Cumming and Cumming (Child support)

[2018] AATA 4157

Cumming and Cumming (Child support) [2018] AATA 4157 (20 September 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/BC013900

APPLICANT:  Mr Cumming

OTHER PARTIES:  Ms Cumming

Child Support Registrar

TRIBUNAL:  Member P Jensen

DECISION DATE:  20 September 2018

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides to vary Mr Cumming’s adjusted taxable income to $141,590 per annum from 6 May 2017 to 18 June 2019.

CATCHWORDS

CHILD SUPPORT – departure determination – no ground in relation to child’s income – no earning capacity for the liable parent – ground established in relation to income, property and financial resources of the liable parent – decision 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

Introduction

1. Mr Cumming and Ms Cumming are the parents of five children including [Child 1] who was born in 2000, [Child 2] who was born in 2002 and [Child 3] who was born in 2010. The other two children are now adults. A child support case was registered in 2011. 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. At all relevant times, Mr Cumming has been recorded as providing 0% care to [Child 1], 16% care to [Child 2] and 16% care to [Child 3]. Ms Cumming has been recorded as providing the balance of care.

2. The Act also provides for a departure from the administrative assessment in certain circumstances. In 2015, Ms Cumming lodged a departure application. On 22 September 2015 a senior case officer granted her application and made a departure decision to vary Mr Cumming’s adjusted taxable income to $122,116 per annum from 1 September 2015 to 31 December 2018. Neither parent objected to that decision.

3. From 1 September 2016 the administrative assessment was based on Mr Cumming’s adjusted taxable income of $122,116 per annum (as per the senior case officer’s decision dated 22 September 2015) and Ms Cumming’s 2015-16 adjusted taxable income of $38,260, and Mr Cumming was required to pay $22,802 per annum in child support.

4. On 23 May 2017, Mr Cumming lodged a departure application. A senior case officer granted his application and varied his adjusted taxable income to $100,000 per annum from 5 October 2017 to 4 October 2019. Mr Cumming belatedly objected to that decision, but he was later granted an extension of time in which to object. An objections officer decided to allow his objection and vary his adjusted taxable income to $117,884 per annum from 6 May 2017 to 31 October 2019.  Mr Cumming sought further review by this Tribunal. I conducted a telephone directions hearing on 16 August 2018 and a full hearing on 18 September 2018. Mr Cumming attended the full hearing in person. Ms Cumming attended the full hearing by conference telephone. She was represented by [Advocate A] who is a child support advocate.

5. Subsection 98C(1) of the Act relevantly provides 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)(c)(i) of the Act, commonly referred to as Reason 4, provides as a ground for departure:

   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:

   (i)because of the income, earning capacity, property and financial resources of the child; ...

2. The relevant departmental policy, which does not bind the Tribunal, is contained in Chapter 2.6.10 of the Child Support Guide. It states, in part:

   If a parent applies for a change of assessment because their child receives more than a minimal income, the Registrar will consider whether that income is significant to warrant a change to an assessment. This will depend upon the income of the child, the financial circumstances of the parents, the amount of child support payable under the assessment and the circumstances of the case. However, generally the Registrar will not be satisfied that a child's income is sufficient to warrant a change to the assessment unless that income is regular and exceeds the equivalent of the maximum rate of youth allowance ... payable to a child under 18 years of age living at home plus the income free threshold applicable to students / Australian Apprentices ... This means, for example, that as at 1 January 2018, a child would generally need to earn or receive a gross income of at least $340.55 per week for the earnings to be considered so significant as to be capable of affecting the assessment.

3. [Child 1] works at [Business 1]. Her payslip for the fortnight ending 19 June 2018 shows year-to-date earnings of $7,367. Ms Cumming said [Child 1] worked at [Business 1] throughout 2017-18. She also worked in the weeks leading up to Christmas doing [specified seasonal] work, and earned about $240 in total. She also worked for three days at [an agency] and earned about $600 in total. That evidence suggests that she earned, on average, about $158 per week.

4. [Child 2] started working at [Business 1] in December 2017. Her payslip for the fortnight ending 19 June 2018 shows year-to-date earnings of $2,381. Ms Cumming said [Child 2] has not been employed by any other employers. That evidence suggests that she earned, on average, $92 per week from December 2017.

5. Each child’s income is significantly less than the amount that would normally be considered significant. Mr Cumming acknowledged that Reason 4 was probably not established in respect of either child’s income. In my opinion, that acknowledgement was properly made. The children’s incomes do not constitute special circumstances. Reason 4 is not established.

6. Subparagraphs 117(2)(c)(ia) and (ib) of the Act, commonly referred to as Reason 8, provide as grounds for departure:

   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

   (ib)because of the earning capacity of either parent; ...

7. The Tribunal can only find that a parent’s earning capacity is greater than their actual income if the requirements of subsection 117(7B) are satisfied. That subsection states:

   In having regard to the earning capacity of a parent of the child, the court may determine that the parent's earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied that:

   (a)one or more of the following applies:

   (i)the parent does not work despite ample opportunity to do so;

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

   (iii)the parent has changed his or her occupation, industry or working pattern; and

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

   (i)the parent's caring responsibilities; or

   (ii)  the parent's state of health; and

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

8. Mr Cumming stated that he completed his apprenticeship as [an occupation] in [year] and had not gained any further tertiary qualifications during his years of employment, but he had completed some TAFE subjects. In 2017 he accepted a voluntary redundancy after [number] years of employment in the [specified] industry. His last day of employment was [in] May 2017. When he accepted the voluntary redundancy he was employed as a [specified role]. His base wage was $141,590 per annum.

9. According to Mr Cumming’s separation certificate, he received a termination payment of $300,028. On a simple analysis, it represented 300,028 / 141,590 x 365 = 773 days of base wages of $141,590 per annum, i.e. base wages in respect of the period from 6 May 2017 to 18 June 2019. One could undertake a more complex analysis, taking into account a number of matters including the following: the termination payment included a large tax-exempt component; Mr Cumming’s 2016-17 adjusted taxable income, which did not include that large tax-exempt component, exceeded $180,000, and so if one were to gross-up the tax-exempt component, one would use the highest 2016-17 individual tax rate of 45% in respect of the entire lump sum; however, if Mr Cumming actually received the termination payment amount over the period from 6 May 2017 to 18 June 2019, his earnings would be subject to the usual progressive tax rates. Neither parent submitted that I should undertake the more complex analysis. At the end of the hearing, [Advocate A] submitted that the objections officer’s decision should be affirmed. The objections officer had used the simple analysis methodology, but had reached a different conclusion because she was using different information. She had not been provided with a copy of Mr Cumming’s separation certificate.

10. Notwithstanding [Advocate A’s] submission that the objections officer’s decision should be affirmed, she also submitted that Mr Cumming should be assessed on his earning capacity. As noted earlier, he can only be assessed on his earning capacity if all three paragraphs of subsection 117(7B) are satisfied. It is sufficient to focus on paragraph 117(7B)(c). Mr Cumming stated that it was not a major purpose of his decision to accept the voluntary redundancy to affect the rate of child support payable. He provided detailed written and oral submissions on the issue. He referred to his deteriorating physical health, deteriorating mental health, difficulties in his workplace, and various caring responsibilities, amongst other things.

11. I noted that cases involving a consideration of earning capacity usually concern a parent who has simply decided to lower their income, rather than someone who has decided to accept a significant termination payment. [Advocate A] replied that if someone offered her a redundancy payment of $300,000, she would accept the redundancy and look for other work. Although what [Advocate A] would do in such circumstances was not relevant, her statement nevertheless supported Mr Cumming’s evidence that his decision to accept the voluntary redundancy had not been for a major purpose of affecting the rate of child support payable; many people, when presented with an offer of a large voluntary redundancy payment, will accept the payment and deal with other aspects of their finances at a later date. Mr Cumming provided very little corroborative evidence of the many factors that he said had led to accepting the voluntary redundancy. However, I had the opportunity to question him at length. As noted earlier, he attended the hearing in person. On balance, I find that it was not a major purpose of his decision to accept the voluntary redundancy to affect the rate of child support payable. I therefore cannot have regard to his earning capacity.

12. Mr Cumming is a reservist in the armed forces. He earned $16,578 in that capacity in 2017-18 and expects to earn approximately half that amount in that capacity in 2018-19. That income is not taxable income.

13. Mr Cumming has obtained a number of recent qualifications including a Certificate IV in [subject]. He stated that he has started his own [related] business via a company that he controls and he has obtained a contract with [an agency], hence the expected reduction in his reservist income. He said he expected the company to earn a profit of approximately $35,000 during 2018-19. He did not provide any corroborative evidence of the expected profitability of the company. He acknowledged that the profit would be available to him as an income.

14. When Mr Cumming lodged his departure application he was being assessed on an adjusted taxable income of $122,116 per annum. His adjusted taxable income had been varied to that amount by a departure decision that had been made in 2015 and it applied until 31 December 2018. For the reasons stated above, Mr Cumming’s income and financial resources were fairly reflected for child support purposes in an adjusted taxable income of at least $141,590 per annum. Varying his adjusted taxable income to $141,590 per annum from 6 May 2017 would increase his administratively assessed rate of child support payable from $22,802 per annum to $27,178 per annum from that date. The discrepancy between those two rates of child support payable constitutes special circumstances such that the application of the administrative assessment based on the 2015 departure decision would result in an unjust and inequitable determination of child support payable. Reason 8 is established.

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. Mr Cumming’s household consists of himself, his wife, and [Child 2] and [Child 3]. His wife is self-employed. They own their unencumbered home. Mr Cumming used his redundancy payment to discharge their home loan. He has modest savings. His household expenses are unremarkable. They include approximately $100 per week for education expenses, which is presumably a reference to the various courses that Mr Cumming has completed recently. Nothing turns on that expense. He has a child support debt of approximately $17,400.

3. Ms Cumming’s house consists of herself, [daughter name] (who is Mr Cumming and Ms Cumming’s oldest daughter), [Child 1], [Child 2] and [Child 3]. Ms Cumming owns her unencumbered home. She receives parenting payment and family tax benefit. She home-schools two of the children pursuant to Court orders that were made in 2013. She is also studying part-time at university. Her household expenses are unremarkable.

4. In March 2013 the Federal Magistrates Court made consent orders concerning the parents’ matrimonial property settlement. As part of that settlement, Mr Cumming transferred legal ownership of a sizable block of land that included the matrimonial home to Ms Cumming. During the full hearing Mr Cumming submitted, in effect, that Ms Cumming received more than her fair share of the matrimonial assets. As I explained during the full hearing, it is not the role of the Tribunal to review Court orders. I will proceed on the basis that the Court orders were fair.

5. After the property settlement, Ms Cumming decided to subdivide her land and sell a portion of it in order to discharge her debts. She retained a battle-axe block that included her home and she sold the residual block of vacant land in 2015 for $265,000. Mr Cumming submitted that, very broadly speaking, his receipt of the termination payment and Ms Cumming’s receipt of the proceeds of sale of the vacant block of land were analogous. They were not. After the Court had fairly distributed the parents’ matrimonial assets, Mr Cumming received an additional payment of $300,028, whereas Ms Cumming simply converted a portion of her assets from one form (real estate) to another form (cash). The property was sold during 2015-16. Ms Cumming’s adjusted taxable incomes from 2012-13 to 2017-18 have been $17,943, $19,115, $19,651, $38,260, $20,715 and $20,518. The increase in 2015-16 to $38,260 was due to the capital gain of $18,842 that she realised during that year. In my opinion, that capital gain, which would have been calculated with refence to the date the property was transferred into her name and the date she sold the vacant block of land, fairly reflects the profit she made in respect of the sale. The administrative assessment was based on her higher 2015-16 adjusted taxable income from 1 September 2016 to 31 August 2017. The administrative assessment has automatically taken account of that profit.

6. Mr Cumming submitted that Ms Cumming should be assessed on her earning capacity. She was most recently in full-time paid employment in 1996. She does not undertake paid employment, despite ample opportunity to do so. Paragraph 117(7B)(a) of the Assessment Act is satisfied. She home-schools two children pursuant to Court orders. Her decision not to undertake paid employment is justified on the basis of her caring responsibilities. Paragraph 117(7B)(b) is not satisfied. Further, Ms Cumming stated that her decision not to undertake paid employment was not for a major purpose of affecting the rate of child support payable. There is no evidence to the contrary. I accept her evidence on that issue. For the sake of completeness I will also note that when the Department of Human Services – Child Support spoke to Ms Cumming on 19 June 2017, the administrative assessment was based on her 2015-16 adjusted taxable income of $38,260. It informed her that she could provide an estimate of her current lower income and the administrative assessment would then be based on that lower income. Ms Cumming declined to do so. Such action is inconsistent with someone who would decide not to return to paid employment in order to avoid having the administrative assessment of child support payable calculated on their higher income. Paragraph 117(7B)(c) is not satisfied. I cannot have regard to Ms Cumming’s earning capacity.

7. Mr Cumming submitted, in effect, that even if Reason 4 was not established, his rate of child support payable should be reduced on the basis of [Child 1’s] and [Child 2’s] income once regard was had to the case as a whole. I do not accept that submission. The children’s incomes are modest and Mr Cumming received ample funds from which he could have met his various financial obligations, including his child support obligations, for a significant period. It would not be just and equitable to effectively require [Child 1] and [Child 2] to partially fund their own basic living expenses.

8. During the course of the hearing I noted Mr Cumming’s basic wage prior to his redundancy, his termination payment, the tax-exempt component of his termination payments, his ongoing tax-exempt income from the defence force and his expected future income. At the end of the hearing [Advocate A] submitted that the decision under review was the preferable decision, i.e. the decision to vary Mr Cumming’s adjusted taxable income to (only) $117,884 per annum from 6 May 2017 to 31 October 2019. I do not agree with that submission, but the parents’ submissions, including those made on Ms Cumming’s behalf, are relevant when considering what is just and equitable.

1. There are different ways in which one could take account of Mr Cumming’s termination payment for child support purposes, but in my opinion it can be fairly reflected for child support purposes by varying Mr Cumming’s adjusted taxable income to $141,590 per annum from 6 May 2017 to 18 June 2019. On a strictly mathematical approach, one would add Mr Cumming’s actual earnings since 6 May 2017. However, departure applications are not a strictly mathematical exercise. Regard must be had to all the circumstances of the case. Varying Mr Cumming’s adjusted taxable income to $141,590 per annum from 6 May 2017 will increase his child support arrears by approximately $7,100 and his current rate of child support payable will be approximately $27,900 per annum. Such a decision will cause him additional financial hardship, although that financial hardship will be the result of his decision not to set aside a portion of his termination payment to allow him to make ongoing equitable contributions towards the children’s costs. Such financial hardship will not make the proposed decision unjust or inequitable.  Viewing the matter as a whole, I consider it appropriate to not vary Mr Cumming’s adjusted taxable income to more than $141,590 per annum on account of his ongoing earnings.

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.

2. Ms Cumming receives family tax benefits in respect of the children of the assessment. Changing the child support payable by Mr Cumming will result in a more appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

Proposed further submissions

1. On 20 September 2018, [Advocate A] sent an email to the Tribunal registry in which she stated that “due to the unusual events of Tuesday’s hearing some points may have been overlooked and need further consideration”, and that she would be lodging written submissions with the Tribunal registry by the close of business on 21 September 2018.

2. It is not clear what [Advocate A] was referring to when she referred to “unusual events”; the hearing was unremarkable. Throughout the hearing I asked Mr Cumming, Ms Cumming and [Advocate A] whether they had anything further to say about particular issues that I raised during the course of the hearing, and at the end of the hearing I gave both parents and [Advocate A] an opportunity to raise any other issues that they considered relevant and to make submissions in respect of the evidence as a whole. The purpose of the hearing is to provide one final opportunity for evidence to be provided and for submissions to be made, which is why material that is provided after the hearing will not usually be taken into account: section 30 of the Child Support Review Directions. On balance, I did not consider it in the interests of justice to delay the resolution of the matter in order to receive further submissions from [Advocate A] and then consider whether to provide Mr Cumming with an opportunity to provide written submissions in response to [Advocate A’s] written submissions, or to reconvene for a second day of hearing.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides to vary Mr Cumming’s adjusted taxable income to $141,590 per annum from 6 May 2017 to 18 June 2019.