D and C
[2003] FMCAfam 620
•12 December 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| D & C | [2003] FMCAfam 620 |
| CHILD SUPPORT – Application for departure of assessment – need to be satisfied that it is just and equitable within the meaning of s.117(4) and otherwise proper within the meaning of s.117(5) to depart from the assessment – application dismissed as not being just and equitable or otherwise proper to make an order for departure – public policy considerations embodied in s.117(5) persuasive in this instance – no order for departure made. |
| Applicant: | D |
| Respondent: | C |
| File No: | BRM1312 of 2003 |
| Delivered on: | 12 December 2003 |
| Delivered at: | Brisbane |
| Hearing date: | 8 December 2004 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicant: | Mr Forrest |
| Solicitors for the Applicant: | J.B. Stevenson & Company |
| Counsel for the Respondent: | Mr Davies |
| Solicitors for the Respondent: | William B. Munro |
ORDERS
The order of the Court will be:
The application for departure of assessment of child support for the period 1 July 2001 to 31 December 2003 is dismissed;
That for the period from 1 January 2004, to 31 December 2004, the annual rate of child support payable by the father, D, shall be $17,397 per annum.
That for the period from 1 January 2005 to 31 December 2005, the annual rate of child support payable by the father shall be $18,267 per annum.
That the father pay the mother's costs fixed at $2,847.50 within 30 days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRM1312 of 2003
| D |
Applicant
And
| C |
Respondent
REASONS FOR JUDGMENT
Introduction
The applicant father, D, seeks departure from a child support assessment set by Senior Case Officer O'Neill in her decision dated 19 October 2001. The application is opposed by the mother, C.
The assessment in respect of the children, S (aged 11) and R (aged nine), was that:
For the period 1 September 2001 to 31 December 2003 the annual rate of child support payable be $17,397 per annum.
The O'Neill decision was the subject of a further unsuccessful challenge before a different senior case officer and the required objection process was undertaken.
The Amended Form 63 filed 3 November 2003 seeks a variation since 1 July 2001 to $1,440.00 per annum. Although the father's application does not specify the ground of departure relied upon it was apparent that the father seeks to establish, pursuant to s.117(2)(c)(i) that in the special circumstances of the case:
"Because of the income earning capacity, property, financial resources”
of the father, the assessment results in an:
“unjust and inequitable determination of the level of financial support to be provided.”
History
The parties married in 1995 and separated on 31 July 1998. The parties completed property settlement after separation by consent orders. Regrettably the father's contact to S and R has somewhat broken down. The father admits he is a recovering alcoholic. In the witness box he alleges a poor recollection of events prior to his “stopping drinking” in December 1999. Evidence from a psychiatrist who he consulted on two occasions was offered to the Court. However Dr Steinberg was not available for cross-examination and his evidence carries less weight as a result. Dr Steinberg says when he saw the father in September this year that:
“I felt that his diagnosis was an adjustment disorder with depressed mood and alcohol dependence which was in remission.”
After the property settlement the father decided to purchase a property at Acacia Ridge which was suitable for use, partly for him to operate a used car sales business, but also involved some tenancies. The father has been and continues to hold rights as a licensed motor dealer.
In September 2003 the property was sold and the father is now in a position where he controls over $1,000,000 in cash, subject only to a liability to pay capital gains tax. I deal with this seminal transaction in the reasons shortly.
The law
Section 117(1) of the Child Support (Assessment) Act 1989 requires the Court to be satisfied in the special circumstances of the case one or more of the grounds for departure outlined in s.117(2) exists before the Court may make an order for departure and that it would be:
A. Just and equitable as regards the child, the carer entitled to child support and the liable parent; and
B. Otherwise proper to make a particular order under this division.
The Court must address each of the separate issues as part of a clear three step process as stated by the Full Court In the Marriage of Gylesman 15 FAM LR219.
The evidence
The father carries the onus of establishing that there is a ground for departure. In this respect the father was cross-examined by Mr Davis, counsel for the mother, at some length. At this point I should note that the father presented in the witness box as easily distracted, unable to hold concentration and inconsistent in any recollection of facts. He claims to have a reading and writing age of a seven year old. He demonstrated an ability to understand the financial statements offered to the Court about his business and in my view, clearly has significant commercial nous evidenced by the dealings with the Acacia Ridge property.
I do not accept the profit generated from Acacia Ridge was merely good luck. Mr Davis, for the mother, says the failure of the father to call his accountant to explain some of the entries in the financial statements, the assessment of capital gains tax, and how certain events (e.g. the destruction of stock by fire), will be treated for tax purposes should encourage me to make adverse findings against the father. Whilst I agree evidence from the accountant may have been helpful I believe that financial statements offered, which were not significantly challenged, speak for themselves.
From the material relied upon by the parties and the cross-examination I was satisfied and my findings are that:
a)The father operated his car sales business through a discretionary family trust known as the D Family Trust of which Carol Shirl Developments Pty Ltd was the appointed trustee. The father concedes he controls the trust and the trustee.
b)The car business operated from these premises in Moorooka until mid-1999 when the father surrendered the lease at Moorooka (receiving $50,000) and he relocated the business to the premises he acquired in his own name at Acacia Ridge.
c)The business showed a significant decline in turnover being:
to 30 June 2000 – $985,000
to 30 June 2001 – $576,000
to 30 June 2002 – $266,281
to 30 June 2003 – $352,200
and as a result, the operating result for the car business for the three years to 30 June 2003 was:
to 30 June 2001 – profit $21,674
to 30 June 2002 – loss $83,127
to 30 June 2003 – loss $86,603.
d)Senior Case Officer O'Neill opined that the:
“income available to the trust (and therefore Mr D) from the sale of cars and the rent of part of the property is in the vicinity of $75,706.57.”
Such a finding is consistent with the financials for the year ended 30 June 2001. It was based on this income that the prospective assessment was made.
(e)The father's income dropped substantially in the 2002 and 2003 financial years. Although stock levels at the end of each year remained almost the same, at about $60,000, the financial statements paint a picture of declining income. The father says the decline occurred during a period when he was recovering from a nervous breakdown; the effects of depression and litigation over contact to his children and the death of his mother; and in April 2003 two occasions when vandals entered the business premises and destroyed cars and equipment. He claims to have lost about $75,000 in stock and was uninsured.
(f)
Doing the best I can on the financial statements offered
I summarise the key financial elements for 2002 and 2003 as follows:
2002
2003
Gross Sales
$266,281
$352,200
Gross Profit
$42,965
($5,853)
Direct Expenses
$37,360
$56,696
Total Expenses
$75,750
$80,749
Operating Profit/Loss
($32,785)
($86,603)
It is, in my view, consistent with the evidence that the destruction of cars in April 2003 would have had a significant effect on the financial performance to 30 June 2003.
(g)During the period and compared to the earlier years the result for rental income for the Acacia Ridge property was as follows:
2001
2002
2003
Gross Rentals
$103,498
$97,620
$69,122
Interest
$55,980
$50,342
$52,562
Other expenses
$49,459
$54,252
$46,981
Net result
($1941)
($6974)
($30,421)
Whilst I accept “other expenses” do include some non-cash deductions such as depreciation, it is clear that the rentals were not covering expenses. The major expense was interest which curiously was incorporated in the 2002 and 2001 financials within the car business profit and loss statement. I have extrapolated those in coming to my findings.
I am satisfied that the different interest payment reflects the combined borrowings (partly the car floor plan finance but mostly the property), the fluctuations in interest rates and level of borrowings.
(h)It follows that the income predicted by Senior Case Officer O'Neill based quite properly on the 2001 financials, was not repeated, in my view, in the 2002 and 2003 financial years. The father says, and I accept, he lived “on the premises” to reduce costs. I find that the overall poor financial performance reflected the emotional and medical difficulties being experienced by the father to a large degree.
(i)The position would have been disastrous for the father and ultimately for the support of the children if the father had not made the decision to buy the Acacia Ridge property. He has, I am satisfied, made full disclosure of the transaction to this Court although I accept from the cross-examination he did not do so initially to the Child Support Agency. He purchased a property for $1,150,000 which was paid for as follows:
Borrowings from the ANZ Bank $600,000
Borrowing from his mother $100,000
Proceeds of property settlement $450,000
Total $1,150,000
Although it was necessary during his holding of the property to borrow further funds (on financing with the Howard Group – and also from his mother's estate), he sold the property for $1,700,000 and after adjustments he said he received and still controls approximately $932,000. He also has further funds of $78,417 from the estate of his mother. From the evidence I am satisfied that this represents the balance of the estate account considering the loans which had been made to the father by his mother on her estate. As he appears to be the sole beneficiary any alleged refund of the payment of loans would be asset balance neutral.
(j)The father acknowledges he controls about $1,000,000. He says at paragraph 39 of his affidavit he intends to:
“hold a couple of hundred thousand dollars pending assessment in payment of that CGT liability.”
It would have been of assistance to have evidence of the likely capital gains tax liability considering the somewhat confusing way in which the financial statements are presented. I am told the father owned the property personally. It would be proper to infer that he will bear the responsibility for capital gains tax personally and may not be able to utilise the tax losses of $151,642 in the trust. I am sure if there is some way that they can be legitimately utilised then he will do so. On the whole of the evidence I cannot be satisfied that the father's disposable capital is likely to be as little as $800,000 but the uncertainty of that capital gains tax liability generates that uncertainty in my mind.
(k)The father says he is no longer capable of running his business. He has applied for a disability support pension. On his evidence he says because of the combination of factors he thinks it will be about two years before he will be recovered from the effects of his alcoholism. He intends to buy a home and expects to have to support himself:
“out of my remaining capital basically for as long as it takes me to get work.”
The untested medical evidence, including the occupational therapist's report prepared for Centrelink, is not of great assistance to predicting when he is likely to return to work.
(l)The mother was not required for any substantial cross-examination. As a result her evidence, which I generally accept, is that:
(i)She is currently employed as a temporary bank officer earning $259 gross a week.
(ii)She estimates the total weekly expenses for her and the children at $782. No breakdown or dissection between her personal expenses and those of the children was offered to the Court.
(iii)She owns a home which she estimated has a value of $250,000, with a mortgage of $85,000. The mother disputes the father's claim that she received $410,000 from the property settlement alleging she, in effect, received $322,000. She says her financial position has not improved or materially altered since the assessment by Senior Case Officer O'Neill.
Analysis
The matrix of facts in this case raise an unusual issue for determination in summary:
a)
The assessment of $17,397 per annum and $335 per week was based on the father having and maintaining an income to
31 December 2003 of $75,706 per annum;
b)I am satisfied the father did not enjoy that income;
c)Although I am satisfied the father did not regard payment of child support, which he ceased paying in November 2000, as a high priority, I am satisfied he suffered a substantial reduction in income for the 2001/2 and 2002/3 financial years. I am satisfied he used all his available funds and borrowed funds to try and keep his business afloat and more importantly to maintain his ownership of the real property at Acacia Ridge;
d)I am not satisfied that he had the capacity to borrow against the property for child support purposes and, in hindsight, his decision not to accept an offer for $900,000 for the property (which he says he received in January 2002) was a wise and prudent one;
e)I am satisfied the father is not likely to be employable at the level he has previously maintained for at least two years;
f)The current needs of the children are best summarised (after sharing some expenses equally with the mother), as follows:
food and household expenses $120
health expenses $26
accommodation $100
utilities $40
child care and education $85
clothing $15
motor vehicle expenses $48
Total: $434
g)The mother's income has fluctuated over recent years to as high as $20,000 per annum but, excluding Government benefits, is now in the vicinity of $13,500 per annum. Last year her taxable income was $17,279.
The assessment of child support is prospective, relying as it does, essentially, on previous admitted taxable income to act as a predictor of future income. This is a scheme of the Act. It works well often for payees and payers who maintain a steady and consistent employment and therefore a predictable stream of income. It works more artificially (and at times unrealistically) when viewed in hindsight by Courts which usually have not only the advantage of evidence of actual income, but also of a high level of disclosure and testing of evidence than could ever be accommodated by the demands of the administrative assessment and review process.
When, as in this case, the facts are further complicated by a property transaction which results in a substantial market driven capital gain, the administrative formula and the best endeavours of the child support agency and its officers are not designed to deal with a determination.
Whilst the assessment was based on the best evidence at the time available, the significant reduction of the father's income after 30 June 2001 establishes a special circumstance in this matter, in my view.
I am satisfied that for a majority of the time of the current assessment, the father did not have the income or capacity (at that time) to meet the required child support determined. I am satisfied for most of the period (at least until settlement of the Acacia Ridge property), his financial position did not allow him to effectively sell his only asset – where he was living at the time – to meet his assessed child support liability.
To this extent the facts of this case differ from the situation similar to that which confronted Lindenmayer J in the Dwyer v Maguire (1993) FLC 92 420. In that case, the father was found to have the capacity to borrow or to even sell part of the dairy farm to meet a proper level of child support obligation. On balance I would find the grounds of departure set out in s.117(2)(c)(i) exists.
It is clear, however, from the clear intention of s.117(1)(b) and the authorities that I must also be satisfied that it is just and equitable, within the meaning of s.117(4), and otherwise proper within the meaning of s.117(5), to depart from the assessment. I have formed the view that it is neither just and equitable or otherwise proper to make an order for departure. The father has a duty to maintain his children (s.3). The mother from her modest income and resources, is unable to meet those needs without support of Government benefits.
Section 117(4)(d) and (c) require me to have regard to the father's income, earning capacity, property, financial resources and commitments in determining whether it is just and equitable to make an order. I regard the date of hearing as one of the relevant times to make that assessment.
A number of payers of child support derive income from industries and occupations which are cyclical or seasonal. The needs of children are a constant and whilst ample opportunities are afforded to payers and payees to seek administrative reviews and departures, it would be unjust and inequitable to take a particular point of time in isolation of all the surrounding factors which might make up a stream of income or available capital.
In this case, the father says that the capital he now holds will need to meet his personal financial support into the future. He concedes he now has the capacity to meet his future obligations. Both he and his children have suffered from the lack of available funds to date, otherwise utilised to maintain the property. Just as he now benefits from that frugalness so, it seems to me, should the children.
To do otherwise would be to have no regard to s.117(4)(g) of the Act. This sub-section has some application in this matter. As observed in Gylesman at 79,079 this provision:
“Requires the Court to balance the hardship which the parents or the children may suffer as a result of either making or refusing to make the order. It is a recognition of the circumstances that in this area, there is likely to be a hardship both ways and the Court is required to take into account the balance of that hardship and give it the weight which is appropriate to the circumstances of the individual case.”
Whilst it might be said that hardship has actually been already suffered by the mother and the children, and to a degree the father, through non-payment of child support, it cannot be equitable for the father to be enriched now by his inability to pay during the period he chose to hold on to the property.
Counsel for the father says the father will suffer hardship by being required to pay something now which he did not have the capacity to pay then. This is the balancing exercise required to be undertaken. In my view, the hardships of the mother and children outweigh the hardship to the father.
The public policy considerations which are embodied in s.117(5) of the Act also persuade me no order for departure should be made. There may be an impact on the mother's entitlement to receive or even, perhaps, to account for past benefits obtained from Centrelink. However, no evidence in this regard was produced. If that is the case then that is a consequence which flows from the intent of the social security legislation.
For my part, in the circumstances of this case, when the father has now the capacity, albeit delayed, to meet his obligations then he should do so.
The counsel for the father did not seriously challenge the children's needs such as they were identified by the mother. His case did not concern the quantum of the assessments, save that it ought to be the minimum based on the arguments now rejected by me.
I propose not to depart from the assessment. However, in accordance with the invitation of both counsel, I propose to extend the period of assessment beyond the current period, which expires on 31 December 2003. Both counsel say, and I agree, that some certainty for this family is required and beneficial. There is a level of uncertainty as to how the funds now available to the father will be utilised. He wishes to accommodate himself. That is a reasonable position for him to take. However, he was not in a position to identify the like as cost of purchase, save to say “around $600,000”.
Further issues about his return to gainful employment arise and, because I have formed the view that within two years he will identify properly the opportunities available to him, I think child support for the period to 31 December 2006 should be ordered and fixed by this decision.
In the absence of any real challenge, the needs of the children set at $17,397 per annum, represents approximately 77 per cent of their current needs. I propose to adopt a figure of child support for the period 1 January 2004 to 31 December 2004 of $17,397, and for the period 1 January 2005 to 31 December 2005 of $18,267, a five per cent increase for cost of living fluctuations.
I am aware that enforcement proceedings for the outstanding liability established by Exhibit 2 of $38,832.01 are on foot. In the circumstances where I am satisfied the father did not have the capacity to pay periodically, I believe favourable consideration should be given by the child support agency to waiving or reducing any penalties or interest administratively imposed. I propose to provide to the agency a copy of these reasons.
In my view, the mother has been successful and is in a less favourable financial position than the father. Costs should follow the event. Based on the Federal Magistrates Court Scale of Fees set out in Schedule 1, I would fix costs at $2,847.50 payable within thirty (30) days.
I make the orders appearing at the commencement of these reasons.
I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
Date:
0
0
0