Faber and Faber (Child support)

[2020] AATA 4778

Faber and Faber (Child support) [2020] AATA 4778 (22 September 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/BC018847

APPLICANT:  Mr Faber

OTHER PARTIES:  Ms Faber

Child Support Registrar

TRIBUNAL:  Member P Jensen

DECISION DATE:  22 September 2020

DECISION:

The decision under review is set aside and, in substitution:

• from 1 September 2019 to 29 June 2020, Mr Faber’s adjusted taxable income is varied to $189,420 per annum; and

• from 30 June 2020 to 30 June 2021, Mr Faber’s rate of child support payable is varied to $7,800 per annum.  

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

Introduction

1. Mr Faber and Ms Faber are the parents of [Child 1] who was born in 2005 and [Child 2] who was born in 2014. A child support case was registered from 29 May 2019 with what is commonly called the Child Support Agency, or CSA. Mr Faber initially provided 21% care to the children and more recently has been providing 33% care. Ms Faber has always provided the balance of care.

2. The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of 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.

3. From 29 May 2019 to 30 June 2019, the administrative assessment was based on Mr Faber’s 2017-18 adjusted taxable income of $57,908 and Ms Faber’s adjusted taxable income of $57,864, and Mr Faber was required to pay $4,458 per annum in child support.

4. From 1 July 2019 to 31 August 2019, the administrative assessment was based on Mr Faber’s self-declared income of $45,000 per annum and Ms Faber’s 2018-19 adjusted taxable income of $4,390, and Mr Faber was required to pay $4,020 per annum in child support.

5. The Act also provides for a departure from the administrative assessment in certain circumstances. Ms Faber lodged a departure application on 9 August 2019. The CSA granted her application and made a departure decision. Mr Faber objected to that decision. An objections officer allowed his objection and varied his adjusted taxable income from 1 September 2019 to 31 December 2023. It was varied to $189,420 per annum from 1 September 2019, with annual indexed increases from 1 June 2021. Mr Faber applied to the Tribunal for further review. Senior Member Freeman conducted a directions hearing on 20 July 2020 but she became unavailable to conduct the full hearing. I conducted the full hearing on 15 September 2020. Mr Faber and Ms Faber gave sworn evidence by conference phone.

6. Paragraph 98C(1)(b) of the Act relevantly provides that a departure decision may be made in respect of a departure application if:

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

   (ii)... 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; …

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act, commonly referred to as Reason 8, provides as a ground for departure:

   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; …

2. To understand Mr Faber’s income and financial resources, it is necessary to discuss a number of legal entities.

3. [Business 1] is the trustee of the [Trust 1]. [Business 1] operated a business called [Business 1A]. [Business 1] had three directors: Mr Faber, his brother [Brother A], and their father [Father A].

4. [Business 1] has issued 100 shares. [Business 2], which is the trustee of [Trust 2], holds 24 shares. Mr Faber controls those entities. [Business 3], which is the trustee of [Trust 3], holds 24 shares, and [Brother A] controls those entities. [Father A] holds the other 52 shares.

5. Mr Faber and Ms Faber separated in August 2018. They reconciled in December 2018. The separated again in February 2019. On 16 May 2019, Mr Faber resigned as a director of [Business 1]. Mr Faber claimed he did so pursuant to an agreement that he, [Father A] and [Brother A] reached on 1 July 2004 whereby if any of them separated from their respective partner, they would resign as a director of [Business 1]. Mr Faber initially said the agreement formed part of the [Trust 1]’s trust deed. Ms Faber said that according to documentation in the parents’ ongoing legal proceedings concerning their property settlement, the document in question purported to be a shareholders’ agreement that was signed on 1 July 2004. Mr Faber indicated that he was not sure which document contained the agreement. He did not provide a copy of the agreement to the Tribunal. Ms Faber submitted that the document was not signed on 1 July 2004; it must have been backdated to falsely claim that it was signed on 1 July 2004. She noted that Mr Faber and [Brother A] did not become directors of [Business 1] until [June] 2005. [Business 1] was registered in 1996 and [Father A] was its original director.

6. There is no dispute that Mr Faber resigned because he had recently separated from Ms Faber. The obvious inference is that he did so in an attempt to appear to distance himself from the financial resources to which he had access via his involvement in [Business 1]. In my opinion, it is not necessary to decide whether he recently formed the intention to present that appearance, or whether he had held that contingent intention for many years.

7. [Business 4] was registered in May 2005. Mr Faber, [Father A] and [Brother A] were its original directors. [Business 4] has the same shareholding arrangement as [Business 1]: [Business 2] holds 24 shares, [Business 3] holds 24 shares and [Father A] holds 52 shares. It appears that [Business 4] did not operate a business. Mr Faber resigned as a director of [Business 4] on 16 May 2019, purportedly pursuant to an agreement that he, [Father A] and [Brother A] signed on 1 July 2004.

8. [Business 5] was registered in 1992. [Father A] was the original director. Mr Faber and [Brother A] were made directors in June 2016, and they remain directors. [Business 5] has issued 120 shares. [Business 2] holds 40 shares, [Business 3] holds 40 shares and [Business 6] holds 40 shares. The last company is the trustee of [Trust 4], and [Father A] controls those entities. [Business 5] is the trustee of the [Trust 5].

9. Returning to [Business 1] and its business, Mr Faber explained that [Father A] started the business in about 1990 and [Brother A] was always involved in the business. In about 2005, Mr Faber became involved in the business. [Father A] became less involved, and later resumed his involvement, but by about 2010 he had once again become less involved and his role was confined to “doing the accounts side of things”. Ms Faber said Mr Faber was the manager of the business. Mr Faber said [Brother A] was the manager, and he (Mr Faber) assisted [Brother A]. Mr Faber agreed that some staff called him (Mr Faber) “boss”. When Mr Faber resigned as a director of [Business 1] he was made an employee of the company. His previous remuneration had been by way of distributions and dividends. He declared in his 2018-19 individual tax return that his occupation as an employee was “Manager — general”.

10. The Tribunal has been provided with [Business 1]’s tax returns for 2015-16 and 2018-19. In 2015‑16 it received business income of $10,822,779, incurred expenses of $9,536,325, and made a profit of $1,286,454. In 2018-19 it received business income of $11,153,110 and interest of $3,636, incurred expenses of $11,153,110, and made a profit of $580,915.

11. Ms Faber provided a document entitled History of Distributions. She explained that her and Mr Faber’s accountant prepared the document at an early stage in their post-separation discussions with a view to facilitating a property settlement. Mr Faber did not dispute the accuracy of the document and I accept it as correct. The document summarised data from 2013-14 to 2017-18. I have added data from 2018-19. Also, at the hearing, Mr Faber acknowledged that he, [Father A] and [Brother A] controlled certain entities, and at a practical level, distributions to those entities were effectively distributions to those individuals, who were then free to redistribute the funds (as Mr Faber did to Ms Faber and their children while they were a family). In my opinion, that acknowledgement was properly made. For convenience, I will replace the names of the trusts that received distributions with the names of the individuals who controlled those trusts.

History of Distributions

Trust [1]

2013-14     2014-15     2015-16     2016-17     2017-18      2018-19

Mr Faber            153,965     413,856     318,227     250,000       95,955       35,000

50%          45%          25%          41%          24%           6%

[Brother A]         153,965     413,856     318,227     250,000       95,955       65,000

50%          45%          25%          41%          24%           11%

[Father A]                   -     100,000     150,000     100,000     199,905      480,915

-          11%          12%          16%          50%          83%

[Business 5]                -               -     500,000         8,073         7,996               -

-               -          39%           1%           2%

Total                 307,930     927,712    1,286,454     608,073     399,811      580,915

[Trust 5]

Mr Faber              13,485       19,869       32,477       24,395       20,532       22,069

50%          50%          50%          50%          24%          33%

[Brother A]          13,485       19,869       32,477       24,395       20,532       22,069

50%          50%          50%          50%          24%          33%

[Father A]                   -               -               -               -       44,486       22,069

-               -               -               -          52%          33%

26,970       39,738       64,954       48,790       85,550       66,207

1. Ms Faber stated that the trusts’ financial statements and tax returns were routinely finalised towards the end of the following financial year, and so the decisions that led to the change to the pattern of distributions that occurred in respect of 2017-18 were actually made after she and Mr Faber had separated (around the middle of 2018-19). Prior to 2017-18, Mr Faber and [Brother A] received equal distributions and they each received considerably more than [Father A]. That changed for 2017-18, and the change was even more marked for 2018-19.

2. I asked Mr Faber why his distribution for 2018-19 was less than [Brother A]’s. He said that when he resigned as a director, he was employed as a manager, and he was paid a wage. He assumed that his distributions and wages equalled [Brother A]’s distributions. In fact, Mr Faber’s combined wages and distributions were less than [Brother A]’s; Mr Faber only received $5,769 in wages. Mr Faber was unable to explain why he received less remuneration than [Brother A].

3. Mr Faber submitted that the distributions that he received (via various entities) were at [Father A]’s absolute discretion. On a related note, Mr Faber appeared at times to submit that the distributions that he received (via various legal entities) did not, or did not entirely, constitute his remuneration for his involvement in managing [Business 1]’s business. Rather, they were manifestations of [Father A]’s generosity, and were intended to assist Mr Faber with the costs of renovating his and Ms Faber’s home.

4. On Mr Faber’s description of events, he and [Brother A] were co-managing a multi-million-dollar family business. Mr Faber pointed to the formal legal relationships referred to above and submitted, in effect, that there was no informal arrangement between himself, [Father A] and [Brother A] whereby he was entitled to some remuneration for his involvement in the family business, regardless of the profitability of the family business.[1] I do not accept Mr Faber’s evidence on those issues. The formal legal relationships paint one picture, but the history of the business, Mr Faber’s involvement in the business, and the inherent improbability that Mr Faber would co-manage the business without any formal or informal entitlement to any remuneration, paints a different picture. I consider the actions that Mr Faber, [Father A] and [Brother A] have taken (such as the work that Mr Faber and [Brother A] have performed whilst not being paid a wage, and the decisions that have been made that have resulted in them, via various legal entities, receiving distributions) to be more probative evidence of the true state of affairs than the legal documents they have signed. That action suggests, and I find, that Mr Faber, [Father A] and [Brother A] had an arrangement whereby Mr Faber and [Brother A] would co-manage the family business on a day-to-day basis, and they would predominantly be remunerated by way of distributions. (Other remuneration included dividends and the use of company vehicles.) The history of the distributions up to 2016-17 gives an indication of the broad terms of that arrangement.

   [1]Mr Faber received payments from [Business 1] throughout the year. They were advances on his future distributions. The logical extension of Mr Faber’s submissions is that if [Father A] decided to not make any further distributions to [him], the payments that he had received would be debts that he owed to [Business 1].

5. As for the suggestion that the distributions that Mr Faber received (via various legal entitles) were in essence gifts from [Father A] to assist him in renovating his and Ms Faber’s home, the more likely explanation is that Mr Faber earned the money he received and he spent some of that money renovating the family home.[2]

   [2]That assumes that some of Mr Faber’s income was spent renovating the home. Ms Faber stated that [Business 1] paid the associated costs directly. I did not consider it necessary to explore that issue.

6. Mr Faber has not provided [Business 1]’s 2019-20 financial statements or other direct evidence of [Business 1]’s profitability for that financial year. His election to resign as a director of [Business 1] appears to have been designed, in part, to allow him to state that he does not have an immediate legal entitlement to such documentation. If need be, notices could have been issued to the appropriate entities compelling them to provide such documentation, but Senior Member Freeman did not consider that necessary, and neither did I.

7. At no time has Mr Faber ever suggested that when his distributions drastically reduced, he attempted to have his distributions increased to their previous level (by, for example, asking that he continue to be remunerated as he had in the past). Instead, he elected to resign as a director of [Business 1]. That action and inaction suggests that it suited Mr Faber to receive less income via distributions, and to appear to distance himself from the financial resources to which he had access via his involvement in [Business 1]. On balance, I am not persuaded that, at a practical level, the distributions were at [Father A]’s absolute discretion. The evidence suggests, and I find, that it was a family business, and prior to Mr Faber and Ms Faber’s separation, Mr Faber and [Brother A] were being appropriately remunerated for their involvement in managing the business, and when Mr Faber and Ms Faber separated, it suited Mr Faber to receive smaller distributions. I also find that if Mr Faber has requested larger distributions, he would have received them. Those larger distributions were financial resources that were available to Mr Faber, even if he elected to not receive them

8. Mr Faber stated that [Business 1]’s business ceased trading on 29 June 2020. Before and after the day of the full hearing I went to its website. It displayed just one sentence: “[Business 1A] has ceased trading”. Mr Faber stated that the business has not been transferred or sold to another entity; the business has simply ceased trading. He said he currently receives jobkeeper payment of $750 per week. He said he is helping [Father A] attend to the cleaning up of [Business 1]’s property. He said he has also started [an occupation 1 related] business — he is a qualified [an occupation 1] — and he is running the business via [Business 2]. He said that to date the business has made a profit of about $600. He said that [Brother A] now works for [Employer 1]. He confirmed that [Business 1]’s business had not been transferred or sold to [Employer 1] and [Brother A]’s only role in the company that runs that business is as an employee.

9. The CSA obtained [Business 1]’s quarterly business activity statements (“BAS”) for 2019-20. Its revenue was $3,143,177 + $2,274,279 + $1,711,388 + $1,940,456 = $9,069,300. That revenue is 23% less than the previous year’s revenue, and the annualised revenue in the last two quarters is 42% and 34% less than the previous year’s revenue, which is consistent with the fact that Mr Faber was granted jobkeeper payment. Based on the evidence provided to the Tribunal, I accept that [Business 1]’s business ceased trading on 29 June 2020. However, up until when the business ceased trading, he continued to be involved in the management of the business, just as he had been for many years. The evidence provided to the Tribunal does not allow me to calculate [Business 1]’s 2019-20 profit. Its BAS for the first two quarters of 2019-20 suggest that it was on track to once again make a profit of many hundreds of thousands of dollars. Mr Faber stated that [Business 1]’s business was ultimately closed because it was losing money. No documentation has been provided that would allow me to quantify that loss, if any. I will return to that issue shortly.

10. When Ms Faber lodged her departure application on 9 August 2019 the administrative assessment was based on Mr Faber’s declared income of $45,000, subject to a possible reassessment once his 2018-19 adjusted taxable income had been determined. It transpired that his 2018-19 adjusted taxable income was $51,653.

11. During 2013-14 to 2016-17, [Trust 2]’s share of the distributions from [Trust 1] averaged (50% + 45% + 25% + 41%) / 4 = 40.25%. Mr Faber received additional income via the [Trust 5], but it is not necessary to consider that income here. At the end of 2018-19, shortly before Ms Faber lodged her departure application, the [Trust 1] had $580,915 to distribute, and 40.25% of that figure is $233,818. Doing the best I can in the circumstances, I find that when Ms Faber lodged her departure application, Mr Faber’s income and financial resources were fairly reflected for child support purposes in an adjusted taxable income of approximately $233,818 per annum. Given the discrepancy between that income and the incomes of $45,000 and $51,653 per annum, and the consequential rates of child support payable, I find that the circumstances as a whole constitute special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. Reason 8 is established.

Just and equitable

1. 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 children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. Mr Faber said he is currently living with his mother in her house. His parents are separated. He said [Business 1] continues to provide him with the use of a company vehicle, but he has become responsible for its running costs. [Business 1] had previously paid those costs. He completed a Statement of Financial Circumstances in August 2020. He indicated that he had minimal savings from which to support himself on a day-to-day basis, and his income was essentially confined to jobkeeper payment. As noted earlier, the parents’ legal proceedings concerning the division of their assets and liabilities is ongoing.

3. Ms Faber runs a business selling [specified] products via [Business Platform 1] by [Business 7]. Ms Faber is the sole director and shareholder of [this business]. In 2018-19 it received revenue of $185,112 and made a profit of $3,682. In 2019‑20 it received revenue of $144,553 and made a loss of $30,256. In both years, its expenses did not include wages, director’s fees or the like to Ms Faber. However, it does provide her with a car and it pays the associated running costs. Ms Faber also receives parenting payment.

4. Mr Faber stated, and Ms Faber denied, that she receives undisclosed cash-in-hand. Such allegations are easily made and, if correct, they are difficult to prove, but if incorrect, they are difficult to disprove. Mr Faber noted, and Ms Faber acknowledged, that her day-to-day expenses exceed her income. She explained that she and Mr Faber enjoyed a high income while they were together and she is finding it difficult to transition to living within her current means, and she was meeting the shortfall from savings. Based on the evidence provided to the Tribunal, I find, on balance, that Ms Faber does not receive undisclosed cash-in-hand.

5. Ms Faber is living in the ex-matrimonial home. Neither parent is making payments towards the associated home loan; that debt is accruing. Ms Faber said she had stopped paying the associated utility expenses too, and those debts are accruing.

6. As noted earlier, [Business 1]’s BAS for the first two quarters of 2019-20 suggest that it was on track to once again make a profit of many hundreds of thousands of dollars. Mr Faber stated that [Business 1]’s business was ultimately closed because it was losing money. However, the extent of that loss, if any, has not been quantified. The objections officer concluded that it was appropriate to vary Mr Faber’s adjusted taxable income to $189,420 per annum. I have found that, as at the end of 2018-19, Mr Faber’s income and financial resources were fairly reflected for child support purposes in an adjusted taxable income of approximately $233,818 per annum. I accept that his income and financial resources decreased during 2019-20. The evidence does not allow me to quantify that decrease. It seems likely that it decreased to less than $189,420 per annum. However, it is not always necessary to precisely calculate a parent’s income and financial resources. Ultimately, the issue is the rate of child support payable, and if a departure decision is being made, it needs to be just and equitable (and otherwise proper). The objections officer’s decision resulted in Mr Faber being required to pay almost $28,000 per annum to Ms Faber from 1 September 2019, and, viewing the case as a whole, I consider that to be an appropriate rate of child support up until 29 June 2020. 

7. Mr Faber is currently receiving jobkeeper payment and he is in the process of establishing a new business. Ms Faber continues to run her business via [Business Platform 1]. Unlike most income support recipients, she is provided with a car at no personal cost and she is not making home loan repayments or paying rent, and she is not paying for the utilities that she uses. It is a very unusual set of circumstances. At the end of the hearing, Mr Faber stated that he believed he should be paying child support to Ms Faber to assist her with the costs of [Child 1] and [Child 2] while they are in her care. It will be recalled that Mr Faber also provides a significant amount of care. Mr Faber proposed $150 to $180 per week. Ms Faber considered that to be grossly inadequate. However, $150 per week is more than would be payable pursuant to the administrative assessment formula. For example, if Mr Faber’s adjusted taxable income was varied to $750 x 52 = $39,000 per annum, and Ms Faber’s adjusted taxable income remained at less than the self-support amount, which is currently $25,038 per annum, then Mr Faber would be required to pay approximately $2,800 per annum in child support. I consider it appropriate to vary his rate of child support payable to $150 x 52 = $7,800 per annum from 30 June 2020. Given that Mr Faber has only recently commenced his current business, and the parents’ property dispute remains on foot, I consider it appropriate to make a departure decision until 30 June 2021, rather than some later date.

8. The children attend a private school. Both parents agreed that no adjustment should be made to the rate of child support payable up until the end of 2019 on the basis of the associated tuition fees; those fees had already been paid.

9. Each parent has been making payments during 2020 with a view to each of them paying half the 2020 tuition fees. Ms Faber submitted that Mr Faber should pay more than half those fees because she is providing more than half the care. However, the fact that Ms Faber provides more care, and consequently incurs more of the children’s day-to-day costs, is already acknowledged via the calculation of child support payable that has been set out above. The children’s private school tuition fees do not vary with changes in the parents’ pattern of care. Those fees are fixed, and it is appropriate that both parents contribute to those fees, regardless of their provision of care. In light of the arrangement that the parents have already put in place, I do not consider it appropriate to adjust the rate of child support payable on the basis of the children’s school fees.

10. The proposed decision will decrease Mr Faber’s child support arrears by approximately $4,700, but will not place him in credit. The proposed decision will be just and equitable.

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. Ms Faber does not receive fortnightly payments of family tax benefit, but parents can make past-period lump sum claims. Changing the child support payable by Mr Faber will ensure that if a claim for family tax benefit is granted, there will be an appropriate apportionment of financial responsibility between the parents and the community. The proposed decision will be otherwise proper.

DECISION

The decision under review is set aside and, in substitution:

• from 1 September 2019 to 29 June 2020, Mr Faber’s adjusted taxable income is varied to $189,420 per annum; and

• from 30 June 2020 to 30 June 2021, Mr Faber’s rate of child support payable is varied to $7,800 per annum.