Burks and Gowler (Child support)

[2021] AATA 5251

Burks and Gowler (Child support) [2021] AATA 5251 (12 July 2021)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/MC020899

APPLICANT:  Mr Burks

OTHER PARTIES:  Child Support Registrar

Ms Gowler

TRIBUNAL:Member F Staden

DECISION DATE:  12 July 2021

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision not to depart - decision under review affirmed

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

REASONS FOR DECISION

BACKGROUND

1. Mr Burks and Ms Gowler are the separated parents of three children, [Child 1] and [Child 2], born 2001, and [Child 3], born 2004 (the children). A child support assessment for this case was first registered from 20 November 2006.

2. At the relevant times, [Child 1] and [Child 3] were in the equally shared care of Mr Burks and Ms Gowler and [Child 2] was in the greater than primary care (100%) of Ms Gowler. The assessment for [Child 1] and [Child 2] ended from 7 October 2019.

3. Ms Gowler is currently the parent liable to pay child support but has previously been the receiving parent. Ms Gowler opted for collection of child support by Services Australia – Child Support (Child Support) from 17 April 2009 and Mr Burks from 1 November 2013.

4. There have been five previous change of assessment decisions in this case. None were in place in the period relevant to the decision under review.

5. The initial assessment for the child support period 1 December 2018 to 29 February 2020 was that Ms Gowler was the parent liable to pay child support with her liability calculated based on her 2017/18 adjusted taxable income of $54,413 and Mr Burks’ provisional adjusted taxable income of $26,413.

6. Following his 2017/18 income tax assessment, on 8 June 2019 Mr Burks’ 2017/18 adjusted taxable income was found to be $566,734. On that day, Child Support issued, relevantly here, a new assessment for the period 1 December 2018 to 6 October 2019 under which Mr Burks was liable to pay child support with his annual liability of $32,113 calculated based on his 2017/18 adjusted taxable income of $566,734 and Ms Gowler’s 2017/18 adjusted taxable income of $54,413.

7. On 8 June 2019, Child Support informed Mr Burks of the revised calculation of his child support liability for the period 1 December 2018 to 6 October 2019, noting he now owed Ms Gowler child support arrears of $16,056.48. On 13 June 2019, Child Support garnisheed $16,056.48 from Mr Burks’ 2017/18 income tax refund of $47,804.15.

8. On 1 July 2019, Mr Burks applied for a change of assessment in relation to 2018/19 on the basis that the child support assessment did not correctly reflect his income, property and financial resources (Reason 8A) during that time.

9. On 4 September 2019, a Child Support primary decision maker found Reason 8A not established and refused Mr Burks’ application for the assessment to be changed.

10. On 15 July 2020, Mr Burks lodged an objection to the 4 September 2019 decision to refuse his change of assessment application plus a request for an extension of time in which to do so. His extension of time request was granted on 2 October 2020.

11. On 4 December 2020, an objections officer disallowed Mr Burks’ objection.

12. On 25 January 2021, Mr Burks applied to the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal) for review of the objections officer’s decision and an extension of time in which to do so. The tribunal, differently constituted, granted Mr Burks an extension of time on 1 March 2020.

13. On 12 May 2021, a telephone directions hearing was conducted with Mr Burks and Ms Gowler. Directions were issued on that day.

14. A hearing was held on 8 July 2021 in Canberra. Mr Burks and Ms Gowler gave sworn evidence by telephone. The tribunal had before it papers from Child Support (475 pages), Mr Burks (pages A1 to A67) and Ms Gowler (pages B1 to B15). Copies of these documents were provided to all parties.

15. Relevant aspects of the evidence are referred to in the consideration below.

ISSUES

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under the Child Support (Assessment) Act 1989 (the Assessment Act). The formula used to calculate the rate takes into account factors such as the number of children, the levels of care provided and the income of each parent.

2. Under section 98B of the Assessment Act, a liable parent or carer receiving child support can apply to the Child Support Registrar for a determination to depart from the administrative assessment. This is known as a change of assessment.

3. Under section 98C of the Assessment Act, the Child Support Registrar, here the tribunal, may change the assessment if the case meets the following three criteria:

   · There is a ground to depart from the assessment (subsection 117(2) of the Assessment Act lists those grounds). Only one ground has to be established for the tribunal to proceed to consider the next criterion (Marsh & Eccles [2008] FMCAfam 1417);

   ·     It is “just and equitable” to make particular changes to the assessment; and

   ·     It is “otherwise proper” to make those changes to the assessment.

CONSIDERATION

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

1. Subparagraph 117(2)(c)(ia) of the Assessment Act provides that a ground for departure exists where, in the special circumstances of the case, the use of the administrative assessment would result in an unjust and inequitable determination of a parent’s child support liability because the income, property and financial resources of either parent are not properly taken into account.

2. The term “special circumstances” is not defined in the Assessment Act. In Gyselman and Gyselman [1991] FamCA 93, the Full Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.

Period under consideration

1. Examination of the evidence in this case shows that the period under consideration is 1 December 2018 to 12 June 2019, that is the period to which Mr Burks’ 2017/18 adjusted taxable income of $566,734 was applied. Mr Burks was required to pay $16,056.48 for the period 1 December 2018 to 31 May 2019; to repay the $1,393.02 in child support Ms Gowler had paid him for that period; and to pay an additional $1,055.05 for the period 1 June 2019 to 12 June 2019 (daily rate of $87.9206 x 12). Thus, Mr Burks’ total child support liability for the period 1 December 2018 to 12 June 2019 was approximately $18,500.

2. In the period 13 June 2019 to 30 June 2019, Mr Burks’ child support liability was calculated using his estimates and reconciled estimates as follows:

   ·     On13 June 2019, Mr Burks informed Child Support that his income to 12 June 2019 was $15,600 and Child Support accepted his income estimate of $2,057 for the period 13 June 2019 to 30 June 2019, an annualised income estimate of $41,714. On 17 June 2019, Child Support accepted Mr Burks’ revised income estimate of $930 for the period 17 June 2019 to 30 June 2019, an annualised income estimate of $24,246.

   ·     On 17 July 2019, Mr Burks’ income estimates were reconciled on the basis that his 2018/19 adjusted taxable income was $19,130. This increased his annualised income amount for the period 13 June 2019 to 30 June 2019 from $41,714 to $85,161.80 and for the period 17 June 2019 to 30 June 2019 from $24,246 to $67,700.20. This resulted in Mr Burks owing Ms Gowler an additional $326.20 in child support for 2018/19.

Ground for departure

1. In essence, Mr Burks argued that it was unfair to use his 2017/18 adjusted taxable income of $566,734 to assess his child support liability for the period 1 December 2018 to 12 June 2019 because that amount did not reflect his true financial situation during the period.

2. In January 2018, Mr Burks finalised the sale of a [Suburb 1] property ([Suburb 1]) for $2,350,000. This property had at times been Mr Burks’ principal residence and at other times been a rental property. It was unoccupied when sold; Mr Burks was then renting a property in the [Suburb 2] area. Mr Burks’ 2017/18 income tax return included a net capital gain of $563,369 related to the [Suburb 1] sale. He did not dispute use of the net capital gain amount for taxation purposes – the calculation of which would have included consideration of the periods when the property was Mr Burks’ principal place of residence – but does not think it properly represented his income for child support purposes.

3. Mr Burks sold [Suburb 1] to fund the purchase of a property in [Suburb 2] ([Suburb 2]) for $1,770,000. This left Mr Burks with an apparent profit of $605,000. His identified related sale and purchase costs totalled $124,820 (agent’s commission for sale of $23,750; stamp duty of $97,350 and land title search cost of $3,720) reduced this amount to $480,180.

4. Additionally, the $244,436 in tax Mr Burks was assessed to pay for 2017/18 further reduced the profit he made on the house sale to $235,744. All of this tax related to his attributed net capital gain as the combined total of his 2017/18 personal and business taxable income, $3,530, was below the tax-free threshold:

   ·     2017/18 individual income tax return showed Mr Burks received $741 in gross interest, $891 in dividends and $1,738 in royalties plus the net capital gain of $563,369. Leaving aside the capital gain and less a donation deduction of $5, this resulted in an adjusted taxable income of $3,365. Mr Burks’ reportable superannuation contribution of $7,000 in this year was not treated as a deduction as it is part of a person’s adjusted taxable income for child support purposes.

   ·     2017/18 business income tax return for [Business 1], of which Mr Burks is the sole director and public officer, showed a total income of $3,175 with expenses of $3,010, a total profit of $165.

5. Overall, the tribunal found that the sale of [Suburb 1] and purchase of [Suburb 2] was a reasonable reorganisation of Mr Burks’ resources in order to obtain permanent accommodation in his chosen area of residence. The tribunal further found that there were unavoidable costs associated with that reorganisation including, given its previous rental history, the tax on the net capital gain associated with the sale of [Suburb 1]. The tribunal therefore found that following the sale of [Suburb 1] and purchase of [Suburb 2], Mr Burks was in possession of a financial resource of around $235,000.

6. Mr Burks’ 2017/18 taxable income excluding his net capital gain was $3,525 ($3,530 - $5) which together with the financial resource of $235,000 is less than Mr Burks’ 2017/18 adjusted taxable income of $566,734 which was used in the assessment in the relevant period. The tribunal found that this difference constituted a special circumstance in this case. As the application of the administrative assessment could result in an unjust and inequitable determination of financial support for the children, in that child support liability would be based on an inaccurate determination of Mr Burks’ income and financial resources, the tribunal found that a ground for departure was established.

Issue 2: Is it just and equitable to depart from the administrative assessment?

1. To decide whether it is just and equitable to depart from the administrative assessment, the tribunal must consider the matters required by subsection 117(4) of the Assessment Act, plus any other matters raised in the change of assessment application. Mr Burks raised various issues in relation to the decision to use his 2017/18 taxable income in the assessment for the period from 1 December 2018 to 12 June 2018 and these are considered below following those specified in subsection 117(4) of the Assessment Act.

Duty of a parent to maintain a child/commitments necessary for self-support or the support of anyone else the parent has a duty to maintain

1. Section 3 of the Assessment Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain.

2. Mr Burks and Ms Gowler each have the primary duty to financially support the children.

3. Mr Burks also noted that he had used $32,000 of the money he received from the sale of [Suburb 1] to repay his siblings for his share of the financial support they provided to his parents in the three years after their entry into care in 2016. Ms Gowler queried Mr Burks’ evidence in this regard. The tribunal was not required to form a view on this as the courts have found that the “duty to maintain” generally refers to a legal duty rather than a moral obligation, including in the case of maintaining elderly parents (see Dwyer v McGuire (1993) FLC 92-420).

4. Neither Mr Burks nor Ms Gowler identified any personal health-related costs or any other unusual self-support expenses they wished the tribunal to consider.

The proper needs of the child

1. In determining the proper needs of a child, it is necessary to consider the manner in which the parents expected the child to be cared for, educated or trained, and any special needs of the child.

2. All three children attend or attended private school. The parents equally share the school fee costs and the amount each contributes is not at issue here. Mr Burks said that he can pay his share as a result of having previously deposited funds with [Education Fund 1]. He put an additional $17,000 into this fund following the sale of [Suburb 1]. Mr Burks said that this was necessary as the remaining funds were not enough to cover the costs of [Child 3’s] remaining secondary education. At hearing, Mr Burks thought there would be between $5,000 and $6,000 left in the fund after [Child 3] finishes school which he intends to direct toward the cost of [Child 3’s] tertiary education.

3. Both parents agreed that none of the children have costs associated with special needs.

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

1. The tribunal found no evidence that children had access to income, property or financial resources which could be used for their self-support during the relevant period.

The earning capacity of Mr Burks

1. Ms Gowler believes that Mr Burks has an unexercised earning capacity in that he could seek work outside of his usual occupation but does not do so. The tribunal explained that in the context of a change of assessment application earning capacity has a more restricted meaning.

2. Subsection 117(7B) of the Assessment Act requires the tribunal to consider three criteria in determining whether a parent’s earning capacity is greater than that reflected in their income as used in the administrative assessment. All three criteria must be satisfied before a departure determination can be made. Those three criteria are:

   (a) one or more of the following applies:

   ·the parent does not work despite ample opportunity to do so (subparagraph 117(7B)(a)(i));

   ·the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full-time work for the occupation or industry in which the parent is employed or otherwise engaged (subparagraph 117(7B)(a)(ii));

   ·the parent has changed his or her occupation, industry or working pattern (subparagraph 117(7B)(a)(iii)); and

   (b)   the parent's decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern is not justified on the basis of:

   ·the parent's caring responsibilities (subparagraph 117(7B)(b)(i)); or

   ·the parent's state of health (subparagraph 117(7B)(b)(ii)); and

   (c)   the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child (paragraph 117(7B)(c)). 

3. Mr Burks has worked in [industry 1] for many years, most recently as [an occupation 1], and continues to do so. His hours of work have decreased but the tribunal was satisfied that this was a result of the vagaries of [industry 1] rather than a result of Mr Burks choosing to work less. The tribunal accepted Mr Burks’ evidence that he spends a lot of time [deleted] but that these activities have yet to generate any funds for him. The tribunal additionally noted that Mr Burks has recently trained as an [occupation 2] in order to earn more income.

4. Overall, the tribunal found that the first criterion in relation to earning capacity was not satisfied in relation to Mr Burks.

Income, property and financial resources and earning capacity of Ms Gowler

1. Ms Gowler has worked full-time for her current employer for around 18 months. The tribunal found that Ms Gowler’s earning capacity is not at issue here.

2. Ms Gowler’s 11 March 2021 Statement of Financial Circumstances (SoFC) shows that her average weekly earnings are $1,577 a week or $82,000 a year. This is higher than her 2020/21 adjusted taxable income of $75,183, currently used in the assessment. However, after taking likely allowable deductions into account, the tribunal was not persuaded that the difference is significant. Ms Gowler has a history of submitting her income tax returns in a timely manner and the tribunal was satisfied that any increased income will be properly taken into account by the processes of the administrative assessment.

3. Ms Gowler’s major asset is the family home, valued at $900,000, which she owns with her current partner. She also has a car valued at $2,000, about $8,000 in the bank and household contents valued at $15,000. Ms Gowler and her partner have a joint mortgage of $587,000 and no other liabilities of significance.

4. Ms Gowler’s itemised weekly personal and household expenditure is $1,737, an annual total of around $90,324. This is consistent with the likely after-tax income of Ms Gowler and her partner, who earns around $92,000 a year.

5. Overall, the tribunal found nothing in Ms Gowler’s SoFC and related evidence to indicate that she has access to any income, property or financial resources not being properly taken into account by the administrative assessment.

Direct and indirect costs of providing care for the child incurred by the parent entitled to child support

1. Ms Gowler did not identify any particular costs associated with caring for the children. Mr Burks stated that the costs of teaching [Child 1] and [Child 3] to drive, both driving lessons and fuel, are significant. However, the tribunal was not persuaded that teaching [Child 1] and [Child 3] to drive was a necessary cost such as to be taken into consideration here.

Issues raised by Mr Burks

Ms Gowler’s need for child support

1. Mr Burks noted that Ms Gowler has previously suggested that they enter into an arrangement whereby neither pays the other child support. He takes this to indicate that Ms Gowler does not need child support and so the amount she received in relation to the period 1 December 2018 to 12 June 2019, following his 2017/18 income tax assessment, should be restored to him.

2. The tribunal understood Ms Gowler’s position in relation to each parent paying the other no child support to be that she wished to end disputes between herself and Mr Burks about child support; that she believes Mr Burks could be earning more money if he chose; and that she thinks any financial resources available to Mr Burks should be taken into account in the assessment of his child support liability.

Res Judicata

1. In a submission to the tribunal, Mr Burks argued that the legal principle of res judicata (matter decided) applies in this case. The division of assets between the parents in their 2008/2009 property settlement resulted in each parent became the sole owner of a property, Mr Burks’ being [Suburb 1]. In Mr Burks’ view, taking any of the income he derived from the sale of [Suburb 1] into account for the purposes of child support effectively means that Ms Gowler would be benefitting twice from the same asset. Here he noted that Ms Gowler sold her property not long after the property settlement and the profit Ms Gowler made on that sale had no impact on the child support assessment.

1. The 2009 property settlement between Mr Burks and Ms Gowler was by consent and each had independent legal advice before agreeing to the settlement. It was not clear whether, given its past rental history, the capital gain consequences of the sale of [Suburb 1] were considered in the division of assets. Regardless, the tribunal viewed the decision about the division of assets between the parents as distinct from the change of assessment decision under review here and therefore found that res judicata was not an issue in this case.

2. In relation to the different effect on child support of the sale of Ms Gowler’s property and that of Mr Burks, the tribunal observed: Ms Gowler’s property had not been rented and so its sale did not impact Ms Gowler’s adjusted taxable income via a capital gain; Ms Gowler’s property sale took place very soon after the property settlement when both parents were reorganising their personal and financial affairs; and, unlike in this case, all the funds generated through the sale appear to have been directed to the purchase of a new home.

Notification of an estimate

1. Ms Gowler made a change of assessment application on 18 July 2018. In the course of reaching her 9 November 2018 decision, a Child Support primary decision maker spoke with Mr Burks about his financial situation. Mr Burks argued that in that conversation he provided a 2018/19 income estimate which, had it been properly implemented, would have been in use on 1 December 2018. Thus, he would not have been assessed on his 2017/18 adjusted taxable income in the period from 1 December 2018 to 12 June 2019.

2. On 14 June 2019, Mr Burks objected to the decision to use an adjusted taxable income of $566,734 in the assessment. On 13 August 2019, an objections officer disallowed Mr Burks’ objection; the officer’s decision statement did not address the question of whether Mr Burks had lodged a 2018/19 income estimate.

3. Following a request for further review by this tribunal, on 31 October 2019 the tribunal, differently constituted, affirmed the 13 August 2019 objections officer decision, finding that Mr Burks’ 2017/18 adjusted taxable income of $566,734 was properly used to assess his child support liability for the period 1 December 2018 to 30 June 2019. The Reasons for Decision included the following “The tribunal was satisfied that Mr Burks did not lodge an estimate of income application until 13 June 2019.”

4. While this tribunal is not necessarily bound by the findings of a previous tribunal (Rana v Military Rehabilitation and Compensation Commission [2011] FCAFC 80), the tribunal found that this was not an issue it had to determine in this context. Central here is the possible impact of the financial resource available to Mr Burks following the [Suburb 1] sale and [Suburb 2] purchase on his capacity to pay child support. The change of assessment process allows the tribunal to consider all relevant financial circumstances during the relevant period and whether or not there was an estimate in place would not restrict this review.

Care arrangements

1. Mr Burks argued that Ms Gowler made his moving closer to where she lived a condition for agreeing to his having 50% care of [Child 1] and [Child 3] and that this was why he sold [Suburb 1], generating the capital gain in the process. He said that he chose to move rather than go through lengthy and expensive court proceedings to change the care orders. Ms Gowler disputed this version of events.

2. It was clearly open to Mr Burks to choose to move rather than use the available legal processes in order to have more care of the children. However, the tribunal not persuaded that the financial resource Mr Burks acquired as a result of making that choice should not be considered in the assessment of his child support liability.

What determination should be made taking into account the above factors?

1. Mr Burks’ 2017/18 adjusted taxable income of $566,734 was an anomaly. The equivalent 2015/16, 2016/17, 2018/19 and 2019/20 figures were $21,167, $25,819, $19,130 and $16,835 respectively. The reason for the 2017/18 increase was the capital gain Mr Burks made when he sold [Suburb 1]. While the tribunal has found that Mr Burks’ 2017/18 adjusted taxable income does not accurately reflect his income during the period 1 December 2018 to 12 June 2019, it is nonetheless of the view that the financial resource Mr Burks obtained as a result of his property transactions should be taken into account in the assessment of his child support liability

2. Mr Burks estimated his available funds post the sale of [Suburb 1] and purchase of [Suburb 2], allowing for associated costs, were around $180,000. He said that he spent this money as follows: $17,000 to [Education Fund 1]; $91,500 in repayment of loans to family; $28,000 on car replacement; $32,000 in repayment of his share of meeting his parents’ aged care costs; and $11,680 in replacing worn out household items and other such expenses.

3. The tribunal found that the funds available to Mr Burks were around $235,000 rather than $180,000. This was largely because Mr Burks used an estimated tax payment on his capital gain of $300,000 in his calculations and did not allow for his 2017/18 tax refund of $47,804. Thus, the tribunal found that Mr Burks had around $55,000 more available to him than he had accounted for, much of it in the form of a tax refund. The bulk of Mr Burks’ assessed child support liability for the period 1 December 2018 to 12 June 2019 was recovered from that tax return.

4. The tribunal carefully considered whether and, if so, how to adjust Mr Burks’ existing child support liability of around $18,500 for the period 1 December 2018 to 12 June 2019 to better reflect his income and financial resources. In that process, the tribunal also considered the possible extension of the period to which the identified financial resource applied.

5. Overall, the tribunal was not persuaded a change to the assessment was warranted as it found that in the circumstances of this case that it would not be just and equitable to do so. The tribunal found that a liability of around $18,500 for the period 1 December 2018 to 12 June 2019 was not unreasonable in the context of the $235,000 financial resource available to Mr Burks. Any increase in Mr Burks’ liability would create a debt which he no longer has the financial resources to pay. Any decrease in his liability would generate arrears for Ms Gowler who not unreasonably believes herself to be up to date with her child support payments and has arranged her financial affairs accordingly.

Any hardship resulting from this decision

1. Mr Burks’ 16 March 2021 SoFC shows that his average weekly earnings are $480 a week or around $25,000 a year. He also receives $118 a week in child support from Ms Gowler and $52 a week in family tax benefit. [Business 1] financial statements for 2017/18 and 2018/19 show no evidence of significant income or that Mr Burks is meeting personal expenses through the company.

2. Mr Burks’ assets are his home, valued at $1,800,000, his car valued at $19,000, about $10,000 in the bank and household contents valued at $30,000. He owns his home outright and has no liabilities of note. Mr Burks’ itemised weekly household expenditure is $595, an annual total of around $30,000 which is consistent with his income when all sources are taken into account. He chose not to provide information about his superannuation. When questioned he stated that he cannot access his superannuation; he last put money in when he worked in November 2020; and he sometimes puts in above the required amount.

3. Mr Burks has paid his assessed child support liability for the period 1 December 2018 to 12 June 2019 and there is nothing in his current financial situation which indicates any lasting hardship as a result of that payment.

DECISION

The decision under review is affirmed.