C and S
[2003] FMCAfam 464
•31 October 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| C & S | [2003] FMCAfam 464 |
| CHILD SUPPORT – Application for departure – liable parent primary producer – profit sharing partnership with subsequent wife – whether special circumstances exist – hardship to caring parent – whether just and equitable – relevance of liable parent’s superior capital resources – whether appropriate to make departure order in subsequent years to year of assessment. Child Support (Assessment) Act 1989, ss.3, 4, 114, 116, 117 Savery and Savery (1990) FLC 92-131 |
| Applicant: | V C |
| Respondent: | J K S |
| File No: | ADM 1374 of 2003 |
| Delivered on: | 31 October 2003 |
| Delivered at: | Darwin |
| Hearing date: | 13 October 2003 |
| Judgment of: | Brown FM |
REPRESENTATION
| Counsel for the Applicant: | Ms Jeffries |
| Solicitors for the Applicant: | Mason Westover Homburg |
| Counsel for the Respondent: | Mr Whittle |
| Solicitors for the Respondent: | Legal Services Commission of South Australia |
ORDERS
That for the period 21 October 2002 to 31 December 2003 the father’s annual child support income be fixed in the sum of $42,000.
That for the period 1 January 2004 to 31 December 2004 the father’s annual child support income be fixed in the sum of $42,000 together with any increase or decrease in respect of the cost of living to be determined by application of the percentage increase as fixed by the annual Consumer Prince Index for the March quarter for the previous year at Adelaide.
That for the period 1 January 2005 to 31 December 2005 the father’s annual child support income be fixed in the same sum as fixed by Order 2 hereof together with any increase or decrease in respect of the cost of living to be determined by application of the percentage increase as fixed by the annual Consumer Prince Index for the March quarter for the previous year at Adelaide.
That for the period 1 January 2006 to 31 December 2006 the father’s annual child support income be fixed in the same sum as fixed by Order 3 hereof together with any increase or decrease in respect of the cost of living to be determined by application of the percentage increase as fixed by the annual Consumer Prince Index for the March quarter for the previous year at Adelaide.
That for the period 1 January 2007 to 31 December 2007 the father’s annual child support income be fixed in the same sum as fixed by Order 4 hereof together with any increase or decrease in respect of the cost of living to be determined by application of the percentage increase as fixed by the annual Consumer Prince Index for the March quarter for the previous year at Adelaide.
That the applications be otherwise dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT ADELAIDE |
ADM 1374 of 2003
| V C |
Applicant
And
| J K S |
Respondent
REASONS FOR JUDGMENT
Introduction
These proceedings relate to child support and whether there should be any departure to the child support assessment procedure in respect of one child, J M S-C born the 17th of February 1995.
The applicant in the proceedings is V C (“the father”), who is J’s father. The respondent is J K S (“the mother”), who is J’s mother. On the 4th of December 2002, Senior Case Officer O’Neill determined that the father’s child support income for the period 24 October 2002 to
31 December 2003 be assessed at $48,787. The father is dissatisfied with this decision. By way of his form 63 application filed on the 3rd of June 2003, the father seeks the following orders:
(1)That the determination of the delegate of the Child Support Registrar made on the 4th December 2002 be set aside.
(2)That for the period 21st October 2002 to 31st December 2003 the child support income amount for the father be $22,784.
The mother opposes this application and in fact, in an application she herself has filed on the 24th of September 2003, seeks her own departure order in respect of child support payable for J by the father. She seeks the following order:
That pursuant to section 117 of the Child Support (Assessment) Act 1989, all assessments which issue for child support payable by V C to J K S for the child J M S born 17 February 1995 for the period 24th October 2002 to 31 December 2007 be departed from such that the father’s child support income be fixed at $51,373.88 and increased on 1st July 2004 and each year thereafter in accordance with annual Consumer Price Index (March quarter) for Adelaide.
Both of the parties’ applications are governed by the provisions of the Child Support (Assessment) Act 1989 (“the Act”) and in particular section 117 of the Act. It is the mother’s position that, in the past, previous child support assessments have not properly reflected the income, property and financial resources of the father.[1] The father relies on the same ground in respect of his application to seek a departure order from the determination of Senior Case Officer O’Neill made on the 4th of December 2002. For her part, the mother does not seek strongly to challenge Senior Case Officer O’Neill’s decision and the conclusions on which it was based, but rather she asserts that there are special circumstances which warrant the extension of this decision over the period of five years from the date on which it was made.
[1] See section 117(2)(c)(i) of the Act.
Background
The parties have never married. J is the only child of their relationship. J has always lived with her mother. Currently, the mother and J are living in B W in Queensland. Child support assessments, whereby child support was payable by the father to the mother for J, commenced on the 1st of March, 1995. The mother is currently employed as a café assistant and receives a modest salary of $300 per week. She also receives social security payments to a value of $345 per week. Her only other source of financial support for J is child support received from the father. She is not in a strong financial position.
The father is a self-employed market gardener. He owns land at M B in South Australia, on which he lives and grows produce, mainly tomatoes. He has been a market gardener for the past fifteen years, learning the trade from his parents and receiving a gift of land from them, on which he carries on his business. Primary production is his only source of income.
On the 14th of August, 1999, the father married his current wife, M F C. They have two children, namely N D C, who was born on the 12th of August 2001 and S L C, who was born on the 2nd of December, 2002.
Shortly prior to the marriage between the father and Mrs C, they established a partnership to operate the market garden business, which previously the father had operated alone. One of the effects of the partnership was to apportion income derived from the market garden equally between the father and Mrs C. This reduced the father’s taxable income and so necessarily, by application of the relevant legislation, reduced the child support payable by him for J.
It is the mother’s position that prior to 1999, the husband operated the market gardening business alone and that since his marriage this continues to be the case. In those circumstances, although it might suit the father to split his income with his wife for taxation purposes, it is unfair to her and J to allow such a splitting of income for the purposes of the assessment of child support.
In addition, the mother submits that the father’s overall financial position is vastly superior to her’s in that he owns three pieces of real property, which are currently unencumbered and in addition has access to savings. As such, it is her position that the father has access to assets and other financial resources, which makes the departure order which she seeks both just and appropriate in all the circumstances of this case.
Needless to say, the father does not accept either of these propositions. It is his position that the partnership between him and Mrs C is real in every sense of the word. He deposes, as does Mrs C herself that each of them work extensively in the market garden and that the business is in every sense a joint enterprise between them, with nothing sham or symbolic about their partnership. In such circumstances, the father asserts that it is appropriate that the income produced by the market garden business be equally apportioned between him and Mrs C. This apportionment is as a result of the actuality of their business situation, not as a result of any desire on his part to avoid paying child support for J. It is his case that as Mrs C has no strict legal obligation to provide financial support for J, his child support income should be assessed on one half of the income produced by the market garden business. This being his share of the profits of the business, as allocated to him in its financial records for taxation purposes. He argues that it is inappropriate for the court to meddle with the strict application of the child support formula to his basic taxable income.
This issue was the focus of the evidence led before me during the hearing on the 13th of October 2003 and indeed of the hearing before Senior Case Officer O’Neill on the 28th of November 2002. In her decision, Ms O’Neill wrote as follows:
“The Act requires me to look behind a parent’s taxable income and examine the income actually available. Although the use of the partnership entity may be allowable for tax purposes, it produces an unfair result for child support purposes. Mr C operated the market garden for many years prior to the establishment of the partnership.”
In the decision of Senior Case Officer O’Neill, there is no close examination of the father’s other assets and financial resources, other than his income from the market garden. These assets include an olive grove at C; a block of vacant land at M B; and saving of approximately $26,000.
In her case, the mother places particular emphasis on the fact that the father operated his business, apparently alone, for at least four years prior to his marriage to Mrs C and the business seemed to produce a comparable income both before and after the establishment of the partnership and Mrs C’s involvement in the business. In her submission, this indicates that the father is the main force behind the market garden business and, as such, the income produced by it should be regarded primarily as his, for child support assessment purposes. She also points to the fact that the father has assets, which would enable him to meet a higher child support assessment than has previously been made in the past, due to the income splitting arrangements between him and Mrs C and the variations in income as a result of the exigencies of the fruit and vegetable market.
The issues in the case seem to include the following matters:
·What is the nature of the business partnership between Mr and Mrs C and what relevance does it have to the assessment of the father’s child support income;
·What is the relevance of the father’s other assets to the assessment of his child support income;
·Do special circumstances exist to warrant a prospective departure from the ongoing administrative assessment of child support for the next five years, as the mother currently seeks.
Preliminary issue
Following the decision of Senior Case Officer O’Neill, the solicitors for the father wrote to the Regional Registrar of the Child Support Agency in Adelaide on the 23rd of December 2002, requesting a reconsideration of the decision. No response was received to this letter. It was as a result of this lack of response that the father commenced these proceedings on 3 June 2003. Counsel for the father raised the issue of this non response to the request for a reconsideration and whether the fact that it was still outstanding, constituted a bar to this court hearing the application. However, counsel for the mother did not wish to argue that the pre-conditions as set out in section 116(1A) of the Act had not been met because this request for a re-consideration had not been formally dealt with pursuant to the provisions of Part 6B of the Act. In all these circumstances, particularly the inaction of the Registrar, I believe that it is appropriate for me to determine the competing applications.
In addition, I am satisfied that the Registrar of the Child Support Agency was served with the father’s application and has chosen not to appear in these proceedings.
The evidence
Both parties were represented by counsel at the hearing before me on the 13th of October 2003. However, the mother was unable to be in Adelaide in person. She attended court by way of a telephone link from Brisbane.
The father relied on the following documents in addition to his application:
i)An affidavit sworn by himself and filed on the 21st of May 2003;
ii)An affidavit of Mrs C filed on the 31st of July 2003;
iii)A statement of his financial circumstances filed on the 9th of October 2003.
In addition, he and Mrs C tendered their taxation returns and the financial records of the partnership for each financial year from the year ending the 30th of June 1999 to the financial year ending the 30th June 2003. Mrs C also tendered a diary record of the work she had done in the market garden during August of 2003. The father and Mrs C gave additional oral evidence and were each cross-examined by counsel for the mother.
The mother relied on the following documents in addition to her response filed on the 24th of September 2003:
i)An affidavit of herself filed the 16th of July 2003;
ii)A statement of her financial circumstances filed on the 2nd of October 2003.
She was not required for cross-examination by counsel for the father. However, the mother’s counsel tendered a nearly complete record of the child support assessments in respect of J to date.
Both the father and Mrs C were honest and straight-forward witnesses. I accept their evidence. In particular that they are hard working and frugal. Similarly, I have no reason to disbelieve any of the evidence provided by the mother. It is obvious to me that she is not in a strong financial position.
a) The decision of Senior Case Officer O’Neill
The decision of Senior Case Officer O’Neill made on the 4th of December 2002 came about at the instigation of the mother. She sought an increase in the amount of child support payable to her to a sum of at least $3,600 per annum. At the time of her application the two most recent assessments of child support were as follows:
·12 August 2001 to 30 September 2002 – $260 per year ($21.66 per month) based on a taxable income for the father of $17,561.
·1 October 2002 to 31 December 2003 – $260 per year ($21.66 per month) based on a default income for the father of $18,220.
It was the mother’s application that this amount of child support was inadequate and she based her application on two grounds. Firstly, that she incurred additional expenses in respect of maintaining J because of the joint expectations of her parents as to how she was to be raised. Secondly, that the assessment did not reflect the true financial circumstances of the father. Senior Case Officer O’Neill rejected the first ground but accepted the second.
The 2001/2002 profit and loss statement and balance sheet for the market garden partnership was produced to Ms O’Neill by the father. It revealed that the business made a profit of $51,373.88, which was split equally between the father and his wife. As has already been indicated, Ms O’Neill did not accept the validity of the income splitting for child support purposes. In regard to the market garden Ms O’Neill found as follows:
“The primary skill and physical exertion relates to him (Mr C). I accept his submission that his wife has been actively involved in the business. However, he describes his own hours as extremely long. He said he worked from 6.00am in the morning until 6.00 or 8.00 at night. His wife is pregnant and due to give birth shortly. She has had a period of ill health this year. From the information provided, I am not satisfied that his wife’s physical exertion would have been similar to his own.”
Ms O’Neill did accept that Mrs C provided bookwork for the market garden business of about four hours per week, which she valued at $72 per week. Accordingly she made allowance in assessing the father’s child support income for office and bookkeeping expenses. This was the basis of her conclusion that the father’s annual child support income be increased to $48,787.
Ms O’Neill did not closely consider any of the father’s other assets besides the business. Nor did she consider a bad debt of $54,000 owed to the business was relevant to her determination.
Ms O’Neill found that Mr C’s weekly expenses amounted to approximately $419 and in those circumstances she considered the change in assessment to be a fair one. It had the consequence of raising the child support assessment to a sum of $4,882 per annum or approximately $93.88 per week.[2] Clearly, this was a dramatic increase in the amount of child support payable by the father from $21.66 per month to $93.88 per week.
[2] This assessment did not take into account the fact that the father has two dependant children. At the time of Ms O’Neill’s determination, the father’s son S had not as yet been born.
b) The father’s financial circumstances
In order to understand the father’s current financial circumstances, it is necessary to examine the history of his involvement with the market garden. The father comes from a close knit family of Italian decent. His parents have a long involvement with market gardening in M B. It seems that they too were frugal and hard working and through their labours established the father’s market garden in the first place. It also seems that the father was involved in market gardening from a young age.
Mr C Senior was born in 1933. Until his retirement in 1995, he worked full time for thirty years with the S A E and W S B. It was he who purchased the land at 32 P Street, M B, where the father currently has his market garden. Mrs C Senior was also born in 1933. She and Mr C Senior established the market garden and both worked and built up the greenhouses on the property and on an adjoining one, on which they both continue to live. The land was purchased cheaply by Mr C Senior some years ago. He continued to work full-time with the W B but devoted his spare time to the market garden. Mrs C Senior also worked long hours in the business. It seems clear that they were both family orientated people, who worked hard and lived modestly.
The father was born on the 7th of May 1969. He left school after completing year 10 in 1985. Thereafter he had a number of jobs, principally as the Fruit and Vegetable Manager at a local supermarket. But from a young age, he too had been closely involved in the market garden and so in 1989, he decided that he would become a full time market gardener and go into the family business. Later, his father transferred the land at 32 P Street, M B to him as a gift. At the present time, the father cultivates tomatoes in greenhouses on both his own land at 32 P Street, M B and on his father’s adjoining land.
From the time the father took on the business full time, Mr and Mrs C Senior continued to work in the market garden. For all of them, it was a labour of love. It was a family business conducted on family land.
Mr C Senior retired from the W B in 1995. He received a termination package. Mrs C Senior qualified for an aged pension in 1993. As a result, from the mid 90’s onwards, they both had independent sources of income. However they both continued to work in the market garden and the father relied on their work to make the business prosper. However, it seems that they did not draw an income from the business at this stage and for taxation purposes, the income derived from it was the father’s alone.
Mr C Senior also gave his son a block of vacant land at 61 D Road, M B, which is currently valued at $15,000.
The financial records for the father’s business for the financial years ending the 30th of June 1998 and the 30th of June 1999 show profits of $28,896 and $52,666 respectively. In each case, all of this income was allocated to the father for taxation purposes. No doubt, it is as a result of this situation, that the mother asserts:
“…essentially the market garden was the father’s business when I knew him and it has continued to be his business.”[3]
[3] See mother’s affidavit of evidence at paragraph 5.
However, I accept that the exertions of Mr and Mrs C Senior were integral to the production of this income.
On the 14th of August 1999, the father married Mrs C and the partnership between them in respect of the market garden was formed on the 1st of July 1999. It is the father’s position that the formulation of the partnership was an essential pre-condition to the marriage and was created on the understanding that Mrs C would work actively in the business, so that they could jointly build a future together for their family. Mrs C has much in common with the father. She too is of Italian decent and comes from a market gardening background. She has worked in market gardens for much of her life and understands the industry, although at the time she married the father she was working as a shop assistant. She gave up this work when she married the father. Mrs C injected no direct capital into the business, however when in the latter part of 1999 she and Mr C bought a Holden truck for $17,500, she contributed the sum of $6,000 from her savings. This truck is used in the market gardening business.
The marriage between the father and Mrs C coincided with another significant event in the father’s life. In April of 1999, Mrs C Senior became seriously ill and was admitted to hospital. Since this time, she has not worked in the market garden. I also accept that Mr C Senior, as he has grown older, has gradually reduced the work that he has done in the market garden.
This is the background to the formation of the partnership between the father and Mrs C. I do not believe that the partnership can be described as a sham, created only for taxation purposes. Mrs C is an archetypal farmer’s wife. I find that since she married the father, she has been involved in nearly every aspect of the market garden business. These activities include planting and pruning the tomato plants themselves, as well as picking and packing the tomatoes. Mrs C also does the necessary books and accounts for the business. This is a process that became more complicated and time consuming after the introduction of the GST. Undoubtedly, the father does much of the heavy work around the market garden. This includes spraying and fertilising the tomato plants. The work is obviously highly seasonal in nature, with both the father and Mrs C having to work longer hours when the crop is ready to be picked. I have no doubt that Mrs C stepped into the role that had previously been filed by Mr and Mrs C Senior in the operation of the business. I accept the father’s evidence that if his wife was not available to assist him, it would be necessary for him to either scale down the level of his operations or employ other staff to assist him. If the father did employ other staff, this would obviously severely impact upon the profits of the business and it is likely that as the business is currently structured, it could not support the additional expense involved in another paid staff member.
The financial records of the partnership indicate that it has generated the following profits:
Financial Year ending
Profit
30 June 2000
$37,716.80
30 June 2001
$38,632.15
30 June 2002
$51,373.88
30 June 2003
$19,116.91
In each of these years, the profit has been divided equally between the father and Mrs C.
As with all primary production, I accept that the father’s business is somewhat speculative and subject to the exigencies of both the market and the weather. The business primarily grow tomatoes for the Brisbane market. It is not unknown for there to be a glut of fruit and for prices to fall.
In the last financial year tomato prices were poor. Some of the father’s plants were afflicted by a virus and Mrs C was pregnant. These factors all led to the father planting and harvesting less tomatoes. However, the two previous years were good years, apart from one factor. In the calendar year of 2001, the father sold $54,000 worth of tomatoes to a vegetable wholesaler in Victoria, A T. This money has not been paid, as A T has gone into receivership and is unlikely to pay its debts. The best that the partnership can expect to recoup is the sum of $10,000.
Counsel for the mother places some weight on this event and argues that if this sum was factored into the accounts of the partnership for the financial years ending 30 June 2001 and 30 June 2002, it would indicate a profit of $56,000 and $69,000 respectively. In his submission, this is indicative of a steady rise in profits since the partnership began and demonstrates that the past financial year is an aberration.
Although Mrs C Senior no longer works directly in the market garden, she does continue to contribute indirectly to its greater good by babysitting N and S. This frees up Mrs C to work herself in the market garden and confirms my view that it is a family business of which Mrs C is an integral part. I also accept that Mr C Senior is working less and less in the market garden, as he grows older. An analysis of Mrs C’s diary entries for the month of August shows that she juggles her family commitments and her responsibilities to the business on a daily basis. Although the father may do more of the heavy work, the nature of work in the greenhouses is labour intensive and seasonal and so requires regular input from her and at times consumes up to ten hours of her time each day. In addition, to a large extent, Mrs C must be a jack of all trades in respect of the business. This includes her having to make deliveries, as well as doing the bookwork and being involved in the actual horticultural work.
Accordingly, I do not believe that the partnership between the father and Mrs C exists purely to divide income notionally between them. As the role of the father’s parents has reduced, Mrs C’s role has increased. In a very real sense, her exertions contribute to the profits that the market garden produces. In this sense, I believe that Senior Case Officer O’Neill has misconceived the part Mrs C plays in the business. This is not however the end of the matter.
The prognosis for the current year’s production is uncertain. However, the crop has recovered from its viral infection and the father hopes for a good yield of up to 35 – 40 percent on last year. He also believes that prices are likely to be higher. Accordingly, overall the outlook is much more positive than it was for last year.
In 1997 the father purchased land at C for $51,000. He acknowledges that the entire price of this land came out of the cash reserves of the market garden business. On this land the father has established an olive grove. As yet production of olives has been limited and largely restricted to olives used for family consumption. The father anticipates that the grove will become fully productive in about five or six years time. However water required for the olive grove is expensive. The father also believes that there are currently to many olive groves in the area. For these reasons, he has placed the olive grove on the market, with an asking price of $199,000. However, he believes that this is not a realistic price and its value is more likely to be in the range of $156,000, if a purchaser can be found. The sale of the olive grove is a bone of contention between the father and his wife. She wishes to retain the property and believes that it has considerable potential and that it would be imprudent to sell it for $156,000.
The father deposed that he had been saving money since he was aged fifteen years old. Currently he has savings of $26,000. He regards this sum as a nest egg. In addition, the business itself has $15,000 to $16,000 in its trading account, which the father anticipates will be used to replace capital items. The business also has $3,000 in its cheque account. The business does not operate with an overdraft.
The father has modest superannuation of $8,833. The father values the property in which he and Mrs C live and operate some of their greenhouses and which is located at 32 P Street, M B at $128,000 and his half share in the partnership as being worth $37,500. The father has no liabilities.
Prior to Senior Case Officer O’Neill’s decision, the father was paying child support for J at a rate of $21.66 per month. He agrees that this is a risible amount and will not come anywhere near to providing for her financial needs. Following Ms O’Neill’s decision, the father sought a stay of the assessment pending the outcome of these proceedings. This was dealt with by me on 17 of September 2003. On that occasion, with the consent of both parties, I made the following order:
That from 3 June 2003 the determination made by the delegate of the Child Support Registrar on 4 December 2002 be stayed pending final determination of the form 63 application by this Court upon condition that the applicant pay child support for the eligible child in the sum of $100 per month as and from 3 June 2003 and upon further condition that the applicant pay into his solicitor’s trust account a further sum of $100 per month as and from 27 August 2003, such further sum of $100 per month to be applied to arrears of child support, if any, as at the date of the final determination of the form 63 application.
The father acknowledges that he is currently in arrears of child support in a sum of approximately $3,100.
The father and Mrs C have no sources of income apart from the market garden business. They pay their joint recurrent expenses from the business account. Mrs C is largely in charge of that account. They live frugally. In cross-examination they broadly agreed as to what their weekly expenses were. The expenses were as follows:
Food – per week
$100.00 – 150.00
Private Health Insurance
$35.00
Home Insurance
$27.00
Rates, electricity, phone
$100.00
Voluntary superannuation
$134.00[4]
Vehicle expenses
$45.00 – 60.00
Clothing
$15.00
Hayfever medication
$15.00
TOTAL
$471.00 – 536.00
[4] Both the father and Mrs C contribute $3,500 per annum to a voluntary superannuation fund. This is drawn from the profits of the business each year. It equates to a sum of $67 each per annum.
On my calculations, the joint annual living expenses of the father and Mrs C run somewhere between $25,000 and $28,000.
c) The mother’s financial circumstances
The mother’s financial situation is considerably less complicated than the father’s. She has only one major asset, a motor vehicle valued at $8,500. However, she owes a finance company $8,000 in respect of it and has other credit card and consumer debts to a further value of $5,750. She lives in rented accommodation. Besides J, she supports another child, S, who is not yet one year of age. The mother is employed as a café assistant and receives a weekly wage of $300, which is augmented by social security payments and child support received from the father.
Clearly, she is not in a strong financial position, particularly when compared to the father. She owes more than the value of what she owns. The father owns assets, which he values at $369,500[5] and has no liabilities in respect of those assets. The mother deposes that she found the assessment of child support of $21.72 per month, which was in place prior to Senior Case Officer O’Neill’s decision, as inadequate to assist her to any great degree with J’s financial support. It is only necessary to compare the asset positions of each of the parties on even the most superficial of levels to see that the mother had reason to be dissatisfied with the earlier assessment.
[5] See father’s financial statement filed the 9th of October 2003
The law applicable to departure applications
These proceedings are governed by the Child Support (Assessment) Act. Pursuant to section 3 of the Act, the parents of children have the primary duty to maintain their children. This duty has priority over all other commitments a parent may have, other than the necessary commitments to enable the parent to support him or herself, or any other child that that parent may have a duty to maintain.
The objects of the Act are described in section 4(2) as being intended to ensure:
a)that the level of financial support to be provided by parents for their children is determined according to their capacity to provide financial support and, in particular, that parents with a like capacity to provide financial support for their children should provide like amounts of financial support; and
b)that the level of financial support to be provided by parents for their children should be determined in accordance with the legislatively fixed standards; and
c)that persons who provide ongoing daily care for children should be able to have the level of financial support to be provided for the children readily determined without the need to resort to court proceedings; and
d)that children share in changes in the standard of living of both their parents, whether or not they are living with both or either of them;
The Commonwealth Parliament has seen fit to allow parties to negotiate outside of the confines of the Child Support (Assessment) Act and also to enable the Courts, in special circumstances, to depart from the administrative assessment of child support.
The provisions relating to departure are contained within Division 4 of Part VII of the Act. There are additional particular objects of this division outlined in section 114 which include ensuring:
a)that children have their proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both of their parents; and
b)that parents share equitably in the support of their children.
Accordingly, in considering any departure application, the court must bear in mind the overall financial positions of both of the parents concerned, not merely their, respective taxable incomes and secondly the relevant provisions emphasise that the court must inform itself by reference to principles of justice and equity, in determining any such application.
The provisions of section 117 of the Child Support (Assessment) Act empower a Court to make an order for departure from administrative assessment in special circumstances. Section 117(1) provides as follows:
Where:
a)application is made to a court having jurisdiction under this Act for an order under this Division in relation to a child in the special circumstances of the case; and
b)the court is satisfied:
(i)that one or more of the grounds for departure mentioned in subsection (2) exists or exist; and
(ii)that it would be:
A. just and equitable as regards the child, the carer entitled to child support and the liable parent; and
B. otherwise proper;
to make a particular order under this Division;
the court may make the order.
If the three conditions as set out in section 117(1) of the Act are satisfied then the court may make the departure order sought. The proviso to any departure application is that special circumstances should exist. In Savery and Savery[6] His Honour Justice Kay held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. In the Marriage of Gyselman[7], the Full Court of the Family Court said as follows of the phrase “special circumstances”:
“Whilst it is not possible to find with precision the meaning of that term, as a generality it is intended to emphasise that the facts of the case must establish something that is special or out of the ordinary. That is, the intention of the legislature is that the Court will not interfere with the administrative formula result in the ordinary run of cases.”[8]
[6] (1990) FLC 92-131
[7] (1992) 15 FLR 219
[8] supra at page 225
Accordingly, the intent of the Act is that a readily understood and accessible formula should be applied to the incomes of separated parents so that the child support payable by each of them may be easily calculated in an administrative manner. The basis of the formula is each of the parent’s taxable income from each relevant year[9]. The formula is not to be departed from unless “special circumstances” exist.
[9] See section 38 of the Act
In basic terms, the formula works as follows:
·First, the taxable income of the non-custodial parent is taken into account.
·Second, an amount is deducted from that income for the living expense of the non-custodial parent and any natural or adopted children living with that parent.
·Third, if the custodial parent’s taxable income exceeds average weekly earnings, plus a fixed allowance for child care costs, the excess reduces the non-custodial parents income.
·Finally, a percentage of the non-custodial parent’s remaining income is paid as support for the child or children involved.
·The Act provides for a range of modifications to the formula in cases where the care of children is split or shared by the child’s biological parents.
·An appeal lies to a Court, such as this one, where one of the parties considers that the application of the applicable formula provided by the Act has been incorrectly applied or interpreted.
Section 117(2) of the Act sets out the various grounds for departure. It is not necessary to outline each of the various grounds available other than to say that in the present case, both parties rely on the following ground:
i)That in the special circumstances of the case, the administrative assessment has resulted in an unjust and inequitable determination because of the income, earning capacity, property and financial resources available to the father – section 117(2)(c)(i).
After considering these various basis for departure and whether or not in the special circumstances of the case it is appropriate for a departure order to be made, the Court must then consider section 117(4) of the Act, which deals with the circumstances in which it is just and equitable to make the departure order sought.
Section 117(4) of the Act reads as follows:
In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order under this Division, the court must have regard to:
a)the nature of the duty of a parent to maintain a child (as stated in section 3); and
b)the proper needs of the child; and
c)the income, earning capacity, property and financial resources of the child; and
d)the income, earning capacity, property and financial resources of each parent who is a party to the proceedings; and
e)the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support:
(i)himself or herself; or
(ii)any other child or another person that the person has a duty to maintain; and
f)direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and
g)any hardship that would be caused:
(i)to:
A. the child; or
B. the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii)to:
A. the liable parent; or
B. any other child or another person that the liable parent has a duty to support;
by the making of, or the refusal to make, the order.
Finally it is necessary for the Court to consider section 117(5) and determine whether or not it is proper to make the departure order. Section 117(5) reads as follows:
In determining whether it would be otherwise proper to make a particular order under this Division, the court must have regard to:
a)the nature of the duty of a parent to maintain a child (as stated in section 3) and, in particular, the fact that it is the parents of a child themselves who have the primary duty to maintain the child; and
b)the effect that the making of the order would have on:
(i)any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or
(ii)the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.
In Gyselman[10] the Full Court of the Family Court said at page 240 as follows:
“As we have already indicated, the exercise under section 117 involves three steps. The first, which we have already examined, is whether one or more of the grounds in subsection 2 has been made out. The legislation then requires the court to consider whether any proposed order is ‘just and equitable’ and ‘otherwise proper’.”
[10] In theMarriage ofGyselman (1992) 15 FLR 219
It is clear therefore that each of these three steps must be addressed by the court as a separate issue, namely:
i)Whether one or more of the grounds of departure in section 117 is established, if so:
1)whether it is just and equitable within the meaning of section 117(4) to make a particular order; and
2)whether it is otherwise proper within the meaning of section 117(5) to make a particular order.
At the core of the dispute between the parties is the question of the income producing capacity of the market garden business operated by the father and Mrs C and whether, because of Mrs C’s exertions in the business, it is appropriate that the income it produces be divided between them for the purposes of assessing the father’s child support income. The other significant issue between the parties is how the court should deal with the father’s obvious financial superiority over the mother in terms of the assets, which he controls. In both these regards section 117(7) is relevant. It reads as follows:
In having regard to the income, earning capacity, property and financial resources of the child or a parent of the child, the court must:
a)have regard to the capacity of the child or parent to earn or derive income, including any assets of , under the control of, or held for the benefit of, the child or parent that do not produce, but are capable of producing, income; and
b)disregard:
(i)the income, earning capacity, property and financial resources of any person who does not have a duty to maintain the child, or who has such a duty but is not a party to the proceeding, unless, in the special circumstances of the case, the court considers that it is appropriate to have regard to them; and
(ii)any entitlement of the child or the carer entitled to child support to an income tested pension, allowance or benefit.
The import of section 117(7) is to direct the court to be mindful of parents who own assets, which are under utilised so far as their capacity to earn income is concerned – situations where a parent is “asset rich” but “income poor” and so avoiding their proper obligations to contribute to the support of their children. The same considerations apply to parents, who choose not to utilise their full earning capacity and so do not provide financial support for their children to their maximum ability. These considerations apply to parents, who have skills or intellectual abilities to follow pursuits which would guarantee them a certain level of remuneration but choose not to follow those pursuits, either because they find them uncongenial or for some other more cynical reason.
In these circumstances, the court is empowered to substitute its own consideration of what is an appropriate level of income for the parent concerned by notionally considering the income available to that parent if he or she pursued some particular form of occupation available to him or her or configured his or her assets in a different way. The aim of the legislation being to prevent parents choosing not to work or allowing them to use their assets in such a way so as to avoid their child support obligations.
As has already been indicated, one of the major objects of the child support system is to place the primary obligation for the financial support of children on the parents of those children. Accordingly, the court is directed to disregard the income, earning capacity, property and financial resources of any person who does not have a duty to provide financial support for such a child. However, if special circumstances exist, the court can have regard to the financial circumstances of such a third person. Clearly, the section is designed to cover situations where a parent has disposed of assets in a not at arms length transaction, in order to avoid his or her obligations to pay child support.
Accordingly, it is not a complete answer to the mother’s application for a departure from the administrative assessment, for the father to point to the fact that the market garden is operated as a partnership between him and Mrs C and so produces two income streams. The court is entitled to look at the circumstances surrounding the configuration of the business in this way and determine the appropriateness of the arrangement. Clearly such considerations will include the bona fides of such an arrangement and any other relevant considerations, which may include the contribution of capital to the business.
In this case, the mother seeks a departure order beyond the year of assessment. It is clear that the court is empowered to make such a departure order. In Dwyer v McGuire[11] Lindenmayer J said as follows:
“In any event, I believe that the structure of the act is such that once a valid application for departure has been made, it throws open for consideration by the court the question of departure from the administrative assessment provisions of the act not only in respect of any current or past child support years but also in respect of any future years.”[12]
Discussion
[11] (1993) FLC 92-420 at 80,316
[12] Approved by the Full Court of the Family Court in Hendy & The Deputy Child Support Registrar and Webb [2001] FamCA 632
a) Special circumstances
In this case, the administrative assessment of child support resulted in the father being assessed to pay child support in the sum of $21.66 per month, when he owns assets that are worth in excess of $350,000 and has no liabilities to speak of. On the other hand, the mother is in receipt of an extremely modest wage and social security payments as her only sources of financial support and is in debt. In my view, the discrepancy between the financial circumstances of the parties is such to bring this case out of the ordinary run of the mill situation, so far as the assessment of child support is concerned.
Such an arrangement necessarily results in the mother assuming the greater responsibility for the financial maintenance of J, when she has access to less income, capital and financial resources than the father. In his evidence, the father conceded that an amount of $21.66 per month was “no where near enough” to financially support J. However, it is his position that to calibrate the child support payable by him on the basis of an annual income of somewhere between $48,000 and $52,000 would produce an inequitable result that is not reflective of his true financial circumstances, particularly because it does not take into account the contributions made by Mrs C to the production of that sum.
I am of the view that on both counts, special circumstances are made out and that neither the first administrative assessment of child support nor the subsequent determination of Senior Case Officer O’Neill properly reflect the father’s income, earning capacity, property and financial resources.
b) Just and equitable – section 117(4)
The essence of the father’s objection to Ms O’Neill’s determination is that it casts a responsibility to financially maintain J on to Mrs C and this transgresses the principles as set out in section 3(1) of the Act. He argues that by disregarding the legitimate splitting of the market garden income between him and Mrs C, Ms O’Neill has in effect assessed Mrs C to pay child support for J and this is both an unwarranted hardship to him and Mrs C as well as being wrong in principle.
As I have found, the income splitting mechanism is a legitimate one and is not an artifice either to avoid tax or create a diminished child support assessment. However, that is not the end of the matter. I am also required to examine the proper needs of the child and to contrast the income earning capacity, property and financial resources of each of the parties.
Even the most cursory consideration of J’s needs reveals that $21.66 per month will not come anywhere near to meeting those needs. The relevant published research in respect of the financial needs of a child of J’s age indicate that a sum of $100 per week is closer to the mark.[13] The mother was unchallenged in her estimate of $276 per week as being the cost of maintaining J. This sum represents approximately 60 percent of her weekly income.
[13] See K Lovering Cost of Children in Australia as at December 2002 which provides a figure of $101.75 per week as the cost of providing food and clothing, fuel, household provisions and pocket money for a child of 8; and D Lee Expenditure Survey which gives the sum of $265.26 as the cost of maintaining a child of 8 to 10 years of age.
In determining whether it is appropriate to make a departure order, I must bear in mind that parents should share the financial support of their children in an equitable fashion and the children are entitled to have their financial needs met from an adequate share in the total wealth of their parents.[14] It does not seem fair to me that the mother allocates 60 percent of her modest weekly means to providing for J and that neither the original assessment nor Senior Case Officer O’Neill’s determination gives regard to the not inconsiderable and unencumbered assets of the father.
[14] See Child Support (Assessment) Act section 114
The exercise under section 117(4) of the Act requires the court to balance the hardship between the parties and the child concerned in the making or not making of a departure order. As the Full Court pointed out in Gyselman[15], it is almost inevitable that any departure order will result in hardship both ways. In this particular case, it is necessary to contrast the financial circumstances of two parents, who are very differently placed. On the one hand, the father is a primary producer with extensive capital assets but modest income and on the other hand, the mother is in receipt of social security and a close to subsistence wage. Inextricably bound up with the father’s situation are the considerations of Mrs C, on whose labour the father relies to make the market garden a viable concern. Any departure order made in the terms sought by the mother has the potential to cause hardship to Mrs C and to her and the father’s two other children, whom they both have a duty to financially support. The legislation recognises the difficulty in balancing these competing claims and essentially the exercise for the court is to balance these various hardships in a just and equitable manner.
[15] See Gyselman (supra) at 79,079
As a primary producer, I accept that it is implicit in the father’s situation that he will have tied up comparatively large amounts of capital that will not necessarily produce a reliable or consistent source of income for him. This is particularly so of the olive grove, which is not as yet financially viable. I also accept that the income produced by the market garden is subject to all sorts of exigencies, which cannot be predicted from year to year, such as demand and weather. However, in the case of the market garden, the trend of income produced since 1998 has generally been up, apart from the poor year of last year and, if not for the default of A T in 2001 and 2002, would have been better.
Mrs C is a model farmer’s wife, who plays an integral role in running the market gardens. Her work, either as a bookkeeper or in the greenhouses themselves, cannot be regarded as token. If the father had to replicate her efforts by employing other staff, it would considerably affect the viability of the market garden and its profit. I believe that it is simplistic for the mother to assert that because the father did not share his income in either 1998 or 1999 that Mrs C’s efforts since the marriage to the father have been sham. I accept that she has taken up the slack caused by Mr and Mrs C Senior’s retirement, who were both previously content to labour in the market garden, but not to share income.
No evidence has been led before me as to how the father could reconfigure the three parcels of land he owns in such a way so that they could produce a greater income, other than by the sale of the olive grove. Certainly, the mother is not critical of the efforts that father expends in the business or suggests that he could work harder or smarter or that he is purposely under utilising his assets for child support purposes. Similarly, I do not believe that the father is not using the land at P Street, M B to its maximum potential, given his long experience as a market gardener.
However, in my view, it would be a nonsense to disregard the capital superiority of the father over the mother in balancing the hardship to be occasioned to each of the parties, by either making or not making a departure order. The evidence reveals that the father has been in a position to accumulate capital from time to time, whereas the mother has not. This is a significant factor. In considering the hardship to be occasioned to the father and Mrs C, I must bear in mind that the father has a considerable buffer to meet his child support obligations as set out in the current higher assessment. Much of this buffer is in the form of cash, which is obviously readily accessible by the father, although I accept that some of this money has been put aside to replace capital items needed by the father to operate the market garden business. I also accept that much of this money has been accumulated as a result of the frugality of the father.
The mother has no such buffer and certainly the evidence she has led before me, indicates that she has no capability at all at the present time to save any money. To the contrary, the evidence indicates that she lives very much from hand to mouth. In my view, the evidence is quite clear that if there is a reversion to the previous assessment, the burden of hardship will fall unduly on the mother, although to be fair to the father, in his evidence, he said that he did not seek a return to the previous assessment of $21.66 per month, conceding that this is manifestly inadequate. However, he does not specify an exact sum to be assessed in its place and in a formal sense his application is to reinstate a child support income for himself, which would only provide token financial support for J. On his case therefore, it falls to the court to assess a sum of child support to be calculated pursuant to the principles in Division 4 of Part 7 of the Act.
Section 117(7) directs the court to disregard Mrs C’s income, earning capacity, property and financial resources unless, in the special circumstances of the case, the court considers that it is appropriate to have regard to them. It is clear that Mrs C has no legal duty to support J. The central issue in this case is whether special circumstances exist whereby the court can have some regard to the income she has personally derived from the market garden business in assessing the father’s child support income.
I am of the view that, overall, this case does contain sufficiently special circumstances, in the sense of being one which is out of the ordinary run of cases, where it would result in a significant injustice to both the mother and J, if no regard was had to the income derived by Mrs C from the market garden partnership. I reach this conclusion for the following reasons.
The father owned and operated the market garden business independently of Mrs C for several years prior to their marriage. It has a significant value and at least in good prior years, produced sufficient income for the father to purchase the C olive grove for $51,000 in 1997. Mrs C has injected only token amounts of capital into the business. In such circumstances, it seems to me to be inequitable for the father to point to the preponderance of his capital but argue that it produces little income for him, chiefly because of the income splitting arrangement with Mrs C and so asserts that his child support liability to the mother should be reduced. This seems to me to be fundamentally unfair and to cast too heavy a burden on Ms S to provide financial support for J. In such circumstances, it is my view that the construction of the Act behoves the court to look at not only how income flows from capital held by the parties to the proceedings, but also how that capital is held. In this case, although the income from the market garden business is split, the reality is that Mr C owns the bulk of the capital that produces that income. A balance must be struck between the amount of capital owned by the father and the income that capital produces with the hardship to be occasioned to the father and Mrs C on the one hand and J and the mother on the other hand, if too much regard is had to income as opposed to capital and visa versa. In my view a determination of child support based only on the father’s taxable income produces an inequitable result. Regard must also be had to his capital situation. In that sense, he is considerably wealthier than the mother and regard must be had to this factor in assessing child support.
The mean of income from the market garden for the financial year ending the 30th of June 1998 to date, six financial years in all, is $38,066.50. As has already been indicated, the business in the last financial year had its poorest return for this period. In such circumstances, it seems unfair to regard the father’s taxable income for child support purposes as being $48,787, as Ms O’Neill has done.
In my view, an average of the market garden income for the past six years provides an appropriate starting point to assess the father’s child support income at the present time and in the future. One of the rationales of the child support system is that children should not only enjoy their parent’s prosperity but also share in reversals of their parent’s fortunes. One difficulty, which is readily apparent with primary producers, is that their income is likely to widely fluctuate from year to year. This is clearly the situation with the father, as the market garden business is subject to the vagaries of both the market and the weather. From the mother’s point of view, wide variations in child support are likely to pose particular difficulties. Unlike the father, she will be unable to make provision for poor child support years in good ones. Her financial circumstances are too straightened for that and the vast majority of J’s needs cannot be postponed until the father’s financial position improves. On the other hand, the father with his superior capital reserves is in a position to equalise his income and expenses over a number of years. This is the mother’s principle argument for seeking child support to be fixed beyond the current assessment period. There is much to be said for this argument.
From both parties’ points of view, there will be certainty about what the assessment will be and as a result they will each be able to plan accordingly. The hope being that the good and bad years will equal out and from each of their perspective’s “what they lose on the swings they make on the roundabouts”. If such an approach is adopted, it will also render it unnecessary for the parties to dispute each year the position of Mrs C’s income in the overall scheme of things.
The major disadvantage of fixing the amount of child support for the next five years can be easily stated. There will be no flexibility available to the parties and if the father has a run of bad years, the burden of providing financial support for J will fall unduly heavily on him and contrarily, if he has a run of good years, J will not benefit from his good fortune.
On balance, I think, the special circumstances of the parties, particularly the father’s employment as a primary producer and his superior capital base, make it appropriate to fix the child support for the next five years, as the mother seeks. Her straightened financial circumstances require a degree of certainty in respect of the amount of child support that she will receive from year to year.
For reasons already provided, particularly the father’s overall financial superiority to the mother, I believe that it would be inappropriate to place a child support assessment in this case solely on the father’s taxable income. Such a result would cause undue hardship to the mother and J. I consider that the assessment should be based on an annual income of the father of $42,000. This being the income the market garden has produced on average over the last six years and allowing a modest optimistic future projection. Applying the basic child support formula to this figure, adjusted to take into account the father’s responsibilities to provide for his two other children, creates a liability for child support of $270.97 per month or $62.53 per week.
When considering the father’s weekly expenses and his financial reserves, I believe that he has the capacity to pay this sum. I also consider that this achieves a just result, balancing the hardship to the various parties concerned that will inevitably follow from the making of such a departure order. I am also satisfied, after having considered the provisions of section 118 of the Act that it is appropriate that I make a departure order based on this assessment for the next five years. It is appropriate that a cost of living allowance be factored into such an order.
Finally, I have to consider the matter from J’s point of view. Bearing in mind the published research, $62.53 per week or thereabouts is not a large sum to provide for her needs. However the father has two other children to support. I accept income in his household is likely to be stretched from time to time. I have endeavoured to fairly balance hardship between the various parties concerned. But at the end of the day $62.53 per week is not a large sum to support a child in this day and age.
c) Otherwise proper – section 117(5)
As the assessment of child support stood in respect of J prior to the determination of Ms O’Neill, much of the burden of providing for her fell upon the social security system. The effect of the primary determination also cast an undue burden on the mother to provide financial support for J. I am satisfied that the orders for departure, in the magnitude that I have already indicated, are otherwise proper, in the sense envisaged by section 117(5). Their effect will be to reduce the mother’s reliance on social security to some extent and share the burden of supporting J more equally between the parties.
For all these reasons, the orders of the Court will be as set out at the commencement of these reasons for judgment.
I certify that the preceding ninety-eight (98) paragraphs are a true copy of the reasons for judgment of Brown FM
Associate: Chin L
Date: 31 October 2003