Dillon and Dillon (Child support)

Dillon and Dillon (Child support) [2018] AATA 1713 (29 April 2018)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2017/BC010910
APPLICANT:  Mr Dillon
OTHER PARTIES:  Child Support Registrar
Ms Dillon

TRIBUNAL:Member J Thomson
DECISION DATE: 29 April 2018
DECISION:

The Tribunal sets aside the decision under review and, in substitution decides that Mr Dillon’s adjusted taxable income for the period 30 January 2016 to 31 October 2018 is varied to $60,000 per annum, and Ms Dillon’s adjusted taxable income is varied to $58,000 per annum for the period 30 January 2016 to 31 October 2018.

CATCHWORDS
Child support – Departure determination – Costs of education for the child – Income and financial resources of parents – Business income – 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

Mr Dillon and Ms Dillon are the parents of [Child 1], born 2003, and [Child 2], born 2004. The care percentages being assessed by the Department of Human Services – Child Support (the Department) are 72% to Ms Dillon, and 28% to Mr Dillon.
Mr Dillon seeks review of an objection decision made by the Department on 17 December 2016. This decision partially allowed his objection to a decision dated 23 May 2016 setting Mr Dillon’s adjusted taxable income at $200,000 for the period 30 January 2016 to 31 March 2017, setting Ms Dillon’s adjusted taxable income for the same period at $58,000 and increasing the annual rate of child support payable by Mr Dillon from 1 January 2016 to 31 December 2016 by $12,180.
In partially allowing Mr Dillon’s objection, the objections officer set aside the Department’s decision of 23 May 2016 and, in substitution, decided that Mr Dillon’s adjusted taxable income for the period 30 January 2016 to 30 June 2017 should be set at $100,818, that Ms Dillon’s adjusted taxable income should be set at $58,000 for the same period, and for the period 1 January 2016 to 31 December 2016, the annual rate payable by Mr Dillon should be increased by an additional amount of $12,180 in consideration of his share towards the 2016 school fees for the children in the assessment, [Child 1] and [Child 2].
The Tribunal heard the matter on 20 February 2018. Both parents attended the hearing via conference telephone and gave affirmed evidence. The Department provided documentation, pages 1 to 928. Both parents had copies of these documents with them at hearing, and the Department’s papers were admitted into evidence and marked Exhibit 1.
Mr Dillon provided documentation, pages A1 to A442. Both parents had copies of these documents with them at hearing and Mr Dillon’s documents were admitted into evidence and marked Exhibit A. Additional documentation provided by Mr Dillon consisting of his lengthy email to the Tribunal registry dated 13 February 2018 and a Notice of Termination of the lease with respect to [a commercial lease for [Suburb 4] [Company 1] from [Company 2] (pages A443 to A447) were admitted into evidence and added to Exhibit A.
Ms Dillon also provided documentation, pages B1 to B65. Both parents had copies of these documents with them at hearing, and they were admitted into evidence and marked Exhibit B. Additional documentation provided by Ms Dillon consisting of her email to the Tribunal registry dated 6 March 2018, a letter from her accountant [Mr A] dated 5 March 2018, and her 2016 income tax return and assessment notice (pages B66 to B82) were admitted into evidence and added to Exhibit B.
The Department provided further documents consisting of correspondence from the Department enclosing title searches for properties at [Address 1], [Suburb 1] and [Suburb 2], [State 1], together with an ASIC company file search for [Company 1] (pages C1 to C10). These documents were admitted into evidence and marked Exhibit C.

CONSIDERATION

The legislative framework

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. 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 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 (subparagraph 98(1)(b)(ii)(A)); and
·It is otherwise proper to make a departure decision (sub-subparagraph 98C(1)(b)(ii)(B)).
Subsection 98C(2) provides that the grounds for departure are the same as the grounds set out in subsection 117(2) of the Act.
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 for a child.

Grounds for departure

Subparagraph 117(2)(c)(ia) – commonly referred to as Reason 8 – provides as a ground 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….
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 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 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 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 position.
In reaching its decision, the Tribunal has considered the affirmed evidence of Mr Dillon and Ms Dillon, and the documentation contained in Exhibits 1, A, B and C.
In summary, the decision under review by the Tribunal provides as follows as follows:
·for the period 30 January 2016 to 30 June 2017, Mr Dillon’s adjusted taxable income is set at $100,818;
·for the period 30 January 2016 to 30 June 2017, Ms Dillon’s adjusted taxable income is set at $58,000;
·for the period 1 January 2016 to 31 December 2016, the annual rate of child support payable by Mr Dillon is increased by an additional amount of $12,180 in consideration of his share towards the 2016 fees of [Child 1] and [Child 2].
By comparison, the administrative assessment of child support payable by Mr Dillon, prior to Ms Dillon’s application for a change of assessment on 17 February 2016, was as follows:
For the period 1 July 2016 to 30 June 2017 Mr Dillon is assessed to pay an annual rate of child support of $8,200. This assessment is based on a 2014/15 provisional income of $74,962 for Mr Dillon and a 2014/15 adjusted taxable income amount of $52,532 for Ms Dillon;
The issue before the Tribunal at hearing was the determination of the respective parents’ incomes, property and financial resources available for child support purposes, and Mr Dillon’s capacity to contribute equally to the cost of the children’s maintenance and education in accordance with the parents mutually intended private education at the [School 1] and [School 2] over the relevant period.
The primary sources of income for the parents over the relevant period were from a series of trusts created and controlled by Mr Dillon, and Ms Dillon’s income from her employment with [Company 3].

Summary of individual and trust income sources

Mr and Ms Dillon are both beneficiaries of five trusts progressively established and controlled by Mr Dillon from 2002 onward, the purposes of which were the acquisition of investment properties at [Address 2], [Suburb 3], [City 1] and [Address 3], [Suburb 1], and the establishment of [ businesses] at leased premises in major shopping centres at [several locations] collectively operated under the umbrella structure known as the Dillon Family Group. A summary of these trusts and their respective business operations appears below.
The seed capital for the Dillon Family Group’s business and investment operations appears to have been derived from the sale of shares, various properties owned by the parents, and accumulated funds derived from Mr Dillon’s successful [business]and his success as a [occupation]. Mr Dillon’s father, [Mr B], also loaned funds to Mr Dillon (see Exhibit A, page 194), which were invested by him in the trust structure.
The intention was that Mr Dillon would manage the Dillon Family Group investments and [businesses] while Ms Dillon remained in her employment with [Company 3] as a [occupation] and more recently, [a different occupation], from which she derived, and continues to derive, income ranging from $52,532 in the 2014/15 financial year, to $56,742 in the 2015/16 financial year (see her tax return at Exhibit B, pages 68 to 81).
Relevantly, Ms Dillon is also the registered proprietor of property located at[Address 1 ], , [Suburb 1], from which Mr Dillon conducted the Dillon Family Group investment and [business] management operations until the breakdown of the marriage in August 2014.
On 31 July 2012, Mr Dillon incorporated the company [Company 1] , which became the trustee of trust numbers 1, 2, 3 and 4 of the trusts comprising the Dillon Family Group. This company also derived income in its own right, charging management fees for the provision of management and labour hire services to the [businesses] of trusts 2, 3 and 4.
Mr Dillon was at all material times and remains the sole director and shareholder of the company.
The five trusts comprising the Dillon Family group, and the principle income deriving activities of those trusts are as follows:
1.Dillon Trust No.1 and the Self-Managed [D] Superannuation Fund: these trusts constituted a partnership, the principal asset and income generating and source of which was an investment property at [Address 2], [Suburb 2], [City 1](sold 18 April 2016);
2.Dillon Family Trust No. 1: the principal asset and income generating source of this trust was an investment property at [Address 3], [Suburb 1] (sold 11 May 2017);
3.Dillon Family Trust No. 2: the principal asset and income generating source of which was a [business] located at Westfield’s shopping centre at [Suburb 4] (closed 12 December 2017);
4.Dillon Family Trust No. 3: the principal asset and income generating source of this trust was a [business] located at Westfield’s shopping centre at [Suburb 5] (closed January 2016), and from January 2016, [another shop]operated by Mr Dillon at in the precincts of the [Suburb 5] shopping centre;
5.Dillon Family Trust No. 4: the principal asset and income generating source of this trust was a [business]located at [Suburb 6] (sold 29 December 2016).
Mr Dillon acknowledged in evidence that the family lived off Ms Dillon’s [Company 3] income whilst Mr Dillon was establishing the [business] outlets and managing the property investments owned by the respective trusts referred to above.
The financial records for the trust entities reveal that, in general, the Dillon Trust Group was highly geared financially, with substantial borrowings from [Bank 1] amounting to $2,832,761 as at 30 June 2016, loans from the parents and Mr Dillon’s father. In addition, the trust structure was supporting two leased vehicles ([Car 1] and [Car 2]). The company contributed to the school fees and other education related expenses of the children, [Child 1] and [Child 2], who attend private schools, in accordance with the mutually intended education arrangements of the parents.
Ms Dillon also contributed to the children’s school fees and charges, in accordance with an agreement between the parents to share equally the costs of their children’s education.
Mr Dillon gave evidence that the [shop] businesses were trading well up until June/July 2012, at which point, he decided to refurbish the [Suburb 4] premises, which remained closed from July 2012 until December 2012. This appears to have had a signal effect on the profitability of [businesses], precipitating a liquidity crisis, culminating in the parents separating on about 7 August 2014.
Mr Dillon also gave evidence that in or about January 2016, Westfield’s, the lessor of the Dillon Family Group’s [Suburb 5] [business] premises, decided to embark upon a major renovation of its [Suburb 5] shopping centre premises, necessitating the closure of the Dillon Family Trust No. 3’s [outlet], adding additional financial pressure to the already strained Dillon Family Trust Group.
To alleviate the financial strain, the leased [motor vehicle] was sold in December 2014. However, by late 2015/early 2016, Mr Dillon was experiencing difficulty in paying his share of [Child 1] and [Child 2]’s school fees at [School 1] and [School 2] respectively.
The parents had also become embroiled in a bitter family law dispute, which is still ongoing and unresolved, in the [Court of Australia], resulting in both of them incurring significantly high legal and accounting fees, notwithstanding their parlous financial circumstances.
As part of the proceedings before the [Court of Australia] initiated by Ms Dillon, [Judge 1] made orders by consent on 13 October 2015, amongst other things, ordering the sale of the [Address 2], [Suburb 3] property and distribution of the net sale proceeds between the superannuation fund/Dillon Family Trust partnership as determined by an auditor and/or accountant, to be appointed. A copy of [Judge 1’s] orders was before the Tribunal at hearing (see Exhibit 1, pages 128 to 132).
The [Address 2] property was sold on 18 April 2016, and the net proceeds of sale were remitted to the trust account of Mr Dillon’s then solicitors, [pending] the outcome of the [Court] proceedings regarding the property settlement and other issues referred to in the preceding paragraph, about which the Tribunal has more to say below.
Orders were also made by consent for the distribution of the net proceeds of sale of a parcel of shares referred to as the ‘[Name deleted]shares’ in which Mr Dillon and Ms Dillon held interests, amounting to a sum of $250,256.62, to the effect that, of that sum, $40,000 was to be paid to Ms Dillon to assist in the costs of her relocating from the former matrimonial home at [Address 2], [Suburb 3], including bond and rental costs, and that a further sum of $10,000 be applied in payment of school fees, medical and children’s activities, with the balance of the share sale proceeds to be divided equally between Mr and Ms Dillon as directed by the trial judge at trial.
The evidence before the Tribunal was that the terms of those orders have been perfected, and the balance of the share sale proceeds are held in Mr Dillon’s solicitors’ trust account pending the outcome of the [Court] proceedings referred to above.
On 11 May 2017, the Dillon Family Trust No. 1’s only asset, the investment property at [Address 3] [Suburb 1], was sold, and the net proceeds of sale remitted to Mr Dillon’s solicitors’ trust account pending the outcome of the [Court] property settlement proceedings referred to above.
On 29 December 2016, the Dillon Family Trust No. 4’s only asset, the [business] at [Suburb 6] was sold at a loss, and the sale proceeds applied to discharge existing creditors of that business with no return, or no significant return of capital to the trust.
Mr Dillon gave evidence that by mid-June 2017, it was apparent that the [business] at Westfield’s [Suburb 4] shopping centre was in serious financial difficulty; letters of demand had been issued by the lessor’s solicitors, [to] [Company 1] and Mr Dillon as guarantor, for payment of arrears of rent in the amount of $131,407.94 (see Exhibit A, pages 236 and 237).
On the same date, [Bank 1] wrote to Mr and Ms Dillon and [Company 1] requesting an urgent injection of funds to the Dillon Family Trust No. 2’s bank account to bring the level of its indebtedness to within the bank’s [Bank 1] Portfolio Facility reduced limit of $1,330,000: the bank’s letter noted that the current balance outstanding as at 30 June 2017 was $1,332,806.78 (see Exhibit A, page 238).
By letter dated 12 December 2017, Westfield’s terminated [Company 1] [Suburb 4] shopping centre lease on the grounds of its failure to pay outstanding rental of $197,591.49 (see Exhibit A, pages 445 to 447). On 27 February 2017, Westfield’s solicitors issued letters of demand to Mr Dillon and [Company 1] for loss and damage pursuant to the breach of its lease totalling $229,678.72 (see Exhibit A, page 477 and pages 479 to 481).
Mr Dillon gave evidence that neither he nor the company has funds to satisfy this demand, and consequently, he faces bankruptcy and the liquidation of the company.
Mr Dillon said that his current source of income is the coffee cart he operates with the assistance of a manager and a casual part-time employee at a location at [Suburb 5], and his employee leave entitlements as an employee of [Company 1].
As evidence of his current employment by the company, Mr Dillon provided a payslip for the period 27 February 2017 to 5 March 2017 reflecting a gross salary of $27,692.28 for the 2016/17 year-to-date; annualised to a gross income of $40,921.
The Tribunal had before it at hearing copies of the financial reports for all of the Dillon Family Group Trusts and [Company 1], prepared by the accountants appointed jointly by Mr Dillon and Ms Dillon, together with tax summaries for those entities for the 2015 and 2016 financial years (see Exhibit A, pages 239 to 407). The tax position summary prepared by the accountants for the year ending 30 June 2015 reflects losses in Dillon Family Trusts Nos. 2 ([Suburb 4]) and 4 ([Suburb 6]) of $573,661 and $115,017 respectively, and a profit of $31,346 for the [Company 1].
The profits in the other entities were $39,510 for the [Super] fund and Dillon Family Trust No 1 Partnership, $5,114 for the Dillon Family Trust No. 2 , [and] $194,166 for the Dillon Family Trust No. 3 ([Suburb 5]).
Mr Dillon’s taxable income for the 2014/15 financial year recorded in the summary for that year was $37,867.
The summaries reveal a complex distribution of losses from the unprofitable trusts to offset profits in the profitable trusts. There also appears to have been a profit distribution of the $39,510 in the [Super] Fund/Dillon Family Trust No. 1, to each of those trusts of $19,755 each.
It is not clear from the financial documents provided by the accountants as to the manner in which the company profit was dealt with (distributed or otherwise), but it seems likely the dividend of $19,508 reflected in Mr Dillon’s tax return for that year of $37,867 was from a distribution by the company as trustee (see Exhibit 1, page 656).

The accountant’s tax summary for the year ending 30 June 2016 reflects losses of $702,154 and $24,810 in the Dillon Family Trusts Nos. 2 and 4, and a loss of $51,366 in the [Company 1]. The ADV Super Fund/Dillon Family Trust partnership and the Dillon Family Trust Nos. 1 and 3 recorded profits of $4,208, $24,065 and $80,654 respectively. Again, there appears to have been an offsetting of the profits against losses across the Dillon Family Group Trusts. Mr Dillon’s taxable income for that year is recorded as $36,850.
The tax summary reflects the company recording a loss of $51,366.
The parents’ [Court] matter referred to earlier herein came before [Judge 2] over the course of 12 and 13 July 2017 and 14 September 2017, culminating in the judge delivering a lengthy (though inconclusive as regards property settlement issues) judgement on 8 January 2018, making orders, essentially relating to the parents’ responsibility for the children, [Child 1] and [Child 2].
Ms Dillon provided a copy of the judge’s certified published reasons in evidence before the Tribunal (see Exhibit B, pages B31 to B63). These reasons contained a number of significant observations dealing with property settlement issues between the parents, in particular, the Dillon Trust Group’s assets.
[Judge 2] had the benefit of a detailed financial expert’s report provided by [Mr C] of [a Forensics Accountancy firm] dated 11 July 2017. This report was not before the Tribunal, but was commissioned jointly by the parents pursuant to orders made by [Judge 1]on 13 August 2015, and appears to have been based on financial and other relevant information provided by Mr Dillon and the parents’ jointly appointed accountants, [Accounting firm 1] Group .
In his Reasons for Judgement, [Judge 2] traces the demise of the Dillon Family Trusts referred to above, including the dissipation of the assets of those trusts shortly prior to the closure of the Dillon Family Trust No. 2’s [Suburb 4] [Company 1] in December 2017. His Honour’s reasons highlight [Mr C]’s findings as to the parlous financial state of each of the Dillon Family Group Trusts, and the company, [Company 1].
According to [Mr C]’s report, as at 30 June 2016 the Dillon Family Trust No. 1 (the partner in the [Super] Fund/Dillon Family Trust partnership which owned the [Address 2] property), and the Family Trusts Nos. 2 and 3 had external liabilities to [Bank 1] totalling $2,832,761.
Bearing in mind the only assets of these trusts were the [Address 2], [Suburb 3] property owned by the trust partnership which was sold in April 2016, and the [businesses] conducted from leased premises at [Suburb 4] and [Suburb 5] (neither of which could be regarded as a viable security), the only security available for the bank’s debt was a collateral mortgage it held over the [Address 1], [Suburb 1] property owned by Ms Dillon, in respect of which, the only expression of interest to date had been an offer of $2,600,000 (see Exhibit 1, page 898).
[Mr C] ascribed a negative value of the $66,534 to Family Trust No. 4, which had operated the [outlet] at [Suburb 6], up until its sale in December 2016. [Mr C] commented in his report to the Court that the constant losses incurred by the business had meant that it was using trade creditors to fund its operations – a ’robbing Peter to pay Paul’ situation.
[Mr C] ascribed a nominal value of $10 to the Dillon Family Trust No. 3, the operator of the [Suburb 5] [business], which was closed in January 2016 due to centre renovations, and is now operating a coffee cart in temporary premises, noting that its biggest asset was advances made to it by related parties ($473,651) which was offset by funds owed to related parties ($489,197) (see Exhibit 1, page 886).
With respect to Family Trust No. 2, the proprietor of the [business] at [Suburb 4], at the time he published his report, [Mr C] ascribed a negative value of $679,394 to this trust, noting that the asset value he ascribed was more than offset by the trust’s liabilities of $1,722,587. As noted above, the fate of that trust has now been sealed by the termination of its [business]lease, increasing its existing debt level by a further $229,678, and exposing Mr Dillon, as guarantor of the Westfield’s [Suburb 4] lease debt of $229,678, and the [Bank 1] debt of $1,041,196.
With respect to the company, relevantly, [Mr C] noted that its principal operation was the provision of labour for the Dillon Family Group’s [enterprises] for which are charged a management fee. He noted it covered Mr Dillon’s annual salary of $42,000. He also noted that it recorded a loss for the 2016 financial year of $53,988 and had a liability of $9,000 to Mr Dillon’s father, [Mr B]. He ascribed a negative value for the company of $21,438 (see Exhibit 1, page 887).
The Tribunal adopts the observations reflected in [Judge 2’s] Reasons for Judgment based on the findings set out in [Mr C]’s report to the Court dated 11 July 2017.
Ms Dillon asserted at hearing that Mr Dillon was deriving income in the form of a subsidy paid by a [Suburb 1] inner-city vocational training college for the provision of accommodation and meals at a residential premises he currently rents and subleases to two students, and from which he also conducts his remaining business enterprise, the coffee cart at [Suburb 5].
The Tribunal is satisfied that the income, if any, being derived by Mr Dillon from the rental accommodation and meal subsidy source is negligible.
Ms Dillon also made reference to the withdrawal by Mr Dillon of an amount of $18,532 from the company’s business cheque account in July 2015 to meet his legal expenses (see Exhibit 1, page 466). Given the parlous state of the various family trusts as outlined above, the collapse of the Westfield’s [Suburb 4] [business], and Mr Dillon’s resulting liability as guarantor of the lease and bank debts arising from the collapse of the Dillon Family Trust Group’s investments and [businesses], there seems little or no prospect of Mr Dillon being able to reimburse the company for that withdrawal nor does the company appear to have cash reserves from which an equivalent distribution might be made to Ms Dillon.
In any event, Mr Dillon’s evidence was that the funds were paid to his solicitors, [trust] account (see Exhibit 1, page 466), that $9,256.02 of those funds were paid to Ms Dillon’s solicitor [to] cover her outstanding legal fees and disbursements, and the balance applied to settle his outstanding legal fees with[his solicitor].
The Tribunal accepts Mr Dillon’s evidence on that issue.
During the course of the hearing, Mr Dillon conceded, that as sole director and shareholder of the company, he had derived personal benefits as a consequence of his having the personal use of [Car 2], the yearly running expenses for which were paid by the company He also acknowledged that his telephone expenses had also been paid by the company, and that there should be some adjustment to the profit and loss statement for the company for the 2015/16 financial year regarding the depreciation item claimed for that year.
The profit and loss statement for the company for the financial year ending June 2016 also reflects an item for employee leave entitlements of $14,667 which Mr Dillon said in evidence he was claiming as part of the income he currently derives from the [small] business. He also said in evidence that the [Suburb 4] business provided his daily food and drink requirements throughout the 2015/16 financial years and beyond, until its closure in December 2017.
The Tribunal finds that the evidence, on balance, suggests that Mr Dillon’s income and financial resources for child support purposes was likely to be of the order of approximately $40,000 to $60,000, taking into account the personal benefits he derived from the use of the various trust and company facilities identified above.
The administrative assessment in place prior to Ms Dillon‘s change of assessment application to the Department on 17 February 2016 required Mr Dillon to pay child support to Ms Dillon of $8,200 for the period 1 July 2016 to 30 June 2017, based on his 2014/15 provisional income of $74,962, and Ms Dillon’s 2014/15 adjusted taxable income of $52,532.
The Tribunal has found that Mr Dillon’s income and financial resources for the period 1 July 2014 to 30 June 2015 and the period 1 July 2015 to 30 June 2016 was in the range of between $40,000 and $60,000, and that, on the evidence available to the Tribunal, his adjusted taxable income for the period 1 July 2016 to 30 June 2017 is unlikely to have exceeded $60,000. Accordingly, the Tribunal finds a ground for departure from the administrative assessment is established.

Just and equitable

The requirement to consider whether a departure would be just and equitable and otherwise proper directs attention to what is fair to the parents, their children and the community. A decision-maker must have regard 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 in subsections 117(4) to (9).
A decision-maker must bear in mind the duties of parents and the objects of the Act, set out in sections 3, 4 and 114. These include:
·         The duty of a parent to maintain his or her child has priority over all commitments of the parent other than commitments necessary to enable the parent to support himself or herself and any other child or person that the parent has a duty to maintain.
·         The level of support should be determined in accordance with the costs of children, and according to the parent’s capacity to provide.
·         Parents should share equitably in the support of the child, and the child should have his or her proper needs met from reasonable and adequate shares in the income, earning capacity, property and financial resources of both parents.

Education costs of the children

Both parents made applications for contributions to the costs of maintaining the children, [Child 1] and [Child 2] at private schools. There is no dispute that the children are being educated in the manner mutually intended by the parents. Currently, [Child 1] is attending [School 1] and is in grade 9. [Child 2] attends [School 2] where she is in grade 8.
There is no dispute that both parents mutually agreed to share the costs of the respective children’s education at [School 1] and [School 2]. However, as the financial crisis arising from the decline in the profitability of the [businesses] deepened, Mr Dillon found it increasingly difficult to pay his share of the school fees for both children.
Both parents gave conflicting evidence regarding their efforts to negotiate a satisfactory outcome with the children’s respective schools regarding payment of arrears of school fees, and commitment to payment of future school fees to enable the children to continue their education at the chosen schools.
Mr Dillon gave evidence that he had discussions with the financial officers of both [School 1] and [School 2], resulting in satisfactory arrangements for the security of the continuation of the children’s education at their respective schools up until their grade 12 years, utilising the respective schools’ hardship concessions, resulting in the school fees for each child being reduced by 50%, and benefits payable by the Australian Scholarship Group fee assistance scheme to which Mr Dillon has subscribed.
His said that, in order to qualify for these concessions, he needed to withdraw both children from their previous enrolment contracts and re-enrol them from the commencement of term 3 in the 2017 school year. He affirmed that the principals and financial officers of both schools had accepted the new enrolment arrangements and both children were currently being educated at their respective schools.
However, correspondence provided by Mr Dillon passing between him and his children’s schools dated 25 May 2017 clearly indicates he withdrew the children effective from the conclusion of term 2 in 2017, citing financial reasons due to a downturn in his business activities and the crippling cost of the parents’ divorce proceedings.
Ms Dillon’s evidence was somewhat different. She denied that she and Mr Dillon had made a joint approach to the respective school authorities regarding the issue of outstanding school fees and charges. She said it was not until she received letters from the schools at the end of term 2 requesting the return of the children’s hired computers, books etc, that she became aware that Mr Dillon had withdrawn the children from their schools; she said he did this without her prior knowledge or consent, and it was that event which motivated her to contact the respective school authorities to negotiate a satisfactory resolution to the crisis and secure the children’s future places at their schools.
In this regard, she said she accepted full responsibility for the payment of their school fees and charges from the commencement of term 3 of the 2017 school year, and no longer required Mr Dillon to make any further contribution to their school fees and charges from that date onward.
The Tribunal finds Ms Dillon’s evidence to be preferable to that given by Mr Dillon, that the issue of outstanding school fees and charges for the children up to the commencement of term 3 of the 2017 school year has been resolved, and that the children are attending their respective schools.
Consequently, the Tribunal makes no finding or orders regarding that issue.
It is always open to Ms Dillon to apply to the Department for a change of assessment if those circumstances change and she is so advised.
Both parents provided statements of financial circumstances, in Mr Dillon’s case, his was dated 7 March 2107, and was accompanied by his [Company 1] payslip for the period 27 February 2017 to 5 March 2017. In Ms Dillon’s case, her statement was dated 31 January 2017.

Mr Dillon’s statement of financial circumstances

Mr Dillon’s statement reports a weekly gross income of $769.23, equating to an annual income of approximately $40,000, consistent with the evidence he gave above as to his current gross income. He lists his occupation as business manager, and [Company 1] as his employer.
He also lists the Dillon Family Trust No. 2 ([Suburb 4]) as a source of income, but notes that the [business] operated by that trust is in a loss position to the extent of $1,594,473, consistent with the forensic accountant, [Mr C]’s, findings in the report he prepared for the [Court] of Australia, and referred to in greater detail in the Reasons for Judgement of [Judge 2] above.
He reports negligible bank savings, household contents and other personal property to a total value of $6,000, and ascribes a negative value (see above) to the Family Trust’s [business] interest at the [Suburb 4] shopping centre.
In light of the demise of the Dillon Family Trust No. 2, following Westfield’s foreclosure of the [Suburb 4] [commercial] lease in December 2017, it is likely the landlord will pursue Mr Dillon for its loss and damage consequent upon the breach of its lease, currently quantified at $229,678 (see Exhibit A, pages 479 to 481). This item did not appear in his statement of financial circumstances of the 7 March 2017 for obvious reasons.
He lists two superannuation funds in respect of which he has a beneficial interest totalling $485,985 and credit card debt of $3,710.58.
His average weekly expenses recorded in his statement were not reflective of his current position. His evidence at hearing was that he is currently renting a house for $1,000 per week but is receiving contributions from an educational institution for whose students he provides board and lodging of approximately $500 per week. He also ascribes an amount of $200 per week he contends he collects as rental from his company, [Company 1]. Otherwise, his weekly expenses are unremarkable.

Ms Dillon’s statement of financial circumstances

Ms Dillon’s statement of financial circumstances records her occupation as a flight attendant/cabin manager with [Company 3]. Her gross weekly income is listed at $1,428, (inclusive of her [Company 3] salary, carer’s and family allowance benefits, and her [Suburb 2] property rental income), annualised to $74,256, and consistent with her evidence as to her current income at hearing.
She lists a business, ‘[name deleted]but gave evidence at hearing that this was a failed attempt on her part to provide a home-based supplementary source of income. The Tribunal is satisfied that she did not derive any or any significant income from this enterprise such as would affect her overall income for child support purposes.
She resides with the children in rented premises and lists her [Suburb 2], [State 1] rental property valued at $300,000 against a mortgage debt of $196,222.
Ms Dillon lists savings of $81,909, [Car 3]valued at $14,000 and household contents valued at $10,000.
Her superannuation with [Company 3] amounts to $414,213.
In addition to the mortgage debt on her [State 1] property, she lists a [Bank 2] loan of approximately $18,000, [Bank 3] and [Bank 1] credit card debt of $19,985 and a land tax liability of $161,601 (total $396,208)
Her average weekly expenses, totalling $3,086, including rent for herself and the children of $650, and education expenses of $844, were unremarkable.
Ms Dillon also provided evidence of her 2015/16 income tax return and a letter from her accountant, [Mr A] to the effect that he had reviewed the 2016 income tax returns prepared for the Dillon Family Group and was satisfied that those returns contained no details of any assessable income that needed to be declared on Ms Dillon’s 2016 income tax return.
[Judge 2] was unable to reach a decision regarding the issue of property settlement as between the parties because of a deficiency in accurate accounting evidence. According to evidence provided by Mr Dillon, his solicitors [were] holding $956,637.91 in their trust account to the order of that both parents or their legal representatives, representing the net proceeds of sale of the trust properties at [Address 2] and [Address 3].
By 22 June 2017, those funds had been depleted (with the consent of the parties), due to the payment of Ms Dillon’s [Suburb 2] property land tax debt which had risen to $175,000, a court ordered payment of $57,631.50 to the parties joint accountants, [Accounting firm 1], and a further sum of $880 paid to secure a valuation of Ms Dillon’s [Suburb 2], [State 1] property. There have also been substantial fees incurred for the provision of [Mr C]’s Court ordered forensic accountant’s report upon which [Judge 2] relied in his Reasons for Judgment dated January 2018, some of which are reflected in the bank statements before the Tribunal (see Exhibit 1, page 382).
There have been further proceedings in the [Court] of Australia during the latter part of 2017 and January 2018, and according to Mr Dillon’s evidence, the balance remaining for property settlement division between the parents now stands at approximately $92,000.

Conclusion

The evidence, in summary is that the Dillon Family Trust Group’s investment and [ventures] were, for various reasons, a total failure. The forensic evidence provided by [Mr C] in his report to the [Court]reflected in [Judge 2]’s Reasons for Judgment referred to above and the financial summaries prepared by the parents’ jointly appointed accountants, [Accounting firm 1], confirm that finding.
Although the bank statements of the trusts comprising the Dillon Family Trust Group reflect substantial sums of money passing through their bank accounts, there appears to have been a pattern of transferring funds (by Mr Dillon, as the controlling mind of the trusts and their businesses), from profitable trusts to less or unprofitable trusts by way of loans and/or distributions against a background of diminishing returns, due to a high level of bank debt, the temporary closure of the [Suburb 4] business in July 2012 until December 2012 for refurbishment purposes, the closure of the [Suburb 5] business in January 2016 when the landlord, Westfield’s, embarked on a total refurbishment of its [Suburb 5] shopping centre, the failure of the [Suburb 6] business, resulting in its sale in December 2016 at a loss, and finally, the foreclosure by Westfield’s of the [Suburb 4] business on 12 December 2017 for substantial non-payment of rental.

The evidence suggests the funds generated by and passing through the various trusts have been used to prop up failing businesses, paying rental, staff wages, superannuation and other running costs, servicing of bank debt, payment of school fees, land tax, Ms Dillon’s and the children’s relocation costs, and the significant legal, accounting fees (including expert forensic accountants’ fees) incurred by the parents in the course of the [Court] proceedings referred to above.
Mr Dillon is currently living off the proceeds of Trust No. 3’s [Suburb 5] based [small business] from which he anticipates generating an income of $40,000 per annum. His evidence was that he operates this business with the assistance of a full-time manager and part-time assistant to whom he pays $1,200 and between $500 and $600 per week respectively. He draws a wage for himself of between $200 and $600 per week, depending upon the weekly income from the [small] business – annualised, on average, to between $20,800 and $31,200.
The need to employ a full-time manager in what appears to be a relatively small business operation is difficult to justify, given that Mr Dillon currently has no other occupation and could perform the managerial functions himself, thus increasing his income to at least $40,000 per annum and possibly more.
He gave evidence that he resides in a rented house for which he pays rent of $1,000 per week. He also gave evidence that he sublets rooms to 2 students. A [City 1] based vocational training college pays him an accommodation and meal allowance subsidy of between $220 and $290 per week per student which he uses to cover his weekly rental on the house.
He gave evidence that he operates his [Suburb 5] coffee cart business from his rented premises and charges his company a $200 per week rental contribution. The Tribunal is satisfied that Mr Dillon does not derive any significant income from this activity, although his net rental commitment is reduced to approximately $200 per week.
Mr Dillon gave evidence that he holds a bachelor’s degree in business from the Queensland University of Technology. Prior to embarking upon the property investment/[ enterprise], he derived his income as a self-employed [professional] consultant and [occupation].
Ms Dillon gave evidence that, prior to embarking upon the [business] enterprise; Mr Dillon was capable of generating an income in excess of $100,000 per annum.
There is no evidence to suggest that Mr Dillon does not have the capacity to find employment at his previous level of remuneration.
Ms Dillon is living with the children in rented premises, with a gross taxable income of approximately $74,256 from her [Company 3] employment and her [Suburb 2] rental income. She is the registered proprietor of two residential properties at, [Suburb 1], and[Address 4], [Suburb 2], [State 1], valued respectively at $3,000,000 and $369,515, against secured borrowings of $2,832,761(combined [Bank 1] trust related debt) over [Address 1], and $195,473 over [Address 4]. She also has the responsibility for the ongoing school fees for the children at [School 1] and [School 2].
However, as indicated by [Judge 2] in his Reasons for Judgement, it is likely [Bank 1] will seek to recover its debt by foreclosure under its securities over the [Address 1] property, and the likelihood of a return to Ms Dillon from that sale is uncertain.
Both parents face the ongoing costs of the unresolved [Court] property settlement proceedings.
Based on the analysis of the evidence set out above, the Tribunal considers it appropriate to vary Mr Dillon’s adjusted taxable income to $60,000 and set it for the period 30 January 2016 to 31 October 2018. As the issue of Mr Dillon’s contribution to the children’s school fees has been resolved by negotiation with the respective schools and otherwise between the parents, the Tribunal makes no determination in respect of that issue.
The Tribunal will not disturb the objections officer’s determination of Ms Dillon’s adjusted taxable income at $58,000; that seems to be a reasonable reflection of her income, property and financial resources from 30 January 2016. However the Tribunal considers it appropriate to set the period for which that income is to apply from 30 January 2016 to 31 October 2018.
This will afford the parents the opportunity to lodge their respective income tax returns for the financial year ending 2018, and the Department can then use those taxable incomes in the administrative formula.

Otherwise proper

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 the entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child: paragraph 117(5)(a). It is necessary to consider the effect of any departure from administrative assessment on entitlements to income-tested pensions, allowances and benefits: paragraph 117(5)(b). Relevantly, this requires consideration of the effect on either parent’s entitlement to family tax benefit Part A, which is subject to a maintenance income test.
The Tribunal has found a ground for departure from the administrative assessment with respect to Mr Dillon’s adjusted taxable income, and has determined that the adjusted taxable incomes of both parents should be varied to $60,000 per annum in Mr Dillon’s case, and $58,000 in Ms Dillon’s case from 30 January 2016 to 31 October 2018. Such an outcome is otherwise proper.

DECISION

[2018] AATA 1713

29 April 2018

Key Legal Topics

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Family Law

Administrative Law

Legal Concepts

Jurisdiction

Statutory Construction

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Judicial Review