Fereday and Waterfield (Child support) - [2019] AATA 1223

Fereday and Waterfield (Child support) [2019] AATA 1223 (1 April 2019)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2018/BC015357
APPLICANT:  Ms Fereday
OTHER PARTIES:  Child Support Registrar
Mr Waterfield

TRIBUNAL:Senior Member A Freeman
DECISION DATE: 01 April 2019
DECISION:

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

·         For the period from 1 January 2018 to 30 June 2018, Mr Waterfield’s adjusted taxable income is varied to $165,902 per annum;
·         For the period from 1 July 2018 to 31 December 2020, Mr Waterfield’s adjusted taxable income is varied to $143,000 per annum;
·         For the period from 1 January 2018 to 30 June 2018, Ms Fereday’s adjusted taxable income is varied to $69,208 per annum;
·         For the period from 1 July 2018 to 31 December 2020, Ms Fereday’s adjusted taxable income is varied to $62,000 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents - no earning capacity - 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

BACKGROUND

Ms Fereday and Mr Waterfield are the parents of two children. Ms Fereday’s care percentage in relation to both children is currently recorded for the purposes of assessing child support as 59% and Mr Waterfield’s care percentage is recorded as 41%.
Mr Waterfield lodged an application with the Department of Human Services (the Department) on 20 April 2018 seeking a departure from the administrative assessment. Ms Fereday also lodged a cross-application. At the time of the applications, Mr Waterfield was liable to pay an annual rate of child support of $14,892 for both children. This was calculated by reference to a binding child support agreement in place in relation to one child and the application of the administrative assessment for the other which was based upon an adjusted taxable income (ATI) of $305,168 for Mr Waterfield.
On 1 August 2018, the Department made a decision to depart from the administrative assessment in place and varied Mr Waterfield’s ATI to $162,000 for a period from 1 January 2018 to 24 March 2019. This resulted in an annual rate payable by Mr Waterfield to Ms Fereday of $13,041 for both children.
Mr Waterfield objected to that decision and on 31 October 2018 an objections officer allowed the objection, set aside the previous decision and made a new decision as follows:
·     For the period from 1 January 2018 to 31 March 2019, Ms Fereday’s ATI is $69,208 per annum;
·     For the period from 1 January 2018 to 27 July 2018, Mr Waterfield’s ATI is $169,900 per annum;
·     For the period from 28 July 2018 to 31 March 2020, Mr Waterfield’s ATI is $73,606 per annum.
This had the effect of reducing the annual rate payable by Mr Waterfield from $13,041 to $7,821 for both children.
Ms Fereday has sought a further review of this decision.
Ms Fereday submits that Mr Waterfield’s ATI should be higher, and his income and financial resources make the assessment of child support unfair.
The Tribunal hearing was conducted on 1 April 2019. Both parties appeared by conference telephone. In reaching its decision, the Tribunal has considered the sworn evidence given by both parties at the hearing, together with the documentation provided by the Department (exhibit 1), the documentation provided by Ms Fereday (exhibit 2) and the documentation provided by Mr Waterfield (exhibit 3).

CONSIDERATION

The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of child support payable by the liable parent. The Act also provides for a departure from the administrative assessment in certain circumstances.
A departure from an administrative assessment may be made pursuant to section 98C of the Act if the following matters are established:
·         One or more than one of the grounds for departure referred to in subsection 98C(2) exists;[1]
·         A departure is just and equitable as regards the children and each parent;[2] and
·         It is otherwise proper to make a departure decision.[3]

Issue 1 – Grounds for departure

Assessment unfair because of the income, property or financial resources of either parent

[1] See subparagraph 98C(1)(b)(i).

[2] See sub-subparagraph 98C(1)(b)(ii)(A).

[3] See sub-subparagraph 98C(1)(b)(ii)(B).

Mr Waterfield in his initial change of assessment application sought a departure from the administrative assessment on the ground that in the special circumstances of the case the administrative assessment would result in an unjust and inequitable level of child support because of a significant change in his income, property and financial resources following his being made redundant from his employment in July 2017.
The term “special circumstances” is not defined in the Act. In Gyselman and Gyselman (1992) FLC 92-279, the Full Court of the Family Court determined that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.
There are a range of circumstances that may support the finding that the administrative assessment would result in an unjust or inequitable determination of the level of child support. The calculation of income and financial resources for the purposes of taxation law does not limit the Tribunal’s consideration of the true resources available to a party to child support proceedings and is but one factor to be taken into account in the particular circumstances of the case.
In Ashcroft & Ashcroft (SSAT Appeal) [2008] FMCAfam 1250, the Federal Magistrates Court stated:
Whilst it may be legitimate for citizens to organise their financial affairs to minimise the taxation liability, it has long been recognised that the obligation to provide proper financial support for children is both a moral and legal obligation that all parents must bear to the best of their ability. It is appropriate to examine the financial affairs of parents to ensure their obligation to pay child support is not accorded less priority than obligations other than those reasonably necessary to support the payer.
For the purposes of the Act, a financial resource is something which is not property but from which a financial benefit can be gained.[4]
[4] See Costa & Fairbank (SSAT Appeal) [2010] FMCAfam 39 and Walker & Fielding (SSAT Appeal) [2010] FMCAfam 320.
Up until July 2017, Mr Waterfield was employed as [Occupation 1] and was earning a taxable income of about $304,750 per annum. As of 28 July 2017, Mr Waterfield was made redundant following a restructure of his employer’s business. He received about $171,000 in redundancy payments. In 2017/2018 Mr Waterfield’s gross income was $177,322 and after deductions, his taxable income was reported as $165,902.
Following his redundancy, Mr Waterfield began performing some contract work on a project based out at [Town 1] from about March 2018. This work is still ongoing. Mr Waterfield performs this work via a corporate entity called [Company 1] of which he is the sole director and shareholder.
Mr Waterfield is also the director of a company called [Company 2] with another person and a third party who is a shareholder in the company. This entity is looking at [specified projects] in [Country 1] and is in the early stages of establishing [licences] and management rights in [Country 1]. Mr Waterfield does not expect to be receiving any profits for a number of years. In 2017/2018 the company recorded a $7,811 loss and Mr Waterfield expects the same for the current financial year.
Mr Waterfield told the Tribunal that the company has been able to secure some investment capital which has allowed him to receive a regular payment of $2,000 per month in director’s fees for his work in this company from about October 2018. These fees are paid to [Company 1].
Mr Waterfield estimates that his likely taxable income for the current financial year will be $44,000 gross. This includes the $2,000 per month from [Company 2] and the contracting work he performs through [Company 1].
Mr Waterfield also receives a rental income from the lease of his home. This is negatively geared such that he is out of pocket by about $180 per week when the rent and expenses are taken into account.
Since his redundancy, Mr Waterfield has also had access to some retained profits held by [Company 1]. The financial records for this entity for 2017/2018 show that at the start of that financial year the company had about $140,372 in retained earnings (from previous years). Mr Waterfield told the Tribunal that he had accessed some of this money in order to keep himself afloat following his redundancy.
A review of the bank account statements for [Company 1] for the period from July 2018 to December 2018 show that it received a total of $21,480 from the project at [Town 1] and $6,000 from [Company 2] (as director’s fees for Mr Waterfield). This extrapolated out over a 12-month period amounts to about $60,000 in gross income likely to be received by the company for the current financial year.
Mr Waterfield’s personal bank account shows that for a 6-month period from August 2018 to February 2019, he received deposits totalling about $53,000. These deposits came from [Company 1], [Company 2], his line of credit account and rental income from the lease of his house since December 2018.
Mr Waterfield has a credit card which he uses for personal expenditure. This amounts to about $5000 per month on average which is paid off using money transferred from the line of credit account via his personal bank account.
Mr Waterfield also received about $33,000 from the sale of some shares in July and August 2018 which was deposited into the line of credit account.
From the line of credit account, Mr Waterfield pays his mortgage on the house he rents out (about $7,226 per month), his credit card (via his personal bank account) and pays himself $1,300 per month for living expenses. He has in the past transferred money from the line of credit account to the [Company 1] account and vice versa for various reasons, including in relation to tax implications concerning the retained profits held by the company.
Taking all of this into account, the Tribunal considers that the money received into Mr Waterfield’s personal bank account over the 6-month period from August 2018 to February 2019 to be the best indicator of his likely income and financial resources. This appears to represent money received from a number of sources of available income and financial resources and was then spent on personal discretionary spending such as paying off his credit card, Paypal and [Organisation 1]. Also, importantly, this is the account from which Mr Waterfield was meeting his child support liabilities.
Over a 6-month period, Mr Waterfield received about $50,000 into this account. This extrapolated out over a 12-month period amounts to about $100,000. As this is money that Mr Waterfield had available to meet his expenses over the relevant period that would normally be met from net income, this figure should be grossed up in order to arrive at an appropriate income applicable to the assessment of child support. This amounts to about $143,000 gross per annum.
The Tribunal therefore finds, for the purposes of assessing child support, Mr Waterfield’s income and financial resources are best reflected as follows:
a) for the 2017/2018 financial year – $165,902 as per his taxable income reported on his personal tax return; and
b) for the 2018/2019 financial year – $143,000 gross per annum as determined in paragraph 29 above.
The administrative assessment of child support at the time of Mr Waterfield’s change of assessment application was based upon an ATI of $305,168 for Mr Waterfield. The Tribunal has found that Mr Waterfield in fact had access to income and financial resources in the amount of between $143,000 and $165,902 per annum such that in the special circumstances of the case the administrative assessment would result in an unjust and inequitable level of child support because of Mr Waterfield’s income, property and financial resources.
As a result, the Tribunal is satisfied that a ground to depart from the administrative assessment has been established.

Issue 2 – Would departure from the formula assessment be just and equitable?

Subsection 117(4) of the Act sets out the criteria that must be considered in determining whether it would be just and equitable as regards the children and the parents to make a departure order. This involves a consideration of the following:
(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)him 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 incurrent 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 by the making of, or the refusal to make, the order.

Mr Waterfield’s circumstances

Mr Waterfield’s financial circumstances have been considered in some detail above.
Mr Waterfield has, since December 2018, rented a townhouse where he lives with the children when they are in his care. He pays about $630 per week in rent.
In 2018 he was paying about $7,226 per month in mortgage repayments on the house he owns. Mr Waterfield told the Tribunal that this is about $7,300 per month now. He receives about $1,500 per week in rental income for this property. He estimates that his total expenditure on rent and mortgage, taking into account the rent received, is about $830 per week.
Mr Waterfield otherwise estimates his average weekly expenses to be about $726 per week making the total about $1,556 per week.
The Tribunal has found that Mr Waterfield’s gross income and financial resources are appropriately reflected by an amount of $165,902 from July 2017 and $143,000 per annum from July 2018 which currently amounts to about $1,925 net per week[5] from which Mr Waterfield is able to meet these expenses. This leaves about $369 per week from which child support payments could be met.
[5] Based on $100,000 per annum net income divided by 52 and rounded up.

Ms Fereday’s circumstances

Ms Fereday is [Occupation 2] employed by two employers, in [specified] roles. In 2017/2018 her gross taxable income was $69,208. Since January 2019, Ms Fereday’s hours with one employer have reduced. Ms Fereday’s year to date earnings as at March 2019 were $46,443 gross for both jobs. This extrapolated out to the end of the current financial year amounts to about $62,000 gross per annum or about $943 net per week.
Ms Fereday lives with the children in a house she acquired outright following property settlement. Since then, she has borrowed money via a line of credit and a home loan to perform some renovations on the home and purchase a car. She currently owes about $352,000 in relation to these loans.
Ms Fereday estimates her average weekly expenses to be about $1,485 including repayments on the loans mentioned above.
Ms Fereday also told the Tribunal that in addition to the ordinary costs of feeding and housing the children, she spent about $1,697 in 2018 and $1,605 in 2019 in relation to school related expenses for one child. The other child’s school related expenses are currently covered by the terms of the binding child support agreement that the parties entered into in 2012.
Taking into account these extra expenses (which amount to about $32 to $40 per week), Ms Fereday’s average weekly expenses amount to about $1,525. This leaves her with a shortfall of about $582 per week.

Consideration of whether a departure is just and equitable
(a) Mr Waterfield’s income and financial resources

As outlined above, the Tribunal has found that a figure of between $143,000 and $165,902 gross per annum is reflective of Mr Waterfield’s income and financial resources. At the very least he currently has had available to him about $100,000 net per annum to spend on discretionary expenses which should not take priority over his obligation to pay child support.
If an ATI of $165,902 for Mr Waterfield was applied to the assessment of child support for the period between 20 April 2018 (when his change of assessment application was made) and 30 June 2018 (the end of that financial year), it results in an annual rate of about $6,200 or $120 per week[6] for the child to whom the binding child support agreement does not apply. The binding child support agreement provides for periodic payments of $126.70 per week or $6,600 in 2018, thus making the total payable by Mr Waterfield to be about $12,800 per annum or about $247 per week. From 1 July 2018 the annual rate produced by an ATI of $143,000 for Mr Waterfield and an ATI of about $62,000 for Ms Fereday is about $12,700 or $245 per week payable by Mr Waterfield for both children.
[6] Using an income of $69,208 for Ms Fereday (as per her 2017/2018 tax return).
As noted above in paragraph 38, Mr Waterfield has available to him after expenses about $369 per week from which child support payments can be met. The Tribunal therefore finds that Mr Waterfield has ample capacity to meet the annual rates of child support that are produced by the incomes determined by the Tribunal above.
Given that Mr Waterfield’s capacity to contribute to the costs of the children far outweighs that of Ms Fereday, in all the circumstances, the Tribunal finds that it is just and equitable to depart from the administrative assessment and vary Mr Waterfield’s ATI to $165,902 per annum for the 2017/2018 financial year and to $143,000 per annum thereafter. The time period over which this decision will apply will be discussed further below.

(b) Ms Fereday’s income and financial resources

At the time of Mr Waterfield’s change of assessment application, Ms Fereday was earning about $69,208 gross per annum. She now is expected to earn about $62,000 gross per annum due to a change in her contract from January 2019.
The assessment of child support at the time of Mr Waterfield’s application was based upon an ATI of $61,465 for Ms Fereday. Ms Fereday’s income for the 2017/2018 financial year was in fact $69,208. Therefore, the Tribunal considers it appropriate to vary Ms Fereday’s ATI to $69,208 for the 2017/2018 financial year. Thereafter, Ms Fereday’s income is best reflected by an ATI of $62,000 per annum.
Ms Fereday also raised as part of her review application special needs in relation to the children and the earning capacity of Mr Waterfield.
In relation to the special needs of the children, Ms Fereday told the Tribunal that she would like to be able to provide speech therapy to one child and cognitive therapy to the other to deal with issues they have been previously diagnosed with, but she is unable to afford these therapies currently. Up until early 2018 these costs were shared by the parties as per the terms of the binding child support agreement. Clause 5.2 of the binding child support agreement provides that the parties agree they will share equally in any medical costs for the children that are not covered by Medicare or through private health cover. This clause continues to apply to both children. Furthermore, Ms Fereday was unable to articulate whether any costs had in fact been incurred in relation to these therapies. In these circumstances the Tribunal does not find it appropriate to make any adjustments to the annual rate of child support payable by Mr Waterfield on account of the costs associated with the children’s special needs.

In relation to Mr Waterfield’s earning capacity, Ms Fereday submitted that prior to his redundancy he was capable of earning over $300,000 in his chosen field and he should be assessed on a similar income now.
When considering whether there should be a departure from the administrative assessment of child support as a result of a person’s earning capacity, the Tribunal must be satisfied that:
a)    the parent:
i.is not working despite ample opportunity to do so (subparagraph 117(7B)(a)(i)); and/or
ii.has reduced his/her weekly hours of work to below full-time work (subparagraph 117(7B)(a)(ii)); and/or
iii.has changed his/her occupation, industry or working pattern (subparagraph 117(7B)(a)(iii)); and
b)    the parent’s decision about his/her work arrangements is not justified by either his/her caring responsibilities (subparagraph 117(7B)(b)(i)) or his/her state of health (subparagraph 117(7B)(b)(ii)); and
c)    the parent has not demonstrated that it was not a major purpose of their decision not to work despite ample opportunity to do so or to stop working, reduce their hours of work or change their occupation, industry or working pattern to affect the administrative assessment of child support (paragraph 117(7B)(c)).
All three of the above criteria must be met before a departure determination can be made in relation to earning capacity.
The evidence before the Tribunal is that Mr Waterfield was made redundant from his position in July 2017 and has since commenced self-employment via his company [Company 1]. Whilst Mr Waterfield has changed his occupation, industry or working pattern, it could not be said that affecting the assessment of child support was a major purpose of his decision to change occupation, industry or working pattern given such change occurred independently of Mr Waterfield as a result of him being made redundant. Therefore, in the circumstances, the Tribunal is not satisfied that it would be appropriate to vary Mr Waterfield’s income to reflect his earning capacity.

(c) Length of decision

In 2012, the parties entered into a binding child support agreement regarding both children. Parts of this agreement ceased to apply to one child as at 31 December 2017 and the administrative assessment of child support applied from 1 January 2018 in relation to that child. The other child continues to be covered by the binding child support agreement in relation to both periodic and non-periodic payments of child support.
Mr Waterfield made his change of assessment application on 20 April 2018 but told the Tribunal that he had contacted the Department several times prior to this to advise of his change in income before he realised that he needed to in fact make a change of assessment application. In these circumstances, the Tribunal considers it appropriate to vary both parties’ ATIs from 1 January 2018 when the administrative assessment of child support started to take effect in relation to one of the children.
The evidence before the Tribunal suggests that Mr Waterfield’s financial circumstances are likely to be subject to change over the next couple of years as he re-establishes himself following his redundancy. Therefore, the Tribunal considers it appropriate to conclude its decision at the end of 2020 in order to give the parties some certainty going forward but to allow for the situation to be re-assessed once Mr Waterfield’s circumstances stabilise.

Issue 3 – Is a change of assessment otherwise proper?

In considering whether a departure is otherwise proper, the Tribunal must take into account subsection 117(5) of the Act which requires the Tribunal to have regard to the nature and duty of a parent to maintain a child and the effect that the making of the order would have on any entitlement of the child or carer entitled to child support to an income tested pension, allowance or benefit or the rate of any income tested pension, allowance or benefit payable to the child or the carer.
Ms Fereday receives family tax benefits in respect of the children. The decision of the Tribunal has the effect of decreasing the annual rate payable by Mr Waterfield when compared to the administrative assessment in place at the time of the change of assessment application and therefore may result in an increase to the family tax benefits payable and the cost to the community. The Tribunal is however satisfied that the changes are necessary to appropriately address the unfairness that may arise from Mr Waterfield being assessed on an income that no longer applies. Therefore, the Tribunal considers that the departure decision proposed is otherwise proper in the circumstances of this case.

DECISION

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

·         For the period from 1 January 2018 to 30 June 2018, Mr Waterfield’s adjusted taxable income is varied to $165,902 per annum;
·         For the period from 1 July 2018 to 31 December 2020, Mr Waterfield’s adjusted taxable income is varied to $143,000 per annum;
·         For the period from 1 January 2018 to 30 June 2018, Ms Fereday’s adjusted taxable income is varied to $69,208 per annum;
·         For the period from 1 July 2018 to 31 December 2020, Ms Fereday’s adjusted taxable income is varied to $62,000 per annum.