Dunsford and Dunsford (Child support)

Dunsford and Dunsford (Child support) [2019] AATA 1196 (2 April 2019)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2017/AC012936
APPLICANT:  Mr Dunsford
OTHER PARTIES:  Child Support Registrar
Ms Dunsford

TRIBUNAL:Member M Kennedy
DECISION DATE: 2 April 2019
DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that the objection is allowed so as to vary Mr Dunsford’s adjusted taxable income to $185,000pa from 14 February 2017 until a terminating event in respect of the youngest child of the assessment.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business - income from family trust - 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

This statement of reasons proceeds from the decision and reasons given on 28 March 2019 in respect of a preliminary matter heard on 19 December 2018. As mentioned in those reasons Mr Dunsford and Ms Dunsford are the parents of two children, in respect of whom a child support assessment is in place.
On 21 November 2017 Mr Dunsford applied to the Tribunal for review of a decision made by an objection officer on 28 October 2017. That decision had disallowed Mr Dunsford’s objection to a decision on a change of assessment application varying Mr Dunsford’s income to $200,000pa for the period 14 February 2017 to 1 May 2019. That is the decision under review.
At the time of the application for a change of assessment child support was calculated on the basis of an adjusted taxable income of $91,925 for Mr Dunsford (reflecting the amount varied by the SSAT in its decision of 17 October 2012) and Ms Dunsford’s adjusted taxable income of $50,917 (an estimate), producing an annual rate of $2,157pa.

ISSUES

The legislation relevant to this review is contained in the Child Support (Assessment) Act 1989 and in the Child Support (Registration and Collection) Act 1988. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Assessment Act. This requires the application of a statutory formula which takes into account factors such as the number and age of children, the level of care provided and the income of each parent.
Under section 98B of the Assessment Act, if special circumstances exist, a liable parent or a carer entitled to child support may apply to the Registrar in writing, requesting a departure from the administrative assessment in relation to a child.
Under section 98C of the Assessment Act, before making a departure determination on an application made under section 98B of the Assessment Act, the Registrar must be satisfied that in the special circumstances of the case, one or more grounds under subsection 117(2) of the Assessment Act exist, and that it would be just and equitable and otherwise proper to make a particular determination.
As set out in my reasons on the preliminary matter, at the time of Mr Dunsford’s application for a change of assessment, a departure determination was already in place, being the effect of the decision made by the SSAT on 17 October 2012, and subsection 75(6) of the Assessment Act has the effect that this amended assessment is taken to be the administrative assessment for all purposes enunciated in the Assessment Act.
Also as observed in my reasons on the preliminary matter, section 98J of the Assessment Act provides that a person who has made an application for a change of assessment is not precluded from making a subsequent application for a change of assessment if because of circumstances existing at the time of the subsequent application there are grounds for departing from the administrative assessment. Ancillary to this is a power of the Registrar to refuse to make a determination if, having refused to make a determination previously, a subsequent application raises no new matters.
As observed by the Family Court in Ignacio v Ignacio [2016] FamCA 50 at [106]:
The Assessment Act (s 98J) is not so broad as to enable parties to engage in child support assessment departure disputes whenever they feel inclined, irrespective of surrounding circumstances. Multiple departure applications are possible, but subsequent departure applications are only permitted when the circumstances at the time the subsequent application is made warrant it.
The question for me now therefore is whether the application is grounded by circumstances existing at the time the (subsequent) application was made. That point in time was 29 November 2016 when Mr Dunsford applied for the change of assessment that has led to these proceedings. I must decide whether a ground is established at 29 November 2016, by reference to the administrative assessment then in force.
If the ground is established by reference to the time the subsequent application was made I will then have the usual unfettered obligation and discretion to take into account all the matters provided for in subsection 117(2) of the Assessment Act, including the discretion to apply any new determinations retrospectively up to 18 months prior to the date of the subsequent application and indefinitely into the future. Before I can consider this however, I must first be satisfied that a ground is established.
The remaining issues for me to determine in this review are therefore:
· Whether one or more of the grounds for departure referred to in subsection 117(2) of the Assessment Act exists (by reference to the time of the subsequent application for a change of assessment); and, if so
· Whether it would be just and equitable as regards the child, the liable parent and the carer entitled to child support, and otherwise proper, to make a particular determination to depart from the administrative assessment of child support.

CONSIDERATION

Is there a ground to depart from the administrative assessment of child support?

In the application for a change of assessment, Mr Dunsford relied on the grounds known as reason 8A and 8B in respect of Ms Dunsford’s income, property, financial resources and earning capacity. Ms Dunsford subsequently made representations to the effect that she wished to cross apply on the same ground in respect of Mr Dunsford’s income, property and financial resources.
In the decision of the objection officer of 28 October 2017, the objections officer found that the ground was not established in respect of Ms Dunsford’s income, property, financial resources or earning capacity but was established in respect of Mr Dunsford’s.
As to Reason 8, subparagraph 117(2)(c)(ia) of the Assessment Act provides that, in the special circumstances of the case, a ground for a departure determination may be established if application of the legislative provisions relating to administrative assessment ‘result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent’ due to the income, property and financial resources of either parent.
It is convenient to consider the question of whether there is a ground to depart from the administrative assessment by reference to Mr Dunsford’s financial circumstances. At the hearing, both Ms Dunsford’s financial circumstances and Mr Dunsford’s financial circumstances were examined. I will consider Ms Dunsford’s financial circumstances later in these reasons, including the circumstances that had motivated Mr Dunsford to apply for a subsequent change of assessment in the first place.
It is apparent that the objections officer found themselves in the position of considering Mr Dunsford’s income, property and financial resources in the absence of Mr Dunsford’s full disclosure of his financial circumstances. As I understand it, Mr Dunsford considers he was not afforded sufficient time to provide the necessary financial information, and I note that the objections officer described the process and timeframes afforded to Mr Dunsford at C13 and C14. For the purposes of the Tribunal’s review, it is unnecessary to decide whether Mr Dunsford was afforded a reasonable opportunity to provide financial information when the matter was dealt with by the Registrar and then the objections officer.
Fortunately, in the Tribunal’s proceedings, after two directions hearings directed towards ensuring Mr Dunsford had provided full disclosure of his financial circumstances, including a hearing to show cause why the application should not be dismissed (in which the Tribunal accepted that non-compliance with directions had been the product of a series of miscommunications), and a substantial delay to accommodate the preparation of personal statements of Mr Dunsford and financial statements in respect of the entities with which he is associated for 2017/2018, the Tribunal is in a better position in respect of Mr Dunsford’s financial disclosure than previous decision makers had been.
In that regard, Mr Dunsford has provided two statements of financial circumstances, three affidavits outlining his interests in various entities and the nature of those entities, and financial statements for the various entities to the end of financial year 2017/2018, and also the previous financial year.
By way of overview of the entities with which Mr Dunsford has an association, Mr Dunsford responded to detailed directions issued by the Tribunal in an affidavit of 31 October 2018. Mr Dunsford disclosed involvement with the following entities:
·       [Trustee Company 1] (hereafter the trustee company)
·       The [Family Trust 1] (hereafter the family trust)
·       [Super Fund 1]
·       [Trust 2]
·       [Business 1]
·       [Business 2]
·       [Trust 3]
Mr Dunsford is [a professional]. He operates a business known as [name] (although this is a mere business name and is not an entity) out of two premises in Adelaide and a further premise in [Town 1]. The [business] activities are operated through the family trust.
The primary focus of my consideration of Mr Dunsford’s income, property and financial resources is on activities undertaken through the trustee company and the family trust: that is, the [Family Trust 1] through its trustee, [Trustee Company 1].
[Trust 2] holds another real property valued in the balance sheet at $758,917. It receives income from rent, topped up by distributions from a trust (unidentified in the financial statements, but presumably the family trust) to meet interest, rates and tax expenses, so that it has generated neither a profit nor a loss in 2017/2018. A similar picture is presented by the 2016/2017 financial statements at A115, although there are no rental receipts, with all expenses being met by a distribution from a trust. The trustees of this trust are Mr Dunsford and [Ms A] (Mr Dunsford’s partner). Mr Dunsford states (at A186) that this entity holds land approved for subdivision which is held for the benefit of himself and [Ms A]. The property held within this trust is nonetheless clearly valuable property and will be taken into account in understanding Mr Dunsford’s overall financial circumstances.
[Business 1] has a non-controlling shareholding (20%) in another entity that owns an [asset] valued at $80,000. [Business 2] is inactive and a corporate trustee for the [Trust 3], also inactive. The [Super Fund 1] holds net assets of $56,341.31 at 30 June 2018. In the course of the hearing I observed that the assets held in the superannuation fund appeared unremarkable, although it was pointed out that contributions had been made to that fund by Mr Dunsford.
The family trust is the most active and significant of the entities associated with Mr Dunsford. Mr Dunsford has deposed that he is the sole director and shareholder of the trustee company, and the appointer and a potential beneficiary of the family trust. In his oral evidence to the Tribunal, Mr Dunsford elaborated that the family trust has primarily made distributions to Mr Dunsford, but has also made nominal distributions to Mr Dunsford’s and Ms Dunsford’s minor children, and more substantive distributions to adult children. Upon further elaboration, Mr Dunsford explained that the distributions to persons other than himself and [Ms A] were in the form of benefits rather than transfers of cash. The family trust has also made distributions to [Ms A] and an employee of the trustee company, and a person who Mr Dunsford considers to be a joint owner of the business conducted through these entities. On the balance sheet for the family trust, [Ms A] has provided a beneficiary loan of $45,492.27 in the 2017/2018, but had not previously provided such a loan.
The family trust also holds other real property, and receives income and incurs expenses in relation to that property. Mr Dunsford has provided a schedule of income and expenses in relation to the property inventory of the family trust, but this does not include interest expenses. In this way, the family trust structure has mixed interests, in that it operates Mr Dunsford’s [business] and also holds part of his property portfolio.
The [business] employs administrative staff and [professionals]. It contracts with other entities to provide further [business] services to its clients. Total sales in 2017/2018 were $729,699 up from $686,870 in 2016/2017.
The property portfolio receives rents. Not all properties receive rent according to the property manager’s statement at A187. Two parcels of property at [specified addresses] do not receive rents, nor does the property at [a Town 1 address], premises used to conduct the [business] in [Town 1]).
The rents received in 2017/2018 were $146,076.84, slightly lower than the $147,680.11 in 2016/2017. The asset value of the property portfolio is $2,131,380.60, after disregarding accumulated depreciation – but this is the cost price of the assets and not the current market value. I proceed on the basis that the asset value identified in the balance sheet is not an accurate representation of the market value of these assets, noting that one asset (land in [one location]) was purchased as early as 2005. In considering the value of property held within the family trust in this regard, I consider it considerably exceeds the value attributed to the assets in the inventory. I also proceed on the basis that some of the properties are not income earing investments, but are assets held (and finance obligations serviced) through the family trust.
The expenses of the trust combine expenses incurred in its [business] activities and the operation of property portfolio in the financial statements. In 2017/2018 interest of $94,006.23 was paid ($89,317.83 in 2016/2017), but this includes not only interest on borrowings to purchase property, but also credit card interest, ATO interest and hire purchase interest for two motor vehicles. As I understand it, the borrowings on the property portfolio are not a combined borrowing, but are individual borrowings secured against particular properties and are not cross-collateralised. This is also represented in the liabilities of the family trust. Mr Dunsford confirmed that expenses such as property agent fees are accounted for as ‘consultant’s fees’ in the financial statements of the family trust, and there are other examples.
In relation to depreciation, Mr Dunsford has claimed depreciation on buildings and depreciation on plant. The depreciation claim incorporates depreciation on the property portfolio and depreciation on items used within the [business]. It also incorporates depreciation on motor vehicles. The amounts identified as depreciation expenses (combined) are substantial: $53,541 in 2017/2018, and $58,189 in 2016/2017.
I have approached my consideration of the ground by first forming a view as to the quantification of the value of the financial resources held within the family trust for child support purposes, and then reaching findings about the extent to which the financial resources are to be attributed to Mr Dunsford for child support purposes.

Quantifying the financial resource within the structures

The exercise of quantifying the value of income, property and financial resources within the family trust is not straightforward in circumstances where the family trust undertakes two very different activities. In the course of the hearing, I explored with Mr Dunsford the extent to which it was possible to examine the financial statements of the family trust with a view to splitting the [business] from the property portfolio by reference to particular expense lines – but as expenses for interest, depreciation, consultancy fees and I suspect repairs and maintenance and insurance are combined in the financial statements, this is not straightforward. I appreciate that some degree of separation can be seen through a study of the property manager’s statement at A187.
A further complicating factor in quantifying the financial resources available to Mr Dunsford arises from the family trust and the [Trust 2] combined holding property assets of combined value of nearly $3,000,000 (at purchase, not at current market value). The control of this amount of valuable property is not to be disregarded, but is difficult to quantify in terms of income available to meet child support obligations.
I accept Mr Dunsford’s explanation as to why his affairs were structured in this way as relating to his capacity to borrow for the property portfolio, and I do not insinuate that Mr Dunsford has structured his affairs in such a way as to conceal matters. I note Mr Dunsford conceded that the combined activities of the family trust in operating the [business] and holding the property portfolio is not ideal for a number of reasons.
I turn first to my examination of the family trust’s financial statements for matters relating to the operation of the [business]. In the course of the hearing, I received evidence from Mr Dunsford about the nature and scope of the [business], including the nature of the engagement of sub-contractors, staff, the payment of arms-length rent for premises in Adelaide, the use of motor vehicles and travel expenses. In this regard, I accept that travel expenses for the [business] are high having regard to the operations undertaken in [Town 1].
With the exception of items the subject of further examination in these reasons, I accept the accuracy and reliability of the financial statements prepared for the family trust, particularly by reference to the activities of the trust in undertaking the [business].
The items that require further consideration begin with the expense lines pertaining to depreciation in both the 2016/2017 financial statements and the 2017/2018 financial statements. As mentioned above, the expenses relating to depreciation are substantial, and have a significant impact on the bottom line.
Mr Dunsford contends that previous decision makers have not correctly followed departmental policy in relation to the treatment of the depreciation expenses, and refers to the Child Support Guide, relevantly extracted in the evidence at A203. Mr Dunsford contends that the Child Support Guide suggests that before depreciation expenses can be taken into account as income or a financial resource available to a parent, the underlying nature of the depreciation expense must be determined. Mr Dunsford points out that the Child Support Guide provides that if the amount claimed as depreciation is used or set aside for replacing equipment or used to repay a loan on a depreciating asset, then it is unlikely to provide the parent with additional financial resources. Mr Dunsford relies in particular on the reference to the depreciation being used to repay a loan on a depreciating asset as a basis not to ‘add back’ the depreciation expenses.

In response to my surprise at the characterisation of interest on borrowings for the property portfolio as loans on a depreciating asset, Mr Dunsford explained that from his perspective, the land was an appreciating asset but the buildings on the land were not, in the sense that the physical structure of the building and its fittings must someday be replaced. While I have followed Mr Dunsford’s contention in this regard, I do not accept it in terms of the guidance provided for in the Child Support Guide. I do not view the borrowings by the family trust to finance the property portfolio as loans for a depreciating asset. I think quite the contrary is the case.
In my view, while the taxation treatment of investment property may provide for depreciation expenses to be claimed over the building, fixtures and fittings of real property, to accept such a substantial deduction in the child support context arising from a valuable property portfolio artificially reduces the profitability of the family trust, and thus artificially reduces the value of the family trust as a financial resource for child support purposes. This is particularly so in this case where there is a further expense line for repairs and maintenance of $18,644.52 for 2017/2018 which must also incorporate expenditure for the property portfolio.
As mentioned above, I have also observed that some parts of the property portfolio do not earn income through rents, yet the finance costs of these appreciating assets are met by the family trust. This tends to reduce the profitability of the family trust in terms of income in order to hold valuable assets.
Likewise, I consider that the extent to which the depreciation expense lines also capture depreciation for motor vehicles ([two vehicles specified]), the depreciation expense lines artificially reduce the profitability of the family trust for child support purposes, even though in the case of these assets they are clearly depreciating in value. I consider that the presence of expense lines for the operation of these motor vehicles within the family trust, offset by FBT contributions for private use of these assets is sufficient.
In approaching a quantification of the family trust as a financial resource based on trading or income, I would disregard the depreciation expense lines, or more crudely ‘add back’ the expense to the bottom line.
I am otherwise accepting of the expenses identified in the profit and loss statement for the family trust as relating either to the expenses associated with operating the [business] of the size and scope described by Mr Dunsford, or the operation of the property portfolio. In this regard, it does not matter that the expenses listed in the profit and loss statement combine expenses for both aspects of the family trust’s operations in circumstances where the income from the properties and the [business] are also combined.
Therefore, in quantifying the value of the family trust in light of these observations, in 2017 I note the family trust had income of $824,308.70, and expenses of $702,339.39 after disregarding the depreciation expenses for both plant and buildings, leaving a profit of $121,968.89. Applying the same approach to 2017/2018, the family trust would have a profit (disregarding depreciation) of $199,257 noting income of $861,361.94 and expenses of $662,104.54.
That partial method of the quantification of financial resources held within the family trust on an annual profit basis does not adequately take into account the valuable real property held and serviced through the family trust (and also the [Trust 2]). In my view, in quantifying the financial resources available to Mr Dunsford through the family trust for child support purposes, regard must also be had to the trust servicing finance on appreciating assets, valued at $2.215 million (in the family trust) and a further $754,667 in the [Trust 2], at purchase. It is difficult and somewhat artificial to equate the holding of real property to annual receipt of income, but by way of example, if the same wealth was held in a cash term deposit for 12 months at 2.2%pa, it would attract interest of $65,332.67. Alternatively, and for the purpose of illustration only, noting that the 2016/2017 balance sheet records secured liabilities against the properties totalling approximately $1.8 million, I note that servicing that debt on an interest rate of 4% would require interest payments of $72,000pa (looking only at the properties held within the family trust). The analysis comparing the asset value with return on a cash deposit fails to take into account that the property portfolio held within the family trust has been purchased with borrowings, and the analysis against the cost of financing the properties fails to take into account that most (but not all) of the properties have contributed to the income of the family trust through rents.
Neither of the two methods mentioned above of quantifying the value of financial resources available to Mr Dunsford through the family trust’s holding of real property are amenable to a conversion to an amount of annual income, and ultimately I consider the addition of a nominal amount is required to give proper regard to the holding of property in this way as a financial resource. In my assessment, a reasonable quantification of the value of the family trust (and the [Trust 2]) as a financial resource takes into account the profit (disregarding depreciation) and inflates that figure having regard to the valuable property held. I consider the value of the family trust and the [Trust 2] equates to an annual income in the order of $145,000 in 2016/2017, and $225,000 in 2017/2018, or on average $185,000 over the period the subject of financial reports when expressed as an equivalent to annual income.

Attributing the financial resources within the structures to Mr Dunsford

As mentioned above, Mr Dunsford is the sole shareholder and director of the trustee company, and the primary beneficiary of the family trust. He is also a joint trustee of the [Trust 2].
Mr Dunsford claims (at A185) that he is unable to solely make a decision or to dispose of the property of the business (referring to the family trust), and is only entitled to fixed income plus an annual bonus.
I have mentioned above that Mr Dunsford views his domestic partner, [Ms A], as a co-owner of the business. Mr Dunsford however has confirmed that [Ms A] does not own any shares in the trustee company, and nor is she a director. I find that [Ms A] has no legal capacity to exercise control over the activities of the family trust. Contrary to Mr Dunsford’s assertion, on no view of the evidence is [Ms A] an owner of the business.
Mr Dunsford explains in his evidence that [Ms A] has added substantial value to the business through her involvement with it. In this regard, Mr Dunsford has provided a copy of an employment contract between the trustee company and [Ms A] dated 28 June 2016. The schedule to the contract identifies that [Ms A] is employed in the position of [name], and is to be remunerated on an hourly basis, plus 50% of the business profit in excess of $80,000pa. Mr Dunsford did not agree with my observation that such remuneration arrangements for an employee were unusual. In any event, Mr Dunsford told me that the profit sharing component of the contract has not been engaged to date.
Further as to [Ms A’s] involvement with the business, Mr Dunsford explained that [Ms A] has expertise in [a specified field], and has previously been employed in a government role. She remained in that role until September 2017 (despite the contract with the trustee company commencing in June 2016). Mr Dunsford contends that [Ms A] has given up a more lucrative job in order to work in the business, and in practice he makes decisions about the business in conjunction with her as if she was an owner.
In my view, the correct characterisation of [Ms A’s] involvement with the business is that of an employee. She holds no equity in the business, although a trust distribution to her was retained within the business as a beneficiary loan in 2017/2018. Mr Dunsford confirmed that [Ms A] has been paid a salary, and a PAYG statement has been issued in respect of her. As I understand it, she was paid approximately $40,000 and this amount is incorporated in to the wages expense lines of the 2017/2018 profit and loss statement. I view the trust distribution reinvested as a beneficiary loan in [Ms A’s] name as an exercise in alienation of income.
As [Ms A] is contracted as an employee, has no ownership interest or legal control over the trustee company, and has not introduced any capital into the business, it is not appropriate to view her as an owner of the business or attribute to her any of the financial resources held within the family trust structure or the [Trust 2]. I consider that 100% of the financial resources I have quantified above are properly viewed as financial resources of Mr Dunsford.

An assessment based on the 2012 SSAT orders is unjust and inequitable, and the ground is established at the time of the subsequent application

The administrative assessment based on the application of the 2012 SSAT orders produced an annual rate of $2703pa based on care percentage determinations reflecting that Mr Dunsford had 65% care of the eldest child of the assessment, at the time of the subsequent application for a change of assessment. By way of illustration, if adjusted taxable income amounts consistent with my quantification of the financial resources of Mr Dunsford were substituted, the annual rate of child support at that juncture would have been $9224: in excess of a three-fold increase in the annual assessment.
Similarly, if the non-averaged quantification of the financial resources available to Mr Dunsford within the family trust and related structures were used, and the income amount for 2016/2017 substituted was $145,000 (in accordance with my findings) the rate would be $7096. This remains a substantially higher annual rate of assessment based on my findings as to the financial resources available to Mr Dunsford.
In my view, the discrepancy is of sufficient significance to demonstrate that the administrative assessment in place at the time of the subsequent application for a change of assessment was unjust and inequitable having regard to Mr Dunsford’s financial resources.
Mr Dunsford asked that I take into account the nature of the agreement he believed he had reached with Ms Dunsford that is incorporated into the 2012 SSAT decision. I have considered whether an assessment based on terms agreed by the parents in 2012 remains just and equitable notwithstanding the findings I have reached in quantifying Mr Dunsford’s financial resources in 2016, because it was so agreed. Having regard to the objects of the child support scheme, I am of the view that the discrepancy between the annual rate of child support calculated by reference to the 2012 SSAT decision and my findings as to Mr Dunsford’s financial resources is so great that the administrative assessment based on the 2012 SSAT decision is unjust and inequitable regardless of the fact that it was arrived at as a result of the parents’ agreement. I do not know what financial information the SSAT considered in deciding that the arrangement was just, equitable and otherwise proper at the time that decision was made, but I am satisfied that the terms of that agreement are unjust and inequitable having regard to Mr Dunsford’s financial resources at the time of the subsequent change of assessment application.
The extent of the discrepancy also demonstrates special circumstances in my view. I find the ground provided for in subparagraph 117(2)(c)(ia) is established.

Whether it would be just and equitable and otherwise proper to make a particular determination to depart from the administrative assessment of child support

As I am satisfied that there is at least one ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to depart from the assessment. In deciding whether it is just and equitable, the Tribunal must have regard to the following matters set out in subsection 117(4) of the Assessment Act:
(a)the nature of the duty of a parent to maintain a child (as stated in section 3); and
(b)         the proper needs of the child; and
(c)         the income, earning capacity, property and financial resources of the child; and
(d)the income, property and financial resources of each parent who is a party to the proceeding; and
(da)       the earning capacity of each parent who is a party to the proceeding; and
(e)the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support:
(i)       himself or herself; or
(ii)       any other child or another person that the person has a duty to maintain; and
(f)the direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and
(g)         any hardship that would be caused:
(i)       to:
(A)      the child; or
(B)      the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii)       to:
(A)      the liable parent; or
(B)      any other child or another person that the liable parent has a duty to support;
by the making of, or the refusal to make, the order; and
(iii)to any resident child of the parent (see subsection (10)) by the making of, or the refusal to make, the order.

Ms Dunsford’s income, property and financial resources

Mr Dunsford explained that he had originally applied for the subsequent change of assessment because he had received correspondence indicating that Ms Dunsford’s income had changed as a result of lodging a taxation return, and then received further correspondence indicating that Ms Dunsford had lodged an income estimate. Mr Dunsford explained that he had taken objection to that because he considered it unjust that his liability to pay child support was calculated on an income amount for Ms Dunsford that was not reflective of her income. I have examined in some detail the child support records before me to assess whether Mr Dunsford has been disadvantaged by Ms Dunsford’s use of the income estimate provisions.
I note the objections officer explains that the child support assessment was calculated on Ms Dunsford’s income estimate of $50,917 prior to 2 September 2016, and then an amended income estimate of $47,502 from 2 September 2016. Taxation records before the Tribunal show that Ms Dunsford had a modified taxable income of $62,519 in 2015/2016 and $55,827 in 2016/2017. Essentially, Ms Dunsford is able to salary sacrifice parts of her income and has a large reportable fringe benefit amount (i.e. $31,174 in 2015/2016).
Ms Dunsford has also provided her PAYG Group Certificate for 2017/2018 showing gross payments of $36,608, but a reportable fringe benefits amount of $12,692. The Tribunal papers do not contain the updated adjusted taxable income for Ms Dunsford for 2017/2018, but it will be in the order of $46,863 (being her taxable income from the taxation notice of assessment at B90 plus the reportable fringe benefits amount).
Ms Dunsford had difficulty recalling the circumstances in which she lodged income estimates in 2016, but confirmed that she had made use of salary sacrifice. Ms Dunsford believed she had discussed her use of salary sacrifice when lodging an income estimate, and does not recall anyone raising concerns about her estimate being less than what her combined taxable income and reportable fringe benefits amount was likely to be.
While I see there is some scope for Mr Dunsford to have been disadvantaged by Ms Dunsford’s income estimates, the administrative assessment of child support has provision for the reconciliation of estimates once accurate taxation information is available. For child support purposes, the reportable fringe benefits amount is incorporated into the adjusted taxable income in any event. In this regard, I note that assessment notices issued in November 2017 in respect of earlier periods at C756 (1 September 2016) and onwards to C772 show that the rate of child support was calculated by reference either to reconciled estimates or Ms Dunsford’s 2017 adjusted taxable income (which would include the reportable fringe benefits).
I am satisfied that the ordinary operation of the administrative provisions of child support assessment have reconciled any estimates lodged by Ms Dunsford with the effect that Mr Dunsford’s child support liability is not increased through Ms Dunsford’s use of salary sacrifice, and nor has Mr Dunsford been disadvantaged by Ms Dunsford’s use of the income estimate provisions at or about the time of the subsequent assessment. See also the correspondence at C737 and onwards.
No further issues arise in respect of Ms Dunsford’s income, property or financial resources. I consider that as a salary earner, Ms Dunsford’s income, property and financial resources for child support purposes are accurately represented by the ordinary operation of the administrative assessment and formula.

The proper needs of the child

Ms Dunsford asks that I take into account evidence relating to a medical procedure that the youngest child wishes to undergo. Ms Dunsford explains that the youngest child is concerned by her physical appearance, and wishes to have a [specified] procedure.
Correspondence from a surgeon indicates that the youngest child has significant issues related to her body image, [specified], and wishes to have the problem surgically corrected.
The anticipated cost of the procedure is between $4,740 and $5,202.
Mr Dunsford’s position is that the surgery is unnecessary, and the surgeon is not qualified to give an opinion as to the psychological basis for the procedure. Mr Dunsford explained that all surgery carries risk, and he would refuse to provide the necessary parental consent for the child to undergo the procedure.
Ms Dunsford says that the surgery is routine day surgery, and very much wanted by the child.
Having regard to the age of the child, the question of the withholding of parental consent by Mr Dunsford is likely not to be determinative of whether the procedure goes ahead. As explained to the parents, it is no part of the Tribunal’s role to assess whether the procedure should proceed or not. However, in the context of child support, I am to consider, among other matters, whether the procedure relates to the ‘proper needs’ of the child for child support purposes.
Having regard to the cosmetic nature of the procedure (without overlooking the possibility that there is also an underlying psychological purpose for the procedure), I am not of the view that the procedure falls within the child’s proper needs for child support purposes. I do not therefore consider that there should be any further adjustment to the child support assessment having regard to the child’s wish to undergo this surgery, notwithstanding it is expensive.
I have otherwise had regard to the Statement of Financial Circumstances of Ms Dunsford who has 100% care of the children at the present time (and has had 100% care of both children since 24 December 2017). No further material evidence in relation to the proper needs of the children arises.
Mr Dunsford has not raised any specific matters in relation to the proper needs of the children, noting that at the time of the subsequent application for a change of assessment he had a substantial amount of care for the children. Mr Dunsford, however, mentioned that the care arrangements for the children have changed from time to time and he has maintained accommodation for them at his home. Noting the annual rate produced by the objections officer’s decision was approximately $35,000pa on the basis of new care arrangements, Mr Dunsford submitted that he considered this assessment unnecessarily high having regard to the children’s proper needs.

The income, earning capacity, property and financial resources of the children

Mr Dunsford contends that both children are employed at [a business]. He believes that the children are earning between $12,000 and $15,000pa, and believes the older child is taking time off school to work, as he has been made aware of an attendance issue.
Ms Dunsford told me that the older child is earning approximately $5,000pa from after school work, and the younger child less than that. Ms Dunsford explained that school attendance may be related to the older child undertaking a vocational program through the school, and denied that the children worked during school hours.
On the evidence before me, I am not satisfied that the children have independent income, property or financial resources that warrant adjustment to the child support assessment. Both children have been undertaking full time secondary schooling, although I understand there may be dispute in that regard yet to be the subject of determination by the Registrar in respect of the oldest child. I consider the children remain primarily reliant on their parents for their support.

The commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support themselves

In relation to this factor, Mr Dunsford asked that I take into account a medical condition he has and the need to purchase medication. In Mr Dunsford’s Statement of Financial Circumstances, he indicated that his medication expenses were $10 on average each week, but in his oral evidence to the Tribunal he estimated the expense was in the order of $100 per month. Mr Dunsford confirmed that the medication was provided under the Pharmaceutical Benefits Scheme.
Mr Dunsford’s medical expenses in this regard are not out of the ordinary and do not warrant specific adjustment in the child support assessment.
No particular matter was raised by Ms Dunsford in relation to this consideration.

Other matters and submissions as to respective hardship

No particular matter was raised by Ms Dunsford in relation to the direct or indirect costs she incurs in providing care for the children. I have examined Ms Dunsford’s Statement of Financial Circumstances at B8 and identified no remarkable or unusual expenditure in this regard.
Mr Dunsford contends that the annual rate of child support produced by the formula as a result of the objections officer’s decision is excessive and is more than is required to provide care for the children. In Mr Dunsford’s view, the child support assessment produced by the departure put in place by the objections officer’s decision is akin to spousal maintenance. [Advisor A] submitted in response that once the adjustment to Mr Dunsford’s income was made, the rate of child support calculated followed the ordinary formula, and could not be viewed as a form of spousal maintenance.
In considering whether it is otherwise proper to make a particular departure determination, I take into account that Ms Dunsford has identified in her Statement of Financial Circumstances that she is in receipt of a small amount of family tax benefit. The rate of this payment will be affected by any child support assessment. I consider it otherwise proper to arrive at a departure determination based on the respective means of the parents as I have found in this review, and it would be proper for the rate of family assistance to reduce accordingly, if necessary to nil.
As to respective hardship, Mr Dunsford contends that the income amount of $200,000pa identified by the objections officer is inequitable and the rate produced is unaffordable for him. Mr Dunsford contended that it was fair and just to honour the agreement put into effect by the decision of the SSAT. Mr Dunsford observed that going forward, he anticipates his business to provide him with a higher level of financial resources than previously, suggesting an amount equivalent to $120,000pa might be appropriate.
[Advisor A], on behalf of Ms Dunsford, contended that the objections officer had identified an income level for Mr Dunsford at least four times higher than that of Ms Dunsford. [Advisor A] submitted that Ms Dunsford was currently supporting the two children full time with much lower income, while Mr Dunsford controlled valuable assets and was setting himself up for retirement at the expense of his children. It was submitted that the high annual assessment of child support was simply reflective of Mr Dunsford’s high income. [Advisor A] submitted that the decision of the objections officer should therefore stand.

Assessment

I have considered all the matters provided for in subsection 117(4) of the Assessment Act on the basis of the evidence and arguments provided to the Tribunal. I have found that the administrative assessment of child support put in place by the SSAT decision of 2012 produces a rate that is unjust and inequitable having regard to Mr Dunsford’s financial resources at the time of the subsequent application for a change of assessment.
In my assessment, a just, equitable and otherwise proper response to this ground on the evidence before me is achieved through adjustment of the income component of the formula in respect of Mr Dunsford, as was done by the objections officer. Although I have considered a range of other matters raised by the parties, I consider that a just and equitable response to the ground can be achieved through a determination varying Mr Dunsford’s adjusted taxable income.
The benefit of this approach is that the assessment will therefore change in response to the changes to care arrangements that have taken place, and will remain applicable whether or not the older child remains the subject of the child support assessment.
As to the specific departure determination to make, as my quantification of financial resources available to Mr Dunsford through the entities with which he is associated is imprecise, I have considered first a substation of an income figure based on the average quantification of financial resources over the period covered by the financial information before me. That figure, as explained above is $185,000pa.
The annual rate produced by this figure in 2016, when the care arrangements differed to the care arrangements currently in place was $9224pa. I am satisfied that meeting this liability will not place Mr Dunsford into hardship having regard to the nature of his obligation to support his children and the financial resources available to him.
The annual rate produced by this figure from 24 December 2017 is substantially higher as a consequence and proportional to changes to the care arrangements. For a child support period commencing in 2017, the annual rate of child support produced by varying Mr Dunsford’s adjusted taxable income to $185,000pa is $34,812.
While I am conscious that this is a very substantial assessment, I accept as accurate the submissions of [Advisor A] that this reflects the approach of the ordinary child support formula, and is merely a reflection of Mr Dunsford’s substantial financial resources.
I understand that Mr Dunsford was granted a stay of the child support assessment, and as such the resolution of this review is likely to generate a substantial liability for unpaid child support. I have taken this into account in considering the respective hardship of the parties. However, as observed by [Advisor A], it would be open to Mr Dunsford to liquidate one of the properties from the property portfolio controlled within the family trust to meet the liability to maintain his children, calculated in accordance with his capacity to pay and the operation of the child support formula.
As to the duration of the departure, I accept the approach of the objections officer to commence the departure from the point in time that Mr Dunsford was notified that his financial circumstances were to be subjected to scrutiny. It is not appropriate in my view to backdate any changes beyond that date, particularly as this is a subsequent application for a change of assessment from a departure put in place as a result of the consent of the parties. The departure determination should therefore commence from 14 February 2017.
I discussed the potential end date for any departure with the parties at hearing. Mr Dunsford considers it would be courageous of me to extend any change beyond a few years, as I would be unable to accurately assess his financial resources in this regard. [Advisor A], on behalf of Ms Dunsford asks that I extend the departure determination for a considerable period of time.
The annual rate of child support calculated after substituting adjusted taxable income of $185,000pa for Mr Dunsford approaches the maximum annual rate provided for under the child support scheme based on the ordinary formula. I do not consider that the potential for Mr Dunsford’s financial resources to increase into the future warrants bringing the departure to an end before the end of the case.

100.Furthermore, as this case illustrates, the child support scheme preserves the capacity of either parent to apply for a subsequent change of assessment if circumstances are to change. This capacity provided for in the legislation leads me to give the determination arrived at as a result of this protracted review a degree of permanence. The nature of the determination I will make will allow for the child support assessment to adapt automatically when the older child ceases to be the subject of the child support assessment.
101.In my view, a determination to vary Mr Dunsford’s adjusted taxable income to $185,000 from 14 February 2017 until a terminating event in respect of the youngest child takes place is a just, equitable and otherwise proper departure determination to make.
102.I will therefore set aside the decision under review and substitute a decision allowing Mr Dunsford’s objection to put that determination in place.
DECISION

[2019] AATA 1196

2 April 2019

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Family Law

Administrative Law

Legal Concepts

Judicial Review

Statutory Construction

Jurisdiction

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