Epworth and Delta (Child support)

[2019] AATA 4299

Epworth and Delta (Child support) [2019] AATA 4299 (19 July 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/MC015604

APPLICANT:  Mr Epworth

OTHER PARTIES:  Child Support Registrar

Ms Delta

TRIBUNAL:Member P Noonan

DECISION DATE:  19 July 2019

DECISION:

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

Mr Epworth’s adjusted taxable income is varied to:

·nil for the period 12 November 2017 to 1 January 2018;

·$16,732 for the period 2 January 2018 to 1 February 2018;

·$150,266 for the period 2 February 2018 to 30 June 2018;

·$175,190 for the period 1 July 2018 to 23 September 2018;

·$150,266 for the period 24 September 2018 to 9 December 2018;

·$237,266 for the period 10 December 2018 to 1 January 2019;

·$220,534 for the period 2 January 2019 to 6 June 2019.

Further that for the period 12 November 2017 to 6 June 2019 Ms Delta’s adjusted taxable income is varied to $92,228.

CATCHWORDS

CHILD SUPPORT – departure determination – lump sum payments to liable parent from family business – workcover payments - income of receiving parent - decision under review set aside and substituted

REASONS FOR DECISION

BACKGROUND

1. Ms Delta and Mr Epworth are the parents of two children.

2. The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of the child support payable. It uses a formula, which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances.

3. A child support case was first registered with the Department of Human Services (the Department) on 8 August 2014 and child support is registered for collection by the Department. Care of the children is registered as being 309 nights per year to Ms Delta and 56 nights per year to Mr Epworth.

4. On 4 May 2018 Ms Delta applied for a departure from the administrative assessment of child support payable. The applicable administrative assessment at that time was as follows:

   ·     From 15 March 2018 to 30 June 2018 Mr Epworth is required to pay nil child support based upon his 2018–19 estimated income of $38,377 and Ms Delta’s 2016–17 adjusted taxable income of $77,813.

5. On 28 June 2018, a Department officer, acting as a delegate of the Child Support Registrar, found that a ground for departure was established and decided to depart from the administrative assessment in the following terms:

   ·     For the period 15 March 2018 to 31 March 2020, Mr Epworth’s adjusted taxable income is set at $143,106;

   ·     For the period 15 March 2018 to 31 March 2020, Ms Delta’s adjusted taxable income is set at $97,500;

   ·     For the period 15 March 2018 to 14 March 2019, Mr Epworth’s self-support amount is increased by $16,200;

   ·     For the period 15 March 2019 to 31 March 2020, Mr Epworth’s self-support amount is increased by $13,700.

6. On 1 August 2018 Mr Epworth objected to this decision. On 16 November 2018 an objections officer decided to allow in part his objection. The officer decided to depart in the following terms:

   ·     For the period 12 November 2017 to 1 January 2018, Mr Epworth’s adjusted taxable income is set at nil;

   ·     For the period 2 January 2018 to 1 February 2018, Mr Epworth’s adjusted taxable income is set at $16,732;

   ·     For the period 2 February 2018 to 30 June 2018, Mr Epworth’s adjusted taxable income is set at $150,266;

   ·     For the period 1 July 2018 to 23 September 2018, Mr Epworth’s adjusted taxable income is set at $175,190;

   ·     For the period 24 September 2018 to 9 December 2018, Mr Epworth’s adjusted taxable income is set at $150,266;

   ·     For the period 10 December 2018 to 1 January 2019 Mr Epworth’s adjusted taxable income is set at $237,266;

   ·     For the period 2 January 2019 to 4 December 2019 Mr Epworth’s adjusted taxable income is set at $220,534;

   ·     For the period 5 December 2019 to 31 August 2020 Mr Epworth’s adjusted taxable income is set at $87,000;

   ·     For the period 4 May 2018 to 31 August 2019 Ms Delta’s adjusted taxable income is set at $97,564.

7. On 12 December 2018 Mr Epworth applied to the Administrative Appeals Tribunal (the Tribunal) for an independent review.

8. A hearing for the matter was held on 29 May 2019. The Child Support Registrar did not attend the hearing. Mr Epworth attended the hearing by conference telephone and gave evidence on affirmation. Ms Delta also attended the hearing by conference telephone and gave evidence on affirmation.

9. Pursuant to paragraph 98C(1)(b) of the Act, a decision to depart from the administrative assessment may be made if the following requirements are met:

   (i)that one, or more than one, of the grounds for departure referred to in [subsection 117(2)] exists; and

   (ii)that it would be:

   (A)     just and equitable as regards the child, the liable parent, and the carer entitled to child support; and…

CONSIDERATION

A ground for departure

Mr Epworth’s income and access to financial resources

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

   (c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child:

   ...

   (ia) because of the income, property and financial resources of either parent; or

   (ib) because of the earning capacity of either parent …

2. It is undisputed that Mr Epworth was involved in a family company from which he ceased his employment on 12 November 2017. Following on from his cessation of this employment he received payments from the family company totalling $299,716. This initial payment was received by him in two instalments. The first instalment was received on 2 February 2018 when he received $150,000 and on 21 May 2018 he received $149,776. Mr Epworth’s accountant has advised that only $18,000 of this payment is taxable. Mr Epworth submitted that accordingly the Department has erred in incorporating these total lump sums into his adjusted taxable income for child support purposes.

3. It is also undisputed that Mr Epworth received a WorkCover payment worth $24,000 in respect to 90% of his wages for a period of 12 weeks. It is also undisputed that he rented a property out on 2 January 2018 at $480 per week for a period of 12 months.

4. It is also undisputed that Mr Epworth was without employment from 12 November 2017 until 4 December 2019 when he commenced employment on a gross salary of $87,000 per annum. Mr Epworth advised after the hearing that his employment ceased as at 5 June 2019. This information was forwarded to Ms Delta for her comment by 18 July 2019. No further submission was received from Ms Delta by the Tribunal.

5. In respect to Mr Epworth’s payments from the family company the Tribunal has considered the relevant legislation, case law and the Child Support Guide (the Guide).

6. Under subsection 117(7A) in having regard to the income, property and financial resources the Tribunal must have regard to the capacity of the parent to derive income, including any assets of, under the control of, or held for the benefit of, the parent that do not produce, but are capable of producing income.

7. Income other than taxable income, property and financial resources which are not part of a parent’s taxable income or of the other components listed in section 43 of the Act may be taken into account under this ground. Similarly, an amount that is part of a parent’s taxable income, or of the other components, can be excluded from consideration.

8. It is important to note that the Tribunal’s task at step one (that is, whether there is a ground for departure) of the three step process is to consider and make findings about the income, property and financial resources of the parent, not to determine the parent’s “adjusted taxable income” as such. Such a determination may only be made after undertaking steps two and three of the three step process.[1]

   [1] Charnock & Bullions (SSAT Appeal) [2008] FMCAfam 36

9. Some of the circumstances which may form the basis of a departure under subparagraph 117(2)(c)(ia) are:

   ·     The parent has substantial property but a low adjusted taxable income i.e., asset rich income poor;

   ·     The parent has legitimately arranged their financial affairs to minimise tax;

   ·     The parent receives income which is not assessable or is exempt from tax;

   ·     The parent received a lump sum payment that is not included in the adjusted taxable income;

   ·     The parent receives a low taxable income from a family business but has access to additional financial resources.

10. In Voss & Child Support Registrar & Anor (SSAT Appeal) [2009] FMCAfam 1296, the Court commented on the common situation of a self-employed person’s taxable income not corresponding with his or her income or financial resources for child support purposes: 

    There is a body of cases where simple reference to a person's tax return does not provide an appropriate quantification of their capacity to provide financial support. Most commonly this occurs in cases involving the self-employed, where it is well accepted that legal structures and arrangements may generate taxable income that doesn't properly reflect the realistic capacity of the person to provide financial support for their children.

11. Similarly, in Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623, the Court said:

    ...when a person conducts their business through an intermediary company or trust, it is proper to lift the corporate veil to that person with regard to the determination of a parent's income for child support purposes...

12. In Costa & Fairbank (SSAT Appeal) [2010] FMCAfam 39, the Court said about the interpretation of the term “financial resources”:

    Financial resource" refers to something which is not property but from which financial benefit is or may be gained. In light of the objects of the Act, the term should be broadly defined and would refer to any financial benefit that would enhance the capacity of parents to provide a proper level of financial support for their children.

13. The Tribunal may be required to consider complex financial arrangements. Regarding the extent of the examination required by the Tribunal, the Court has referred to the Tribunal’s obligation to pursue the objective of providing a mechanism of review that is fair, just, economical, informal and quick. The Court has observed that the Tribunal is accordingly not required to undertake a “forensic audit” or major investigation of the financial circumstances of a party. Rather, the Tribunal must be satisfied on the balance of probabilities as to the party’s income, property and financial resources.[2]

    [2] Morse & Potts (SSAT Appeal) [2010] FMCAfam 1305, Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623

14. The Tribunal also noted that such a situation as this has been considered at point 2.6.14 of the Guide.[3] The Tribunal may have regard to the Guide where it considers it is in accordance with the law and the object of the Act. The Guide states as follows:

    2.6.14 -

    [3] sum payments received by a parent

    Where a parent receives a substantial amount of money (a lump sum) that would otherwise not form part of his or her income amount used for child support purposes, and therefore is not included in the assessment of child support, the lump sum may be taken into account in deciding whether the assessment should be changed.

    Such payments may arise as a consequence of the parent:

    ·     being retrenched from their employment,

    ·     drawing funds from a superannuation fund,

    ·     receiving a distribution from a deceased estate,

    ·     being compensated for some loss or damage, or

    ·     being successful in a lottery or some other gambling venture.

    In each case it will be necessary to decide whether receiving the money makes the amount of child support payable unjust and inequitable.

    A relevant factor (but not the sole factor) is whether or not the payment results in one parent being in a better financial position compared to the other parent. However, the fact that there is a discrepancy in the parents' financial positions does not automatically mean that there is a reason to change the assessment (Hampson and Lightfoot (1997) FLC 92-775). It will depend on the circumstances of each case.

15. The Tribunal considered the Guide to be in accordance with the objects of the Act in this instance.

16. Mr Epworth argued that he had suffered severe mental trauma due to the circumstances pertaining to the severance of his relationship with his family’s company, which is controlled by his father. He argued he had undergone medical counselling and treatment and he had moved to [town] to heal which involved high contact costs to see the children. Further he argued this money had been deposited into his mortgage redraw facility. He argued this redraw had since been reduced and he no longer has access to the money. He argued that equity in a residence should not be considered a financial resource.

17. After considering the matter carefully the Tribunal concluded the lump sums in question clearly increased Mr Epworth’s capacity to provide a proper level of financial support to his children due to his commensurate overall increase in income and financial resources. The Tribunal noted that it was agreed that the money was never sourced from Mr Epworth in the form of a loan, rather it was originally money attributable to his father who had loaned it to the family company. As such it is clear that Mr Epworth’s overall access to financial resources, at the time of his receipt of the lump sum amounts, was clearly increased.

18. Taking into account the above reasoning the Tribunal considered the inclusion of Mr Epworth’s WorkCover payment and his net rent into an overall consideration of his access to financial resources to also be appropriate. The Tribunal considered the objections officer’s reasoning and calculations in respect to Mr Epworth’s lump sum payments, and these other two sources of financial resources to be appropriate and reasonable. The Tribunal also concurred with the officer’s reasoning in respect to the exclusion of MrEpworth’s income support payments.

19. Given the above reasoning the Tribunal found Mr Epworth’s overall access to income and financial resources, at the time of Ms Delta’s departure application, to be equivalent to an adjusted taxable income of $150,266.

Ms Delta’s income and access to financial resources

1. Ms Delta is employed in a standard arms-length PAYG employment arrangement. She commenced her current employment in a full-time basis on 2 January 2017. Her 2017–18 taxable income was $92,228. She is also a partner in a  business run by her personal partner. She supplied 2017–18 financials in respect to this business which show an operating loss has occurred. The Tribunal has examined these statements and accepted Ms Delta’s overall access to financial resources is not currently enhanced by her exposure to this business. In addition Ms Delta purchased a property in October 2017 which she is renovating. She supplied financial statements in respect to this endeavour and the Tribunal was satisfied she is meeting the finance costs associated with this from her income. The Tribunal found no other compelling evidence that Ms Delta’s overall access to income and financial resources was more than that reflected by her taxable income.

Conclusion

1. Under the applicable assessment, the annual rate of child support payable by Mr Epworth at the time of Ms Delta’s departure application was nil. The Tribunal has found Mr Epworth’s overall access to income and financial resources to be appropriately reflected by an adjusted taxable income of $150,266 at that time. The annual amount of child support payable by the applicant is approximately $13,500 using the parents’ respective incomes. Such a difference in the child support payable meant that application of the applicable assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the other party in support of the children and makes this situation special. As a result a ground for departure in subparagraph 117(2)(c)(ia) of the Act does exist.

2. The approach of the Federal Circuit Court in these cases has been to limit the analysis about particular grounds once it was evident that one had been established, and to thereafter focus on the “just and equitable” considerations. The Tribunal adopts that approach in its reasoning in this matter.

Would departure from the administrative assessment be just and equitable?

Mr Epworth

1. In his Statement of Financial Circumstances, Mr Epworth disclosed ownership of a property worth $540,000 with a mortgage of $96,074. He disclosed funds in the bank of $6,770, a vehicle worth $13,000 and superannuation worth $222,197. He has no other outstanding liabilities. He disclosed household expenditure of $1,118 per week. Mr Epworth is now without employment and cannot utilise redraw on his mortgage as he has reduced his mortgage limit to the amount outstanding. Accordingly, the Tribunal considered he may now be unable to meet his necessary commitments for self-support. However, the Tribunal considered Mr Epworth’s decision to deposit all of his financial resources (as represented by the lump sum payments considered earlier in these reasons) into his mortgage, and then to reduce his available redraw, was not a reason to now not consider those financial resources for child support purposes at the time the amounts were received. The appropriate treatment of such lump sum payments is clear upon the reasoning of the Tribunal set out earlier in these reasons, and his receipt of such large payments clearly makes the application of the administrative assessment of child support payable unjust and inequitable. However, the Tribunal must also consider the changed circumstances of Mr Epworth in its just and equitable considerations. The Tribunal considered that a departure from the administrative assessment past the point of his loss of employment is no longer appropriate as it would risk placing him in significant hardship and such an outcome would also be unjust and inequitable and potentially detrimental to the best interest of the children.

2. In addition to the above considerations Mr Epworth raised expenses related to his medical costs and his costs of contact with the children as he was living interstate. It was undisputed that Mr Epworth is now living in the same region as his children. It was also undisputed that, at the time Mr Epworth incurred these costs, he had access to considerable funds from his lump sum payments. The Tribunal has considered the costs he has raised with the Department previously and concurred with the finding of the objections officer that these costs did not significantly reduce Mr Epworth’s capacity to maintain and support his children at the time they were incurred.

Ms Delta

1. In her Statement of Financial Circumstances, Ms Delta disclosed ownership of a property with estimated equity of $100,000 with a mortgage of $392,221. This includes provision for her restoration and construction work in respect to this property. She disclosed funds in the bank of around $7,337, vehicles worth $13,000, her interest in the business of $62,500 and other property of $24,000. She has superannuation of $151,026. She also disclosed credit card debt of $14,640. She disclosed weekly household expenditure of $1,404.90. This includes weekly mortgage payments of $323.65. Clearly any child support payable to her will be of assistance to her in supporting the children.

The children

1. In determining the proper needs of the child it is necessary to have regard to the manner in which the child is being, and in which the parents expected the child to be, cared for, educated or trained, and any special needs of the child (subsection 117(6) of the Act). In Eades & Cadell (SSAT appeal) [2009] FMCAfam 275 at paragraph 22, Slack FM stated as follows:

   In considering the proper needs of the child [s 117(4)(b)], the SSAT:

   a.would ordinarily consider the evidence of the parties about the needs of the children to assess the reasonableness and quantum of those needs;

   b.may have regard to publish guidelines as to the needs of the children (see Hallinan & Witynski at 94.323).

   c.may also have regard to the costs of children used in the assessment of child support under the existing formula arrangements (although it is not sufficient or appropriate to rely upon the formula to perform that task, Lindenmayer J in Dwyer & McGuire (1993) FLC92-420 (and see also Gyselman (supra) at 79.078).

1. Ms Delta raised a matter of orthodontic costs that she has incurred in respect to the children. However, she has not submitted evidence of costs incurred for consideration by the Tribunal and as such the Tribunal concluded these costs are yet to be incurred. No other special needs costs were raised in respect to the children that may need to be considered within these just and equitable considerations. Overall this is an appropriate case to largely distribute the costs of raising the child using the relevant child support formula, which is based on social science research giving the average costs of children in various family income brackets.

2. It is open to the Tribunal to vary the rate of child support payable or vary some of the variables that are used in the administrative assessment formula. As concluded earlier in these reasons Mr Epworth has access to financial resources such that it is reasonable to expect him to provide some child support.

3. The principal object of the Act is to ensure that children receive a proper level of financial support from their parents. Further, I note the statements contained in sections 3 and 4 of the Act to the following effect:

   ·     Parents of a child have a primary duty to maintain the child;

   ·     The duty has a priority over all other commitments of the parent other than commitments necessary for self-support;

   ·     The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards; and

   ·     The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.

4. Mr Epworth submitted that he is unable to pay child support at the level assessed by the Department and may be forced to sell his house if he does not receive a reduction. In contrast he asserted that Ms Delta earns more than him and has resources available to undertake a house renovation and has an interest in a business.

5. After considering the calculations undertaken by the objections officer in respect to Mr Epworth’s receipt of the lump sum payments as discussed earlier in these reasons the Tribunal considered the proportionate allocation of these amounts to the particular dates set by the officer was appropriate.

6. Ms Delta submitted that Mr Epworth has reduced his mortgage redraw in an attempt to avoid paying child support. She considered he has the capacity to pay some child support on an ongoing basis. A reduction would cause her hardship but they would survive.

7. In respect to appropriate dates for a departure determination the Tribunal considered the objections officer’s retrospective date of 12 November 2017 in respect to Mr Epworth’s overall access to income and financial resources to be appropriate given his loss of employment at that time. The Tribunal will continue the departure determination until 6 June 2019 being the day after the date of Mr Epworth’s current loss of employment. This affords Mr Epworth an opportunity to lodge a new estimate of income based upon his changed circumstances due to loss of employment. In respect to Ms Delta’s overall access to income and financial resources the Tribunal has found her current taxable income to be greater than that maintained under the administrative assessment (being a provisional income of $80,000). The Tribunal considered it appropriate that her 2017–18 taxable income of $92,228 be applied from 12 November 2017 until 6 June 2019, which aligns with the cessation of the departure in respect to Mr Epworth.

8. With regard to all of the reasoning, as set out above, Mr Epworth’s adjusted taxable income is varied to:

   ·nil for the period 12 November 2017 to 1 January 2018;

   ·$16,732 for the period 2 January 2018 to 1 February 2018;

   ·$150,266 for the period 2 February 2018 to 30 June 2018;

   ·$175,190 for the period 1 July 2018 to 23 September 2018;

   ·$150,266 for the period 24 September 2018 to 9 December 2018;

   ·$237,266 for the period 10 December 2018 to 1 January 2019;

   ·$220,534 for the period 2 January 2019 to 6 June 2019.

9. Further for the period 12 November 2017 to 6 June 2019 Ms Delta’s adjusted taxable income is varied to $92,228.

10. For the period 12 November 2017 to 1 January 2018 Mr Epworth will pay no child support. From then on his rate of child support will vary between approximately $12,000 and $17,000 per annum as set out by the objections officer. From 7 June 2019 his income will revert to the ordinary application of the administrative assessment of child support and it is open to both Mr Epworth and Ms Delta to lodge estimates of income with the Department if they so choose.

11. The Tribunal did not consider Mr Epworth will be placed in undue hardship by this decision and that he has access to sufficient financial resources (as represented by the significant lump sums he received), to meet the child support requirements set by this departure decision. The Tribunal noted that Mr Epworth has deposited those lump sums into his mortgage but, as reasoned earlier, this choice does not preclude the Tribunal from concluding that he clearly had an increased capacity to provide for the children in the periods set by this departure decision.

12. The Tribunal also did not consider Ms Delta will be placed in undue financial hardship by this decision. She will be paid child support that is commensurate with the Tribunal’s analysis of the parents’ current overall access to financial resources.

13. Overall, the Tribunal considered both parents will be provided with certainty in planning their respective finances to adequately support the children by the implementation of this departure determination, and that it is a just and equitable outcome in regard to the respective situations of each parent.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents, rather than the community, have the primary duty to maintain a child.

2. Neither party receives benefits in respect to the children. As such the Tribunal was satisfied that changing the amount of child support payable would not have any adverse effect upon the community. Such a result would be otherwise proper.

DECISION

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

Mr Epworth’s adjusted taxable income is varied to:

·nil for the period 12 November 2017 to 1 January 2018;

·$16,732 for the period 2 January 2018 to 1 February 2018;

·$150,266 for the period 2 February 2018 to 30 June 2018;

·$175,190 for the period 1 July 2018 to 23 September 2018;

·$150,266 for the period 24 September 2018 to 9 December 2018;

·$237,266 for the period 10 December 2018 to 1 January 2019;

·$220,534 for the period 2 January 2019 to 6 June 2019.

Further that for the period 12 November 2017 to 6 June 2019 Ms Delta’s adjusted taxable income is varied to $92,228.