Cail and Paff (Child support)

Cail and Paff (Child support) [2018] AATA 4469 (16 October 2018)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2018/SC014626
APPLICANT:  Mr Cail
OTHER PARTIES:  Child Support Registrar
Ms Paff

TRIBUNAL:Member W Kennedy
DECISION DATE: 16 October 2018
DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides to set Mr Cail’s adjusted taxable income at $66,419.00 and Ms Paff’s adjusted taxable income at $60,972.00, both for the period from 5 March 2018 until a terminating event.

CATCHWORDS
CHILD SUPPORT – departure determination – income, property and financial resources of both parents – business income – just and equitable and otherwise proper to depart – decision under review set aside and substituted

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

REASONS FOR DECISION

BACKGROUND

This decision concerns an application for a departure from the formula assessment of child support. Mr Cail and Ms Paff are the parents of [Child 1], who was born in 2000 and will cease to be a child of the assessment in November 2018, [Child 2], who was born in 2002, and [Child 3], who was born in 2004. There has been a child support assessment in place for the children made by the Child Support Agency of the Department of Human Services (the Department) since 21 September 2007. The assessment is based on the parents having regular or shared care of the children.
The annual rate of child support payable by Ms Paff was $3,048.00 for the period from 15 January 2018 to 16 November 2018. This was based on an adjustable taxable income (ATI) of $35,493.00 for Mr Cail and an ATI of $54,636.00 for Ms Paff.
On 5 March 2018 Ms Paff applied to the Department for a departure from the formula assessment based on Reason 8A (the income, property or financial resources of one or both of the parents) claiming that Mr Cail had restructured his business to minimise his taxation liability and that this had made the child support assessment unfair.
On 9 May 2018 a delegate of the Child Support Registrar considered the departure application and decided that Reason 8A had been established. The delegate decided to set Mr Cail’s ATI at $86,861.00 and Ms Paff’s ATI at $60,972.00, both for the period from 6 March 2018 to 4 October 2022.
On 19 May 2018 Mr Cail lodged an objection to that decision, stating that his business is a joint undertaking and that not all of the profit should be attributed to him. On 20 July 2018 a Department objections officer partly allowed Mr Cail’s objection, finding that Reason 8A had been established and setting Mr Cail’s ATI at $85,000.00 and Ms Paff’s ATI at $60,972.00, both for the period from 6 March 2018 to 4 October 2022.
On 20 July 2018 Mr Cail lodged an application for a review of the decision with this Tribunal. The Tribunal had access to documents provided by the Department. Those documents are at folios 1 to 541 of the hearing papers and were provided to the parents in advance of the hearing. Before the hearing Mr Cail provided documents that are at folios A1 to A17 of the hearing papers. Ms Paff provided documents that are at folios B1 to B9 of the hearing papers. At the hearing Mr Cail and Ms Paff acknowledged that they had received copies of the additional documents.
The matter was initially heard in Sydney on 16 October 2018. Mr Cail and Ms Paff both attended the hearing by telephone and gave their oral evidence under affirmations. The Child Support Registrar did not attend and was not represented at the hearing. At the hearing the Tribunal requested that Mr Cail provide further documentation in order to identify the items being depreciated by the company and also to clarify an entry on the partnership tax return for 2016/17. Mr Cail provided the requested documentation as well as other documentation not requested or required by the Tribunal. The Tribunal decided that it was not necessary to exchange the documentation provided by Mr Cail. The Tribunal also decided to not take into evidence the additional documentation that had not been requested by the Tribunal. The Tribunal reconvened on 22 October 2018 and determined the matter.

CONSIDERATION
The legislative framework and issues for the Tribunal to determine

The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Act). This requires the application of a statutory formula which takes into account factors such as the number and ages of the children, the level of care provided and the income of each parent.
The liable parent or a carer may apply to the Child Support Registrar for a determination to depart from the child support administrative assessment under Part 6A of the Act. Section 98C of the Act provides that the Registrar may make a determination to depart from the formula assessment and establishes a three step process for considering applications to do so. The Registrar, and the Tribunal standing in place of the Registrar, must be satisfied:
·       that one, or more than one, of the grounds for departure referred to in subsection 117(2) of the Act exists; and
·       that it would be just and equitable as regards the child, the liable parent, and the carer entitled to child support; and
·       that it would be otherwise proper to make a particular determination.
The grounds for departure from the administrative assessment are set out in subsection 117(2) of the Act. Each of the grounds, which for administrative purposes are referred to as reasons, require that special circumstances be established. The term ‘special circumstances’ is not defined in the Act. In Gyselman and Gyselman (1992) FLC 92-279 the Full Court of the 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.
If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the Tribunal must make one of the determinations prescribed in section 98S of the Act. These include varying the annual rate of child support payable or a parent’s ATI.

Issue one – Does a ground exist to depart from the administrative assessment?

The Tribunal’s first task is to determine whether a ground for departure from the administrative assessment can be established. In her application to the Department Ms Paff sought a departure from the administrative assessment on the ground that Mr Cail’s income, property and financial resources are greater than is reflected in the ATI used for him in the child support assessment in effect at the time of her application. This ground for departure, which is known as reason 8A for administrative purposes, is set out at subparagraph 117(2)(c)(ia) of the Act:
(c)that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child:
(ia) because of the income, property and financial resources of either parent; or
…
At the hearing Mr Cail said that he had previously operated a business as a sole trader. He said that he and his wife had founded a partnership in April 2016 after she had left her employment the previous month. He said that he had operated his business as a sole trader since about 2001 but that the profitability of the business was declining and he and his wife had decided to reorganise. He described her role in the business as being to organise and administer. He said that she was responsible for all administrative work, including payroll, accounts, insurance, compliance and human resources. He said that she also liaises with clients. Mr Cail said that she was qualified to assist on site so long as she was supervised. Mr Cail said that the business is a true partnership with each partner doing half of the work and receiving half of the benefit.
At the hearing Ms Paff said that Mr Cail had operated the same business for many years and had never required a partner. She said that previously she had done the day to day accounting for the business and she acknowledged that it required some work but said that it was not a full-time job. Ms Paff said that she could not really say much about the business today but said that when she assisted in the business it would take about two hours a day.
The Tribunal has no doubt that Mr Cail’s partner makes a significant contribution to the business. However the Tribunal believes that he has overstated her input. With only three employees (including Mrs Cail) many of the duties are insignificant. The Tribunal finds that it would be fair to consider that Mrs Cail works half-time in the business. On this basis the Tribunal believes it would be appropriate to attribute two-thirds of the business to Mr Cail and one-third of the business to Mrs Cail.
Mr Cail provided a Statement of Financial Circumstances (SOFC)(folios A7 to A14). In the SOFC Mr Cail states that his income is $999.00 per week, being derived from his share of the business profit, being $998.00 per week and $1.00 per week of other income. The SOFC shows that Mr Cail’s household expenditure is $2,060.00 per week. He states that half of this is his share of household expenses. To the $1,030.00 is added income tax of $162.00, child support of $183.00 and life insurance of $72.00. With weekly expenditure of $1,447.00 Mr Cail’s income is some $450.00 per week less than his expenditure.
The Tribunal also has before it Mr Cail’s 2016/17 personal income tax return (ITR) which shows a taxable income of $35,493.00. This is the source of the ATI used in the child support assessment.
It is well established that the taxable income of a person who is self-employed may not be an accurate reflection of their financial resources. For instance, in Carey v Carey [1994] FamCA 74 the Family Court observed:
The legislation however realises that, whilst the simplest method of calculating child support is to use existing taxation records, the use of taxable income as the sole basis for child support could lead to some inequities and injustices. For a start, the financial position of many members of the community is not accurately reflected in their taxable income; either they manage to evade or avoid their taxation liabilities or they can so structure their affairs so that they are capital rich and income poor.
This and other cases establish that self-employed persons are able to derive additional personal benefits through their business structures, and also have greater control over the structure of their finances than does a salaried employee. The Tribunal emphasises that the law governing child support is not the same as the law governing income tax. A finding that for the purposes of child support a person has more financial resources than are reflected in their tax returns is not a finding in relation to the income tax assessment legislation.
The Tribunal examined the profit and loss statement (PL) for the business for 2016/17 (folio 375). This shows that the business had a profit of $79,381.00. On the basis that two-thirds of the business is attributable to Mr Cail the Tribunal attributes $52,867.75 to Mr Cail. The PL shows depreciation of $17,345.45. Depreciation is an allowance rather than an expense and the allowance remains available to the business. The Tribunal attributes $11,552.07 of this amount to Mr Cail. At the hearing Mr Cail said that the business operates two vehicles, accounting for the motor vehicle expense of $19,966.16. He said that the work vehicles are never used for personal purposes, stating that he has a separate personal vehicle. The Tribunal accepts Mr Cail’s evidence in this regard but attributes $1,000.00 of the motor vehicle cost as an allowance to cover the cost of travel to and from work sites from his home, an expense that must be met from after tax income by an employed person. At the hearing Mr Cail said that the telephone expense of $2,640.18 shown on the PL covers two work telephones and a personal telephone. The Tribunal attributes to Mr Cail a notional amount of $500.00 as the value of the personal telephone costs. At the hearing Mr Cail was unable to adequately explain the costs that were encompassed by staff amenities and training ($1,301.90) and travel expenses ($2,144.71), recalling only two one day training sessions. The Tribunal attributes to Mr Cail a notional amount of $500.00 as the personal value of expenditure under these items.
The difference between the income and expenditure declared by Mr Cail on his SOFC is accounted for by the greater income identified through examination of the business PL.
After careful consideration of the evidence before it the Tribunal has decided that the financial resources available to Mr Cail come to $66,419.82. This compares with Mr Cail’s ATI of $35,493.00 under the formula assessment. The Tribunal finds that this difference makes the formula assessment unfair and that it is a special circumstance which would allow a departure from the formula assessment of child support under subparagraph 117(2)(c)(ia) of the Act.

Issue two – Would departure from the administrative assessment be just and equitable?

Relevant law and evidence

As the Tribunal is satisfied that there is a ground to depart from the administrative assessment of child support under Reason 8A the next step is to consider whether it is just and equitable to depart from the assessment. In deciding whether it is just and equitable the Tribunal had regard to the following matters set out in subsection 117(4) of the Act:
(4) 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, property and financial resources of each parent who is a party to the proceeding; and
(da) the earning capacity of each parent who is a party to the proceeding; 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) the 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; and
(iii) to any resident child of the parent (see subsection (10)) by the making of, or the refusal to make, the order.
The Tribunal considered the evidence provided by both parents, including the documents and Statement of Financial Circumstances (SOFC) form that each party provided to the Tribunal, as well as the documents provided by the Department.

Assessment of evidence, findings of fact and application of the law

Section 3 of the Assessment Act states that it is the duty of both parents to financially support their children. The children should receive a proper amount of financial support from their parents in accordance with their capacity to contribute.

The children’s needs

Paragraph 117(4)(b) of the Act requires the Tribunal to consider the proper needs of the children. The Tribunal has done this in accordance with the legislation under which this determination is made. There is no evidence of special needs or extraordinary costs that need to be taken into account by the Tribunal.

The children’s incomes and earning capacities

The children are full-time students and have no independent income or earning capacity.

The income, property, financial resources and earning capacity of Mr Cail and his necessary commitments

Mr Cail’s financial circumstances were considered by the Tribunal. At the hearing Mr Cail acknowledged that he had travelled overseas, most recently in the current year. He said that the cost had been met by his wife’s savings. He and his wife own their own home (subject to a mortgage) and have a modest level of savings. At the hearing Mr Cail said that he had no unusual or out of the ordinary financial commitments that he wished the Tribunal to take into account.
The Tribunal is satisfied that Mr Cail has sufficient financial resources to meet his necessary commitments.

The income, property, financial resources and earning capacity of Ms Paff and her necessary commitments

Ms Paff’s financial circumstances were closely examined by the Tribunal. The Tribunal examined the SOFC (folios B1 to B9) and the other documentation provided by Ms Paff. The SOFC provided by Ms Paff shows that she has a modest level of savings but no significant assets other than her superannuation. She has stated that her parents assist her with large purchases.
Ms Paff’s taxable income in 2016/17 was $54,626.00 (folio 115). The payslip provided by Ms Paff dated in February 2018 (folio 94) shows an annual income of $60,972.00. Ms Paff had provided other financial documentation that supports the information she had provided in her SOFC. At the hearing Ms Paff said that she has no unusual or out of the ordinary financial commitments that she wished the Tribunal to take into account.
The Tribunal found Ms Paff to be a credible witness and it concludes that the documents provided to the Tribunal together with Ms Paff’s oral evidence presents an accurate picture of the financial resources available to her. The Tribunal is satisfied that Ms Paff has sufficient financial resources to meet her necessary commitments.

The parents’ duty to support others

At the hearing the parents said that they have no legal duty to support any person other than the children of the assessment.

Hardship

The Tribunal has found that both parents have access to financial resources that are sufficient to meet their necessary commitments. The change contemplated by the Tribunal will change the child support liability. At the time that Ms Paff applied for the change of assessment she was required to pay $3,048.00 to Mr Cail. The change contemplated by the Tribunal will require Mr Cail to pay $855.00 to Ms Paff. This is less than he was required to pay as a result of the decision of the delegate and the decision of the objections officer. The Tribunal is satisfied that this decision will not cause hardship to either parent.

Terms and period of departure

The Tribunal has decided that it would be appropriate to depart from the formula assessment by setting Mr Cail’s ATI at $66,419.00 and Ms Paff’s ATI at $60.972.00.
Ms Paff lodged her application on 5 March 2018. Having regard to the matters in subsection 117(4) of the Act, the Tribunal finds that it would be just and equitable for the departure to commence from the date Ms Paff lodged her estimate.
Because of the structure of Mr Cail’s business his taxable income does not fully reflect the financial resources available to him. This means that at the end of the departure the child support assessment will revert to the situation that caused Ms Paff to apply for the change of assessment and that resulted in both parents going through the current proceedings. The Tribunal has decided that in order to avoid the need for the parents to go through the process again it would be appropriate to extend the departure to the end of the assessment, which is likely to occur when [Child 3] turns 18 and completes school in 2022. The Tribunal notes that the original decision maker and the objections officer also decided that it would be appropriate to extend the departure.

Issue three – Is it otherwise proper to depart from the administrative assessment?

The final step for the Tribunal to undertake is to determine whether it is ‘otherwise proper’ to depart from the administrative assessment. Subsection 117(5) of the Assessment Act requires the Tribunal to take into consideration the following matters:
(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.
The child support law recognises that each parent has a primary duty to maintain their children. In this case Ms Paff receives FTB and this is unlikely to change as a result of the Tribunal’s decision. The Tribunal finds that this is appropriate and is satisfied that it is otherwise proper to depart from the administrative assessment in this matter.

DECISION

[2018] AATA 4469

16 October 2018

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Jurisdiction

Judicial Review

Statutory Construction

Remedies