Debenham and Debenham (Child support) - [2020] AATA 5122

Debenham and Debenham (Child support) [2020] AATA 5122 (17 August 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2020/SC018154
APPLICANT:  Ms Debenham
OTHER PARTIES:  Child Support Registrar
Mr Debenham

TRIBUNAL:Member F Staden
DECISION DATE: 17 August 2020
DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that:

For the period 1 January 2019 until a terminating event for [Child 2], the adjusted taxable income of Mr Debenham is varied to $93,666. This amount is to be increased by the child support inflation factor on 1 September 2019 and at the start of each child support period thereafter.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from business – a ground for departure established – 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

Ms Debenham and Mr Debenham are the separated parents of [Child 1], born 2001, and [Child 2], born 2005 (the children). From 22 November 2016, [Child 2] has been assessed as being in the greater than primary care (100%) of Ms Debenham. [Child 1] was assessed as being in the greater than primary care (100%) of Ms Debenham from 1 January 2016 to 15 August 2019 and in the greater than primary care (86%) of Mr Debenham and regular care (14%) of Ms Debenham from 16 August 2019 to 17 October 2019. [Child 1] ceased to be an eligible child of the assessment from 18 October 2019.
There has been a child support assessment for this case from 10 May 2013. Mr Debenham is the parent liable to pay child support. Ms Debenham opted for collection of child support by the now Services Australia – Child Support (Child Support) on 6 August 2015.
There have been previous change of assessment decisions in this case. Relevantly here, on 10 January 2018 a primary decision maker decided that:
· From 3 December 2017 until there is a terminating event in respect of [Child 2], Mr Debenham’s adjusted taxable income is set at $86,856. This income is to be inflated by the child support inflation factor on 1 April 2019 and each child support period thereafter.
Mr Debenham’s objection to the 10 January 2018 decision was disallowed on 19 April 2018. His 20 August 2018 change of assessment application was refused on 30 November 2018.
On 25 January 2019, Ms Debenham applied for a change of assessment on the basis that the child support assessment did not correctly reflect Mr Debenham’s income, property and financial resources (Reason 8A).
Mr Debenham provided written responses to Ms Debenham’s change of assessment application on 11 April 2019 and 16 April 2019. Child Support requested more financial information from Mr Debenham which he did not provide.
On 18 September 2019, a primary decision maker found Reason 8A established in relation to Mr Debenham and changed the assessment as follows:
·     Mr Debenham’s adjusted taxable income is set to $182,000 per year from 1 July 2018 to 31 December 2018;
·     Mr Debenham’s adjusted taxable income is set to $202,000 per year from 1 January 2019 until a terminating event occurs for [Child 2]; and
·     From 1 July 2020 and each year thereafter Mr Debenham’s adjusted taxable income of $202,000 per year is increased by the national weighted average of the Consumer Price Index (CPI) for the March quarter.
Mr Debenham lodged an objection to the 18 September 2019 decision on 17 October 2019 on the basis that his income was lower than that determined in the decision and that he had been unwell and unable to work.
On 9 December 2019, an objections officer decided to partly allow Mr Debenham’s objection. The officer found Reason 8A established in relation to Mr Debenham and made the following decision:
·     From 1 July 2018 to 26 September 2019, the adjusted taxable income for Mr Debenham is set at $160,000;
·     From 27 September 2019 to 31 January 2020, the annual rate of child support is set at $435;
·     From 1 February 2020 to 25 July 2023, or until a terminating event occurs for [Child 2], Mr Debenham’s income is set at $90,000; and
·     On 1 July 2020 and 1 July each year thereafter until the expiry of this decision, Mr Debenham’s income is to be increased by the CPI National Weighted Average results from the preceding March quarter.
On 3 January 2020, Ms Debenham applied to the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal) for review of the objections officer’s decision.
On 15 April 2020, a telephone directions hearing was conducted with Ms Debenham and Mr Debenham. Directions were issued on that day. Ms Debenham fully complied with directions. Mr Debenham did not.
A hearing was held on 19 June 2020 in Canberra. Ms Debenham and Mr Debenham gave sworn evidence by telephone. The tribunal also had before it papers provided by the Department (740 pages), Ms Debenham (pages A1 to A108) and Mr Debenham (pages B1 to B86). Copies of these documents were provided to all parties.
Post hearing directions were issued to Mr Debenham on 19 June 2020. Mr Debenham provided material in response to the directions (pages B87 to B144) and Ms Debenham provided a written response to that material (page A109). A copy of all material provided was given to the parties.
Relevant aspects of the evidence are referred to in the consideration below.

ISSUES

The rate of child support payable by a liable parent is usually based on an administrative assessment under the Child Support (Assessment) Act 1989 (the Assessment Act). The formula used to calculate the rate takes into account factors such as the number of children, the levels of care provided and the income of each parent.
Under section 98B of the Assessment Act, a liable parent or a carer receiving child support can apply to the Child Support Registrar for a determination to depart from the administrative assessment. This is known as a change of assessment.
Under section 98C of the Assessment Act, the Child Support Registrar, here the tribunal, may change the assessment if the case meets the following three criteria:
· There is a ground to depart from the assessment (subsection 117(2) of the Assessment Act lists those grounds). Only one ground has to be established for the tribunal to proceed to consider the next criterion (Marsh & Eccles [2008] FMCAfam 1417);
· It is “just and equitable” to make particular changes to the assessment; and
· It is “otherwise proper” to make those changes to the assessment.

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

Subparagraph 117(2)(c)(ia) of the Assessment Act provides that a ground for departure exists where, in the special circumstances of the case, the use of the administrative assessment would result in an unjust and inequitable determination of a parent’s child support liability because the income, property and financial resources of either parent are not properly taken into account.
The term “special circumstances” is not defined in the Assessment Act. In Gyselman and Gyselman [1991] FamCA 93, the Full Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.

Mr Debenham’s income, property and financial resources

It is a well-established principle in the Family Court that the taxable income of a person who is self-employed, such as Mr Debenham, may not be an accurate reflection of their financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott v Scott (1994) FLC 92-457; Carey v Carey (1994) FLC 92-489). Self-employed people can derive additional benefits from their businesses and have greater control over the structure of their finances than a PAYG employee. In making findings on such matters, the tribunal is not required to undertake a major audit or investigation into the affairs of the parties, but only needs to be reasonably satisfied, on the balance of probabilities, about the state of their income, property and financial resources.

Relevant history

As noted above, a 10 January 2018 change of assessment decision set Mr Debenham’s adjusted taxable income at $86,856, with increases for inflation, from 3 December 2017 until there is a terminating event in respect of [Child 2]. Mr Debenham’s objection to this decision was disallowed on 19 April 2018.
On 20 August 2018, Mr Debenham made a change of assessment application in relation to, among other things, his income being set too high. On 30 November 2018, his application was refused on the basis that the 10 January 2018 change of assessment decision in place properly reflected his income, property and financial resources and no other ground was established. In reaching this conclusion, the following findings were made which are relevant here:
·     Payments totalling $84,200 were made into Mr Debenham’s bank account Mr Debenham trading as [Business 1] in the period 1 November 2017 to 14 February 2018. These payments were all made by [Organisation 1] and did not appear to be recorded in Mr Debenham’s 2017/18 income tax return (gross business income of $30,060);
·     It is highly likely that Mr Debenham holds bank accounts not known to Child Support; and
·     Mr Debenham did not provide “full and frank disclosure of his financial circumstances”.

Current application

In her 25 January 2019 change of assessment application, Ms Debenham argued that Mr Debenham’s income was higher than the $86,856 being used in the assessment. She noted that his 2017/18 taxable income was $93,666 ($65,400 in earnings from [Company 1] plus $26,398 from [Business 1] less $1,413 in expenses) and pointed to the $84,200 in apparently undeclared income from [Organisation 1] referred to above.
Mr Debenham set up the private company [Company 2] on 21 January 2019. He is the sole shareholder and office-bearer. At around the same time, he moved his main banking accounts from [Bank 1] to [Bank 2]. The tribunal asked why he made these changes and he stated that it was on the advice of his accountant. Ms Debenham expressed the opinion that the changes were made so that Child Support would have less access to Mr Debenham’s financial information.
Mr Debenham’s 2018/19 income tax return showed his taxable income to be $42,202: $23,378 in workers compensation payments and $19,242 in wages from [Company 2] less $418 for management of his tax affairs. That income tax return disclosed no sole trader income from [Business 1]. The [Company 2]’ 2018/19 income tax return showed no taxable income based on a total income of $107,561 and total allowable expenses of $130,291.
On 14 January 2019, the [Business 1] [Bank 1] account balance was $0.09. [Bank 1] statements obtained by Child Support show only four credit payments between 16 January 2019 and 19 February 2019. These totalled $110,000 and were all made by [Organisation 1]. Mr Debenham argued that these payments were wrongly paid into the [Business 1] account and had been transferred to the [Company 2] account.
The tribunal accepted that there were three such transfers totalling $55,000: $20,000 labelled “MR DEBENHAM business transfer”; $15,000 on 8 February 2019 labelled “MR DEBENHAM business trans”; and $20,000 on 19 February 2019 labelled “MR DEBENHAM trans correct acc”.
There were three other large deposits to the [Company 2] account in the 2018/19 year, totalling $83,000: $30,000 on 20 February 2019 (there was no related [Bank 1] transfer from [Business 1]); $20,000 on 4 April 2019; and $33,000 on 8 April 2019. These were all labelled “[detail redacted]”. The tribunal concluded that these payments did not relate to the [Organisation 1] payments.
Thus, Mr Debenham received $110,000 from [Organisation 1] into his [Business 1] account and only transferred half, $55,000, to his [Company 2] account.
There was no sole trader income or loss for [Business 1] in Mr Debenham’s 2018/19 income tax return and so none of the [Organisation 1] income was declared there. Nor was all that income included in [Company 2] accounts because the relevant financial statement showed a total income for 2018/19 of $107,561. This was around $30,000 less than the $138,000 deposited into the [Company 2] account in January 2019 to June 2019, without taking into account the missing $55,000 in [Organisation 1] payments. Mr Debenham said that he did not understand where the [Organisation 1] payments appeared in his accounts. He stated that he gave his accountant all the paperwork and left it to him to sort everything out.
In the absence of any other explanation, the tribunal concluded that around $85,000 of Mr Debenham 2018/19 gross business income from [Business 1] and [Company 2] was not included in the relevant financial documents ($55,000 from [Business 1] and $30,000 from [Company 2]). This raises questions about the credibility of available financial statements and income tax returns. However, these plus bank statements are the only financial evidence available to the tribunal.
The [Company 2]’s profit and loss statement for the period 1 July 2019 to 31 March 2020 showed Mr Debenham as receiving monthly wages of $7,366.67 ($88,400 a year) for the period 1 July 2019 to 30 September 2019. These wage amounts do not match payments identified as Mr Debenham’s pay in his [Bank 2] statements, which are less.
In July 2019, the total of “pay” payments from [Company 2] to Mr Debenham’s [Bank 2] “Pay Account” was $1,830, in August 2019 it was $4,100 and in September it was $3,580. Additionally some of Mr Debenham personal expenses are paid by [Company 2]. In August 2019, for example, personal expenses paid included a mortgage payment of $500 and a water bill payment of $639.56. Previous [Bank 1] [Business 1] statements from 31 December 2018 to 30 March 2019 also show that money in the account was used to pay personal expenses including $6,500 in mortgage repayments, $1,500 in child support and a water bill payment of $656.57.
The tribunal put it to Mr Debenham that he received financial benefits other than wages from his businesses. He said that he is paid the wage that can be afforded. The tribunal pointed to the confusion of personal and business expenses in Mr Debenham’s financial materials as described above. The tribunal put it to Mr Debenham that the [Company 2] director loan ledger detail for the period 1 July 2019 to 31 March 2020 appeared to be a list of personal expenses. Mr Debenham disputed this. However, he did agree that some of his car expenses could be being met through the company and that the water bill payments identified above were personal expenses.
The [Company 2]’s profit and loss statement for the period 1 July 2019 to 31 March 2020 recorded Mr Debenham as receiving no pay for October 2019 to January 2020 and then wages of $3,385 for February 2020 and $2,985 for March 2020. The [Company 2] account and Mr Debenham’s Pay Account both showed a lessening of activity in October 2019 and November 2019, although identified payments to Mr Debenham’s Pay Account did take place, $300 in October 2019 and $900 in November 2019. There were no transactions in either account between 29 November 2019 and 14 February 2020 although Mr Debenham continued to make transactions through his [Bank 3] accounts. Mr Debenham argued that as a result of his mental health problems he was unable to operate his business from around October 2019 to December 2019 and then only in a limited way for the following three months.
Mr Debenham provided an undated Statement of Financial Circumstances (SoFC) on 21 January 2020. In his SoFC, Mr Debenham stated that he had nil income and less than $50 in the bank across two unnamed accounts. His only identified liability was an unspecified joint mortgage with a weekly repayment of $500. His assets, other than his business, are listed as a truck and a motorbike.
The tribunal observed Mr Debenham made two overseas trips in the first half of 2019 during a period when his income tax return indicated that his income was low. The first trip was to [Country 1] for 12 days in April/May 2019. Mr Debenham said this was a present to him from his wife. The second, in June 2019, involved flying to and from [Country 2] and was again for around 12 days. Mr Debenham said that he did not recall this trip. Ms Debenham has previously stated that his destination was the [Country 3]. There were no obvious payments in Mr Debenham’s available bank statements which related to either of these trips, raising the possibility that costs were met from an unknown source of funds.
Taking all of the above into account, the tribunal found that: The [Company 2]’s financial statements provided by Mr Debenham are not a credible source of information about the financial circumstances of the business. Mr Debenham receives financial benefits from [Company 2] (and previously [Business 1]) which are not reflected in his taxable income. It is plausible that Mr Debenham has access to funds about which the tribunal has no information. The tribunal observed that these findings echo those of the 30 November 2018 change of assessment decision in this case.
The tribunal further found that the adjusted taxable income amount of $86,856 being used for Mr Debenham in the assessment when Ms Debenham’s lodged her change of assessment application underestimated his income and financial resources at that time and that this constituted a special circumstance in this case. As the application of the administrative assessment would result in an unjust and inequitable determination of financial support for the children, in that Mr Debenham would be assessed to pay less child support than warranted on the basis of his income and financial resources, the tribunal found that a ground for departure was established.

Issue 2: Is it just and equitable to depart from the administrative assessment?

To decide whether it is just and equitable to depart from the administrative assessment, the tribunal must consider the matters required by subsection 117(4) of the Assessment Act, plus any other matters raised in the change of assessment application.

Duty of a parent to maintain a child/commitments necessary for self-support or the support of anyone else the parent has a duty to maintain

Section 3 of the Assessment Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain.
Ms Debenham and Mr Debenham each have the primary duty to financially support the children and neither has a duty to maintain anyone other than the children. Mr Debenham clarified that he no longer wanted his support for his stepson be considered here.
Ms Debenham did not identify any personal health-related costs or any other unusual expenses. Mr Debenham pointed only to the impact of his mental health problems on his earning capacity which is discussed below.

The proper needs of the children

In determining the proper needs of a child, it is necessary to consider the manner in which the parents expected the child to be cared for, educated or trained, and any special needs of the child.
No special needs costs or education-related costs of relevance here were identified.

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

The children have no access to income, property or financial resources which could be used for their self-support. [Child 2]’s earning capacity is not at issue here. [Child 1] has worked as an apprentice from not long after he moved into Mr Debenham’s primary care on 16 August 2019. Neither party identified his earnings as an issue to be considered here.

The earning capacity of Mr Debenham

Mr Debenham provided two medical certificates completed by [Dr A], Mr Debenham’s general practitioner since August 2016. Both certificates stated that Mr Debenham is experiencing a temporary condition of mixed anxiety and depression which began on 3 June 2019 and is likely to last for 3 to 12 months. The listed symptoms are “suicidal thoughts; unable to sleep or eat properly; poor memory/concentration; unable to function at work; hopelessness/no motivation”. The listed treatment consisted of 20 mg of [Medication 1] daily plus referral to a psychologist for extended counselling through a mental health plan. Factors identified as impacting on Mr Debenham were “stressful job/family situation”.
The first certificate, for the period 27 September 2019 to 27 December 2019, stated that Mr Debenham was unable to currently undertake his usual work and could do no other work for eight hours or more a week. The second certificate, for the period 27 December 2019 to 27 March 2020, stated that Mr Debenham was unable to currently undertake his usual work but could do some work for eight hours or more a week. The certificate suggested that Mr Debenham try working up to 15 hours a week.
Mr Debenham also provided a letter, dated 20 April 2020, from [Ms B], which stated that she is Mr Debenham’s treating psychologist; that Mr Debenham was referred to her by [Dr A] on 27 September 2019; and that Mr Debenham continues to engage in psychological counselling and is encouraged to do so in the future when required.
Mr Debenham told the tribunal that he is no longer taking medication and is not seeing a psychologist regularly. He disputed the date of onset of his condition as being 3 June 2019. He said that the strain of not seeing his children and his dealings over child support have made him mentally unwell for a much longer period. The tribunal noted that Mr Debenham sought a medical certificate not long after the 18 September 2019 primary decision in this case.
Ms Debenham questioned the impact of Mr Debenham’s mental health on his earning capacity, given that he competed in [a sports competition] in [Australian City 1] (5 to 12 October 2019) shortly after the first medical certificate was issued. Mr Debenham was unclear about the details of the competition. He thought that it was only for a weekend and he did badly. Ms Debenham pointed out that the competition ran over a longer period and that he participated in two [specified sport] matches, winning one and losing the other. Mr Debenham said that keeping fit, including [participating in specified sport], was an important part of his mental health recovery.
The tribunal noted that at various times and from various accounts, including his [Business 1] account, Mr Debenham made multiple payments to a betting agency. The tribunal asked Mr Debenham if he had any problem in relation to gambling which he wished the tribunal to consider and which could have impacted his mental health and his financial situation. He said that he did not have such a problem and had stopped making such payments.
The tribunal accepted that Mr Debenham was experiencing mental health difficulties in the periods covered by the medical certificates and indeed at other times as he suggested. However, the impact of those difficulties on Mr Debenham’s earning capacity was difficult to assess, given that by his own evidence he had worked at other times when he was feeling just as mentally unwell.

Income, property and financial resources and earning capacity of Ms Debenham

Ms Debenham works full-time on a contract [basis]. There is no evidence that she is not exercising her earning capacity.
Ms Debenham’s 2018/19 adjusted taxable income was $52,365. Her 2019/20 adjusted taxable income is likely to be higher as she was undertaking higher duties for six months during that year. Ms Debenham informed the tribunal that her most recent contract has ended and she is again on the temporary register. She intends to lodge her income tax return soon.
At hearing, Mr Debenham stated that he had no issues in relation to Ms Debenham’s income but he subsequently stated his belief that Ms Debenham’s income should be increased to reflect her increased earnings. However, the tribunal was satisfied that any increase in Ms Debenham’s income will be properly taken into account by the usual administrative assessment process.
The tribunal found nothing in Ms Debenham’s 10 January 2020 SoFC to indicate that she had access to any income, property or financial resources not being taken into account in the assessment. She has little in the way of assets, essentially just a car. She rents her home. Her savings of around $2,000 have been recently depleted by the payment of an electricity bill. Ms Debenham’s personal loan of $15,000 is the result of a consolidation of her car loan and credit card debt liabilities. She has stopped using a credit card.

Direct and indirect costs of providing care for the child incurred by the parent entitled to child support

Ms Debenham did not identify any particular costs associated with caring for the children.

What determination should be made taking into account the above factors?

The proposed departure determination is that:
· For the period 1 January 2019 until a terminating event for [Child 2], the adjusted taxable income of Mr Debenham is varied to $93,666. This amount is to be increased by the child support inflation factor on 1 September 2019 and each child support period thereafter.
The start date is the start of the month in which Ms Debenham lodged her change of assessment application. The tribunal observed that Ms Debenham could have sought review of the 10 January 2018 objections officer’s decision or objected to the 30 November 2018 primary decision maker’s decision if she had concerns about the income amount attributed to Mr Debenham but she did not do so.
The end date of a terminating event for [Child 2] will allow the parties some certainty around child support going forward.
Mr Debenham’s adjusted taxable income is varied to $93,666, his 2017/18 taxable income, for the remainder of the assessment. In proposing this figure the tribunal has, in the context of the lack of credible evidence about Mr Debenham’s financial circumstances, balanced the impact of Mr Debenham’s access to funds and benefits not taken into account by the assessment with that of his mental health problems on his earning capacity and the COVID-19 situation on his business activity. Application of the child support inflation factor will assist in keeping this income figure up-to-date.

Any hardship resulting from the departure determination

The proposed departure determination leaves in place the previous 10 January 2018 change of assessment decision, which varied Mr Debenham’s adjusted taxable income to $86,856, until 1 January 2019. This will have the effect of reducing Mr Debenham’s child support arrears. As noted above, the amount of his adjusted taxable income will then be increased to $93,666, with appropriate additional increases for inflation, for the remainder of the assessment. Given the previously discussed issues with the available evidence about Mr Debenham’s financial situation, the tribunal was as satisfied as it could be that Mr Debenham will be able to meet his assessed liability.
As Mr Debenham owes significant child support arrears to Ms Debenham, more than $20,000, the tribunal found it highly unlikely any overpayment to Ms Debenham would be created by the proposed determination.

Issue 3: Is it otherwise proper to depart from the administrative assessment?

The tribunal considered the impact of its proposed determination on the balance of support provided by the parents on one hand and the taxpayer on the other. It is necessary to decide whether this is a proper outcome given that parents have the primary responsibility to support their children.
Ms Debenham does not currently receive family tax benefit for [Child 2]. The impact of the proposed determination on her entitlement from 1 January 2019 is not clear. Whatever the impact, the tribunal was satisfied that the proposed determination represents the financial circumstances of the parties as well as can be done given the available evidence. The tribunal therefore found that the proposed determination is otherwise proper.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that:

For the period 1 January 2019 until a terminating event for [Child 2], the adjusted taxable income of Mr Debenham is varied to $93,666. This amount is to be increased by the child support inflation factor on 1 September 2019 and at the start of each child support period thereafter.