision of the Act reads as follows:

   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 substance of Ms Brown’s case, as articulated in her change of assessment application form, was that Mr Brown conducts a business as an [Occupation 1] through the medium of a company and is able to receive a much greater income through that company than that reflected by his taxable income.  This is because he decides to draw only a “minimal wage” from his company.

3. There is no controversy that Mr Brown conducts a business as an [Occupation 1] through the medium of a company of which he is the sole director and sole shareholder.   His company is, in effect, his alter-ego. 

4. The Agency’s departure decision of 5 November 2018, and subsequent objection decision, was premised on it finding that Mr Brown’s company was a financial resource for him such that the total wage that was available to Mr Brown to draw was $206,310.  The Agency in making this finding relied on an opinion of Mr [A] that for the 2017 financial year the “real profit” of Mr Brown’s business was $206,310.  Mr [A]’s opinion was expressed in a report that he had prepared, on instructions from both Mr Brown’s and Ms Brown’s respective lawyers, for use in proceedings between Mr Brown and Ms Brown in the Family Court of Australia regarding their property. The amount that Mr [A] opined was the “real profit” of Mr Brown’s company included the wages that Mr Brown’s company had paid Mr Brown, superannuation the company paid to a fund on Mr Brown’s behalf, motor vehicle expenses, legal expenses, depreciation expenses, subscriptions and memberships and other like amounts.

5. Mr Brown contended to the Tribunal, firstly, that the Agency was wrong to rely on Mr [A]’s opinion and, secondly, that his company does not achieve a profit of the order of $206,310, which he could draw as cash or wages.  His evidence was that all expenses his company incurs and declares in the tax returns it lodges with the ATO are genuine expenses, including those claimed for depreciation.  His evidence was to the effect that the real profit of his company is that which is declared in its tax returns.  He submitted to the effect that the Agency, in its process of deciding what amount his adjusted taxable income should be in the assessment of his child support obligation, was wrong to “add back” to his personal taxable income any amounts that his company had declared as expenses in its tax return, including those for depreciation.

6. Mr Brown provided copies of his company’s tax returns for the 2017 financial year and 2018 financial year.  His company’s return for the 2017 year declared gross receipts of $422,324 and expenses totalling $382,016, which included an amount of $22,632 for depreciation and the wage his company paid to him.  After deducting those expenses from the gross receipts of his company, his company achieved a profit of $40,308. Prior year losses were also deducted, which resulted in his company being assessed with a taxable income of $37,793.

7. Leaving aside for the moment the amount Mr Brown’s company declared for depreciation expenses, there is no evidence that contradicts Mr Brown’s evidence to the Tribunal that, in substance, the receipts his company declared in its tax returns were genuinely defrayed to pay the expenses his company declared in its returns.  That is to say, there is no evidence to contradict his evidence to the effect that his company’s declared expenses were genuine outlays and were incurred by his company so as to achieve the profit declared in its tax returns.

8. With respect to depreciation expenses, Mr Brown’s oral evidence to the Tribunal was to the effect that his company in the 2017 year purchased [items] for a total cost of $10,000.  Insofar as his company was able to claim depreciation expenses of $22,632 in the 2017 year, in the circumstance where it spent only $10,000 in purchasing new equipment, the differential of $12,632 represents essentially a “book entry” in that it does not reflect an actual amount that his company defrayed from its receipts in that year. 

9. The most recent documentation relating to Mr Brown’s company, being the 2018 tax return, revealed it achieved a profit of $80,728.  In that year his company declared depreciation expenses of $9,348, which reflected the cost of items his company purchased in that year and was entitled to fully depreciate under the “SBE immediate write off” scheme.  In other words, his company’s declared depreciation expenses in the 2018 year represent an actual expenditure of funds.  Again, there is no evidence to contradict Mr Brown’s evidence to the effect that the expenses his company declared in its tax return that year were genuine outlays of money his company paid from its receipts and were incurred in order to conduct its business. 

10. Mr Brown’s company’s profit in the 2018 year of $80,728 was available to be drawn by Mr Brown.  Mr Brown’s personal tax return for that year revealed he was assessed with a taxable income of $54,465. 

11. In those circumstances, the Tribunal considers that in the 2018 financial year Mr Brown had income available to him through his conduct of his profession as an [Occupation 1] of the order of $135,200, when rounded, to meet the cost of his own support and also the support of his children.  That is the most recent evidence of his income and the Tribunal considers it provides the best evidence of what his present situation is.  The Tribunal observes that this amount is far in excess of the adjusted taxable incomes used for Mr Brown in the assessments of child support that were extant at the time the Agency made its decision in response to Ms Brown’s change of assessment application.

12. The Tribunal considers that because Mr Brown had the ability to obtain far greater income, through the resource of his company, than that reflected in his personal taxable income, there are special circumstances in this case that did result in the application of the provisions of the Act relating to an assessment of child support resulting in an unjust and inequitable determination of the level of financial support to be provided by Mr Brown for his children.  The Tribunal is therefore satisfied that a ground for departure has been established.

Is it just and equitable to make a determination?

1. As already mentioned, the matters the Tribunal must consider when considering whether it is just and equitable to depart from the provisions of the Act are listed in subsection 117(4) of the Act. The Tribunal is not required to go slavishly through each of those matters but have regard to those that are relevant to the particular circumstances of this case. Rather than dealing separately with each matter that is relevant, insofar as the matters have relevance it is convenient for the Tribunal to group the matters and consider them by a reference to the following headings.

The children’s circumstances

1. The children have all the normal needs of children of their respective ages.  There is no evidence to substantiate any of them has special needs.

2. There is no evidence that any of them has an income. 

3. [Child 1], who resides with Mr Brown, attends a private school.  The other two children, who reside with Ms Brown, attend state schools.  It was Mr Brown’s decision to send [Child 1] to a private school.  There is no evidence on what it costs him to do so.

4. The Tribunal notes that were it not to make a determination to depart from the provisions of the Act with respect to the assessment of child support so as to ensure that Mr Brown and Ms Brown share the costs of supporting their children in accordance with the capacity they have to do so, and particularly so as to take into account the financial resource that Mr Brown has available to him through his company, then there is obvious potential for hardship to be caused to the children, particularly [Child 2] and [Child 3], in that some of their needs might go neglected due to Ms Brown having more limited means than Mr Brown to provide for the children.  Ms Brown’s means are discussed below.

Ms Brown’s circumstances

1. Ms Brown at the time she made her change of assessment application had just commenced employment with the [Employer 1].  Her annual salary was $80,000.  Her employment with the [Employer 1] came to an end in mid January.  She produced to the Tribunal her last pay receipt [which] confirmed that she was until that time receiving salary at an annual rate of $80,000. 

2. Preceding her employment with the [Employer 1], she derived her income from commissions she received from selling [a specified product] and also from casual employment she sporadically obtained through employment agencies.  Her evidence to the Tribunal, which the Tribunal accepts, is that in the current financial year she has sold six [a specified products] for a total return of $1,200.  Upon the conclusion of her employment with the [Employer 1], she again obtained sporadic casual employment through employment agencies until she commenced her present employment with the [Employer 2], working between 20 and 25 hours a week for a wage of $30 an hour.  Her evidence to the Tribunal, which again the Tribunal accepts, is that the term of her contract with her present employer expires in June, but her employer has indicated it will continue her employment beyond the term of her current contract.  Ms Brown also produced her pay slips that her present employer has issued to her.

3. Ms Brown also receives income through leasing a residential property she owns.  She said that that results in her getting $300 a week, after expenses.  She also receives a very modest amount in dividends from a shareholding she has, the value of which she estimates is currently around $10,000. 

4. She produced her tax return for the 2018 year, which revealed that her taxable income was $20,366.  That was net an amount of $7,462 from a loss she incurred from leasing out her residential property.  In accordance with section 43 of the Act, that amount is to be added back to her taxable income for that year in working out whether and what would be an appropriate adjustment to her adjusted taxable income.  When that is done, that reveals that her income was $27,200 in the 2018 year.

5. Having regard to the income she has received thus far in the current financial year, including her income from her present employer, her income from her employment with [Employer 1], her income from her casual placements through employment agencies, her commissions from selling [a specified product], the modest dividend income she receives and the $300 weekly net rental income, and making some allowance for work related expenditure, it seems to the Tribunal, doing the best it can on the evidence, that her income in the current financial year is likely to be around $69,000, which the Agency found it would be.

6. For the next financial year however, her income is likely to be less, based on present evidence, given that she is now only employed to work with her present employer between 20 and 25 hours a week.  Again doing the best it can on the available evidence, the Tribunal considers that in the next financial year her income from employment most likely will be around $32,000 (on the basis that she will work on average 22.5 hours a week, receiving $30 an hour, but because she is casually employed she will not receive income for any leave she takes), to which should be added her net rental income of $300 a week amounting to $15,600 a year. 

7. The Tribunal observes that Ms Brown’s evidence to the Tribunal, which again it accepts, is that she supplements her income from selling items of her clothing to shops.  The Tribunal does not consider that ought to be treated as being a significant resource available to Ms Brown.

8. Other than the rental property she owns, she does not own any other asset of significance.  She has a substantial debt totalling in excess of $500,000 owing to her parents, being moneys they advanced her to fund the legal fees associated with the Family Court proceedings in which she was involved with Mr Brown.

9. The Tribunal considers that in her present circumstances, were there not to be a departure from the provisions of the Act with respect to the assessment of child support so as to ensure that the assessment of child support is computed based upon the income that each party has available to them, that undue hardship would be caused to Ms Brown in that she would not have sufficient funds to cover the cost of [Child 2] and [Child 3]’s care as well as the cost of her own support.

Mr Brown’s circumstances

1. The circumstances regarding Mr Brown’s income and financial resources were discussed above.  The Tribunal has regard to them in considering whether it would be just and equitable to make a determination to depart from the assessment of child support.

2. The Tribunal notes that the only asset of significance that Mr Brown owns is a share in a residential property in which he, his present partner and his parents all reside.  That property is subject to a mortgage securing repayment of a loan in excess of $1,000,000, that he and his present partner are liable to pay.  He is also indebted to a finance company in the amount of $20,000 and has credit card debts in excess of $7,000.

1. He incurs all the normal costs to meet his own support.  As mentioned above, [Child 1] resides with him and he meets the cost of her support entirely. 

2. The Tribunal takes into account that a determination to depart from the provisions of the Act with respect to the assessment of child support that would result in an increase in his child support obligation would cause him some financial hardship.  However, having regard to the circumstances of Ms Brown, and to the fact that Mr Brown has further money available to him through his company, the Tribunal considers that a determination increasing his child support obligation is warranted in the circumstances, notwithstanding the hardship that would be caused to him.

What would be a just and equitable determination to make?

1. Having regard to all the matters set out above, the Tribunal considers it would be just and equitable to depart from the provisions of the Act with respect to the assessment of child support so as to ensure the child support assessment is calculated by reference to what income the Tribunal has found Mr Brown and Ms Brown have had available to them to date, and are most likely to have available to them going forward.  The Tribunal notes that with respect to the current financial year and beyond, the evidence does not allow a precise computation to be made with respect to that, given that the financial year has not as yet ended.  However, based upon the evidence that is before the Tribunal, and having regard to the findings the Tribunal has made above with respect to the likely income, the Tribunal considers that it would be just and equitable to depart from the provisions of the Act with respect to the assessment such that Mr Brown’s adjusted taxable income is varied at $135,200 for the period 11 May 2018 to 31 December 2019 and that Ms Brown’s adjusted taxable income is varied to $27,200 for the period 11 May 2018 to 30 June 2018 and to $69,000 for the current financial year and then to $47,600 for the period 1 July 2019 to 31 December 2019.

2. The Tribunal considers that it would not be just and equitable to make a determination to depart from the provisions of the Act beyond 31 December 2019 given there is some uncertainty with respect to the parties’ circumstances regarding their income, particularly Ms Brown’s in terms of the income she will be earning.  By 31 December 2019, more information should be available on their respective circumstances and, if either Mr Brown or Ms Brown considers that the assessment of child support for the period beyond 31 December 2019 does not result in a fair assessment of the calculation of their financial responsibilities for their children then that party can make an application to the Agency for a further departure based upon their then circumstances.

Is it otherwise proper to change the assessment?

1. In deciding whether it is otherwise proper to depart from the administrative assessment, the Tribunal must have regard to the fact that the primary obligation to support the children rests with Ms Brown and Mr Brown, and also have regard to whether, and if so how, any determination it makes would affect the entitlement of Ms Brown or the children to an income tested pension, allowance or benefit. 

2. The Tribunal understands that none of the children receive an income tested pension, allowance or benefit and, also, that circumstance will not change whatever determination the Tribunal makes. 

3. Ms Brown did not disclose in her statement of financial circumstances that she receives family tax benefit from the Commonwealth Government.  The Tribunal understands that the effect of the determination it considers it is just and equitable to make would not result in her acquiring an entitlement to a family tax benefit, if she does not already receive the benefit, and if she does, the determination would not result in an increase in it. 

4. The Tribunal, as has been said above, observes that Mr Brown and Ms Brown have the primary obligation to support the children, and not the Australian community.

5. The Tribunal considers, having regard to those matters, that the determination it considers it is just and equitable to make is also otherwise proper to make.

DECISION

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

• the adjusted taxable income for Mr Brown is varied to $135,200 for the period 11 May 2018 to 31 December 2019;

• the adjusted taxable income for Ms Brown is varied to $27,200 for the period 11 May 2018 to 30 June 2018, to $69,000 for the period 1 July 2018 to 30 June 2019 and to $47,600 for the period 1 July 2019 to 31 December 2019.