Davies and Clark (Child support)

[2016] AATA 2006

Davies and Clark (Child support) [2016] AATA 2006 (28 July 2016)

APPLICANT  Mr Davies

OTHER PARTIES  Ms Clark

Child Support Registrar

DECISION DATE  28 July 2016

DECISION

The decision under review is affirmed.

CATCHWORDS
Child Support - departure determination - income and financial resources of parent – receipt of lump sum payments - decision under review affirmed

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 Davies and Ms Clark are the parents of [Child 1] who was born in 2007. A child support case commenced in 2012. The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of the child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the child. From 1 July 2015 the administrative assessment was based on Mr Davies’ 2013-14 adjusted taxable income of $79,905, Ms Clark’s 2013-14 adjusted taxable income of $129,040, and Mr Davies’ 40% care and Ms Clark’s 60% care of [Child 1]. Ms Clark was required to pay child support of $39 per annum.

2. The Act also provides for a departure from the administrative assessment in certain circumstances. Ms Clark lodged a departure application on 7 September 2015. A senior case officer granted the application and varied Mr Davies’ adjusted taxable income to $200,000 per annum from 1 October 2015 until the end of the child support case. Mr Davies objected to that decision. His objection was disallowed. He sought further review by this Tribunal. A hearing was conducted by conference phone on 28 July 2016. In reaching its decision the Tribunal has considered the sworn evidence of Mr Davies and Ms Clark as well as the documentation provided by the Department of Human Services – Child Support (“the Department”), Mr Davies and Ms Clark.

3. 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)(c)(ia) of the Act, commonly referred to as Reason 8, 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:

   …

   (ia)because of the income, property and financial resources of either parent; …

2. Mr Davies was [an occupation]. [An agency] granted him a pension (a “[agency] pension”) from March 2012 on the basis of a voluntary [retirement]. He subsequently applied for, and was granted, a [different ground for retirement]. In approximately May 2016 the Commonwealth Superannuation Corporation granted him a pension (which Mr Davies referred to as a “[Particular category] Super pension”, and the Tribunal will do likewise), which led to his rate of [Agency] pension being reduced. Both types of pension payments are taxable.

3. Mr Davies’ rates of pension payments have changed from time to time. Correspondence in December 2014 stated that his [Agency] pension was $4,107.74 x 26 = $106,801 per annum. Correspondence in May and June 2016 stated that his [Particular category] Super pension was $2,489.08 x 26 = $64,716 per annum and his [Agency] pension was $1,833.38 x 26 = $48,967 per annum, making a total of $113,683 per annum.

4. Mr Davies also received a number of lump sum payments in respect of injuries he has suffered. His 2013-14 individual tax return recorded the receipt of “Tax free government pensions” of $247,289 in addition to his taxable income. A letter from [an insurance company] dated [in] September 2014 recorded the crediting of a “net benefit payment amount” of $924,008 to Mr Davies’ bank account. $247,289 + $924,008 = $1,171,297. At the hearing, Mr Davies acknowledged that that evidence was the best evidence of the lump sum payments he received. The Tribunal finds accordingly.

5. The parents separated in February 2012 and, with the assistance of their respective lawyers, they reached a property settlement in approximately June 2012. Importantly for present purposes, the property settlement pre-dated Mr Davies’ receipt of the lump sum payments.

6. Mr Davies submitted that the Tribunal could not, or at least should not, have regard to the lump sum payments. He said they were in respect of his pain and suffering. Mr Davies’ position is understandable. However, the fact remains that he received a significant amount of money in addition to his ongoing pension payments from which he could better meet his various financial obligations, including his obligation to make a fair contribution towards [Child 1’s] costs. It is appropriate to have regard to the lump sum payments when assessing his income and financial resources for child support purposes.

7. When Ms Clark lodged her departure application on 7 September 2015 the administrative assessment used Mr Davies’ estimate of income of $76,154 per annum. In the ordinary course, his estimate of income would be reconciled against his actual ATO‑assessed 2015-16 adjusted taxable income once it became known. However, that ATO-assessed adjusted taxable income would only be a fair reflection of his income, and not his “income, property and financial resources”, which is what subparagraph 117(2)(c)(ia) requires the Tribunal to consider. His relatively recent receipt of lump sum payments totalling $1,171,297 constitutes special circumstances such that the application of the administrative assessment 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.

Mr Davies

1. Mr Davies used a significant portion of his lump sum payments to start a [service] business via [Company 1] and [Company 2].

2. [Company 1] bought a block of land which already had a house on it. [Company 1] subdivided the land and sold the two parcels of land separately. Mr Davies said [Company 1] made a loss on the venture. The Tribunal took Mr Davies to the relevant trust tax returns. He then acknowledged that it made a small profit of $7,660.

3. [Company 2] bought a block of land and built three townhouses on it. [Company 2] has sold one of the townhouses and it is renting the other two. Mr Davies said [Company 2] will make a loss on the venture, but the documentation provided to the Tribunal does not make that clear. Mr Davies said he wants to sell the remaining two townhouses but he has been unable to obtain suitable offers. In the meantime, the two townhouses produce rental income of $750 x 52 = $39,000 per annum. The associated interest-only business loan has a balance of approximately $660,000. Mr Davies said the interest rate is “almost 6%”. $660,000 x 0.06 = $39,600 per annum. The townhouses may not enjoy 100% occupancy and [Company 2] presumably incurs other smaller expenses, but the evidence suggests that the holding costs pending sale are not significant.

4. The evidence suggests that Mr Davies’ property development business is likely to end up being neither very profitable nor very unprofitable. Even if it were very unprofitable, it would not automatically follow that the Tribunal should not have regard to all of the lump sum payments that Mr Davies received. Entrepreneurship has its risks. It would generally not be appropriate to reduce an otherwise fair rate of child support payable because a parent elected to expose him or herself to such risks without first making proper provision for their child. The Tribunal is not suggesting that Mr Davies has acted that way.

5. Mr Davies’ household consists of himself, his partner, their young child and [Child 1]. They live in Mr Davies’ unencumbered house. [In] April 2016, when Mr Davies completed a Statement of Financial Circumstances, he had savings in various bank accounts totalling approximately $11,000. He estimated that household expenses were $1,231 per week, which equates to approximately $64,000 per annum. It is not clear what contribution, if any, Mr Davies’ partner makes towards those costs, which include her own costs. Mr Davies said she is self-employed in [a specified] industry. In any event, Mr Davies’ income of $113,863 is likely to incur personal income tax of approximately $28,500, leaving a balance approximately $85,000. He has the capacity to pay a significant amount of child support if it is otherwise appropriate to require him to do so.

Ms Clark

1. Ms Clark is employed as a manager. Her 2013-14 adjusted taxable income was $138,008. Her 2014-15 adjusted taxable income was $148,156, which she said included a one-off retention bonus. She said her 2015-16 payment summary showed gross earnings of $128,450.

2. In February 2016, Ms Clark commenced additional part-time work as a self-employed [occupation]. She conducts [her business] at a third party’s [premises]. She is paid $35 per [unit]. A letter from the third party states that she has been earning an average of $148.75 per week. Ms Clark stated, and the Tribunal accepts, that she will be reporting all her earnings in her tax returns.

3. Mr Davies did not dispute Ms Clark’s evidence concerning her full-time or part-time incomes and the Tribunal accepts that evidence as correct.

4. Ms Clark owns her home. She is repaying an associated home loan. The household consists of herself and [Child 1]. Ms Clark completed a Statement of Financial Circumstances [in] April 2016. She has savings of approximately $19,000. Apart from her home loan, she has no other significant debts. She estimated that her household expenses were $1,510 per week.

[Child 1]

1. [Child 1] currently attends a State school. According to the parents’ Statements of Financial Circumstances, her costs are the ordinary costs of a girl her age, given her circumstances.  

A consideration of just and equitable

1. If the Act required the Tribunal to only have regard to the parents’ incomes, rather than their incomes and financial resources, a departure decision would not be warranted. The parents’ incomes are fairly reflected in their adjusted taxable incomes as assessed by the ATO from time to time. However, because the Act requires the Tribunal to also have regard to the parents’ financial resources, it is appropriate to make a departure decision that properly recognises Mr Davies’ receipt of $1,171,297.

2. A senior case officer varied Mr Davies’ adjusted taxable income to $200,000 per annum. Mr Davies made the valid point that he has not been earning, and is unlikely to ever be earning, $200,000 per annum. However, that adjusted taxable income was intended to fairly reflect both his income and his financial resources for child support purposes.

3. The Tribunal can vary the rate of child support payable or it can vary some of the variables that are used in the administrative assessment formula. Until recently, the Department recorded Mr Davies as having 40% care and Ms Clark as having 60% care of [Child 1]. According to documentation that Mr Davies provided shortly before the hearing, the Department recently decided to record Mr Davies as having 44% care and Ms Clark as having 56% care of [Child 1] from 1 July 2016. If the Tribunal were to vary the rate of child support payable on the basis of the recorded care to date, and that care subsequently changed, the change in care would probably make the rate of child support payable unjust and inequitable. It is preferable to vary one of the variables that is used in the administrative assessment formula. That variable is Mr Davies’ adjusted taxable income.

4. There is no standard methodology for varying a person’s adjusted taxable income for child support purposes to take account of that person’s receipt of large lump sum payments. The senior case officer’s methodology was as follows:

   ·    Mr Davies received lump sum payments totalling approximately $1,100,000;

   ·    The child support case is likely to continue for another nine years;

   ·    $1,100,000 / 9 = $122,222 p.a.;

   ·    Mr Davies’ income is approximately $80,000 p.a.; and

   ·    $122,222 p.a. + $80,000 p.a. = approximately $200,000 p.a.

5. It is now known that Mr Davies received more than $1,100,000 and at all relevant times his income was more than $80,000 per annum. However, despite all the figures that have been set out above, the process of making an appropriate departure decision is not purely mathematical. It requires an assessment of all relevant circumstances and the balanced exercise of a broad discretion. To that end, it is useful to consider, by way of example, the assessment notices that the Department issued on 3 March 2016. They were based on Mr Davies’ varied adjusted taxable income of $200,000 per annum, Ms Clark’s 2013‑14 adjusted taxable income of $129,040, and Mr Davies’ 40% care and Ms Clark’s 60% care of [Child 1].[1] Mr Davies was required to pay child support of $5,291 per annum. If the administrative assessment had been based on Mr Davies having an adjusted taxable income $106,801 per annum, which was his rate of [Agency] pension prior to the granting of the [Particular category] Super pension, he would have been required to pay child support of $1,082 per annum. The difference is $4,209 per annum. Requiring Mr Davies to pay Ms Clark an extra $4,209 per annum in child support in those circumstances on account of his receipt of $1,171,297 would be just and equitable.

   [1]The difference in care is significant. Ms Clark was providing 50% more care than Mr Davies. Ms Clark was providing 40% + 20% = 60% care. Mr Davies was providing 40% care.

6. Ms Clark’s adjusted taxable income will change from time to time. The parents’ recorded care of [Child 1] has recently changed. Other variables that are used in the administrative assessment formula will also change from time to time. The administrative assessment formula automatically accommodates such changes.

7. Mr Davies’ income has recently increased to $113,683 per annum. $113,683 + $122,222 = $235,905. If the Tribunal were to vary the senior case officer’s departure decision, it would further increase Mr Davies’ adjusted taxable income. However, as noted early, the process is not purely mathematical. Varying Mr Davies’ adjusted taxable income to $200,000 per annum produces a rate of child support payable that is just and equitable. It is also worth noting that Ms Clark considered the senior case officer’s decision to be fair.

8. The senior case officer’s decision had effect from 1 October 2015. Ms Clark did not seek a decision from an earlier date.

9. The senior case officer’s decision has effect until the end of the child support case, which is likely to be in 2025 when [Child 1] turns 18. It is appropriate that the decision have effect until then to properly account for Mr Davies’ receipt of the lump sum payments.

10. As at 2 May 2016, which is the most up-to-date information provided by the Department, Mr Davies was required to pay $4,438 per annum in child support. He had the capacity to pay that rate of child support. His current rate of child support payable will be less following the recent change in the parents’ recorded care of [Child 1].

11. Mr Davies owes child support arrears of approximately $6,100. More than half that amount is referrable to his underestimate of income for 2014-15. The balance is referrable to the senior case officer’s decision which, for the reasons stated above, the Tribunal considers just and equitable. It would not be appropriate to vary that decision to reduce Mr Davies’ arrears.

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. Both parents intend to apply for family tax benefits in respect of their care of [Child 1]. The decision under review, which fairly reflects Mr Davies’ income and financial resources for child support purposes, ensures an appropriate apportionment of financial responsibility between the parents and the community. The decision under review is otherwise proper.

DECISION

The decision under review is affirmed.