Devonport and Devonport (Child support)

[2020] AATA 2170

Devonport and Devonport (Child support) [2020] AATA 2170 (16 June 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/SC017830

APPLICANT:  Mr Devonport

OTHER PARTIES:  Child Support Registrar

Ms Devonport

TRIBUNAL:Member J Thomson

DECISION DATE:  16 June 2020

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – changed circumstances due to redundancy – no ground established - 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

BACKGROUND

1. Mr Devonport and Ms Devonport are the parents of [Child 1] (born 2007) and [Child 2] (born 2009) (the children). The care percentages currently being assessed by the Department of Human Services – Child Support (the Department) are 78% primary care to Ms Devonport, and 21% regular care to Mr Devonport.

2. On 15 July 2016, a Department decision maker,[DM] decided to set Mr Devonport’s Adjusted Taxable income (ATI) for child support purposes at $79,664 for the period 15 January 2016 to 30 September 2019.

3. On 5 December 2018, Mr Devonport applied to the Department for change of assessment on the grounds that:

   ·the costs incurred to spend time or communicate with the children were at least 5% of his ATI, and that those costs significantly affected the cost of maintaining the children (commonly referred to as Reason 1); and

   ·his income, property and financial resources were not accurately reflected in the assessment determined by [DM] in the decision of 15 July 2016 (commonly referred to as Reasons 8A), and

   ·His earning capacity was not accurately reflected in [DM’s] decision of 15 July 2016, making the assessment unfair, (commonly referred to as Reason 8B).

4. On 23 April 2019, a Department decision maker,[DM] refused Mr Devonport’s application, because none of the grounds upon which he relied in his application had been established.

5. On 25 June 2019, Mr Devonport objected to [DM’s] decision of 23 April 2019, and on 14 October 2019, a Department objections officer disallowed Mr Devonport’s objection, affirming DM’s  decision of 23 April 2019.

6. On 14 November 2019, Mr Devonport applied to the Tribunal for review of the objections officer’s decision of 14 October 2019.

7. The Tribunal heard the matter on 26 May 2020. Both parents attended the hearing via conference telephone and gave affirmed evidence. The Tribunal had before it documentation provided by the Department and each parent. The Department’s documents were admitted into evidence and marked Exhibit 1. Mr Devonport’s documents were admitted into evidence and marked Exhibit A, and Ms Devonport’s documents were admitted into evidence and marked Exhibit B.

ISSUES

1. The issues which arise in this case are:

   ·      The income, property and financial resourced available to Mr Devonport for child support purposes.

   ·      Mr Devonport’s income earning capacity for child support purposes.

CONSIDERATION

1. No evidence was offered by Mr Devonport at the hearing regarding the objections officer’s determination of Mr Devonport’s ground for departure with respect to his costs incurred to spend time or communicate with the children. The issues at hearing were confined to the impact of the recent drought on his income from his [rural services] business, his financial resources and his unexercised income earning capacity for child support purposes.

2. In reaching its decision, the Tribunal has considered the affirmed evidence of the parents given at the hearing, and the documentation contained in Exhibits 1, A and B.

The legislative framework

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act), The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. A formula is used. It takes into account variables including each parent’s ATI for the last relevant year of income, the number of children, and the level of care provided by each parent. Part 6A of the Act allows for a departure from the administrative assessment (a process commonly known as a “change of assessment”). Under subsection 98C(1), the Registrar may make a departure determination if three matters are established:

   ·One, or more than one, of the grounds for departure referred to in subsection 98C(2) exists (subparagraph 98C(1)(b)(ii));

   ·A departure is just and equitable as regards the children and each parent (sub-subparagraph 98(c)(1)(b)(ii)(A)); and

   ·It is otherwise proper to make a departure decision (sub-subparagraph 98C(1)(b)(ii)(B)).

2. Subsection 98C(2) provides that the grounds for departure are the same as the grounds set out in subsection 117(2) of the Act.

3. If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the Registrar may make one of the determinations prescribed in section 98S of the Act. It permits a range of determinations, including varying the rate of child support payable, the adjusted taxable income or the cost percentage of a child.

Grounds for departure

1. Subparagraph 117(2)(c)(ia) provides as a ground for departure:

   (c) that, in the special circumstances of the case, the 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; or…

2. The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something that is special or out of the ordinary. That is, the intention of the legislation in subsection 117(2) must be guided by the qualification that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. In Gyselman and Gyselman (1992) FLC 92–279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The Tribunal will consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence relevant to the parents’ financial positions.

Mr Devonport’s evidence

1. Mr Devonport is [age] year of age. Until he was made redundant on 1 July 2016, he had accumulated [number] years’ experience in the [industry 1], working as an [occupation 1] in the employ of [Employer 1], an [industry 1] [company] which [operations specified].

2. He gave evidence that [Employer 1] provided the necessary training for him to carry out his functions as [an occupation 1], (which required him to [conduct specified industry 1 duties]), and he was not required to hold [specified] trade qualifications to perform his job. He gave evidence that he was made redundant in July 2016, as a consequence of a policy [Employer 1] had implemented to reduce its overheads by delegating [occupation 1] duties to independent [private] contractors.

3. Mr Devonport did not offer any evidence to suggest he suffers from any disability which would preclude him from returning to work in the [industry 1] in a position similar to the one he held with [Employer 1], prior to being made redundant in July 2016.

4. He gave evidence that since his teenage years, he has maintained an interest in [rural services], and in 2008, he borrowed $400,000 from [Bank 1] to purchase a 400 acre property at [Town 1], in [Region 1], where he and the family resided prior to the parents’ separation, and on which he commenced a small scale [rural services] business in 2008. He said he currently runs [amount] of [stock] on this property, comprising approximately [category numbers]. He described his [rural services] business as a small operation, because of the relatively small size of his [Town 1] property holding.

5. He acknowledged in his evidence that the loan he secured for the purchase of his [Town 1] property in 2008 was approved because of his income from his permanent job with [Employer 1], augmented by his [rural services] business, which made it possible for him to service his repayments on the [Bank 1] loan. His [Employer 1] income of approximately $79,664 ($1,532 per week), reflected in the Centrelink Separation Certificate he provided as part of Exhibit A, confirmed the level of income he was earning as [an occupation 1] prior to his redundancy in July 2016.

6. Although Ms Devonport asserted that Mr Devonport had contrived his redundancy by applying on at least two occasions for an [Employer 1] redundancy package, (a decision she suggested was motivated in part by a desire to affect his liability to pay child support for the children), the Tribunal is satisfied the evidence provided by Mr Devonport at hearing, supported by his Centrelink Employment Separation Certificate, is that his employment was genuinely terminated by [Employer 1] on the grounds of redundancy, with effect from 1 July 2016.

7. Mr Devonport gave evidence that at the time he was made redundant, he had accumulated savings of approximately $40,000, and considered he had sufficient funds, combined with the anticipated income from his [rural services] business, to enable him to meet his [Bank 1] loan repayments, pay child support, and meet his general living expenses. However, he acknowledged that up until the time he was made redundant, his [rural services] business had not generated any taxable income, and indeed, had operated at a considerable tax loss.

8. Income tax returns provided by him to the Tribunal at hearing reflected primary production losses of $44,213 for the 2016/17 financial year, $19,337 for the 2017/18 financial year, and $20,146 for the 2018/19 financial year.

9. In response to questioning by the Tribunal at hearing regarding his expectations as to the likely level of income from his [rural services] business for the current 2019/20 financial year, he said he anticipated it would return a loss. In response to further questioning as to the impact of the recent drought and bushfires afflicting [Region 1] area in which he lives, he acknowledged that although the bushfires had adversely affected properties in his vicinity, his property was not affected, and although his property had been severely impacted by the drought, as a consequence of recently received good rainfall, he was optimistic that his income from the [rural services] business was likely to improve over the coming years.

10. In response to the Tribunal’s questioning as to whether he had considered the option of obtaining employment with local [industry 1] contractors to offset the losses generated in his [rural services] business, (particularly in light of the level of reconstruction necessary to restore [infrastructure] in [Region 1] region as a consequence of the recent bushfires), Mr Devonport said he saw no need to seek other employment, and had not made any inquiries as to the prospects of obtaining employment as [an occupation 1] with any of the local [private] contractors, following his redundancy, notwithstanding he acknowledged in his evidence that his [rural services] business had always depended on his [Employer 1] income for its viability.

Mr Devonport’s redundancy payment

1. Mr Devonport’s Employment Separation Certificate reflected a total net termination payment of approximately $235,799; $162,439 of which comprised a redundancy/severance payment of $154,777 and an amount of $7,662 as payment in lieu of notice.

2. Mr Devonport gave evidence that he directed [Employer 1] to remit the total amount of his redundancy payment of $235,799 to his [Bank 1] account [number]. He said he then transferred a total of $277,000, (accumulated savings, including his total redundancy payment) to his [Bank 1] [Loan] account [number] on 15 July 2016, to reduce the level of debt on his [Town 1] [rural services] property. He said he did this to ensure that his children would have a home when they came and stayed with him during his care periods, pursuant to Court Orders made in that respect by the [Family Court of Australia], [in] August 2013.

3. Mr Devonport gave evidence that he continued to meet his child support liability obligations for a period of two years following his redundancy, until he ran out of funds, due to the effects of the drought and the cost of maintaining his [stock] in drought conditions. In response to the Tribunal’s observation that the $162,439 severance pay and payment in lieu of notice component of his redundancy payment were intended to compensate him for lost post redundancy income, funds which would have been available to him for child support purposes, Mr Devonport’s response was that he considered his priority was to reduce the level of debt on his [rural services] property and maintain his [stock], in preference to setting aside funds to ensure he could providing regular ongoing child support for his children.

4. Section 3 of the Act provides, relevantly, that the parents of the child have the primary duty to maintain the child, and that the duty of a parent to maintain a child has priority over all commitments of the parent other than commitments necessary to enable the parent to support him or herself, and any other child or other person that the parent has a duty to maintain.

5. The Tribunal finds that, in directing the total amount of his redundancy payment to his [Bank 1] [Loan] account to reduce his mortgage debt on his [rural services] property, in priority to ensuring he made adequate provision for the ongoing support of his children, Mr Devonport disregarded his primary duty, in accordance with the provisions of section 3 of the Act set out above, to maintain his children in priority to his commitments to his [Bank 1] bankers.

Mr Devonport’s [rural services] income

1. At the hearing, the Tribunal discussed Mr Devonport’s personal income tax returns for the financial years, 2016/17, 2017/18, and 2018/19, provided by him as part or Exhibits 1 and A, particularly with regard to the income and expenses relating to his [rural services] business.

2. His 2016/17 income tax return reflected total taxable income of $166,792, the significant items of which included the taxable component of his redundancy payment from [Employer 1] of $107,868, and the taxable component of a superannuation fund withdrawal of $102,488 from his superannuation fund. His tax return reflected [rural services] income totalling $12,351, comprising income from [stock] sales of $11,309, and government industry payments $1,042, offset against expenses totalling $56,584, resulting in the loss of $44,213, and the reduced taxable income for that year of $166,792.

3. In response to questioning by the Tribunal, Mr Devonport was unable to provide any convincing evidence as to the accuracy of the stock levels reflected in the [rural services] business section of his tax return, nor was he able to provide details of the depreciation expense item of $14,925, other than to say that he had an old tractor which was not in working order, and a quad bike. He said he owned a [Brand 1] vehicle, (listed as an asset in his Statement of Financial Circumstances (SOFC) dated 19 December 2019), but did not use this vehicle in his farming operations. With respect to the item ‘All other expenses-$27,481’ listed in the [rural services] business’ expenses schedule of his tax return, he was unable to provide any evidence as to the composition of that item, or otherwise justify those expenses.

4. Mr Devonport’s income tax return for the 2017/18 financial year reflected income totalling $54,334 comprising income from dividends of $430, income from his [rural services] business of $53,145 and government industry payments of $1,199. Against this income, he claimed expenses totalling $73,671, including, notably, depreciation of $8,495, motor vehicle expenses of $3,976, and unspecified ‘All other expenses’ of $52,640, for which he was unable to provide any satisfactory evidence as to the nature of those expenses, or otherwise justify the amount claimed.

5. Mr Devonport’s income tax return for the 2018/19 financial year reflected total business income from the [rural services] and government industry payments of $43,910, offset against total expenses of $82,545, including depreciation of $6,700, motor vehicle expenses of $4,086 and unspecified ‘All other expenses’ of $62,304, resulting in a loss for that year of $31,435. Mr Devonport was unable to provide any evidence as to the breakdown of the expense items totalling $62,304, or otherwise justify the amount claimed.

6. The Tribunal offered Mr Devonport the opportunity to provide further evidence to verify the accuracy of the stock figures reflected in the tax returns, the depreciation items, and the unspecified ‘All other expenses’ items referred to above, but he declined the offer.

7. In the circumstances, the Tribunal considers it appropriate to add back the Depreciation and ‘All other expenses' items to the gross incomes from the farming operations for each of the 2016/17, 2017/18 and 2018/19 financial years, resulting in adjusted taxable incomes for those years calculated as follows:

Year ended 30 June		2017	2018	2019
$	$	$
[Rural Services] Business:
Sales - [stock]	11,309	53,145	43,117
Government industry grants		1,042	1,189	793
12,351	54,334	43,910
Cost of sales:
Opening stock		1,155	1,665	1,759
Purchases
Closing Stock	(1,665)	(1,759)	(1,479)
(510)	(94)	280
Loss on Livestock Trading		12,861	54,428	43,630
Expenses:
Depreciation	14,925	8,495	6,700
Interest	8,381	4,965	6,813
Motor vehicle expenses		1,980	3,976	4,086
Repairs & maintenance		4,307	3,689	2,362
All other expenses		27,481	52,640	62,304
57,074	73,765	82,265
Loss from [rural services] business		(44,213)	(19,337)	(38,635)
Adjustments for Child Support Purposes:
Non-allowable deductions:
All other expenses		100%	27,481	52,640	62,304
Depreciation	100%	14,925	8,495	6,700
42,406	61,135	69,004
Adjusted income from [stock] trading			(1,807)	41,798	30,369
Other Income:
[Employer 1]	Wages	242
Unused leave	107,866
Farm household allowance		10,711
Centrelink	7,200
Lump sum super		102,488
Interest income		5	1
Dividends	Franked	283	371	405
Imputation credit		121	159	173
Adjusted income for child support purposes			209,198	42,329	48,858

Mrs Devonport’s evidence

1. Ms Devonport provided a copy of a newspaper advertisement inserted in the [dated] edition of the [local newspaper], advertising the sale of [stock] for $4,000 per [unit], plus GST. Mr Devonport acknowledged he had inserted this advertisement, and that he was selling [stock] at that time.

2. Ms Devonport drew the Tribunal’s attention to cash deposits reflected in Mr Devonport’s [Bank 1] [account number] bank statements contained in the Department’s documents, Exhibit 1, of $35,525, $6,820 and $7,992 on 29 July 2019, 31 July 2019 and 2 August 2019 respectively. In response to questioning about the nature of these deposits, Mr Devonport confirmed they represented the proceeds of [stock] sales in the 2019/2020 financial year.

1. Prior to Ms Devonport applying to the Department for a change of assessment on 5 December 2018, Mr Devonport was assessed to pay child support to Ms Devonport for the children as follows:

   ·For the period 1 October 2017 to 31 October 2018 at the annual rate of $9,518, based on an income of $79,664 set for Mr Devonport by [DM] on 15 July 2016, and Ms Devonport’s 2016/17 ATI of $31,692;

   ·For the period 1 November 2018 to 30 September 2019 at the annual rate of $9,760, based on the income of $79,664 set by [DM]  on 15 July 2016, and Ms Devonport’s 2017/18 ATI of $27,088;

2. The Tribunal finds the evidence, on balance, is that Mr Devonport has an unexercised capacity to earn income as an [occupation 1] of approximately $79,664 per annum, (his income at the time of his redundancy in July 2016), The Tribunal also finds he received a redundancy package on 1 July 2016 totalling $235,789, which included annual and long service leave amounting to $107,866, and redundancy and payment in lieu of notice amounts totalling approximately $162,439, sufficient to provide an average annual income of approximately $80,000 for the 2016/17 and 2017/18 financial years.

3. The Tribunal also finds that the actual incomes derived by Mr Devonport from his [rural services] business for the 2017/18 and 2018/19 financial years were approximately $41,800 and $30,370 respectively (rounded up), and that he had the capacity to augment that income by seeking employment as an experienced [occupation 1] in the [industry 1] at an annual income of approximately $79,664, for the 2017/18 and 2018/19 financial years.

4. The Tribunal finds the incomes applied to Mr Devonport in the administrative assessment for the periods 1 October 2017 to 31 October 2018 and 1 November 2018 to September 2019 of $79,664 per annum are reflective of his income and financial resources, available to him for child support for those periods, and his income earning capacity to earn that level of income for those periods.

Mr Devonport’s SOFC

1. As noted above, Mr Devonport provided an SOFC dated 19 December 2019. He affirmed the contents of his statement at the hearing, subject to the changes set out below.

2. He reported his occupation as a self-employed farmer, carrying on business at his property at [Town 1], in [Region 1]. He listed his current gross weekly income at $315.54, comprising negligible dividend income of $8.44 and weekly Farm Household Allowance of $307.10. He did not report any drawings from his [rural services] business.

3. He listed assets comprising his farming property at [Town 1], valued at $695,000, a 1998 [Brand 1] motor vehicle valued at $5,600 and household contents valued at $1,500. He gave evidence that his current bank account balance, listed in his SFOC at $19,040.75, has been reduced to a negligible amount which he thought was probably $0. He also listed another bank account with a balance of $23.20. No value was ascribed for his [rural services] business, notwithstanding the income tax returns for that business, referred to above, reflected opening stock balances of $1,665 for the 2017/18 financial year and $1,759 for the 2018/19 financial year and depreciation on items of plant and equipment of $8,495 and $6,700 respectively for those years.

4. Mr Devonport listed the [Bank 1] [mortgage] debt on his [Town 1] property at $115,000 and farm related expenses of $6,330. He also included an estimate of $60,000 which he said related to anticipated Family Court legal fees for ongoing child custody issues with Ms Devonport, accounting fees and anticipated personal dental expenses. The Tribunal is not satisfied that these are current incurred expenses and accordingly, will disregard them.

5. No personal expenditure items were reported, and his weekly household expenses of $711, whilst unremarkable in themselves, could not be reconciled with his average gross weekly income of $315. Mr Devonport denied Ms Devonport’s assertion that he had a partner residing with him at his [Town 1] address. Ms Devonport did not otherwise challenge Mr Devonport’s SOFC as amended at the hearing.

Ms Devonport’s SOFC

1. Ms Devonport affirmed the contents of her SOFC at the hearing, subject to the changes set out below.

2. She gave evidence that she is currently employed as [an occupation 2] at [Employer 2] on a gross fortnightly salary of $1,121, annualised to $29,146. The Department’s records reflect her 2017/18 ATI used in the assessment at $27,088. She also receives Centrelink newstart and family assistance benefit of $41 and $243 respectively per week, and negligible $7 interest, bringing her total average weekly income to $993.

3. Ms Devonport gave evidence that she resides rent-free with her parents, [named], and although she lists no other assets in her SOFC, she gave evidence at the hearing that she owns a 2018 [Brand 2] motor vehicle, valued at $26,000 which she said she purchased, utilising her savings and the trade-in value of her old motor vehicle. She also gave evidence that she has superannuation currently amounting to $55,000 to which she salary sacrifices $133 per fortnight from her [occupation 2] salary. Ms Devonport confirmed that she has no liabilities. Her schedule of average weekly household expenditure, totalling $406 was unremarkable, and she confirmed that she contributes half of her parents’ electricity and water utility charges, as reflected in her weekly expenses schedule.

4. No evidence was provided by either parent to suggest that the children have special needs. Ms Devonport gave evidence that they currently attend [a local] school, the costs of which are met by her, as reflected in her SOFC, at $60 per week. Ms Devonport did not seek contribution towards the children’s education costs from Mr Devonport.

5. Mr Devonport did not challenge Ms Devonport’s SOFC.

Conclusions

1. The Tribunal has found that Mr Devonport received a net redundancy package on 1 July 2016 from his former employer, [Employer 1], totalling $235,799, comprising a tax-free component of $162,440 based on his annual salary at the time of his redundancy of $79,664, annual leave of $10,178, and long service leave of $97,689.

2. The Tribunal has also found that the adjusted losses from his [rural services] business for the 2016/17 financial year, after adding back depreciation and unaccounted for expenses, amounted to $1,807 and not $44,213, as reflected in his income tax return for that year and that his taxable income for that year was $209,198.

3. The Tribunal has also found that his incomes and financial resources for the 2017/18 and 2018/19 financial years, after adjustment for depreciation and unaccounted for expenses were $41,798 and $30,369 respectively, and not losses of $19,337 and $36,635 respectively, as reflected in his income tax returns for those years.

4. The Tribunal has determined that approximately $160,000 of Mr Devonport’s redundancy package represented compensation for two years’ post redundancy lost income, based on his [Employer 1] annual salary of $79,664 for the 2016/17 and 2017/18 financial years, and that Mr Devonport had sufficient income from his [rural services] business and financial resources to pay child support equivalent to an annual income of $79,664 for the 2018/19 financial year.

5. Mr Devonport did not challenge Ms Devonport’s income of $27,088 currently used in the assessment.

6. The Tribunal will therefore not to disturb the objections officer’s decision to affirm [DM’s] decision of 23 April 2019 to refuse Mr Devonport’s application on 5 December 2019 for a change of assessment and leave his ATI for the period up to 30 September 2019 ATI at $79,644.

7. The Tribunal is satisfied that Mr Devonport has sufficient income and financial resources to pay child support based on adjusted taxable income of $79,664 and that the administrative assessment does not result in an unjust and inequitable determination of the level of financial support to be provided by Mr Devonport because of his income, property and financial resources.

8. As a ground for departure is not established the Tribunal refuses to make a determination.

DECISION

The decision under review is affirmed.