Cheetham and Cheetham (Child support)

[2017] AATA 2903

Cheetham and Cheetham (Child support) [2017] AATA 2903 (26 October 2017)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/BC011383

APPLICANT:  Mr Cheetham

OTHER PARTIES:  Ms Cheetham

Child Support Registrar

TRIBUNAL:  Member P Jensen

DECISION DATE:  26 October 2017

DECISION:

The decision under review is varied so that:

• from 22 July 2016 until the occurrence of a terminating event in respect of [Child 2], Mr Cheetham’s adjusted taxable income is varied to $87,000 per annum;

• from 1 January 2017 to 11 May 2017, Ms  Cheetham’s adjusted taxable income is varied to $34,132 per annum; and

• from 1 January 2017 to 31 December 2017, Mr  Cheetham’s rate of child support payable is increased by $4,400 per annum (on account of a child’s special needs).

CATCHWORDS

Child support – Departure determination – Special needs of the child – 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

Introduction

1. Mr Cheetham and Ms Cheetham are the parents of [Child 1] who was born in 2001 and [Child 2] who was born in 2006. A child support case was registered in 2013. So far as is relevant for present purposes, each parent was recorded as providing 50% care to [Child 1] prior to 2 January 2017 and Mr Cheetham has been recorded as providing 100% care to [Child 1] since 2 January 2017, and Ms Cheetham has always been recorded as providing 100% care to [Child 2].

2. The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. From 1 February 2016, the administrative assessment was based on Mr Cheetham’s estimate of income of $0 and Ms Cheetham’s 2013-14 adjusted taxable income of $36,111, and Mr Cheetham was required to pay $523 per annum in child support. From 1 May 2016, the administrative assessment was based on Mr Cheetham’s estimate of income of $0 and Ms Cheetham’s 2014-15 adjusted taxable income of $29,759, and Mr Cheetham was required to pay $975 in child support. Mr Cheetham provided another estimate of income of $0 from 1 July 2016.

3. The Act also provides for a departure from the administrative assessment in certain circumstances. Ms Cheetham lodged a departure application on 20 July 2016. The Department of Human Services – Child Support (“the CSA”) granted her application and varied Mr Cheetham’s adjusted taxable income to $87,000 per annum and increased his rate of child support payable by $3,200 per annum from 1 July 2016 to 31 December 2017. Mr Cheetham objected to that decision. An objections officer granted his objection, set aside the original decision, and varied his adjusted taxable income to $87,000 per annum from 20 July 2016 until a terminating event occurred in respect of [Child 1]. Mr Cheetham sought further review by the Tribunal. I conducted a directions hearing on 3 August 2017 and a full hearing on 26 October 2017. I spoke to Mr Cheetham and Ms Cheetham by conference phone.

4. Subsection 98C(1) of the Act provides, relevantly, that a decision to depart from the administrative assessment may be made if:

   (i)... one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and

   (ii)... it would be:

   (A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)otherwise proper;

   to make a particular determination under this Part …

A ground for departure

1. Subparagraph 117(2)(b)(ia) of the Act, commonly referred to as Reason 2, provides as a ground for departure:

   that, in the special circumstances of the case, the costs of maintaining the child are significantly affected:

   …   

   (ia)because of the special needs of the child …

2. [Child 2] is receiving necessary orthodontic treatment. Ms Cheetham is paying the associated costs of $10,100 and she is entitled to a rebate of $1,300, leaving a balance of $8,800. There is no dispute that Reason 2 is established.

3. At the full hearing the parents were agreeable to Mr Cheetham’s rate of child support payable being increased so that he effectively pays half of Ms Cheetham’s out-of-pocket costs, i.e. $4,400.

Just and Equitable

1. The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. The principal issue in this case is Mr Cheetham’s income and financial resources. He is [an occupation]. He was the sole director and shareholder of [Company 1] which conducted a [type of] business in [City 1]. According to the financial statements that he provided, the company’s revenue in 2012-13 was $1,127,907 and it made a profit of $17,118. It paid Mr Cheetham wages of $86,229. The financial statements also state that the company owed a debt to Mr Cheetham and it repaid $5,822, leaving a balance of $127,147. The company’s liabilities, which included its debt to Mr Cheetham, exceeded the value of its assets by $24,605. Mr Cheetham now maintains that the company had not in fact owed him $127,147. If that were true, the value of the company’s assets would have exceeded its liabilities.

3. According to the financial statements that Mr Cheetham provided, [Company 1’s] revenue in 2013-14 was $1,063,605. It made a loss of $8,114 but it made a “profit on extraordinary items” of $88,625. Mr Cheetham was unable to explain the profit on extraordinary items. The financial statements do not disclose his wages. The company tax return shows payments to associated persons of $77,300 but Mr Cheetham’s individual tax return shows wages from the company of $130,850. The financial statements also state that the company’s debt to Mr Cheetham reduced from $127,147 to $33,754. At the full hearing, Mr Cheetham stated that the company had not repaid him $127,147 - $33,754 = $93,393. He said his accountant had previously recorded payments to him as a loan when in fact those payments had been wages, hence the adjustment to the loan balance. The value of the company’s assets exceeded the company’s liabilities by $29,318.

4. On 19 March 2015, Mr Cheetham elected to place [Company 1] in voluntary liquidation and commence a new [business] as a sole trader. Mr Cheetham said he made the decision after consulting his accountant. He said he was concerned that [Company 1] might have been trading whilst insolvent. On 27 August 2015, [Company 2] provided a report to creditors. The author of the report concluded that “the Company may have traded insolvent from at least 30 June 2012.” The report does not refer to Mr Cheetham’s wages. He had effectively paid himself $86,229 during 2012-13, at least $77,300 during 2013-14, and $77,710 during the 262 days from 1 July 2014 to 19 March 2015, which equates to a rate of income of $77,710 / 262 x 365 = $108,260 per annum.

5. In the course of the parents’ litigation concerning their property settlement, which is still ongoing, the court appointed an independent chartered accountant, [Mr A], to provide an opinion concerning the value of the issued capital in [Company 1]. I directed Ms Cheetham to provide a copy of [Mr A’s] report. She provided parts of the report. It initially appeared from the documentation that Ms Cheetham provided that [Mr A] had been extremely critical of the liquidator’s report. Upon further examination, it appears that Ms Cheetham provided some of [Mr A’s] report and some of her legal representatives’ written submissions in respect of the liquidator’s report and [Mr A’s] report.

6. Mr Cheetham started operating a [business] as a sole trader in March 2015. According to his individual tax returns, the business made a loss of $3,821 during 2014‑2015; it made a loss of $2,358 during 2015-16; and it made a profit of $23,482 during 2016-17. Nevertheless, Mr Cheetham appears to have incurred significant ongoing personal expenses throughout that period and the question arises as to how he has been able to fund those expenses.

7. On 24 November 2015, Mr Cheetham completed a Family Court Financial Statement. He stated that his income was $0. His expenses included rent of $560 per week, interest payments on his credit card debt of $459 per week, child support payments of $75 per week, and other expenses which totalled $618 per week. Those expenses totalled $1,712 per week or $89,024 per annum.

8. Mr Cheetham stated that he did not pay any insurance premiums. Bank records revealed that he made three insurance premium payments to three different insurers on 4, 24 and 26 November 2015. At the full hearing, Mr Cheetham stated that one of the payments was in respect of a car that he had sold and he had forgotten to cancel the associated insurance premium. It is unnecessary to make a finding of fact on that issue. He did not dispute that he had been aware of the other two insurance premiums. He provided the court with incorrect information.

9. Mr Cheetham stated that he did not own a car but he incurred car‑related expenses. Ms Cheetham stated, and Mr Cheetham did not dispute, that when [Company 1] was liquidated, Mr Cheetham’s brother was said to have purchased a work vehicle from [Company 1] which he promptly lent to Mr Cheetham. I gather that Ms Cheetham disputes the legitimacy of that transaction.

10. Mr Cheetham stated that his expenses included $50 per week for entertainment, hobbies and holidays. Ms Cheetham noted that Mr Cheetham’s bank account statements including payments in November 2015 of $159.99 to Apple’s iTunes Store and $84.10 to Greater Union. She submitted, in effect, that such discretionary spending was inconsistent with Mr Cheetham’s claim that his income was $0.

11. Mr Cheetham stated that no other person was paying his expenses. He stated that he owed $3,500 to a [Mr B], $5,000 to a [Mr C], $5,935 to a Mr Cheetham, and $67,000 to his parents. At the end of this Financial Statement he added:

    Loans from family members are being used for living expenses during start up of new business. Nil repayments and interest free until new business can support repayment.

12. At the full hearing, Mr Cheetham stated that the loan of $67,000 consisted of a loan of $30,000 in respect of [Company 1] which had existed prior to the parents’ separation, and which is a subject of dispute in the parents’ ongoing litigation concerning their property settlement, and a further loan of $37,000 which he used to meet personal expenses.

13. On 9 March 2016, Mr Cheetham completed another Family Court Financial Statement. Ms Cheetham provided the Tribunal with an incomplete copy of the Financial Statement. Mr Cheetham once again stated that his income was $0.

14. Mr Cheetham consulted [Ms D], clinical psychologist, from April to September 2016. She stated in a letter dated 13 May 2017:

    When I met Mr Cheetham he was highly depressed and anxious and had not been able to work or engage in interests or social situations to his usual capacity for several months. I can confirm that he would not, therefore, have been earning his usual income over this time. His capacity for work did not improve until his symptoms began to alleviate several weeks after we began to meet.

15. I accept [Ms D’s] evidence that Mr Cheetham was highly depressed and anxious when she met him and his condition improved with treatment. It is not clear to what extent [Ms D] relied on Mr Cheetham’s statements to conclude that he had a reduced work capacity for several months prior to her meeting him. In any event, [Ms D] did not seek to quantify the extent to which Mr Cheetham’s work capacity had reduced and I consider her evidence to be of limited probative value.

16. On 1 July 2016, Mr Cheetham spoke to the CSA and it noted:

    Mr Cheetham stated he is self employed and he is not drawing a wage. He has borrowed money from Family to cover his living expenses.

17. It appears that Mr Cheetham started making arrangements in July 2016 to relocate to [Location 1] and enrol [Child 1] in [a school] at [a suburb]. She had not previously attended a private school. A registration fee of $110 and an enrolment fee of $700 were paid in 2016. The 2017 compulsory tuition fees and levies are $13,432 and there are other compulsory and discretionary costs. At the directions hearing, Mr Cheetham stated that [Child 1] would be participating in a school excursion to New York City in 2018.

18. On 23 September 2016, [Dr E], clinical psychologist, provided a Family Court report in respect of “the quite bitter dispute between Mr and Mrs Cheetham over contact with the children.” At paragraph 102 of the report he noted:

    Mr Cheetham denies not paying child support. He said he was paying child support of up to $750.00 a week (half in cash) but she was always crying poor. He said after the charges were brought against him she got quite nasty and as a result he said he is now “paying the minimum”. It seems to me that in part this was inspired by an attempt to punish his wife, without consideration of the impact it might have on the children.

19. In November 2016, Mr Cheetham informed the CSA that he had recently started paying himself a wage of $650 per week which covered his rent.

20. Mr Cheetham and [Child 1] moved to [Location 1] in January 2017. On 30 January 2017, Mr Cheetham informed that CSA that “I currently have no income until I establish my new business in [Location 1].” On 2 February 2017 he provided the CSA with a formal estimate of income of $0. On 2 March 2017 he informed the CSA that he was paying his expenses from business income and a loan from his parents. The CSA noted, “He said they pay some costs directly as part of this, such as school fees.” That evidence suggests that the payments that Mr Cheetham claimed his parents were making in respect of [Child 1’s] school fees formed part of his increasing loan from his parents.

21. On 12 May 2017, Mr Cheetham completed an Administrative Appeals Tribunal Statement of Financial Circumstances. He stated that his income was $760 per week. He did not provide any corroborative evidence on that issue. He stated that his tax payments, child support payments, insurance payments and other expenses totalled $72 + $50 + $29 + $1,090 = $1,241, which equates to $64,532 per annum. He claimed to have no personal phone expenses and no personal motor vehicle expenses. He listed the loans which he claimed he owed to family members. The balances of the loans had not changed since 24 November 2015 apart from an increase of $3,058 in his loan from his parents.

22. At the directions hearing I asked Mr Cheetham how he had been paying [Child 1’s] education expenses which he had estimated to be approximately $600 per week. He said he had paid some of the expenses directly and his parents had paid some of the expenses. I indicated to Mr Cheetham that I would require him to seek to obtain documentary evidence from his parents concerning the source of the funds they were using to pay some of [Child 1’s] education expenses, and if they were not willing to provide him with that documentation he could contact the Tribunal registry and I would consider issuing notices to his parents compelling them to provide that documentation. Mr Cheetham replied that his father has a safe and Mr Cheetham believed, but could not be certain, that his father was using the cash in the safe to pay some of the school fees. He said his parents often went to the school with cash to make the payments.

23. I issued directions to both parents requiring them to provide certain documentation. The directions to Mr Cheetham included directions concerning the payment of [Child 1’s] education expenses. In response, Mr Cheetham’s mother provided a statutory declaration and supporting documents. Mr Cheetham’s father did not provide a statutory declaration.

24. Mrs Cheetham stated that “we”, which I gather is a reference to her and her husband, assisted with Mr Cheetham’s and [Child 1’s] day-to-day costs. She stated that “we have paid by cash school fee’s [sic] for [Child 1] ... $7,157.60.” She stated that “we” paid cash for some school uniforms, dance classes and Oz tag. She did not disclose the source of the cash that had been used to make those payments. She did not refer to a safe. She provided bank account statements which showed that in July 2017 she had paid the fees for one school term. Those fees were $3,358. The bank account statements also showed some miscellaneous payments. For example, during the months of February, March and April she identified payments totalling approximately $1,500. More than half those payments were in respect of a pet’s expenses. Mr Cheetham did not include any pet expenses in his Statement of Financial Circumstances dated 12 May 2017.  

25. At the full hearing, Ms Cheetham noted that Mr Cheetham continued to receive significant deposits from entities which had been clients of [Company 1]. Mr Cheetham explained that his business continues to operate in [City 1]. He said he uses the services of subcontractors in [City 1] and he has made several trips to [City 1] to oversee their work.

26. On 24 November 2015, while Mr Cheetham was living in [City 1], he claimed to have living expenses of approximately $89,024 per annum. The evidence suggests that he understated his living expenses. He moved to [Location 1] in January 2017 and on 12 May 2017 he claimed to have living expenses of approximately $64,532 per annum. The evidence that Mr Cheetham has provided concerning his financial circumstances is unsatisfactory but, very broadly speaking, his evidence suggests that his living expenses in [City 1] during the thirteen months from 24 November 2015 to 31 December 2016 and his living expenses in [Location 1] during the five months from 1 January 2017 to 12 May 2017 (and ignoring relocation costs) were at least ($89,024 / 12 x 13) + ($64,532 / 12 x 5) = $123,331. During the same period, his stated income was approximately (-$2,358 / 12 x 7) + ($23,482 / 12 x 11) = $20,149 and he borrowed a further $3,058 from his parents. $20,149 + $3,058 = $23,207.

27. Towards the end of the full hearing I put to Mr Cheetham that, on his account of events, his living expenses had exceeded his income and he had not satisfactorily explained how he had met the shortfall. He stated that his business had paid for some of his personal expenses but he also maintained that his accountant had properly apportioned any expenses that had been incurred in respect of both business and personal use. He submitted that he might have overestimated his personal expenses in his financial statements to the Family Court and the Tribunal. He did not provide a satisfactory explanation as to why he might have provided the Family Court and the Tribunal with incorrect evidence. He ultimately submitted that his adjusted taxable income as assessed by the Australian Taxation Office did not fairly reflect his income and financial resources for child support purposes and it would be appropriate to increase his adjusted taxable income to take account of the personal benefits that he received via his business.

28. Nothing turns on the precise calculations that appear in paragraph 33 but those calculations indicate, in very broad terms, the magnitude of the discrepancy between Mr Cheetham’s purported income and his purported personal expenditure. He was unable to provide a satisfactory explain as to how he had been able to meet the shortfall. His attempts to amend the evidence that he had previously provided to the Family Court and this Tribunal were unpersuasive. Further, it is inherently improbable that Mr Cheetham would continue to incur such personal expenses if his income had in fact been as low as he has repeatedly claimed. Further, if Mr Cheetham had been required to liquidate [Company 1] in March 2015, and if he had in fact made a loss as a sole trader from March 2015 to June 2016, it is inherently improbable that he would have decided in July 2016 to enrol [Child 1] in a relatively expensive private school. There was no suggestion that Mr Cheetham’s parents had stated, at the time, that they would pay for, or subsidise, [Child 1’s] attendance at the school. At the start of the full hearing I confirmed that Mr Cheetham maintained that his loans from his parents were legitimate loans and that he was required to repay them. At the end of the hearing Mr Cheetham stated, in respect of his parents’ payments towards [Child 1’s] education expenses, that “sometimes [my mother] says I have to repay; sometimes she says I don’t.”

1. I find that Mr Cheetham has provided unreliable evidence concerning his income and financial resources. However I accept, in broad terms, his evidence to the Family Court and the Tribunal that he has maintained a relatively high level of personal expenditure. He has been unable to satisfactorily explain how he has been able to fund that expenditure. The most likely explanation is that his income has been significantly higher than he has disclosed, and I find accordingly. The evidence does not allow me to precisely calculate his actual income. On one view, it would be appropriate to have regard to his earning capacity which was demonstrated to be $108,260 per annum when he liquidated [Company 1]: section 117 of the Act. On another view, it would be appropriate to vary his adjusted taxable income for child support purposes to at least $126,228 per annum (being the grossed-up value of his net expenditure of $89,024 per annum whilst in [City 1]) or at least $85,740 per annum (being the grossed-up value of his net expenditure of $64,532 per annum whilst in [Location 1]). Further, there is no reason to concluded that Mr Cheetham has fully disclosed his personal expenditure, including his discretionary spending, and there is reason to conclude the contrary. It would not be inappropriate to draw robust inferences in Ms Cheetham’s favour from Mr Cheetham failure to disclose his actual income.

2. Ms Cheetham submitted that the CSA’s decisions to vary Mr Cheetham’s adjusted taxable income to $87,000 per annum were fair so far as his income and financial resources were concerned. The current rate of child support payable is based on that income. These proceedings are ultimately about the rate of child support payable and Ms Cheetham is well placed to know what financial support she requires from Mr Cheetham to assist her in meeting [Child 2’s] costs. While an income of $87,000 per annum is at the lower end of the range of incomes that one might reasonably conclude to be Mr Cheetham’s actual income, I consider it appropriate to vary Mr Cheetham’s adjusted taxable income to $87,000 per annum in light of Ms Cheetham’s submission.

3. Ms Cheetham is employed as a part-time [occupation]. There is no dispute that her income and financial resources are fairly reflected for child support purposes in her adjusted taxable incomes as assessed by the Australian Taxation Office from time to time, apart from her 2015-16 adjusted taxable income which included a capital gain from the sale of a matrimonial asset. Her 2014-15, 2015-16 and 2016-17 adjusted taxable incomes were $29,759, $65,888 and $34,132 respectively. She submitted, and I accept, that her earnings during 2015-16 were $31,743.

4. From 1 January 2017 to 11 May 2017, Ms Cheetham was initially assessed on a provisional income and subsequently assessed on her 2015-16 adjusted taxable income. It is appropriate to vary her adjusted taxable income from 1 January 2017 to 11 May 2017 to $34,132 per annum.

5. The evidence suggests, and I find, that the children’s costs are unremarkable, apart from [Child 1’s] education costs (which Mr Cheetham elected to incur) and [Child 2’s] orthodontic costs (which have already been discussed).

6. Ms Cheetham lodged her departure application on 20 July 2016 and it is appropriate to make a departure decision with effect from that date. The child support case will probably, but not inevitably, terminate when [Child 2] turns 18 in 2024. The hearing papers contain approximately 1,000 pages and it has been necessary to infer Mr Cheetham’s actual income from that evidence. He is unlikely to be more forthcoming about his actual income in the future. It is appropriate to vary his adjusted taxable income until the occurrence of a terminating event in respect of [Child 2].

7. In November 2016 the original decision-maker increased Mr Cheetham’s rate of child support payable by $3,200 per annum from 1 July 2016 to 31 December 2017, i.e. Mr Cheetham was required to pay an additional $4,800 by 31 December 2017. On objection, that aspect of the decision was deleted. I consider it appropriate to require Mr Cheetham to pay the addition $4,400 referred to in paragraph 7 by 31 December 2017.

8. Varying Mr Cheetham’s adjusted taxable income to $87,000 per annum from 20 July 2016, and varying Ms Cheetham’s adjusted taxable income to $34,132 per annum from 1 January 2017 to 11 May 2017, and increasing Mr Cheetham’s rate of child support payable by $4,400 per annum from 1 January 2017 to 31 December 2017, will increase Mr Cheetham’s child support arrears by approximately $5,200. He will be required to pay a higher rate of child support until the end of 2017 and then his rate of child support payable will return to approximately the same rate that he has been required to pay pursuant to the objections officer’s decision. I am satisfied that Mr Cheetham has the capacity to pay those rates of child support from his actual income.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. Ms Cheetham receives family tax benefits in respect of her care of [Child 2]. Changing the child support payable by Mr Cheetham will result in a more appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

DECISION

The decision under review is varied so that:

• from 22 July 2016 until the occurrence of a terminating event in respect of [Child 2], Mr Cheetham’s adjusted taxable income is varied to $87,000 per annum;

• from 1 January 2017 to 11 May 2017, Ms Cheetham’s adjusted taxable income is varied to $34,132 per annum; and

• from 1 January 2017 to 31 December 2017, Mr Cheetham’s rate of child support payable is increased by $4,400 per annum (on account of a child’s special needs).