Esson and Esson (Child support) - [2020] AATA 5571

Esson and Esson (Child support) [2020] AATA 5571 (11 November 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2020/MC019420
APPLICANT:  Mr Esson
OTHER PARTIES:  Child Support Registrar
Ms Esson

TRIBUNAL:Member K Dordevic
DECISION DATE: 11 November 2020
DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that for the period 31 July 2019 until a terminating event occurs in relation to [Child 1] a nil annual rate of child support is payable by Mr Esson and Ms Esson.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the receiving parent – benefits derived from business – education costs – decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

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.
This case was registered with the Department of Human Services – Child Support on 31 July 2019 and has been collectable since 6 September 2019. There are five children of the marriage, three of whom are under 18 years of age. Only two of these three children are subject to the assessment as the third [child] was placed in the parties’ long-term care. The children relevant to this review are recorded as being in the parties’ shared care. The older child, [named], will cease to be a child of the assessment after 13 November 2020.
The mother lodged a change of assessment application on 29 August 2019. On 19 December 2019 a senior case officer refused the application. The mother sought a review of that decision on 2 January 2020. On 4 March 2020 an objections officer allowed the objection, determining that for the period 13 August 2019 to 12 August 2021 the father’s adjusted taxable income is increased to $68,961 and on 13 August 2020 and each year thereafter the father’s adjusted taxable income is increased by the child support inflation factor.
On 29 April 2020 the father sought further review with the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal). A directions hearing was held on 23 September 2020 and directions were issued, requiring compliance by 23 October 2020.
The tribunal heard the matter on 11 November 2020. The mother and father appeared by conference telephone. The Child Support Registrar was not represented at the hearing. The tribunal has considered the sworn evidence of the mother and father. The tribunal also considered the documentation provided by the Department (folios 1-431), the father (folios A1–A213) and the mother (folios B1–B37).

ISSUES

The statutory provisions relevant to this review are outlined in section 98C of the Act, which states that a decision to depart from the administrative assessment may be made if the following three 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
(B)otherwise proper;
to make a particular determination under this Part …
Therefore, the issues which arise in this case are:
· Does a ground exist for departure from the administrative assessment of child support? And if so,
· Would it be just and equitable and otherwise proper to make a particular determination?

CONSIDERATION

A ground for departure

Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure if the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent because of either party’s income or financial resources. This is the central issue in this matter.
At the time that the mother lodged the departure application under review, she was assessed to pay an annual rate of child support of $6,282 from 1 March 2019 to 31 May 2020 on the basis of her 2019 adjusted taxable income of $98,544 and the father’s 2019 income tax declaration of $53,000.
The father submits that the mother’s departure application must be refused as his income and financial resources are accurately reflected by his taxable income.
The father is employed on a permanent part-time basis two days a week at [Business 1], with an annual salary of $30,000. He also [has] private [occupation 1 clients], trading as [Business 2] and is a self-employed [occupation 2] trading under the name [Business 3].
The tribunal finds that the father’s taxable income for the financial years 2017 and 2018 were $54,885 and $53,773 respectively. He made an income declaration of $53,000 in the 2019 financial year. The father’s 2020 taxable income is $17,446. He received $29,526 in employment income. His income tax return also notes gross [occupation 2] receipts of $73,934 and claimed expenses totalling $86,697, including $36,053 in depreciation, rental costs of $2,299 and $8,837 in motor vehicle expenses. In the 2019 financial year he received $29,999 in payments relating to his [occupation 1 business] and declared gross [occupation 2] receipts of $78,247 and claimed expenses totalling $52,760, including rental costs of $2,433 and $9,851 in motor vehicle expenses. The father testified that whilst his income tax return does not explicitly state his private [occupation 1] income and expenses, this is incorporated under [Business 3] as they operate under the same ABN. The tribunal understands that there is no requirement under tax law that each enterprise separately declare its income and expenses in a person’s income tax return.
The father confirmed at hearing that he works [on specified weekdays] at [Business 1], and the terms of his employment contract includes leave entitlements such as sick and annual leave. On [another weekday] he undertakes private [occupation 1 work]. He operates out of two locations. The first is a local [venue], where there is an agreement that he will bulk bill [local clients] in return for free room hire. He sees all other private clients elsewhere, paying $16.50 per hour but only when clients attend the [venue]. He operates on a sliding scale; some clients are bulk billed others are charged up to $150 per hour. He denies receipt of cash payments for his [occupation 1] work. He also undertakes [government sponsored work]. On [other weekdays] he undertakes his [occupation 2] work. He advised that as there was a 70% drop in his [occupation 2] income, he received JobKeeper from April 2020. The current rate of JobKeeper is $2,400 per month.
The father was directed to provide all bank statements for the 2020 financial year, as well as a comprehensive list of his 2020 business expenses and corresponding evidence of these expenses in his bank statements or receipts for expenses paid in cash. The father states that he was unable to upload a list of his expenses as the file was too large for the tribunal’s server, and he did not have time to post them and meet the compliance date. The tribunal is not persuaded that the father was prevented from complying with this direction; certainly, the provision of a list of his expenses is unlikely to be too large to transfer electronically. It may be the case that, as he states, the photographs of his receipts may have been too large, but this was only part of what he was required to provide.
Furthermore, the evidence suggests that the father has not provided all his bank accounts as required. By way of example, there are regular transfers to and from a bank account entitled Savings [account] #1149, which is not in evidence, and from which at least $27,000 was deposited into the only [Bank 1] account in evidence. The father’s 2020 income tax returns refer to three [Bank 1] accounts. Only one of these bank accounts was provided to the tribunal. The father’s failure to make a full and frank disclosure of his financial circumstances is unsatisfactory and leaves him open to adverse inferences being drawn: Humphries & Berry (SSAT Appeal) [2008] FMCAfam 209.
The father receives income from three sources. His employment income is uncontroversial, and his declarations as to his employment income is consistent with his payslips in evidence and that as declared in his income tax return.
However, the tribunal formed the view that the father’s 2020 income tax return did not accurately reflect his income as it was unable to reconcile his sole trading income tax declaration with the deposits and expenses evident in the bank statements. This may well be explained by his failure to make a full and frank disclosure, but the tribunal holds some doubt that this is the sole reason. For example, the father’s [Bank 2] account is where his employment income is deposited and into which his private practice deposits are made. The tribunal calculated that in the 2020 financial year he received $31,357.77 in deposits for his private [occupation 1] work, from various sources including [specified government programs] (and excluding three JobKeeper payments totalling $402.24) and had expenses totalling $3,569.81 for this work made up of room hire ($2,073.50), merchant fees ($384.31) and registration fees ($812). The [Business 3] deposits into the [Bank 1] account totalled $44,824.50 (excluding internal transfers). The tribunal’s calculations of gross income from both the [occupation 2] and private [occupation 1] businesses exceeds that as declared in his income tax return by about $5,248.27. Of course, this may in fact under-represent the actual discrepancy, as the father failed to provide all his bank statements.
The tribunal next calculated the expenses relating to the [occupation 2] business and concluded that these totalled $23,975.38. The father’s declaration of $8,837 in motor vehicle expenses in his income tax return appears to be 100% of all his petrol, insurance and maintenance costs. The tribunal is satisfied that at least 50% of these costs relate to his personal use, given the nature of his work. In order to receive such a benefit a PAYG employee would need to earn $5,745. The tribunal notes that the total purchase cost of a truck ($36,053) was completely depreciated in the 2020 financial year, which is appropriate as it reflect actual expenditure. The tribunal calculates that on the limited evidence available the father’s sole trading had a minimum net profit of $8,168 and not a net loss of $12,763 as declared in his 2020 income tax return.
The father also testified that he has been in receipt of JobKeeper since April 2020 in respect of the 70% drop in income in his [occupation 2] work. He stated that initially he received $750 per week and it has since reduced to $600 per week. These deposits are not evidenced in his bank statements; again, this is most likely as a result of his failure to provide all statements as directed. The tribunal calculates that for the period 30 March to 30 June 2020 the father received 6.5 fortnights of JobKeeper, being $9,750. Only $3,000 of this income is reflected in his income tax return. Thus, there is another $6,750 in financial resources available to him for the purpose of supporting the children.
The father received regular deposits into his account from 13 September 2019 of $295.93 each, totalling $6,806.39 from [a state government agency]. The tribunal was not provided with any explanation as to the reason for these payments. However, given that it is possible that these payments may relate to care of the parties’ foster child the tribunal has disregarded these payments for the purposes of establishing the father’s income and financial resources.
The tribunal’s analysis of the father’s bank statements suggest that he was in receipt of at least income and financial resources of $53,663 in the 2020 financial year. This is likely to be a conservative estimate, given his failure to make a full disclosure of his financial circumstances. Thus, it is difficult to determine with any precision the father’s income and financial resources given his failure and the discrepancies between his income tax declarations and the income and expenses evident in the bank statements provided.
The tribunal is of the view that the calculation of the father’s income and financial resources may be more accurately reflected by his declarations outlined in his Statement of Financial Circumstances. He declares income of $577 per week from his employment income ($30,004 per annum) and estimates income of $1,100 per week from his private [occupation 1] work and [occupation 2] business. A PAYG employee would need to earn $1,430 in order to receive such net income. His declaration suggests that the father’s annual income is in the vicinity of $104,364 per annum. He declares expenses of $1,630 per week (after revising his children’s activities expenses to $50 and not $540 per week). A PAYG employee with weekly expenses of $1,630 would be required to earn at least $110,118 per annum to meet such expenditure, over six times the father’s 2020 adjusted taxable income.
At the time the mother lodged her application she was assessed to pay $6,282 in child support per annum. If the total income and financial resources of $53,663 was applied to the assessment there would be a modest reduction in the mother’s child support liability. If an adjusted taxable income of $104,364 or $110,118 were applied to the administrative assessment the father would become the liable parent and be required to pay $744 or $1,456 per annum in child support respectively.
The tribunal concludes that the father’s income and financial resources indicate that he has a greater capacity to meet the children’s costs than his taxable income suggests. As the father’s income and financial resources are not properly reflected in the child support assessment, there are special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. The tribunal therefore concludes that the ground provided for in subparagraph 117(2)(c)(ia) of the Act is established.

Just and equitable

The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the child, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.
The parties agree that the children are in good health and have no out of the ordinary expenses, apart from their private education costs. There is no evidence that the children have independent income or financial resources.
The tribunal finds that the parties’ entered into a Financial Agreement (pursuant to section 90C of the Family Law Act 1975) dated 6 June 2017. Relevant to this application they agreed to each contribute 50% towards the older child’s private school costs with the father contributing $2,000 per year towards the younger child and the foster child until they complete their secondary education. At hearing the father stated that he would agree to the mother not paying child support if she no longer required him to contribute $2,000 towards the children’s education costs.
The tribunal is satisfied that it was the common intention of the parties that the children are to be educated privately at [a named] College. The school invoices in evidence indicate that the mother was charged a flat fee of $10,100 for the 2020 calendar year. This will remain largely unchanged in 2021, though the older child will have completed her Year 12 studies. The younger children are in Year 9 and are expected to complete their Year 12 studies in the 2023 calendar year. The mother does not dispute that the father transfers to her $2,000 each calendar year in satisfaction of his contribution towards the younger two children’s education. He is separately billed half of the older child’s tuition and other school fees. The mother also stressed that she is solely responsible for all the younger children’s other education costs, including uniforms and stationery. Given the financial agreement in place the tribunal is not persuaded that it is just and equitable to depart from the administrative assessment on the basis of the children’s private education costs.
The tribunal finds that the mother’s 2020 taxable income is $104,772. She is employed on a full-time basis as [an occupation 3]. In her Statement of Financial Circumstances dated 21 July 2020 the mother declared receipt of employment income of $2,100 per week, a home valued at $660,000, savings of $18,727, motor vehicles with a combined value of $18,760, household contents valued at $20,000 and superannuation valued at $212,950. Her only liability is a mortgage of $272,096. Her personal expenditure is $806 per week and household expenses are $1,590. About $850 of these expenses relate to the children’s necessary costs.
The father completed his Statement of Financial Circumstances on 13 July 2020. He declared his home is valued at $800,000, he has savings of $1,000, he owns two motor vehicles with a combined value of $33,000, household contents valued at $20,000, his [occupation 2] business is valued at $2,000 and superannuation valued at $15,366. He declares a mortgage of $320,000 and a HECS liability of $38,564. The father declined the invitation to discuss any costs associated with his health. He also stressed that planned renovations of his home will be funded exclusively by his partner.
The tribunal is not satisfied that it is either just or equitable that the father’s child support liability be calculated on the basis of his taxable income; clearly, he has income and financial resources that are not reflected in his income tax returns. To find otherwise would mean that the mother disproportionately contributes towards the children’s costs.
The father submits that, providing that he was not required to contribute to the children’s education expenses, he would be satisfied not to receive child support from the mother. The mother submits that the child support assessment should be set at nil until a terminating event occurs on the basis that care is shared, that each parent currently contributes 50% towards the children’s extracurricular costs and that both parents’ incomes are on par. The tribunal understood from her testimony that whilst it was possible that the father’s actual income and financial resources may make him the liable parent, she did not wish to receive any child support from him.
For the reasons outlined above the tribunal is satisfied that the father’s actual income and financial resources exceed $100,000 per annum. Had he made a full and frank disclosure of his income and financial resources, as he was directed to do, it is likely that the father would be the liable parent to pay child support. The tribunal is persuaded, on the basis of the mother’s submissions, that the father’s child support liability should be set at nil. Similarly, the tribunal is persuaded, given the terms of the financial agreement in place and the tribunal’s conclusions regarding the father’s income and financial resources, that the mother’s child support liability should also be set at nil.
The tribunal finds it is appropriate to change the assessment of child support from the date that the father registered his child support liability, being 31 July 2019. It is unlikely that the father’s income and financial resources will be reflected in his income tax assessments into the future. Therefore, it is appropriate to extend the period of departure until a terminating event occurs in relation to [Child 1] (being 15 January 2024). It is unlikely that the circumstances of either party will alter significantly during this period. The extended departure will provide certainty to both parties and avoid the need for repeat proceedings.

Setting a nil annual rate of child support creates an overpayment of just over $5,144, payable by the father. The father’s financial circumstances suggest that repayment of this sum will cause him no hardship.
The tribunal is satisfied that the administrative assessment is unfair given the income and financial resources available to the father. For all the reasons above, the tribunal finds it just and equitable to depart from the administrative assessment of child support.

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 entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. Both parents are in receipt of income tested benefits. Departing from the administrative assessment by reducing the child support payable will result in a more appropriate apportionment of financial responsibility between the parents and the community. The determination is otherwise proper.

DECISION