Daley and Tompkins (Child support)

[2018] AATA 3074

Daley and Tompkins (Child support) [2018] AATA 3074 (12 July 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/PC013667

APPLICANT:  Mr Daley

OTHER PARTIES:  Child Support Registrar

Ms Tompkins

TRIBUNAL:Member M Martellotta

DECISION DATE:  12 July 2018

DECISION:

The decision under review is set aside and substituted with the following decision, that:

For the period 1 July 2017 until 30 June 2018, Mr Daley’s adjusted taxable income is varied to $178,622.

For the period 1 July 2017 until 31 December 2018, Ms Tompkins’ adjusted taxable income is varied to $76,400.

CATCHWORDS
Child support – Departure determination – Income and financial resources of parent operating a business through a company – 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. Mr Daley and Ms Tompkins are the parents of [Child 1] and [Child 2][1] . According to the Department of Human Services – Child Support (the Department), [Child 1] is in Ms Tompkins’ full-time care and [Child 2] is in Mr Daley’s full-time care. Mr Daley is the party liable to pay child support

   [1] [Child 1] turns 18 [in] November 2019 and [Child 2] turned 18 [in] May 2018

2. This review is about whether there should be a departure from the administrative assessment of child support in respect of the children.

3. On 17 February 2017, Mr Daley lodged a change of assessment application with the Department.  His application was on the ground of reason 8A, and related to Ms Tompkins’ income, property and financial resources. Ms Tompkins cross-applied on the grounds of reasons 1, 2, 5, 7 and 8A.[2]

   [2] It was confirmed that the only ground in contention at hearing was ground 8A.

4. The child support assessment that was in place at the time of Mr Daley's application was that for the period:

   ·3 February 2017 to 30 June 2017 Mr Daley had an ATI (estimated) of $161,887 and Ms Tompkins an ATI of $67,000[3] resulting in an annual rate of $9,115; and

   ·1 July 2017 to 28 February 2018 Mr Daley had an ATI (deemed) of $223,020 and Ms Tompkins an ATI of $67,000 resulting in an annual rate of $12, 461.

   [3] This was based upon a previous change of assessment decision darted 26 May 2016.

5. On 13 May 2016, a senior case officer decided to allow Mr Daley's application and Ms Tompkins’ cross application and changed the assessment so that for the period:

   ·1 July 2017 to 31 December 2017 Ms Tompkins’ ATI was set at $25,000; and

   ·1 July 2017 to 31 October 2017 Mr Daley’s ATI was set at $178,000.

6. Mr Daley objected to this decision and the objection officer partly allowed the objection and decided that the senior case officer’s decision ‘ceases to have effect from 1 July 2017…so that from 1 March 2016 to 31 October 2018 Ms Tompkins’ ATI is set at $67,000’[4]

   [4] Department document p 11, the tribunal notes that the decision restores MsTompkins’ ATI as from 1 July 2017.

7. Mr Daley lodged an application seeking independent review of the decision by the Administrative Appeals Tribunal (the tribunal). On 3 May 2018, the tribunal convened a telephone directions hearing and issued directions.

8. On 28 June 2018, the tribunal conducted a hearing.  Mr Daley and Ms Tompkins both attended in person and gave evidence under oath.  The tribunal deferred making a decision to allow Ms Tompkins additional time to submit a Statement of Financial Circumstances. The tribunal had before it the following documents, which had also been provided to the parties:

   ·     Statement and documents provided by the Department (1-1266 )

   ·     Statement of Financial Circumstance provided by Mr Daley (A1-46)

   ·     Documents provided by Ms Tompkins (B1-184)

ISSUES

1. The issues for the tribunal to determine in this case are:

   (1) Whether a ground for departure exists; and

   (2) Whether it would be:

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

   b)otherwise proper; to make a particular determination to depart from the administrative assessment of child support

CONSIDERATION

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

Issue 1 – Is there a ground to depart from the administrative assessment?

1. The rate of child support payable by a liable parent is usually based on an administrative assessment calculated using the relevant formula under Part 5 of the Act. This involves the application of a statutory formula, which takes into account factors such as the number of children, the age of each child, the level of care provided and the income of each parent. The income used in the calculation has a number of components making up the adjusted taxable income, which is worked out using section 43 of the Act.

2. Part 6A of the Act allows for a departure from an administrative assessment (a process commonly known as a change of assessment). The liable parent or a carer may apply to the Child Support Registrar (‘the Registrar’) for a determination to depart from the child support administrative assessment under Part 6A of the Act (section 98B).  Section 98C of the Act provides that the Registrar may make a determination to depart from the formula assessment and as noted, establishes a three step process.

3. The grounds for departure from the administrative assessment are set out in subsection 117(2) of the Act.  Only one ground is required in the special circumstances of the case to depart from the administrative assessment and thereby satisfy the requirements of subsection 117(2) of the Act.[5] In this matter the only ground that was identified was whether a ground for departure is established pursuant to reason 8A.

   [5] The phrase “special circumstances of the case” is not defined in the Act. However the Family Court has held that “it is intended to emphasise that the facts of the case must establish something special or out of the ordinary” (Gyselman and Gyselman (1992) FLC92-279). Likewise, 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”. 

Reason 8A – income, property and financial resources of the parties

1. Subparagraph 117(2)(c) (ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, application of the provisions of the Act relating to the 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 because of the income, property and financial resources of either parent.

2. Mr Daley said that he disagrees with the Department's decision because Ms Tompkins’ income is in excess of the ATI set by the Department.  He says that Ms Tompkins operates a business from her home as a [occupation] and that she derives significant personal benefits from that business, which is not reflected in her ATI.  He stated that while he had no specific evidence about her income he referred to her ability to secure a mortgage of $750,000 and her lifestyle as evidence in support of his assertions.

3. In terms of his own circumstances, Mr Daley stated that he is the CEO of a [company].  He has worked with the company for more than three years and in February 2016 was appointed CEO. Mr Daley’s most recent tax return for the 2016/17 financial year reflects a taxable income of $178,622. According to his Statement of Financial Circumstances, Mr Daley has a weekly gross income of $3,516 (annualised to $182,800).  The tribunal was satisfied that this was consistent with payslips provided by Mr Daley.  At hearing Mr Daley confirmed that this was his only source of income.

4. Mr Daley also disclosed the following financial information:

   a)He has superannuation valued at about $420,000.

   b)The house where he lives is registered in the name of his partner however he contributes 50% of the mortgage costs.  It was not in contention that Mr Daley has an equitable interest in the property. The tribunal noted that the property was sold for $1.1 million in September 2017.[6]

   c)He otherwise cites the total value of property owned by him to be about $14,000.

   [6] >

   Ms Tompkins told the tribunal that she is the sole director and shareholder of [a company], which trades as [business name]. She has worked as [an occupation] for about 30 years. She works from her home [and] while she does most of the work, she also engages three subcontractors who work about four days a week in total.

5. Ms Tompkins noted that while in previous years the business has done quite well, in recent times there has been a drop off in business. According to her Statement of Financial Circumstances, Ms Tompkins states that she earns a weekly income from her business of about $275 ($14,300).

6. Ms Tompkins told the tribunal that she does not draw a regular wage or salary from the business.  In effect everything goes through the business bank account and she transfers from that account into her personal account as owner’s drawings as and when required to cover her personal expenses.  She pays for her day–to-day expenses on her personal credit card, which the business pays. The business, which operates from two rooms in her home, also pays the full cost of her mortgage, which is $4,100 per month.

7. Ms Tompkins is self-employed and operates her business through a company. It is a long established principle of law that when a person conducts their business or profession through an intermediary such as a company it is proper to lift the corporate veil to determine the value of the entity to that person.[7] These principles have been affirmed by the Family Court[8], with regard to the determination of a parent’s income for child support purposes and in these cases, effective control of the businesses was found to rest with the person conducting the business and generating the income and not the intermediary. 

   [7] See in particular Stein (1986) FLC 91-779 and Ashton (1986) FLC 91-777. In Ashton, the Court stated that “this Court is not bound by formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner.” 

   [8] In cases such Carey (1994) FLC 92-489.

8. Child support legislation is interpreted by the Department with the aid of the Child Support Guide (the Guide).  The tribunal is not bound by law to apply the policy as set out in the Guide but, provided the policy is consistent with the legislation, it is required to have regard to it and in the ordinary course follow it. [9]  The tribunal was satisfied that policy set out at 2.6.14 of the Guide is consistent with relevant legislation:

   [9] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634.

   Expenses partly for business purposes & partly for private purposes

   Where an expense is partly business and partly private the expenses must be apportioned for taxation purposes. Parents who are self-employed or who operate a business might claim expenses that may otherwise be considered private as a legitimate income tax deduction. Examples include the fixed-costs component of telephone expenses such as the rental and connection fees, home office expenses or motor vehicle expenses. These deductions are generally not available to parents who derive income solely from salary and wages.

9. As the tribunal understands Ms Tompkins’ evidence, her personal use of the company expenses is not apportioned in the company’s financial statements and the company in effect is meeting all her costs of living. At hearing Ms Tompkins was unable to explain what some of the business expenses listed related to (such as filing fees).[10]  In considering how to apportion Ms Tompkins’ personal benefit derived from the company the tribunal noted Taxation Ruling 93/90, which specifies deductions where a business operates from a person’s home.  That ruling suggests an approach which takes into account the area that is set aside for the generation of income.  On the basis of Ms Tompkins’ evidence, the tribunal considered that an allocation of 25% for business and 75% for personal use to be reasonable in terms of expenses claimed by the company in relation to use of her home.  The tribunal otherwise considered an allocation of 70% for business and 30% for private use as reasonable in considering Ms Tompkins’ personal benefit of motor vehicle and telephone expenses.

   [10] The tribunal noted that the parties had been engaged in Family Court proceedings.

10. According to her 2016/17 personal tax return, Ms Tompkins earned income of $12,432 (according to the return this was made up of rent received from her company).  The company’s 2016/17 tax return declares that it generated a total income of $226,533 and claimed expenses of $219,792 (this included the cost of sales as $129,483 and then other costs totalling $90,309) resulting in a profit of $6,741.  Financial statements for the 2016/17 financial year disclose gross profit from trading of $97,050 from which a range of expenses are claimed.

11. It appears to the tribunal that some of the company expenses listed include items from which Ms Tompkins derived a personal benefit.  This includes wages of $24,705 (Ms Tompkins stated that she has no employees but subcontracts and there is a different line item for contract work), bank charges of $4,078 and interest of $4,209 paid on loans (this relates to the home mortgage) insurance of $5,468, motor vehicle expenses of $2,244, utilities of $2,604, rates and taxes of $2,638, rent of $24,600 (this equates to about 50% of the total rent for the property), superannuation contributions of $2,310 and telephone expenses of $3,842.

12. In the 2016/17 financial year, the tribunal considered that Ms Tompkins had income and financial resources of about $66,433 based upon the following allocations:

    ·company profit of $6,741

    ·personal income (rent received) of $12,432

    ·wages of $24,705

    ·75% of bank charges, interest, insurance rates and taxes, and utilities of $14,245 ( based upon total of about $19,000)

    ·30% personal use of motor cars and telephone of $1,825 (based on a total of about $6,000)

    ·superannuation of $2,310.

13. The tribunal did not have Ms Tompkins’ personal or company 2017/18 tax returns; however she provided a profit and loss statement for the company for the period July 2017 to May 2018.  This shows a total income of $125,426 less costs of sales resulting in a profit of $52,153. From this, the company claimed general expenses which included interest on credit cards, telephone, domestic travel, premises costs of $58,385 (this includes the rent and all outgoings) and motor vehicle expenses resulting in a net loss of about -$41,000. The tribunal noted that, according to a general ledger entry in the period July 2017 to May 2018, Ms Tompkins received drawings of about $14,000 and was reimbursed for other unspecified business expenses totalling about $11,000.

14. Utilising the available information, the tribunal concluded that in the period July 2017 to May 2018 Ms Tompkins derived a total of about $76,400 in drawings and other personal benefits from her company made up of the following:

    ·personal drawings and reimbursements of $25,000

    ·75% benefit of premise outgoings paid by her company  $43,780

    ·30% benefit of telephone costs and motor car costs ( a total of $9,144)  $2,745

    ·filing fees $1,368

    ·credit card interest $2,485

    ·75% of home mortgage interest $ 1026.

15. In her Statement of Financial Circumstances, Ms Tompkins otherwise disclosed that she owned real estate and other assets valued at $853,000 and holds superannuation of about $117,000. The property is subject to a mortgage of about $660,000.

16. A parent's child support liability is usually based upon the parent's most recent taxable income. The Department can also look beyond a parent's taxable income when considering an application for a change of assessment. Income, earning capacity, property and financial resources, which do not necessarily form part of a parent's taxable income, can be added to or excluded from a child support assessment.[11]

31.The question for the tribunal is whether the facts of the case establish something, which is special, or out of the ordinary which makes the administrative assessment unfair. Child Support policy notes that:

If the Registrar finds that there is a discrepancy between the child support assessment and the income, property and financial resources of the parent, the extent of the discrepancy will also be considered before deciding whether or not the assessment produces an unfair result. In this sense, “unjust and inequitable level of child support”, is narrower than the “just and equitable” elements under section 98C of the Act.[12]

[11] Carey and Carey (1994) FLC 92-489

[12] 2.6.14 Child Support Guide V4.05 12/12/14

1. The tribunal noted that at the time of Mr Daley’s application for a change of assessment the assessment in place was that:

   • 3 February 2017 to 30 June 2017 Mr Daley had an ATI (estimated) of $161,887 and Ms Tompkins an ATI of $67,000 resulting in an annual rate of $9,115; and
   • 1 July 2017 to 28 February 2018 Mr Daley had an ATI (deemed) of $223,020 and Ms Tompkins an ATI of $67,000 resulting in an annual rate of $12, 461.

2. In this matter the tribunal has concluded that in 2016/17 Mr Daley had a taxable income as reflected in this ATO return of $178,622. Based upon the evidence of his current gross earnings the tribunal is satisfied that Mr Daley’s 2017/18 income will be in the vicinity of his 2016/17 taxable income. In relation to Ms Tompkins, the tribunal has concluded that in 2016/17 she had income and financial resources of $66,433 and in 2017/18 it is likely to be in the vicinity of $76,400.

3. Utilising the tribunal’s findings in the assessment for the assessment period 1 July 2017 to 28 February 2018 results in a significant change in the level of child support payable by Mr Daley (it changes from an annual liability of $12,461 to $9,336).[13]  For this reason, the tribunal concludes that a ground of departure exists because in the special circumstances of the case, application of the provisions of the Act relating to the 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 because of the income, property and financial resources of Ms Tompkins.

   [13] The tribunal notes that utilising the tribunal’s findings for the earlier period 3 February 2017 to 30 June 2017 does not result in any significant change in the assessment.

Issue 2 - Is it just and equitable to make a particular departure determination?

1. As the tribunal is satisfied that there is a ground to depart from the assessment of child support as set out above, the next step for the tribunal is to consider whether it is just and equitable as regards the children and the parental parties 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 set out in subsection 117(4) of the Act:[14]

   [14] The tribunal notes the Federal Magistrates Court case of Tyagi & Meares [2008] FMCAfam 886 which directs that in considering the matters set out in subsection 117(4) the section need not be “slavishly followed, each of the relevant factors listed in …should be considered”.

   (4) In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order under this Division, the court must have regard to:

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

   (b) the proper needs of the child; and

   (c) the income, earning capacity, property and financial resources of the child; and

   (d) the income, property and financial resources of each parent who is a party to the proceeding; and

   (da) the earning capacity of each parent who is a party to the proceeding; and

   (e) the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support:

   (i) himself or herself; or

   (ii) any other child or another person that the person has a duty to maintain; and (f) the direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and

   (g) any hardship that would be caused:

   (i) to:

   (A) the child; or

   (B) the carer entitled to child support;

   by the making of, or the refusal to make, the order; and

   (ii) to:

   (A) the liable parent; or

   (B) any other child or another person that the liable parent has a duty to support;

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

The duty to maintain the children

36.Mr Daley and Ms Tompkins both have a duty to maintain the children and in this regard the tribunal notes relevant provisions of the Act, which provide:

…that parents of a child have a primary duty to maintain the child.  The duty has a priority over all commitments of the parent other than commitments necessary for self-support.[15]

[15] Section 3 of the Act.

Proper needs of the children

37.In determining the proper needs of the children it is necessary to have regard at a broad level to the manner in which the children are being, and in which the parents expect the children to be, cared for, educated or trained, and also any other special needs of the children. 

38.Ms Tompkins stated that [Child 1] has had to receive cosmetic treatment for acne for which she has had to pay $339 as well as other costs relating to gym membership and also $440 for spectacles. In this matter the tribunal noted that each of the parents have full-time care of one child.  The tribunal did not consider the costs identified by Ms Tompkins to be out or the ordinary or significant.

Income, earning capacity, property and financial resources of the children

39.In having regard to the income, earning capacity, property and financial resources of the child the tribunal must disregard any entitlement of the children or the carer entitled to child support to an income tested pension, allowance or benefit (subparagraph 117(7)(b)(ii) of the Act).

40.There was no evidence presented to the tribunal that there is any income or unused earning capacity that needs to be taken into account in the child support assessment and as such the tribunal concludes that there is no basis for any adjustment pursuant to this consideration.

Other party receiving money, goods, and property for the benefit of the children

41.Neither party made specific submissions in this regard and as such the tribunal concludes there is no basis for any adjustment pursuant to this consideration.

The income, property and financial resources of each parent who is a party to the proceeding

42.The tribunal has already made findings in relation to the income, property and financial resources of Mr Daley and Ms Tompkins and does not repeat those findings here.

Earning capacity

43.Neither party made submissions in relation to earning capacity as being relevant to the assessment. As such the tribunal concludes there is no basis for any adjustment pursuant to this consideration.

The commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support himself or herself, or any other child or another person that the person has a duty to maintain

44.The self-support costs utilised in the assessment total $24,154.  According to their respective Statements of Financial Circumstances the tribunal notes that Mr Daley has personal relevant weekly household expenses of about $1100 while Ms Tompkins has relevant weekly expenses of about $700.

45.On the presented evidence the tribunal concluded that neither party has extraordinary costs of self-support that are relevant to the assessment.

Any hardship that would be caused

46.Mr Daley told the tribunal that not increasing Ms Tompkins’ ATI would be unfair as she has the advantage of benefits from her business and he is in effect providing more than his fair share of child support.  Ms Tompkins states that she is in difficult financial circumstances and cannot afford any decrease in the child support liability paid by Mr Daley.

47.As noted the tribunal can vary the rate of child support payable or it can vary some of the variables that are used in the administrative formula.

48.In relation to Mr Daley the tribunal has noted his updated ATO taxable income is now being used by the Department to reconcile Mr Daley’s previous deemed and estimated income amounts. Going forward, the tribunal is satisfied that Mr Daley’s ATO supplied taxable income will properly form the basis of future child support assessments. 

49.In this matter the tribunal noted that the child support assessment in place for the period 3 February 2017 to 30 June 2017 resulted in an annual child support liability of $9,115.  Utilising the parties’ income and financial assets as found by the tribunal for 2016/17 does not result in any significant change (the annual child support liability increases by about $1,600 or $32 per week).

50.As from 1 July 2017, utilising the incomes as found by the tribunal (namely $178,622 for Mr Daley and $76,400 for Ms Tompkins) results in an annual child support liability of $9,336. This decreases Mr Daley’s annual liability by $3,125 and results in him paying about $179 a week.

51.The tribunal notes that Mr Daley lodged his application for a change of assessment on 17 February 2017.  As such, Ms Tompkins has been on notice since that time of a potential departure determination.  The tribunal may not (without the leave of a court) depart from an assessment for a period which is more than 18 months prior to the date of application (subsection 98S(3B) of the Act). Taking into account the circumstances in this matter the tribunal does not propose making a departure determination from a date prior to 1 July 2017.

52.The tribunal is proposing however to make a determination so that as from 1 July 2017 until 30 June 2018, Mr Daley’s ATI is varied to $178,622 and for the period 1 July 2017 until 31 December 2018, Ms Tompkins’ ATI is varied to $76,400.  

53.Changing the assessment in these terms would mean that there will be some adjustment to the child support liability incurred by Mr Daley in that period, resulting in him being credited some amounts that have been paid to Ms Tompkins. The varied assessment amount will take into account that one of the children turned 18 on 26 May 2018.

54.The tribunal is satisfied that given the tribunal’s conclusions about the parties’ individual  financial circumstances and that Ms Tompkins can accommodate any adjustments arising from such a determination (based upon her annual income as found by the tribunal and Ms Tompkins’ weekly expense, which leaves Ms Tompkins with a weekly balance of about $750) The tribunal proposes concluding Ms Tompkins’ variation until the end of December 2018 to allow time for updated company financials to be finalised and to also provide the parties some certainty for a period of time.  As noted, the tribunal is satisfied that Mr Daley’s ATO supplied taxable income will properly form the basis of future child support assessments and proposes to conclude the departure determination in his case as at 30 June 2018.

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

55.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 the 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.

56.According to her Statement of Financial Circumstances, Ms Tompkins is in receipt of family tax benefit and the proposed departure from the administrative assessment may reduce her entitlement to government assistance.  In this case the tribunal finds that the requirements under paragraph 117(5)(a) of the Act are met.  The tribunal concludes that it is otherwise proper to depart from the administrative assessment.

DECISION

The decision under review is set aside and substituted with the following decision, that:

For the period 1 July 2017 until 30 June 2018, Mr Daley’s adjusted taxable income is varied to $178,622.

For the period 1 July 2017 until 31 December 2018, Ms Tompkins’ adjusted taxable income is varied to $76,400.