Faga and Faga (Child support)

Faga and Faga (Child support) [2020] AATA 5833 (20 November 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2020/MC019394
APPLICANT:  Mr Faga
OTHER PARTIES:  Child Support Registrar
Dr Faga

TRIBUNAL:Member S Brakespeare
DECISION DATE: 20 November 2020
DECISION:

The decision under review is varied so that there is a departure determination in the following terms:

for the period 1 July 2019 to 31 October 2021 Dr Faga’s adjusted taxable income is varied to $160,727;
for the period 21 May 2019 to 17 November 2019 Mr Faga’s adjusted taxable income is varied to $91,345;
for the period 18 November 2019 to 30 November 2021 Mr Faga’s adjusted taxable income is varied to $99,840;
for the period 1 July 2019 to 31 December 2019 the annual rate of child support payable by Mr Faga is increased by $6,500;
for the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Faga is increased by $6,700;
for the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Faga is increased by $7,124;
for the period 1 January 2022 to 31 December 2022 the annual rate of child support otherwise payable by Mr Faga is increased by $7,998; and
for the period 1 January 2023 to 31 December 2023 the annual rate of child support payable by Mr Faga is increased by $7,912.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – legitimate business deductions – a ground for departure established based on the financial resources of both parents – costs of education – manner expected by both parents – decision to depart – decision under review varied

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

Mr Faga is the parent liable to pay child support to Dr Faga in respect of their two children, [Child 1] who is aged 10 years and [Child 2] who is aged 7.
On 21 May 2019 Mr Faga lodged an application for a change of assessment citing a number of grounds. During the change of assessment process he withdrew all his grounds bar one. The remaining ground was that his liability under the administrative assessment was unjust and inequitable because of the income, property or financial resources of either parent.
The relevant administrative assessment provided that for the child support period 1 February 2019 to 29 June 2019 Mr Faga was required to pay Dr Faga an annual child support amount of $14,726. The assessment was based on an adjusted taxable income for Mr Faga of $101,272, an adjusted taxable income for Dr Faga of $81,065 and an additional amount of $5,064 (in respect of school fees). The assessment arose from a departure determination made by an officer of the Child Support Agency on 26 November 2018. Other factors affecting the assessment were percentages of care reflecting that Dr Faga had 67% care of the children and Mr Faga had 33 % care of the children.
Mr Faga’s liability reduced to $12,860 per annum from 30 June 2019. The reduction was brought about by the addition to the assessment of Mr Faga’s relevant dependent child.
On 9 April 2020 an officer of the Child Support Agency made a departure determination as follows (the original decision):
·for the period 1 July 2019 to 31 October 2021 Dr Faga’s adjusted taxable income is varied to $148,513;
·for the period 18 November 2019 to 31 October 2021 Mr Faga’s adjusted taxable income is varied to $94,000;
·for the period 1 July 2019 to 31 December 2019 the annual rate of child support payable by Mr Faga is increased by $6,500;
·for the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Faga is increased by $7,150; and
·for the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Faga is increased by $7,650.

Mr Faga lodged an objection to the original decision. On 24 June 2020 an objections officer allowed the objection in part and made the following departure determination (the objection decision).
·for the period 1 July 2019 to 31 October 2021 Dr Faga’s adjusted taxable income is varied to $149,365;
·for the period 18 November 2019 to 30 November 2021 Mr Faga’s adjusted taxable income is varied to $94,960;
·for the period 1 July 2019 to 31 December 2019 the annual rate of child support payable by Mr Faga is increased by $6,500;
·for the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Faga is increased by $6,700;
·for the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Faga is increased by $7,124;
·for the period 1 January 2022 to 31 December 2022 the annual rate of child support otherwise payable by Mr Faga is increased by $7,998; and
·for the period 1 January 2023 to 31 December 2023 the annual rate of child support payable by Mr Faga is increased by $7,912.
Mr Faga lodged an application for review of the objection decision with the tribunal. A telephone directions hearing was held on 14 October 2020 and both parties participated.
A hearing was held on 20 November 2020. Mr Faga and Dr Faga both gave evidence on affirmation to the tribunal via conference telephone. The Child Support Agency provided the tribunal and the parties with a bundle of papers relevant to the review (899 pages). The tribunal also gathered extra documents from the parties and exchanged them prior to hearing. Documents provided by Mr Faga have been folioed A1 to A19 and documents provided by Dr Faga have been folioed B1 to B26.
Relevant aspects of the evidence and material before the tribunal will be referred to in the tribunal’s consideration of the issues which it has to decide.

ISSUES

The statutory provisions relevant to these reviews are contained in the Child Support (Assessment) Act 1989 (the Act).
The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Act.
Under Part 6A of the Act the liable parent or the carer of the child or children may apply to the Child Support Registrar for a determination to depart from the administrative assessment (section 98B).
Section 98C provides that the Registrar may make a determination to depart from the administrative assessment and it establishes a three step process such that the issues for determination by this tribunal are:
·whether a ground is established to depart from the administrative assessment of child support; and
·if so, whether it is just and equitable to make a particular departure determination; and
·if so, whether it is otherwise proper to make a particular departure determination.
The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Act.
Each ground is prefaced by the words “in the special circumstances of the case”. The meaning of this expression is not defined in the Act, but the Family Court in Gyselman & Gyselman (1992) FLC 92-279 has held:
as a generality it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. That is, the intention of the Legislature is that the court will not interfere with the formula in the ordinary run of cases.
Likewise, in Phillippe and Phillippe (1978) FLC 90-433 the Court held that “special circumstances” are “facts peculiar to the particular case which set it apart from other cases”.
If the tribunal is satisfied that a ground exists and that it would be just and equitable and otherwise proper to make a particular determination, the tribunal may make one of the determinations prescribed in section 98S of the Act.
The range of determinations which can be made includes variations to: the annual rate of child support payable; or to the adjusted taxable incomes of the parents and/or carer; or to other components of the statutory formula used to calculate child support.

CONSIDERATION

Issue 1 – Is there a ground for departure?

A ground for departure exists where, in the special circumstances of the case, application in relation to the child of the provisions of the 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 because of the income, property and financial resources of either parent (subparagraph 117(2)(c)(ia) of the Act).
At the time of application Dr Faga was being assessed on an income of $81,065. Mr Faga claims that Dr Faga hides her real income by using her company, [Company 1] Pty Ltd ([Company 1]). 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.
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.
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 (see for example Morse & Potts (SSAT Appeal) [2010] FMCAfam 1305, Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623).
Dr Faga provided the tribunal with the financial statements for [Company 1] for the year ended 30 June 2020 and individual and company income tax returns for that year. Dr Faga told the tribunal that she is a [occupation] who works as an independent contractor. She pays a management fee to the firm that owns the consulting rooms. The management fee is a percentage of her consulting fees. The tribunal notes that Dr Faga’s income from consulting fees was $368,540. She also received interest income of $2,588. The cost of management fees, [work-related] supplies and equipment was $145,166. Her total income before expenses was recorded as $225,962. Included in the expenses was a profit paid to Dr Faga of $56,874. (This amount appears on Dr Faga’s individual income tax return as earnings). Dr Faga was also paid a dividend of $8,839 which came from the retained profits of [Company 1].
The tribunal takes the view that a number of the listed expenses should not be used to reduce Dr Faga’s child support income. Whilst they may be legitimate deductions under taxation law, the tribunal is not satisfied that they are necessary expenses related to the production of income and therefore are financial resources available to support the children. Those expenses are:
Depreciation  $11,494
Low Costs [Assets]  $58,170
Motor vehicle, fuel and oil  $8,004
Rent & Outgoings  $18,293
Travel & Accommodation           $5,892
TOTAL:  $101,853
Dr Faga told the tribunal that she claims rent expenses for working at home; she said that she does some of her paperwork at home at night. The tribunal is of the view that the home rental is a normal cost of living. Dr Faga was reluctant to explain the basis of the travel and accommodation costs; however she indicated they were not directly related to her earning her current income. With respect to depreciation, the tribunal is not satisfied that it is a cost incurred in the course of earning income. Similarly the motor vehicle costs claimed are to do with the amount deductible under tax law but in the tribunal’s view, they are not reflective of an expense incurred by Dr Faga in earning her income.
The tribunal finds that Dr Faga’s income for child support purposes is in the vicinity of $160,727 per annum once the disallowed expenses of $101,853 have added back to her profit of $56,874. The tribunal did not include the dividend of $8,839 as that came from the previous year’s profit. Dr Faga also made a net rental property loss of $16,217. Net rental property losses are added back to income when assessing a person’s adjusted taxable income. For this reason the tribunal will not deduct the net rental property loss from Dr Faga’s child support income.
At the time of application Mr Faga was self-employed. His income, set via a departure determination, was based on his income from self-employment. Mr Faga commenced full-time employment in November 2019 and he remains in that employment. His pay advices indicate that he earns approximately $93,000 per annum for ordinary hours worked. Mr Faga agreed that he also works overtime; however, it is irregular. Mr Faga provided the tribunal with a pay advice which indicated that his gross income for the fortnight ending 4 October 2020 was $3,840.27 (this amount extrapolated over a year equals $99,840). That income includes some overtime and allowances. The pay advice further indicates that Mr Faga’s year to date income was $28,276, or $4,039 per fortnight. When that year to date figure is extrapolated over a full year, his income would be approximately $105,025 per annum. The tribunal does not find it appropriate to calculate Mr Faga’s adjusted taxable income using his ordinary hours alone. It is evident that he receives additional income for overtime worked and allowances; however, the additional income amount is irregular. The tribunal finds it appropriate to set his income at the lower of the two amounts calculated using the pay advice; $99,840 from when he commenced his current employment. Once Mr Faga lodges his 2020/21 income tax return a more accurate figure will be available to be used in the administrative assessment going forward.
In accordance with the determination made on 26 November 2018, Mr Faga is assessed on an income of $101,272 until 31 October 2021. Mr Faga told the tribunal that whilst his business has ceased, he is still incurring costs in the form of loans and debts. It is his view that his business losses should offset his employment income. The tribunal believes that the business losses should be viewed in the same light as net rental property losses and should not be deducted from Mr Faga’s other income.
The tribunal does note, however, that when the original determination was made, to set Mr Faga adjusted taxable income at $101,272, the income tax returns, including those for his business, [Company 2], had not been completed as the relevant financial year had not ended. Mr Faga has since lodged his income tax return for that year showing an income of $80,294. This amount was subsequently amended to $50,524. The reason for the amendment was not clear. The tribunal had regard to the relevant income tax returns and financial statements for 2018/19 and notes that the profit from [Company 2] of approximately $11,101 was not distributed. The profit and loss statement also includes depreciation expenses of $9,446 and a significant deduction for a motor vehicle of $20,247.98. At hearing Mr Faga indicated that a [car], purchased in December 2018, was not directly related to the business undertaken by [Company 2]. He said it was intended to be used for a different venture (luxury vehicle hire) but that business has not been realised. Mr Faga said the he still has the [car] and uses it occasionally for private use. He said if he sold it he would still have about $12,000 in repayments to make. (Dr Faga indicated that Mr Faga had applied to the Court for funds from the sale of a block of land to be released to pay for this shortfall). Mr Faga said this was yet to occur.
The tribunal is satisfied that Mr Faga’s income from [Company 2] for 2018/19 was in the vicinity of $91,345 once the operating profit before tax has been included and the deprecation and motor vehicle expenses have been added back. Mr Faga clams that [Company 2] ran at a loss in 2019/20; however, it appears the financial statements for [Company 2] have not been completed. Mr Faga provided a draft profit and loss statement and balance sheet; however, the tribunal was not satisfied as to their accuracy. The tribunal notes that the turnover of [Company 2] did not appear to reduce dramatically in the first quarter of the 2019/20 income year.
The tribunal therefore finds Mr Faga’s income for the purposes of child support is in the vicinity of $91,345 from 21 May 2019 and $99,840 from 18 November 2019.
The tribunal finds that the application of an income for Dr Faga of $160,727 and an income for Mr Faga of $91,345 to the child support formula results in a reduction of Mr Faga’s liability of approximately $5,000 from 1 July 2019 and $4,000 from 18 November 2020.
The tribunal finds that in the special circumstances of the case, application of the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Faga for the children because of the income of Mr Faga and Dr Faga.
The tribunal therefore determines that there is a ground for departure.

Issue 2 – Is it just and equitable to make a particular determination?

As the tribunal is satisfied that there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable as regards the children, the liable parent, and the carer entitled to child support to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act. This in turn requires the tribunal to consider the matters discussed below,[1] which are as set out in subsection 117(4) of the Act:
[1] The tribunal is required to give “overt consideration” to relevant factors listed in subsection 117(4) of the Act re Tyagi & Meares [2008] FMCAfam 886
(4) In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order under this Division, the court must have regard to:
(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.

In having regard to the proper needs of the child, regard must be had 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 deciding this matter, the tribunal needs to consider the type of education intended by both parents for the children, rather than any particular school intended by the parents (Wild v Ballard (1997) FLC 92-771). The tribunal will also need to consider and determine whether both parents expected the children to be educated privately. The fact that a payer can afford to pay the fees is not in itself a reason for imposing a liability to contribute to school fees (Mee v Ferguson (1986) FLC 91-716).
The previous departure determination included an amount for school fees for the children. Dr Faga said that the children continue to be educated in the private school system (independent Christian schools) and she is paying all of the school fees. Dr Faga stated that she signed the enrolment forms for the school the children currently attend ([School 1]). She said that at the time Mr Faga was living interstate and she was not able to get him to sign the forms. However, Dr Faga stated that the children commenced schooling before the parents separated and at all times they have been educated in the private system. They had to change schools when Dr Faga was working in regional Victoria. Dr Faga enrolled them in their current school when she returned to Melbourne. Dr Faga said that despite her not being of a Christian faith she and Mr Faga had always intended for the children to have a Christian education.
Mr Faga said that he should not have to contribute to the children’s fees at their current school because he had not agreed to that particular school. Mr Faga said that the school is a Baptist school and he, being a Methodist, does not want the children to be educated in the Baptist tradition. He said that he was happy for the children to attend Catholic schools, as they previously did, because the Methodist and Catholic faiths share the same beliefs.
Dr Faga stated that [School 1] is an independent Christian school and is not run by the Baptist church. The tribunal checked the website for the school and agrees with Dr Faga as to the nature of the school.
The tribunal concurs with the findings made in the previous departure determination that the children are being educated in the private school system in the manner intended by both parents.
The tribunal finds that there are extra costs to be taken into account in respect of the children’s mode of education and these costs are in addition to the costs of their needs as calculated by reference to the Costs of the Children Table.[2] The tribunal finds that each parent should be liable for 50% of the fees. As Dr Faga is the parent paying the fees, Mr Faga’s portion should be added to his child support liability. The objections officer calculated the costs of the children’s schooling taking into account the information published on the school website. Those costings were not contested by either parent and the tribunal is satisfied with the calculations.
[2] Provided for in section 155 of the Act
The tribunal is satisfied that the children do not have any income, property, earning capacity or financial resources that should be considered for the purpose of the child support assessment.
The tribunal has established the income of each parent as per the findings recorded under “Issue 1” of these Reasons for Decision.
Dr Faga has an investment property which is encumbered by mortgage. The rental income is not sufficient to cover the interest and other property expenses and therefore Dr Faga incurs a net rental property loss. Dr Faga records as her personal property two vehicles; a [Car 1] and the [Car 2], which is under finance. She has savings of approximately $13,000 and shares to the value of $14,470. Dr Faga pays $385 per week rent for the property in which she lives. Her Statement of Financial Circumstances indicates her average weekly expenses include significant discretionary expenditure; for example holidays are listed as $461 per week.
Mr Faga and Dr Faga are currently involved in a property settlement. A jointly owned property (vacant land) has been sold recently and the distribution of the proceeds will form part of the property settlement.
Mr Faga advised the tribunal that he has limited savings and his property is limited to the [car] which is encumbered by a chattel mortgage. However, he noted that the proceeds from the recently sold property are likely to be distributed soon. Mr Faga’s Statement of Financial Circumstances indicates that he pays rent of $330 per week. His discretionary expenditure includes the education expenses for his current partner of approximately $10,000 per annum. His partner is not currently working and not contributing to the household income.
The tribunal is satisfied that the earning capacity provisions do not apply in this case.
The tribunal proposes to make a departure determination in the following terms:

for the period 1 July 2019 to 31 October 2021 Dr Faga’s adjusted taxable income is varied to $160,727;
for the period 21 May 2019 to 17 November 2019 Mr Faga’s adjusted taxable income is varied to $91,345;
for the period 18 November 2019 to 30 November 2021 Mr Faga’s adjusted taxable income is varied to $99,840;
for the period 1 July 2019 to 31 December 2019 the annual rate of child support payable by Mr Faga is increased by $6,500;
for the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Faga is increased by $6,700;
for the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Faga is increased by $7,124;
for the period 1 January 2022 to 31 December 2022 the annual rate of child support otherwise payable by Mr Faga is increased by $7,998; and
for the period 1 January 2023 to 31 December 2023 the annual rate of child support payable by Mr Faga is increased by $7,912.

Mr Faga’s liability will be approximately $7,700 per annum ($148 per week) from 1 July 2019, $8,600 per annum ($165 per week) from 18 November 2019 and $8,800 per annum ($170 per week) from 1 January 2020.
The tribunal is satisfied that the proposed determination will not cause hardship to either parent or to the children. The tribunal is satisfied that the proposed determination is just and equitable.

Issue 3 – Is it otherwise proper to make a particular departure determination?

The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act. Subsection 117(5) sets out the matters that must be considered when deciding whether it would be “otherwise proper” to make a departure determination. It focuses on the balance of support carried between the parents on one hand and the taxpayer on the other. It is appropriate for the children to be primarily supported by their parents rather than by government assistance. The tribunal must consider whether the level of a benefit, in particular family tax benefit, received by the party caring for the children may be affected by the level of child support.
The tribunal notes that Dr Faga is in receipt of a small amount of family tax benefit. The savings to the public purse are likely therefore to be minimal. The proposed determination is otherwise proper.

DECISION

The decision under review is varied so that there is a departure determination in the following terms:

for the period 1 July 2019 to 31 October 2021 Dr Faga’s adjusted taxable income is varied to $160,727;
for the period 21 May 2019 to 17 November 2019 Mr Faga’s adjusted taxable income is varied to $91,345;
for the period 18 November 2019 to 30 November 2021 Mr Faga’s adjusted taxable income is varied to $99,840;
for the period 1 July 2019 to 31 December 2019 the annual rate of child support payable by Mr Faga is increased by $6,500;
for the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Faga is increased by $6,700;
for the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Faga is increased by $7,124;
for the period 1 January 2022 to 31 December 2022 the annual rate of child support otherwise payable by Mr Faga is increased by $7,998; and
for the period 1 January 2023 to 31 December 2023 the annual rate of child support payable by Mr Faga is increased by $7,912.

[2020] AATA 5833

Key Legal Topics

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Family Law

Legal Concepts

Jurisdiction

Statutory Construction

Remedies

Procedural Fairness