Dewing and Dewing (Child support)

[2022] AATA 3967

Dewing and Dewing (Child support) [2022] AATA 3967 (14 October 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2022/BC023491

APPLICANT:  Mr Dewing

OTHER PARTIES:  Child Support Registrar

Ms Dewing

TRIBUNAL:Member S Letch

DECISION DATE:  14 October 2022

DECISION:

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

(a)Ms Dewing’s adjusted taxable income is varied to $200,000 for the period 1 May 2021 to 31 December 2023;

(b)Mr Dewing’s annual child support liability is increased by $6,300 for the period
1 May 2021 to 30 April 2022;

(c)Mr Dewing’s annual child support liability is increased by $6,300 for the period
1 May 2022 to 30 April 2023.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources – orthodontic costs – 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 omitted 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 Dewing and Ms Dewing are the parents of [Child 1] (born 2005), [Child 2] (born 2007) and [Child 3] (born 2010). Mr Dewing has been assessed by the Child Support Agency (CSA) as liable to pay child support to Ms Dewing. Mr Dewing seeks a review of an objection decision by the CSA which “partly allowed” Ms Dewing’s objection to a “change of assessment” decision of 8 March 2022. 

2. By way of background, it is convenient to set out some extracts from the objections officer decision dated 8 March 2022:

   …

   BACKGROUND

   …

   The assessment in place prior to the decision subject to this review was:

   For the period 01 July 2021 to 30 June 2022, Mr Dewing is assessed to pay an annual rate of child
   support of $48,594. This assessment is based on a 2020-21 estimated income of $589,959 for Mr
   Dewing, and a 2019-20 Adjusted Taxable Income of $62,580 for Ms Dewing.

   …

   DECISION UNDER REVIEW
   On 11 April 2021, Ms Dewing applied for change to the assessment on the basis of Reasons 2 and
   8A.

   Mr Dewing disagreed with the proposed change and cross-applied on the basis of Reasons 5, 8A
   and 8B, and 9.

   On 30 June 2021, DM [Ms A] found Reason 2 established in Ms Dewing`s application, and
   Reason 8A established in Mr Dewing`s application. The DM made the following decision:

   For the period 1 May 2021 until 30 April 2022, the annual rate of child support payable by Mr
   Dewing is increased by $2,800 in consideration of Mr Dewing`s contribution to [Child 1]`s
   orthodontic costs.

   For the period 1 May 2021 until a terminating event occurs for the youngest child of the case, the
   adjusted taxable income for Mrs Dewing is set at $199,073.
   …

   In summary, Mr Dewing has advised that Ms Dewing:
   - Received significant funds by way of property settlement
   - Receives significant funds by way of a family business based in [Country].

   In response, and in summary, Ms Dewing has advised that she did receive significant funds by way
   of property settlement, which were largely expended on legal costs, home maintenance and
   day-to-day expenses.

   Ms Dewing also advised that, effectively, she gets no personal financial benefit from the funds she
   receives from her family`s [Country] business. She has advised that:

   - She receives a regular monthly distribution of [Currency]3122
   - Additionally, she receives occasional special distributions`
   o She has no control over the amounts or when she receives these funds
   o The distributions from the business are part of a taxation strategy, whereby
   ultimately she receives no personal benefit.

   In the various documents provided by, these special distributions are explained as follows:
   These payments are not funds to which I am guaranteed nor entitled to receive, nor is it my
   income. The distribution is a portion of the Partnership`s taxation liability and the distribution on
   account of the tax is apportioned between all of the partners. I am to pay my portion of the
   Partnership`s tax liability in the following fiscal quarter after I receive the distribution.

   In recent years, [Company] has experienced greater income than it distributed to its
   limited partners requiring them to pay taxes on money they did not receive accordingly, [Company] has distributed additional amounts to its limited partners, including Ms Dewing,
   pursuant to their limited partnership interest for the sole purpose of helping them meet taxation
   liabilities.

   The distributions Mrs Dewing receives are in no way related to her personal tax liabilities. They
   are Mrs Dewing`s proportionate distribution received as a consequence of the General Partner
   making distributions to cover tax liabilities. Where the General Partner determines that a
   distribution is payable, then all limited partners will receive a proportionate distribution under the
   rules governing the partnership . Mrs Dewing`s intention for these special distributions is to
   contribute towards her [Country] estimated tax payments, which are due quarterly, and her annual
   estimated [National] and [Sub-national] tax payments, which are due annually in April.

   I expect she will have an Australian tax liability on the return as the Foreign Income Tax Offset
   available for the [Country] tax paid will not be sufficient to eliminate the Australian tax liability
   owing on the distributions from the [Country] partnership as her Australian tax liability will almost
   always exceed her [Country] tax liability given the higher marginal tax rates and narrower tax bands in Australia, Mrs Dewing will also need to budget for the additional Australian tax payable in respect
   of these special distributions received.

   Records of the Australian Taxation Office (ATO) show that Ms Dewing has no active business
   links. She last signed an employment declaration on 26 November 2020. She has also lodged her
   2020-21 tax return, which shows, amongst other things:
   - $1,000 from employer 1
   - $1,478 from employer 2
   - $371 gross interest
   - $9,381 total deductions
   - $100 total business income
   - $15 net small business income
   - $155,030 assessable foreign source income
   Ms Dewing has also lodged her 2019-20 tax return. This shows, amongst other things:
   - $1,061 from, employer 3
   - $1,900 total deductions
   - $63,419 assessable foreign income.
   Ms Dewing has also lodged her 2018-19 tax return. This shows, amongst other things:
   - $972 in total gross payments
   - $201,527 net foreign income.
   …

   Above, I have found Reason 2 established in Ms Dewing`s application, and Reason 8A established
   in Mr Dewing`s. I must consider how to change the assessment with these Reasons in mind.

   In this case, and with my findings above in mind, I consider it fair to set Ms Dewing`s income to
   reflect a receipt of income at around $65,000 per annum, a figure consistent with Ms Dewing`s
   2019-20 ATI, and based on her ongoing receipt of regular monies from her family`s business.

   I also consider it fair to vary Ms Dewing`s self-support costs. Ms Dewing has significantly
   reduced accommodation costs as well as other costs met by way of, for example, loans from her
   family. With this in mind, I will set Ms Dewing`s self-support amount at $0.

   With regards to [Child 1]`s orthodontic costs, I consider it reasonable to apportion the costs equally.
   Whilst Mr Dewing`s income significantly exceeds Ms Dewing`s, she has access to further
   financial resources by way of spousal maintenance and has received significant support from her
   family and the family business. On that basis, I consider it fair to increase the annual rate of child
   support payable by Mr Dewing by $2,800.

   …

   DECISION

   I have found special circumstances exist in this case and that it would be just and equitable and
   otherwise proper to make a change.

   The objection is allowed in part.

   The decision of Change of Assessment (CoA) Decision Maker (DM) [Ms A] of 30 June 2021 is
   set aside and replaced with the following:

   For the period 01 May 2021 until 30 April 2022, the annual rate of child support payable by Mr
   Dewing is increased by $2,800.

   For the period 01 May 2021 until 31 December 2024, Ms Dewing`s Adjusted Taxable Income
   (ATI) is set at $65,000 per annum.

   For the period 01 May 2021 until 31 December 2024, Ms Dewing`s self-support amount is set at
   $0.

   …

1. Mr Dewing and Ms Dewing participated in the Tribunal’s hearing by conference telephone.  In making its decision, the Tribunal took into account the sworn evidence of both parties, the CSA materials, and the additional materials submitted by both parties (including materials submitted following the hearing).

CONSIDERATION

The legislative framework

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Act). A formula is used. It takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent.

2. Part 6A of the Act allows for a departure from an administrative assessment (a process commonly known as a “change of assessment”). Under subsection 98C(1), the Registrar may make such 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)(i));

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

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

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

4. 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 Tribunal 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 for a child.

Issue 1 – Is there a ground to depart?

1. Subparagraphs 117(2)(c)(ia) and (ib) of the Act, commonly referred to by the CSA as reasons 8A, provide as grounds for departure:

   (c)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; or

2. Subparagraph 117(2)(b)(ia) of the Act – commonly referred to as Reason 2 by the CSA – provides as a ground for departure:

   (b)  that, in the special circumstances of the case, the costs of maintaining the child are significantly affected:

   ….

   (ia)  because of special needs of the child …

10.Subparagraph 117(2)(b)(ii) of the Act, commonly referred to as Reason 3, provides as a ground for departure:

that, in the special circumstances of the case, the costs of maintaining the child are significantly affected:

…    

(ii)because the child is being cared for, educated or trained in the manner that was expected by his or her parents …

11.The starting proposition is that the child support formula should apply. Only in special circumstances should a departure be made. 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 which is special or out of the ordinary. That is, the intention of the legislature is that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. In Gyselman v 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 hearing

12.Mr Dewing submitted that he is presently paying the Australian Taxation Office, through a payment plan, around $2,500 per month, which he suggests compromises his financial capacity. This arose from a bonus he was paid in the 2018/19 financial year. He suggests that adjustments made by the CSA for Ms Dewing’s income should be also be extended to him. In respect of Ms Dewing’s income, in prior financial years, distributions were much higher than more recently, in the context of the ongoing property dispute and child support matters. He questioned whether representations made in Ms Dewing’s favour have been made at arm’s length. He told the Tribunal that Ms Dewing has “over-complicated” her situation; she is partner in a business that is very successful. The “minimum distributions” are exactly that – a “minimum”, and her prior years of much higher income are indicative of her ongoing financial resources. Mr Dewing said Ms Dewing’s income is much higher than has been disclosed in her Australian tax returns.

13.Ms Dewing told the Tribunal that Mr Dewing is overstating her income. She denies Mr Dewing’s suggestion that she “owns and controls” [Company] with her mother and sister. She is a limited partner with no involvement in day-to-day business operations. The report from [Accountants] (which produced a forensic accounting report for family law proceedings) clearly shows her future maintainable distributions are [Currency43,200] per annum. The “special distributions” are discretionary and she said it is “unlikely” she will receive such distributions in future.

14.Upon questioning from the Tribunal, Ms Dewing revealed she received her last “special distribution” in June 2022. The amount was some [Currency16,000] which she said has “gone straight to the IRS”. The Tribunal observed that the CSA decision had been based upon the minimum distribution of some $43,000 and on an expectation there would be no “special distributions”. Ms Dewing told the Tribunal that prior to June 2022, she received a distribution in September 2021 of some [Currency13,000]. Mr Dewing observed that this information had not been disclosed by Ms Dewing prior to the hearing.

15.The Tribunal asked Ms Dewing to supply evidence of historical special distributions going back to January 2021; the records she supplied following the hearing reveal the following figures:

·$14,245.90 on 15 January 2021

·$16,193.98 on 12 April 2021

·$15,238.18 on 7 June 2021

·$6,713.19 on 22 July 2021

·$13,089.15 on 10 September 2021

·$18,349.94 on 14 January 2022

·$18,356.22 on 15 April 2022

·$16,146.40 on 13 June 2022

·$15,320.41 on 9 September 2022

16.Ms Dewing told the Tribunal that even if she received additional special distributions, Mr Dewing received a bonus last year exceeding any distributions she received. Mr Dewing said Ms Dewing’s income is “well north of $200,000” Australian. Ms Dewing told the Tribunal she only receives “in hand” [Currency43,200] per annum to spend on herself and the children; the special distributions are transmitted directly to the IRS to meet tax liabilities.

17.Mr Dewing told the Tribunal that [Accountants] relied on representations from Ms Dewing’s lawyers about future distributions. Mr Dewing told the Tribunal he does not accept that those “special distributions” are effectively subsumed by Ms Dewing’s tax liability, which appears entirely disproportionate; she has never been able to demonstrate what her actual tax liability in [Country] has been. Mr Dewing suggested that Ms Dewing’s lawyers are very sophisticated; money has been extracted from the business for Ms Dewing’s benefit in the form of loans rather than distributions – Ms Dewing has a demonstrated capacity to borrow [Currency200,000] per year. Ms Dewing told the Tribunal she has been forced to borrow money from her mother to meet legal and other expenses.

18.In relation to orthodontic costs, in addition to [Child 1]’s costs, Ms Dewing will incur a total of $6,200 for [Child 2] and [Child 3], with an additional $1,000 for surgery for [Child 2]. Mr Dewing told the Tribunal that he had “no input” in those decisions, which Ms Dewing disputed. Mr Dewing said Ms Dewing has insurance; he does not have visibility of what Ms Dewing “gets back”. Ms Dewing reiterated that the figures she has provided are her “out of pocket” expenses.

19.In relation to his Statement of Financial Circumstances, Mr Dewing confirmed his regular salary is $12,000 per week. He rents a unit with his partner. He said he drives an old car with 400,000 kilometres on the clock. He pays spousal maintenance and child support to Ms Dewing totalling about $2,300 per week. There is money remaining in a trust set up to meet private school fees (from proceeds of a sale of a matrimonial asset); Mr Dewing is concerned that money will be exhausted earlier than anticipated.    

20.Ms Dewing told the Tribunal she lives in an older house (which Mr Dewing observed was built about 10 years ago) – she has had plumbing and air-conditioning issues, amongst other things. She said “things are starting to age”.

21.Both parties indicated that in terms of setting an assessment going forward, consideration should be given to the hope that the long-standing property dispute will be finally resolved some time in 2023.

22.Following the hearing, amongst other things, Ms Dewing supplied the information about special distributions set out above. She maintains her financial capacity should be assessed upon her “future maintainable distributions” of [Currency43,200] per annum. The Tribunal observes that the [Accountants] report, dated 5 May 2022, has been produced for the purposes of the ongoing and highly contested family law property dispute. At 7.7 (folio B101), the report concludes that future maintainable distributions should be assessed as [Currency43,200] per annum in accordance with Ms Dewing’s minimum entitlement; the report observes that additional distributions will vary and are at the discretion of the company. The report further observes that: “Those distributions will vary depending upon the income of the Partnership and the perceived need of the partners to have additional funds to pay income taxes. However, the Partners have no entitlement to receive these amounts”.

23.In additional documents submitted by Mr Dewing following the hearing, Mr Dewing maintained his consistent submission that Ms Dewing’s income should not be assessed on the minimum distribution of [Currency43,200]. Prior years reveal much higher incomes. He points to Ms Dewing reporting in Family Court proceedings in 2020 minimum and additional distributions totalling some $3,200 per week.

24.For the purposes of a ground to depart from the formula, the Tribunal is satisfied there are material costs in relation to necessary orthodontic costs for all three children. The costs are significant and the assessment would be rendered unfair if Ms Dewing were to meet the full “out of pocket” costs of those treatments (the Tribunal will discuss income-related matters further below). In the special circumstances of the case, the child support assessment is rendered unfair.  There is a ground to depart from the formula.

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

25.The next relevant consideration for the Tribunal is whether a departure from the administrative assessment is just and equitable. This enquiry 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.

26.The Tribunal observes that section 2A of the Administrative Appeals Tribunal Act 1975 requires the Tribunal to be fair, just, economical, informal and quick. The Tribunal is not in a position to conduct a forensic accounting exercise. The Tribunal observes issues in the highly contested ongoing family law dispute are not the same as the issues in the child support assessment.

27.The evidence for Ms Dewing’s income reveals a “base” of [Currency43,200]. At the present exchange rate, that amounts to something in the order of $66,000 AU. The Tribunal considers that the “special distributions” should be assessed as a financial resource available to Ms Dewing for the purposes of the child support assessment. Directing such distributions to tax liabilities represents a benefit to Ms Dewing.

28.Over an 18 month period (from January 2021 to June 2022), the evidence reveals special distributions totalling some [Currency133,000] (in round terms), or approximately [88,600] on an annual basis (approximately $136,600 AU at present exchange rates).  

29.Doing the best it can with the evidence available to it, the Tribunal concludes that an adjusted taxable income of $200,000 AU per annum is broadly reflective of Ms Dewing’s financial capacity for present purposes.

30.Mr Dewing’s income is at such a level that increases in his income do not make material impacts on his underlying child support liability. The Tribunal considers that no adjustment is required to the rolling assessment of Mr Dewing’s adjusted taxable income under the child support formula. Increases in his income will be captured by the rolling formula assessment. An income of some $590,000 for Mr Dewing and $200,000 for Ms Dewing results in a total annual liability (in 2021 figures) of some $40,000 per annum (approximately $8,000 per annum less than Ms Dewing’s income being assessed as $65,000).[1]

[1] If Mr Dewing’s income were assessed at, for example, $700,000 (and Ms Dewing $200,000), his annual liability would increase by only approximately $20 per week).

31.On the evidence available to it, the Tribunal estimates the “out of pocket” dental costs for [Child 1], [Child 2] and [Child 3] amount to approximately $5,600, $7,200 and $6,200 respectively (totalling $19,000). To even that liability out, the Tribunal considers Mr Dewing’s liability should be increased over a period of two years. Given Mr Dewing’s income is much higher than Ms Dewing’s income, the Tribunal does not consider it appropriate to share the cost equally. Mr Dewing should be assessed as liable for about two thirds of those costs. From 1 May 2021 to 30 April 2022, Mr Dewing’s annual liability will be increased by $6,300; the same amount will be added to the period 1 May 2022 to 30 April 2023.

32.The Tribunal considers no present adjustment is required for private school fees, which are being met from funds held in trust. At such time as those funds expire, the parents will be at liberty to approach the CSA for a further departure.

33.Neither party identified any other particularly unusual expenses for themselves, or for the children, which would warrant any further adjustment. The Tribunal is satisfied that Mr Dewing has the financial capacity to meet his ongoing child support liability.

34.The Tribunal agrees with the approach of the CSA to commence the departure period from 1 May 2021, just after Ms Dewing’s application on 11 April 2021. In terms of going forward, in the interests of giving the parties some certainty, the Tribunal considers it appropriate to vary Ms Dewing’s income until 31 December 2023.

35.The Tribunal considers it just and equitable to make a departure in the terms set out above.

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

36.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.

37.The rate of child support should reflect the obligation of both parents to take financial responsibility for the children and, where increased, may decrease any income-tested benefits payable. A departure is therefore proper.

38.As the Tribunal has reached a different conclusion to the objections officer, the decision under review will be set aside.

DECISION

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

(a)Ms Dewing’s adjusted taxable income is varied to $200,000 for the period 1 May 2021 to 31 December 2023;

(b)Mr Dewing’s annual child support liability is increased by $6,300 for the period 1 May 2021 to 30 April 2022;

(c)Mr Dewing’s annual child support liability is increased by $6,300 for the period 1 May 2022 to 30 April 2023.