Denton and Wainwright (Child support)

Denton and Wainwright (Child support) [2023] AATA 853 (1 February 2023)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2022/MC024260
APPLICANT:  Mr Denton
OTHER PARTIES:  Ms Wainwright
Child Support Registrar

TRIBUNAL: Member S Cullimore

DECISION DATE: 1 February 2023

DECISION:

The decision under review is set aside and the Tribunal substitutes a new departure determination that the annual rate of child support from 1 July 2021 to 30 September 2024 be fixed at $8,500 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision to depart - decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

The following background matters are drawn from the files of the Child Support Agency (“the CSA”) and are not in dispute. The Tribunal finds each matter as a fact.
The child support case commenced 14 January 2021 and has been Registrar Collect since that date.[1]
[1] C443
The parents have one child now aged 10.
From 28 February 2021 care was 100% to Ms Wainwright.[2]
[2] See objection decision dated 2/2/22 at C229
Since 4 June 2022 Mr Denton has 14% of care.[3]
[3] See C458
On 22 September 2021 Ms Wainwright lodged an application for a change of assessment.[4]
[4] C94
By a decision dated 31 January 2022 a delegate of the CSA found Reason 8A established and made a “departure determination” fixing the adjusted taxable income (“ATI”) of Mr Denton at $114,000 pa for the period from 1 November 2021 to 31 October 2023.[5]
[5] C234
Under that decision, the annual rates of child support were in the region of $13,000 pa.[6]
[6] It was $1,140 per month: see C477
On 21 March 2022 Mr Denton objected to the delegate decision.
On 28 June 2022 an objections officer “part allowed” his objection and made a different departure determination fixing the adjusted taxable income (ATI) of Mr Denton at $127,260 pa for the period from 22 September 2021 to 30 November 2024.
Under that decision, the annual rates of child support have been in the region of $11,600 pa to $15,200 pa.
Currently, with 14% care, since June 2022, his liability is $11,606 pa.[7]
[7] C488
On 13 July 2022 Mr Denton applied for further review by this Tribunal of the objection decision.
As at 31 December 2022 he was $17,837.06 in arrears of child support.[8] He has made no payments for a year.
[8] C500

DOCUMENTARY EVIDENCE AND HEARING

The Tribunal had before it the original bundle of documents provided by the CSA. These documents are referred to as C1 to C479.
Supplementary documents received from the CSA were C480–C501.
Directions were made by the Tribunal on 25 November 2022 for production of further documents by the parents.
Documents received from Mr Denton were marked A1 to A75 and documents received from Ms Wainwright were marked B1 to B23.
A telephone directions hearing was held on 25 November 2022 and the Tribunal hearing was on 1 February 2023.
Both parents attended via teleconference.

CONSIDERATION

The relevant law

Child support is usually based upon “administrative assessments”. These normally use the ATIs of the parents for the financial year ending before the start of the relevant child support period.
In some circumstances, the CSA will use an estimate of a parent’s current income. An estimate must be lower than the ATI used in the administrative assessment. It cannot be higher.
Part 6A of the Child Support (Assessment) Act 1989 (“the Act”) sets out certain circumstances in which the Registrar, on application by a parent, may depart from or “change” the administrative assessment, or, in other words, change in some way the manner of working out the child support liability of the payer.
The central issues for a decision maker to determine in any change of assessment matter mirror the three steps in the process which are set out in section 98B of the Act.
They are:
(i)whether one or more of the grounds for departure referred to in subsection 117(2) of the Assessment Act exists; and if so
(ii)whether 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 to depart from the administrative assessment of child support.
Under subsection 117(2) of the Act, a decision maker is required to consider whether, “in the special circumstances of the case”, the administrative assessment of child support is unjust or inequitable because of various factual scenarios (the so-called “grounds for departure”).
These factual matters (grounds) cover such matters as “the income property and financial resources of either parent”: this is called “Reason 8A”.
The “special circumstances” which must be present must tend to justify or support a departure determination being made.
Those circumstances must also be separate and discrete matters from the matters which make up the “grounds” for departure. Decision makers often confuse this issue by stating that the grounds themselves (for example, the costs of private education, which is Reason 3) constitute the special circumstances. The Tribunal considers that that approach does not reflect the law, as set out in the Act, or pronouncements by courts having supervisory jurisdiction in this area.
For the second step, subsections 117(4) to (9) (inclusive) of the Act then require the decision maker to consider the “just and equitable factors” before making a particular departure determination.
These factors include the “income, property and financial resources of each parent”; the earning capacity of the parents; the costs of providing care to the child; the necessary living expenses of the parents; and any hardship that would be caused to either parent or the child by the making of any particular change of assessment decision.
If satisfied that it is appropriate to do so, the Registrar may then make any of the forms of “departure determination” allowed by section 98S of the Act.
These include but are not limited to fixing a parent’s ATI at a figure in excess of (or sometimes below) that used in an administrative assessment, fixing an annual rate of child support, or increasing a parent’s “self-support amount”.
Only one Reason needs to be established in these matters. If one Reason is established, matters relevant to other Reasons may be considered under the “just and equitable” factors.

The relevant administrative assessments in this case

The Tribunal must first work out what the rates of child support would have been in this matter, had the CSA not made departure determinations (i.e. had they not changed the assessment).
There is much conflicting information on the CSA file about what these rates of child support have been.
Doing its best from the information contained in the CSA file, and in particular the delegate decision and the “Payer Maintenance Liability” screenshots, which show all amounts debited to and credited to Mr Denton’s “account” with the CSA, the Tribunal finds that the administrative assessment from 1 July 2021 to 29 August 2021 was $6,264 pa and from 30 August 2021 to 30 June 2022 it was either the “Minimum Annual Rate” of $446 pa or the “Fixed Annual Rate” of $1,477 pa.
These lower rates were based on nil income estimates which Mr Denton submitted for both the 2020/21 and 2021/22 financial years.
The estimate for 2021/22 appears not to have been “reconciled” with his actual ATI. His 2021/22 tax return (starting at A3) shows taxable income of $52,091, but that figure has not been used in any administrative assessment to date.
From 1 July 2022 to 31 January 2023 the administrative assessment was $3,176 pa based on Mr Denton’s “ATO assessed income” of $45,000 for 2020/21 and Ms Wainwright’s 2020/21 ATI of $11,661.[9]
[9] C196
The Tribunal must consider whether there should be any change of assessment in this matter from the above administrative assessments.

Is there a ground for a further departure or new departure?

The Tribunal has concluded that the evidence and the submissions of the parents raise only one possible Reason, Reason 8A, the income property and financial resources of either parent.
Reason 8A is contained in subparagraph 117(2)(c)(ia) of the Act as follows:
… 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 …
The test requires the Tribunal to consider the level of child support as determined by the administrative assessments, set out above, on the one hand, and the “income, property and financial resources of either parent”, on the other hand, and decide whether the result is, in common parlance, “unfair” (strictly, “unjust and inequitable”).
The level of child support can be “unfairly” low or “unfairly” high, in a particular case.
From all of the evidence before it, the Tribunal finds the following material facts concerning the income, property and financial resources of Mr Denton:
·      He operates a building business in and around [Suburb 1], Victoria, via one or more entities, which are solely controlled by him;
·      He lives in a property at [Suburb 1];[10]
[10] A60
·      He also owns (in his sole name) two rental properties, one at [Suburb 2] and the other at [Suburb 3];[11]
[11] A 54–55
·      The two rental properties are collectively worth about $1.15 million;[12]
[12] A60
·      He has outstanding mortgage debts of $800,000, variously secured over the three properties;
·      His 2019/20 ATI was $63,213;[13]
[13] C134
·      This figure was made up of net business income and net rent;
·      His 2020/21 ATI was $45,000;[14]
[14] C164
·      That figure was made up of $37,072 for net business income and net rent of $7,928 ($41,961 gross rent less $34,033 expenses);[15]
[15] C174, 175
·      His 2021/22 tax return (A3) shows taxable income of $52,091;
·      That figure was made up of $45,000 paid to him by his business, plus net rent of $10,571, less personal deductions (such as income protection insurance);
·      Total sales of the business in 2021/22 were $807,366;[16]
·      Gross trading profit (after deducting cost of supplies and contractors) was $256,164: see A43;
·      “Other income” was then added to make total income $301,244;
·      Expenses of $224,154 were deducted from the $301,244 to give a “net profit” of $77,080;[17]
·      Wages to staff were part of those expenses of $224,154;
·      The business made a payment to Mr Denton (an “associated person”) in 2021/22 of $45,000;[18]
·      That payment came out of the net profit;
·      In Quarter 1, 2022/23, total sales of the business were $331,731, significantly higher than the average sales per quarter in 2021/22.[19]
[16] A42
[17] A44
[18] See A16
[19] A38
From the evidence before it, the Tribunal finds the following material facts concerning the income, property and financial resources of Ms Wainwright:
·      In 2019/20 her ATI was $29,304;
·      In 2020/21 her ATI was $11,661;
·      In 2021/22 her ATI was $6,387;
·      She has another child, who is almost two, and she currently does not work;
·      She is not receiving any family tax benefit (FTB) for either child.
The Tribunal needs then to consider the amount of the child support liability of Mr Denton under the “administrative assessments” as set out above against the “income property and financial resources of either parent” as set out above.
As to the meaning of these terms, the Tribunal’s view is that the term “income” requires the identification of a specific income or income-like amount. This amount, however, must be an amount which will not appear in the parents’ ATI, as set out in section 43 of the Act. It is important to bear in mind that such items as rental losses are included in a person’s ATI and therefore are reflected in the formula amount of child support.
The term “financial resources” in this context means a specific sum of money or benefit available to the parent, or a source of potential income, or benefit, if the parent elects or choses to convert this resource to cash. Benefits from the running of a small business, such as personal expenses of the parent paid for by another entity, are good examples.
The Tribunal noted that the basis of these change of assessment proceedings was the nil income estimate for Mr Denton used at least from 30 August 2021 onwards. That estimate has not yet been reconciled.
The Tribunal has assessed all of the evidence and the submissions of the parents. It finds that the administrative assessments, from at least 1 July 2021, were “unfairly low” in relation to the level of child support produced by them for the child, because of the income property and financial resources of Mr Denton. An estimate of nil was no reflection of the true level of his income property and financial resources.
The Tribunal finds that his true income and financial resources for child support purposes for the 2021/22 year, and to date, have been, at the least:
·      The $45,000 income which it is not disputed was paid to him by the business, as per his 2021/22 tax return;
·      The remaining “net profit” from the business, which the Tribunal assesses as the $77,080 of net profit minus the $45,000 amount received by him, as per his tax return = $32,080. That amount was a financial resource which was available to him, in some form; plus
·      The net rental income from the two rental properties, which was $10,571 (see A9 and A10). This figure, it is noted, ignores “capital” deductions such as the 2.5% deemed annual depreciation figure.
The Tribunal would place a conservative value on Mr Denton’s “true” level of income and financial resources for child support purposes at somewhere in the region of $90,000. The methodology used by the CSA to date added back “carried forward losses” and “depreciation” to the net business income. The Tribunal believes that that methodology is too simplistic and overstates his true position.
The Tribunal has concluded that Ms Wainwright does not have any “property”, or have any “income” available to her, or any “financial resources” available to her, which are relevant to Reason 8A.
Any income property or financial resources of her partner must be and are disregarded.
The Tribunal has concluded, in the circumstances, that the administrative assessments since 1 July 2021 (i.e. the start of the 2021/22 financial year) have been “unfairly low”, because of the “income, property and financial resources” of Mr Denton.
There are “special circumstances” which would justify changing the assessment to better reflect his real income and financial resources as Mr Denton operates via a corporate entity and in addition owns two rental properties. It is highly unlikely, therefore, given the range and nature of the perfectly legitimate tax deductions available to someone in his position, that his Australian Taxation Office (ATO) taxable income, and therefore his ATI, will ever be an accurate reflection of his “true” income and financial resources derived by him or available to him from all sources.
Reason 8A is therefore made out.

The just and equitable factors

The Tribunal must then consider whether it is “just and equitable” to both parents and the child to depart from the administrative assessment in any particular way.
The factors to be taken into account are set out in subsection 117(4) of the Act as follows:
(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.
Subsection 117(9) of the Act states that the subsection 117(4) factors “do not limit other matters to which the [Tribunal] may have regard”.
In determining whether it would be just and equitable to make a departure determination, the Tribunal “must have regard to” the factors specified in subsection 117(4). Whilst the section need not be slavishly followed, each of the factors listed in subsection 117(4) relevant to this matter should be considered.

Income and financial resources of Mr Denton

The Tribunal finds that Mr Denton’s income for child support purposes is probably somewhere in the region of $90,000 pa.
His outgoings and household expenses he estimated at somewhere in the region of $2,300 per week, i.e. $120,000 per annum. His major expense is his mortgage repayments of $1,500 per week, the repayments on the two investment properties being about $1,000 per week. Those repayments, however, are tax deductible, and the gross rent coming in of some $800 per week does give him a strong ongoing cashflow.
The Tribunal is satisfied that he has the capacity to pay ongoing child support of a level commensurate with his recent levels of income and financial resources, as determined by the Tribunal.

Income and financial resources of Ms Wainwright

The Tribunal must and does disregard any FTB Ms Wainwright may receive for the child (see below) and also disregard the income of her partner.
The Tribunal finds that Ms Wainwright’s income for child support purposes is very limited and well under her self-support amount.

Costs of providing care

The Tribunal finds that the reasonable costs of care for Ms Wainwright for the child come to somewhere around $300 per week, and this is based upon her having 86% care. The Tribunal treats the amount claimed for petrol of $150 per week as excessive and finds that some 50% of that figure is reasonable. The other claimed expenses (see B8) are all reasonable.
The Tribunal notes that Mr Denton is also incurring some costs of care.

Hardship

With regard to hardship (paragraph 117(4)(g)), the Tribunal must consider this factor with reference to both of the parties and the children.
The requirement is to “weigh or balance the hardship” that the making of, or refusal to make, the determination would cause to the carer entitled to child support, and to the payer, and to the children.
Mr Denton is some $17,000 in arrears. He has a significant level of income and financial resources, but he is currently making no payments. He has, however, been significantly over‑assessed by the CSA via their findings that his income is in excess of $127,260 pa.
Ms Wainwright faces significant and increasing costs and needs as much financial support from Mr Denton as he can reasonably afford to give.
On balancing the hardship, the Tribunal finds that the proposed decision will not cause undue hardship to either parent or the child.

Proposed departure determination

The Tribunal considered that any departure determination should take specific account of various matters, set out below.
The Tribunal noted that the child is now 10. The costs of care, for administrative assessments, as per the Costs of Children Tables, will increase markedly when he is 13. The Tribunal also notes that Mr Denton’s income may fluctuate and that an extended departure period is not appropriate. Neither parent wished for an extended departure period.
The Tribunal believes that Mr Denton was substantially over-assessed by both the delegate and the objections officer. An accurate forensic analysis of the evidence of his actual income and financial resources, however, remains a very difficult exercise.
The annual rate of child support fixed by the formula, as a guide, for a payer with an ATI of $90,000 and a payee with an ATI of under the self-support amount, with one child under 13, and care being 86% to the payee, is about $8,500 pa.
The Tribunal would prefer to fix an annual rate, rather than fix an ATI for Mr Denton, for the sake of giving certainty. Further, a relatively short departure period seems to the Tribunal to be an appropriate outcome allowing the parents to plan and budget, going into the future, and also to lodge their 2023/24 tax returns.
Accordingly, the Tribunal proposes to now fix one single annual rate of child support from 1 July 2021 to midnight on 30 September 2024.
This rate is fixed at $8,500 pa, which is about 60% of the costs of care which the Tribunal finds are being incurred by Ms Wainwright.
This decision will result in an overall lower level of child support payable by Mr Denton, backdated to 1 July 2021, and it will reduce the arrears owed by Mr Denton by the Tribunal’s estimates of about $7,000.

Is it otherwise proper to depart from the administrative assessments?

The final step for the Tribunal to undertake is to determine whether it is “otherwise proper” to make the particular determination to depart from the administrative assessments.
Subsection 117(5) of the Act requires the Tribunal to take into consideration the following matters:
(a)…
(b)the effect that the making of the [decision] would have on:
(i) any entitlement of … the carer entitled to child support, to an income tested pension, allowance or benefit; or
(ii) the rate of any income tested pension, allowance or benefit payable to .. the carer entitled to child support.
The Tribunal notes that Ms Wainwright received no FTB for 2021/22 and does not at present receive any FTB for either child. Her partner’s income is around $100,000 pa. She intends to lodge a new claim shortly to test her eligibility.
If she is granted FTB, a small reduction in child support would normally lead to a small increase in the rate of FTB.
The matter is complex in the circumstances, but in any event the Tribunal believes that it is otherwise proper to depart from the administrative assessment in the way set out in this decision.

DECISION

[2023] AATA 853

1 February 2023

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Jurisdiction

Judicial Review

Remedies

Procedural Fairness