Cardew and Cardew (Child support)

[2018] AATA 1711

Cardew and Cardew (Child support) [2018] AATA 1711 (26 April 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/PC013230

APPLICANT:  Mr Cardew

OTHER PARTIES:  Child Support Registrar

Mrs Cardew

TRIBUNAL:Senior Member R Ellis

DECISION DATE:  26 April 2018

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that for the period from 20 April 2017 to 31 December 2019 the adjusted taxable income for Mr Cardew is varied to $156,413.

CATCHWORDS
Child support – Departure determination – Income and financial resources of parents – Business income – Decision under review set aside and substituted

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

REASONS FOR DECISION

BACKGROUND

1. This review is about whether or not there should be a departure from the administrative assessment of child support.

2. Mr Cardew and Mrs Cardew are the parents of [Child 1] (born January 2011) and [Child 2] (born September 2013). There has been a child support assessment in place since 16 May 2016 and Mr Cardew is the parent liable to pay child support under the assessment.

3. For the period from 1 October 2016 to 31 December 2017 Mr Cardew was assessed to pay an annual rate of child support of $0 based on 2015/16 adjusted taxable incomes of $22,836 for Mr Cardew and $14,214 for Mrs Cardew.

4. On 20 April 2017 Mrs Cardew applied to the Department of Human Services, Child Support (the Child Support Agency) for a departure from the assessment on the basis of Mr Cardew’s income, property, financial resources and earning capacity (the ground commonly known as Reason 8). On 8 August 2017 the Child Support Agency made a departure determination (the original decision) and changed the assessment so that:

   ·         for the period 1 June 2017 until 31 December 2017 the adjusted taxable income for Mr Cardew is set at $117,000;

   ·         for the period 1 January 2018 until 31 March 2019 the adjusted taxable income for Mr Cardew is set at $119,925;

   ·         for the period 1 April 2019 until 30 June 2020 the adjusted taxable income for Mr Cardew is set at $122,925; and

   ·         from 1 July 2020 the normal administrative provisions of the Child Support (Assessment) Act 1989 will apply.

5. On 2 September 2017 Mrs Cardew lodged an objection to the original decision and on 1 December 2017 the Child Support Agency allowed the objection (the objection decision) so that for the period from 20 April 2017 to 30 November 2020 the annual rate of child support payable by Mr Cardew is set at $25,724.

6. On 3 January 2018 Mr Cardew applied for a review of the objection decision by the Administrative Appeals Tribunal (the Tribunal).

7. A telephone directions hearing was held on 15 March 2018. Both Mr Cardew and Mrs Cardew attended by conference telephone. Prior to the telephone directions hearing the Child Support Agency provided the Tribunal and the parties with a bundle of documents in accordance with section 37 of the Administrative Appeals Tribunal Act 1975 (621 pages).

8. Mr Cardew and Mrs Cardew were directed to provide further information to the Tribunal and both complied.

9. A hearing was held on 24 April 2018. Mr Cardew gave evidence on affirmation by conference telephone and Mrs Cardew appeared before the Tribunal and gave evidence under oath. The Tribunal received documents folioed A1 to A127 from Mr Cardew and B1 to B14 from Mrs Cardew which were the documents requested at the telephone directions hearing. These were distributed to the parties prior to the hearing. Additional documents were also received from the Child Support Agency (pages 622-627).

10. At the telephone directions hearing and at the commencement of the hearing the Tribunal clarified with Mr Cardew the reasons for his application. Mr Cardew said he felt the objection decision was grossly unfair and the adjusted taxable income used in the original decision of $117,000 was about correct. Mrs Cardew said she was seeking a fair amount of child support based on Mr Cardew’s real income and thought the objection decision made by the Child Support Agency was correct.

ISSUES

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act).

2. The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Act.

3. Under Part 6A of the Act the liable parent or the carer of the child or children may apply to the Child Support Agency for a determination to depart from the administrative assessment (section 98B).

4. Section 98C provides that the Child Support Agency may make a determination to depart from the administrative assessment and it establishes a three step process such that the issues for determination by this Tribunal are:

   ·         whether a ground is established to depart from the administrative assessment of child support; and

   ·         if so, whether it is just and equitable to make a particular departure determination; and

   ·         if so, whether it is otherwise proper to make a particular departure determination.

5. The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Act.

6. Each ground is prefaced by the words ‘in the special circumstances of the case’. The meaning of this expression is not defined in the Act, but the Family Court in Gyselman and Gyselman [1991] FamCA 93 has held:

   as a generality it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. That is, the intention of the Legislature is that the court will not interfere with the formula in the ordinary run of cases.

7. In Phillippe and Phillippe (1978) FLC 90-433 the Court held that ‘special circumstances’ are ‘facts peculiar to the particular case which set it apart from other cases’.

8. If the Tribunal is satisfied that a ground exists and that it would be just and equitable and otherwise proper to make a particular determination, the Tribunal may make one of the determinations prescribed in section 98S of the Act.

9. The range of determinations which can be made includes variations to the annual rate of child support payable, or to the adjusted taxable incomes of the parents and/or carer, or to other components of the statutory formula used to calculate child support.

CONSIDERATION

Issue 1 – is there a ground for departure?

1. A ground for departure exists where, in the special circumstances of the case, application of the administrative assessment of child support would result in an unjust and inequitable determination of child support to be provided by the liable parent in respect of the child because of the income, property or financial resources of either parent (subparagraph 117(2)(c)(ia) of the Act).

2. The administrative assessment in place prior to Mrs Cardew’s application for a change of assessment was based on a 2015/16 adjusted taxable income for Mr Cardew of $22,836 and a 2015/16 adjusted taxable income for Mrs Cardew of $14,214.

3. Mr Cardew told the Tribunal at hearing he was an [service provider] by profession. Evidence provided by the Child Support Agency in the form of Australian Securities and Investments Commission reports shows he is a director of three companies being [Company 1] , [Company 2]and [Company 3]. [Company 1] is a design [company] and Mr Cardew is a joint director. Mr Cardew is the sole director of [Company 2] which is a [specialist]products company. Mr Cardew is also the sole director of [Company 3] which he said no longer operates.

4. In response to directions issued by the Tribunal, Mr Cardew provided detailed financial information relating to the three companies. This included the 2016/17 tax return for [Company 1] as well as financial statements for the year ended 30 June 2017, the 2016/17 tax return for [Company 2] as well as the company balance sheet as at 31 January 2018 and financial statements for [Company 3] as at 18 January 2018. Mr Cardew also provided his individual tax return for 2016/17 and a tax summary for his share portfolio for 2016/17.

5. The total income in the 2016/17 individual tax return provided by Mr Cardew of $47,192 is comprised primarily of income from [Company 2] of $15,000 and dividends of $34,019. Taking account of a net rental loss of $1,882 and other total deductions of $3,300, Mr Cardew has a total taxable income of $43,892 in 2016/17.

6. In relation to [Company 1] the Tribunal finds that:

   ·         Mr Cardew is a director and obtained 30 per cent equity in the company on 31 March 2016;

   ·         Company sales were $131,799 in 2015/16 and $1,046,616 in 2016/17 with total cost of goods sold of $196,780 in 2015/16 and $707,010 in 2016/17;

   ·         The company made a loss of $72,024 after expenses in 2015/16 and a net profit of $89,472 in 2016/17 leading to a retained profit of $17,448 in 2016/17;

   ·         The balance sheet shows a loan from Mr Cardew to the company of $30,000;

   ·         Mr Cardew was paid a fee of $76,312 in 2016/17; and

   ·         The figures in the company tax return are broadly consistent with those in the financial statements although the profit in 2016/17 is $92,541.

7. In relation to [Company 2], the Tribunal finds that:

   ·         Total income in 2016/17 was $264,488;

   ·         Total expenses were $173,586 including cost of sales of $83,910, motor vehicle expenses of $8,119, and $78,839 in other expenses;

   ·         Total profit was $90,902 in 2016/17;

   ·         Tax losses deducted were $90,902 leaving a taxable income of $0;

   ·         Non-current assets listed in the balance sheet included research and development (R&D) of $278,171 and an investment in [a certain venture]of $87,726; and

   ·         Non-current liabilities included a loan from Mr Cardew to the company of $100,460.99 and a loan from [Company 3] of $64,637.23.

8. In relation to [Company 3], the Tribunal finds that:

   ·         There was $0 income in 2016/17 and total expenses of $3,111 leading to a loss of $3,111 in that financial year; and

   ·         Total assets were $8,367.10 and total liabilities were $63,051.36 as at 18 January 2018.

9. Mr Cardew also provided the Tribunal with a completed Statement of Financial Circumstances dated 18 January 2018. Mr Cardew states the following:

   ·         His total average weekly income is $1,477 including $300 from his [Company 2] salary, $522 from dividends, $180 from rent on an investment property and $350 from subletting space in his current accommodation;

   ·         His total weekly expenditure is $1,981 which includes $500 per week for legal costs and $160 per week for costs relating to the children;

   ·         Total value of property he owns is $813,265 including his half share of an investment property he owns with Mrs Cardew valued at $300,000 and his share portfolio valued at $451,527;

   ·         Total liabilities of $584,886 including the mortgage on his share of the investment property at $189,643 and a personal loan with [Bank 1] of $180,000 (a margin loan against the share portfolio);

   ·         He has superannuation valued at approximately $25,000;

   ·         He has use of a company motor vehicle which he values at $5,460 annually; and

   ·         He has two credit cards ([Bank 1] and[another credit provider]) with approximately $6,800 owing and a HECS/HELP debt of approximately $20,000.

10. Mr Cardew told the Tribunal he did not earn a great deal on a monthly basis and his individual tax return set out the income he received [from] his work at [Company 1] as well as other sources. He acknowledged that being a company director did have some additional financial benefits but felt it was not sustainable to continue paying child support at the rate set by the Child Support Agency.

11. The Tribunal discussed with Mr Cardew the operations of his businesses. He said his father started [Company 2] more than 10 years ago to develop [a specialised design] system and he was initially the general manager. Mr Cardew said [Company 2] did not generate any real income so he could only draw a small wage. His architectural fees from [Company 1] were paid into [Company 2] and the business paid for his car, telephone and other living expenses. Mr Cardew said for about three years after his father passed away his mother continued to assist with funding [Company 2] as his father had always hoped the business would be a success. That had since stopped as the product had not been popular with [their clients] and his mother had always intended to bring an end to the financial support. Mr Cardew said he was now funding the business and was thinking about winding it up. He said [Company 2] no longer had office space and he was operating it from home while still meeting patent, certification and other costs himself.

12. The Tribunal asked Mr Cardew about the accounts for [Company 2] and items listed on the balance sheet as non-current assets and non-current liabilities. He said the line item of $87,726 for [a certain investment venture] was an investment made around 10 years ago in [Country 1] which had failed and was worthless. This was simply a book entry. Similarly the figure of $278,171 for R&D was also a book entry covering funds expended on product development and was more a theoretical asset. Mr Cardew said the non-current liabilities included a loan of approximately $100,460 from him to [Company 2] and a loan of approximately $64,637 from [Company 3] to [Company 2].

13. Mrs Cardew told the Tribunal that Mr Cardew was an experienced [professional] who was in a privileged position through his involvement in various companies. She said Mr Cardew was paid for his work at [Company 1], was paid interest from loans to [Company 1], had a share portfolio and was able to move large sums of money through his bank accounts but did not wish to pay child support. She said Mr Cardew’s tax returns did not show his real income and he received many other benefits by structuring his financial affairs the way he had. Mrs Cardew also said many of Mr Cardew’s expenses were met by [Company 2] and so questioned the legitimacy of the company’s expenses. Mrs Cardew said there had always been interest in the [Company 2] concept and the company was not successful because it was more of an investment in R&D for tax purposes. Mrs Cardew felt if his companies were not successful then Mr Cardew should find another job so he could afford to pay child support.

14. Mrs Cardew also drew the attention of the Tribunal to the links between [Company 2] and [Company 1] and said Mr Cardew and the other director of [Company 1] were friends. She said they often had meetings [overseas] and she was sure these would be listed as business expenses. Mrs Cardew said he was possibly running two sets of accounts for [Company 1] as she had found two different rate sheets for the work he was doing for the company as evidenced by the timesheets she had provided to the Child Support Agency.

15. Mr Cardew spent some time explaining his role at [Company 1]. He said he was a sub-contractor providing [business] services to [Company 1] which was a new [company]. Mr Cardew said he was paid a fee of $6,000 per month but received no other benefits. He said he was offered equity in [Company 1] in return for fees owed as the business was experiencing difficulty at the time. Mr Cardew said [Company 1] undertook projects for the government sector which required bank guarantees of up to 25 per cent of the project costs. This was essentially a bond to ensure the work would be completed with 50 per cent refunded upon completion and the remaining 50 per cent when the 12 month defects liability period had ended. He said it was for this reason and the fact that [Company 1] was still a new business that any profits went back into the business. Mr Cardew said he received no other benefits from the company as an owner and director at this stage.

16. In relation to the accounts for [Company 1] Mr Cardew said it was completely incorrect to say he ran two sets of books. He said the timesheets referred to by Mrs Cardew were a [tracking] and invoicing tool which showed two different billing rates for the [Company 1] work he did. The first was the rate he would be paid for the work he was doing and the second was the rate for billing the client. The Tribunal was satisfied with this explanation.

17. The Tribunal examined the significant expenses for [Company 1] in the 2016/17 profit and loss statement including travel and accommodation of $21,453, insurances of $19,273, consultants fees of $9,091 and motor vehicle expenses of $4,046. Mr Cardew said these were all legitimate business expenses. He said travel included travel to interstate project sites and motor vehicle expenses included the cost of car hire as the company owned no motor vehicles. He said consultants fees related to external project consultants like surveyors while insurances included public liability and professional indemnity insurance. The Tribunal is satisfied the expenses are primarily for business purposes only, noting they increased significantly from 2015/16 in line with company growth.

18. In relation to [Company 3], Mr Cardew said the last income it received was from a [small business ] operated by Mrs Cardew. He said [Company 3] was no longer active although it did have minor ongoing administrative costs. Mrs Cardew queried what happened to the motor vehicle owned by [Company 3] as this had been hers to use. Mr Cardew said he had offered Mrs Cardew the motor vehicle after they had separated but she did not want it and so it had been sold. He said this would be recorded in the [Company 3] accounts.

19. Based on the financial statements provided the Tribunal is satisfied that [Company 3] is not currently operating.

20. Mrs Cardew also raised the issue of Mr Cardew’s involvement with a number of family companies and trusts. She said it was difficult to understand the complex arrangements Mr Cardew had in place with these family businesses but he was regularly receiving $14,000 a month paid into his personal bank account by [Company 4] which stopped around the time of their separation in April 2016. She said this was done to distance Mr Cardew from the family businesses and protect them once their marriage had started to fail. Mrs Cardew said these funds were then paid into the [Company 2] bank account. She said this was probably done to ensure she was unable to receive any benefit from the trust distributions once they separated. Mrs Cardew said it may also have been a tax avoidance strategy.

21. The Tribunal notes in evidence provided by the Child Support Agency a document prepared by [an accountancy firm] outlining the various companies and trusts in the Cardew Group. Records sourced from the Australian Securities and Investments Commission show Mr Cardew was an alternate director of [Company 4] from 2 June 2006 until 13 May 2016, an alternate director of [the applicant’s company] from 27 March 2013 until 13 May 2016 and an alternate director of Cardew Australia Pty Ltd from 2 June 2006 until 13 May 2016. These entities all form part of the larger Cardew Group of companies and trusts.

22. The Tribunal also notes in evidence provided by the Child Support Agency bank statements from 2015 showing regular transfers into Mr Cardew’s personal [Bank 1] account of $10,000 per month and $1,000 per week noted as a distribution from [Company 4]. From around April 2015 the same payment of $10,000 was being transferred into the [Company 2] bank account and later a separate weekly payment of $1,000.

23. Mr Cardew told the Tribunal he had originally been appointed as an alternate director of those companies as part of a succession strategy. He said [Company 4] was his mother’s company and involved in commercial property but he, his sister and another person were removed as alternate directors at the same time because his mother no longer wanted any of them involved. He said he had no real involvement in any decision making relating to the companies or trusts. As evidence Mr Cardew provided minutes from a [Company 4] meeting held on 17 June 2012 which state, “All the entities are run by a sole director and [Ms A] [Mr Cardew’s mother] has the full financial responsibilities of such. [Ms A] is liable for all debts and also profits that may be made’. Mr Cardew said the payments from [Company 4] were made when he was running [Company 2] with his father and were to cover [Company 2] expenses such as funding the R&D, rent and other costs. He said initially it was paid into his personal account, which was probably a mistake made by an assistant at [Company 4], but was always accounted for in the [Company 2] accounts. Later the funds were paid into the [Company 2] bank account. Mr Cardew said [Company 2] no longer received funds from [Company 4].

1. Mrs Cardew strongly disagreed and said the funds from [Company 4] only stopped going to Mr Cardew’s account when the marriage started to fail. She said the funds continued going to [Company 2] until she left Mr Cardew. She said [Company 2] met many of Mr Cardew’s personal expenses. She said she felt Mr Cardew still received funds from [Company 4] and she also raised the ownership of properties she had lived in with Mr Cardew in [Suburb 1] and [Suburb 2].

2. Mr Cardew told the Tribunal he still occasionally undertook architectural work for [Company 4] although not recently. He said when this happened he would invoice [Company 4] and the income would be properly declared, for example, when he did some [specialised]work on a [property]for his mother. Mr Cardew said the homes Mrs Cardew referred to in [Suburb 1] and [Suburb 2] were owned by entities associated with his mother. He said he had no equity in either of these properties.

3. Although Mr Cardew was receiving funds from his mother’s business and this only ceased around the time he and Mrs Cardew separated, the Tribunal finds the explanation provided by Mr Cardew to be plausible. Mr Cardew’s father had passed away and his mother wanted to bring an end to the project Mr Cardew and his father had been working on together. While it is possible Mr Cardew may have distanced himself from receiving benefits from the various companies run by his mother the Tribunal is mindful that Mr Cardew is not the head of these companies, is not running these companies and does not appear to be exercising control of these companies. The Tribunal is satisfied Mr Cardew is not alienating income in any way.

4. Mr Cardew also told the Tribunal he had a share portfolio which had been valued at approximately $475,000. He said there was a line of credit of $200,000 secured against the portfolio and approximately $180,000 was drawn down and then lent through [Company 2] to [Company 1] to assist with funding projects. The interest on this loan was approximately $1,000 a month so he recently sold shares to pay out the margin loan. He said his share portfolio was now worth approximately $127,000, however, [Company 2] was instead receiving interest of 9 per cent per annum on loans to [Company 1] which now totalled approximately $240,000.

5. The Tribunal notes in evidence provided by Mr Cardew an [Bank 1] share investment loan statement for the period 1 February 2018 to 28 February 2018. It shows a share portfolio in the name of Mr Cardew valued at $438,084.30 and borrowings against the portfolio of $181,017.12. Interest for the month ending 28 February 2018 was $970.71 with available funds on the margin loan of $19,029.29.

6. Mr Cardew told the Tribunal he was also receiving rental income from the investment property he owns with Mrs Cardew which was the former family home. He said he was paying 100 per cent of the mortgage costs and there was a shortfall between the mortgage payments and the rental income of approximately $227 a week. Mr Cardew said from around October 2017 he was also receiving short-term rental income of approximately $350 to $400 a week from a granny flat at the property he was living in. This was seasonal and depended on his ability to secure rentals so was not necessarily reliable income.

7. Both Mrs Cardew and Mr Cardew also raised a number of other matters during the course of the hearing which the Tribunal did not consider were directly relevant to the matter under consideration.

8. The Tribunal does acknowledge, however, that there are certain advantages in being self-employed which are not generally available to salary and wage earners. Such advantages may include being able to write off personal expenses against the business, reducing personal tax liability as a result of the way the business is structured and being able to claim business expenses which offer a parent some personal gain. In such cases, assessing child support on the basis of taxable income only can result in an unjust and inequitable level of child support.

9. While such practices may be quite legitimate for tax purposes, the Family Court has found this may not properly reflect the true financial resources or capacity of a person to contribute to the financial support of their children and may therefore be ignored. For example, in Voss & Child Support Registrar (SSAT Appeal) [2009] FMCAfam 1296, the Court commented on the common situation of a self-employed person's taxable income not corresponding with his or her income or financial resources for child support purposes:

   There is a body of cases where simple reference to a person's tax return does not provide an appropriate quantification of their capacity to provide financial support. Most commonly this occurs in cases involving the self-employed, where it is well accepted that legal structures and arrangements may generate taxable income that doesn't properly reflect the realistic capacity of the person to provide financial support for their children.

10. For the purposes of assessing child support, the Tribunal finds Mr Cardew’s income to be $156,413. The Tribunal has arrived at this figure in the following manner:

Amount ($)	Description
43,892	Taxable income for 2016/17.
1,882	Net rental loss on investment property at[Address], [Suburb 3] claimed in 2016/17. These are legitimate losses for taxation purposes only.
90,902	[Company 2] profit for 2016/17 (prior to tax losses being deducted).
8,119	Motor vehicle expense claimed for [Company 2]. Mr Cardew has acknowledged the company pays for his motor vehicle which is primarily for private use.
6,383.90	This figure represents 10 per cent of [Company 2] ‘other expenses’ after subtracting Mr Cardew’s salary expense of $15,000. It is not unreasonable to consider Mr Cardew would derive a personal use benefit from the business expenses claimed in the [Company 2] 2016/17 tax return.
5,234	This figure represents 30 per cent of the retained profit for [Company 1] in 2016/17. As Mr Cardew has a 30 per cent interest in the company this is income that could be used for child support if it was not reinvested in the company.

1. The Tribunal therefore considers $156,413 to be a fair reflection of the income and financial resources available to Mr Cardew for the purposes of child support.

2. This income is significantly higher than the adjusted taxable income for Mr Cardew of $22,836 which was applied to the assessment when Mrs Cardew lodged her change of assessment. When Mr Cardew’s and Mrs Cardew’s respective incomes are applied in the child support formula, Mr Cardew’s child support liability increases by approximately $21,420 per annum.

3. The Tribunal finds this to be significantly more than his liability under the administrative assessment and determines there are special circumstances and application of the administrative assessment of child support would result in an unjust and inequitable determination of child support to be provided by Mr Cardew in respect of the children.

4. On this basis the Tribunal finds there is a ground for departure from the administrative assessment.

Issue 2 – is it just or equitable to make a particular determination?

1. As the Tribunal finds there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable as regards the child, the liable parent, and the carer entitled to child support to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act. This in turn requires the Tribunal to consider the matters discussed below,[1] which are as set out in subsection 117(4) of the Act:

   [1] The Tribunal is required to give ‘overt consideration’ to relevant factors listed in section 117(4) of the Act: Tyagi & Meares [2008] FMCAfam 886.

   (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)(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)(iii) to any resident child of the parent (see subsection (10)) by the making of, or the refusal to make, the order.

The nature of the duty of a parent to maintain a child (as stated in section 3 of the Act)

1. Section 3 of the Act states that it is the primary duty of a parent to maintain the child and this has priority over nearly all other commitments.

2. In this case the Tribunal is not aware that either parent has a responsibility to any other child or person.

The proper needs of the child

1. In relation to the proper needs of the child, regard must be had to the manner in which the child is being, and in which the parents expected the child to be, cared for, educated or trained, and any special needs of the child (subsection 117(6) of the Act).

2. The Tribunal was not made aware that the parents expected [Child 1] and [Child 2] to be cared for, educated or trained in a particular way or that the children had any special needs. The Tribunal is satisfied it is therefore appropriate to calculate the costs of their needs by reference to the Costs of the Children Table (provided for in section 155 of the Act).

The income, earning capacity, property and financial resources of the child

1. The Tribunal finds the children have no income, earning capacity, property and financial resources which are to be taken into account for the purpose of child support.

The income property, financial resources and earning capacity of each parent

1. The Tribunal has already considered in detail Mr Cardew’s income, property and financial resources.

2. Mr Cardew told the Tribunal he had been paying about $350 a week in child support to Mrs Cardew but had been living with his mother at the time and had minimal expenses. He said he did not feel it was sustainable to continue paying child support at the rate set by the Child Support Agency and was eating into his assets to help fund child support.

3. Mrs Cardew told the Tribunal she was not currently working and was no longer pursuing an income through her [small business ]. She said she was living on credit cards, behind on her rent and finding it difficult to meet her expenses. Mrs Cardew said that at the time of her application for a change of assessment Mr Cardew was paying $100 a week in child support plus $200 a month to meet other incidental expenses.

4. Mrs Cardew provided the Tribunal with a statement of financial circumstances dated 10 February 2018. It shows total weekly expenses of $973.90 and total average weekly income of $1,165.35 derived primarily from the child support paid by Mr Cardew and government benefits. Mrs Cardew has total assets, including her share of the property in [Suburb 3] and a small amount of superannuation, of approximately $616,000. Her liabilities total approximately $383,000 including two loans on the property. She also provided a copy of her tax return as submitted to the Australian Taxation Office showing a taxable income of $27,814 for 2016/17.

5. Mr Cardew did not raise any concerns about the Child Support Agency’s assessment of Mrs Cardew’s income although he felt he should not have to support her lifestyle because she chose not to work. Mr Cardew said while he wanted to support his children he was very concerned with the way his income had been assessed.

6. The Tribunal is satisfied that the earning capacity criteria (set out in subsection 117(7B) of the Act) are not met in this case.

Any hardship that would be caused

1. The Tribunal is satisfied Mr Cardew currently has access to income through his work as an [occupation] as well as the income derived from his business interests in [Company 1] and [Company 2] of at least $156,413 per annum.

2. Mrs Cardew, on the other hand, relies primarily on income from government benefits and child support from Mr Cardew. The Tribunal is of the view that Mrs Cardew leads a modest lifestyle.

3. After considering all the circumstances of this case, the Tribunal proposes to make the following determination:

• For the period from 20 April 2017 to 31 December 2019 the adjusted taxable income for Mr Cardew is set at $156,413.

1. The Tribunal is limited to making a determination in respect of a day in a period that is not more than 18 months prior to the date the change of assessment application was made (paragraph 98S(3B)(a) of the Act). As the child support assessment has only been in place since 16 May 2016 this would be the earliest date open to the Tribunal from which to make a determination.

2. The Tribunal must determine whether it is just and equitable to backdate the determination at all (that is, prior to the change of assessment application date).

3. Mrs Cardew told the Tribunal she submitted her original change of assessment application with the Child Support Agency on 20 April 2017 because Mr Cardew had earlier reduced the amount he was paying and she could no longer rely on this level of funds to support the children. The Tribunal notes, however, that there was nothing preventing Mrs Cardew from applying earlier if she felt the child support Mr Cardew was paying at the time was unfair.

4. Neither parent raised the issue of backdating the assessment during the hearing process. On balance the Tribunal is of the broad view that retrospectively changing entitlements should be avoided without compelling reasons. In this case, in the absence of evidence about why the determination should be backdated, the Tribunal finds it just and equitable to commence the departure determination from 20 April 2017 and not from an earlier date.

5. The Tribunal also considered the objection officer’s decision to set the annual rate of child support payable by Mr Cardew at $25,724 for the period from 20 April 2017 to 30 November 2020 (being the maximum amount payable based on the child support values at the time).

6. The Tribunal accepts Mr Cardew’s testimony that the nature of the construction business is difficult to predict and hence [Company 1] is likely to continue experiencing financial difficulty notwithstanding the more recent success of the company in lifting business revenue. The Tribunal acknowledges that [Company 1] is a start-up company which has only just commenced making a profit. In addition, as Mr Cardew has pointed out, [Company 2] has not been a successful business and is unlikely to generate significant ongoing revenue from an innovative modular building system which has not been extremely popular with [their clients].

7. Consequently the Tribunal decided there was a balance needed between providing both parents some certainty in their child support obligations and extending child support too far into the future given the difficulty in predicting Mr Cardew’s ongoing income. Setting child support to 31 December 2019 achieves the former while also providing Mr Cardew the opportunity to complete his individual and company tax returns for the 2017/18 financial year to allow a fair assessment of child support going forward. If Mr Cardew feels his or Mrs Cardew’s financial circumstances warrant a reassessment of child support prior to 31 December 2019 he is always able to submit his own change of assessment application.

8. The Tribunal finds that, for the purposes of child support, Mr Cardew’s annual income is $156,413 per annum for the period from 20 April 2017 to 31 December 2019.

9. The Tribunal does not believe this will cause hardship to either parent.

Issue 3 – is it otherwise proper to make a particular departure determination?

1. The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act. Subsection 117(5) sets out the matters that must be considered when deciding whether it would be ‘otherwise proper’ to make a departure determination. It focuses on the balance of support carried between the parents on one hand and the taxpayer on the other. It is appropriate for children to be primarily supported by their parents rather than by government assistance. The Tribunal must consider whether the level of a benefit, in particular family tax benefit, received by the party caring for the children may be affected by the level of child support.

2. Mrs Cardew currently receives government benefits including family tax benefit. The effect of the Tribunal decision may decrease the cost to the community as any family tax benefit paid to Mrs Cardew is likely to decrease to reflect the increased payments from Mr Cardew compared to the formula assessed rate of child support. The Tribunal is therefore satisfied the change of assessment is otherwise proper in the terms of the Act.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that for the period from 20 April 2017 to 31 December 2019 the adjusted taxable income for Mr Cardew is varied to $156,413.