Franco and Franco (Child support)

[2023] AATA 2926

Franco and Franco (Child support) [2023] AATA 2926 (14 July 2023)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2022/PC025144

APPLICANT:  Ms Franco

OTHER PARTIES:  Child Support Registrar

Mr Franco

TRIBUNAL:Member J Thomson

DECISION DATE:  14 July 2023

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that Mr Franco’s adjusted taxable income for the period 1 June 2022 to 31 October 2024 is varied to $93,575.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision to depart - 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

1. Ms Franco and Mr Franco are the parents of [Child 1], born 2010, [Child 2], born 2012 and [Child 3], born 2014 (the children), recorded as being in the 65% care of Ms Franco and the 35% care of Mr Franco.

2. Ms Franco had previously applied to Services Australia’s Child Support division (Child Support) for a change of assessment to the administrative assessment of child support.

3. On 25 May 2022, a Child Support decision maker, DM Harrower, changed the assessment, setting Mr Franco’s adjusted taxable income (ATI) for the period 20 December 2020 to 19 December 2022 at $84,000.

4. On 18 November 2022, a Child Support objections officer, DM Shute, partially allowed Mr Franco’s objection to DM Harrower’s decision, changing that decision to provide as follows:

   ·For the period 20 December 2019 to 22 February 2020, Mr Franco’s ATI is set at $83,906;

   ·For the period 23 February 2020 to 30 June 2020, Mr Franco’s annual rate of child support is set at $4,329; and

   ·For the period 1 July 2020 to 31 May 2022, Mr Franco’s ATI is set at $77,962.

   This decision was not further appealed.

5. On 15 May 2022, Ms Franco applied to Child Support for a new change of assessment on the ground that Mr Franco’s income, property and financial resources were no longer accurately reflected in that assessment of child support, making the assessment unfair (the ground commonly referred to as Reason 8A). At that time, the assessment required Mr Franco to pay child support from 1 June 2022 to 31 July 2022 at the annual rate of $1,242, based on his 2020/21 ATI of $37,970 and Ms Franco’s 2020/21 ATI of $42,848, and from 1 August 2022 to 12 May 2023, to pay child support at the annual rate of $6,471, based on his 2021/22 ATI of $62,713 and Ms Franco’s 2021/22 ATI of $33,979.

6. On 28 July 2022, Child Support delegate, DM Bowdern found Reason 8A established and changed DM Shute’s assessment to provide as follows:

   ·For the period 1 June 2022 until 31 October 2024, Mr Franco’s ATI is set at $97,933.

7. On 28 August 2022, Mr Franco objected to DM Bowdern’s decision of 28 July 2022, and added a further ground for departure by way of cross application, a claim for contribution by Ms Franco to his costs of the child, [Child 1]’s school fees at [School 1] on the ground that the costs of maintaining [Child 1] were significantly affected by the costs of educating or training him in the manner intended by the parents, the ground commonly referred to as Reason 3.

8. On 18 November 2022, an objections officer partially allowed Mr Franco’s objection, determining Mr Franco’s ATI for the period 15 May 2022 to 31 May 2025 at $80,000 and for the period 1 June 2023 to 1 June 2024, increasing his income for child support purposes by the Child Support Inflation Factor.

9. On 28 November 2022, Ms Franco applied to the Administrative Appeals Tribunal for review of the objection decision of 18 November 2022.

10. The Tribunal heard the matter on 27 April 2023. Both parents attended the hearing via conference telephone and gave affirmed evidence. The Tribunal had before it documentation provided by Child Support (folios 1 to 511), admitted into evidence and marked Exhibit 1, documentation provided by Ms Franco (folios A1 to A36) admitted into evidence and marked Exhibit A, and documentation provided by Mr Franco (folios B1 to B207), admitted into evidence and marked Exhibit B.

11. At the conclusion of the hearing, the Tribunal directed the parents to provide additional documents and submissions. In compliance with those directions, the parents have provided additional documentation, in Ms Franco’s case, folios A37 to A63, and in Mr Franco’s case folios B208 to B244, copies of which have been exchanged with the parents for consideration and comment. No further comments have been received from the parents and the additional documents have been added to the respective parents’ Exhibit A and B documents.

ISSUES

1. The issues which arise in this case are:

   ·      Whether a ground is established to depart from the administrative assessment of child support; and if so,

   ·      Whether it would be just and equitable to make a particular determination; and, if so,

   ·      Whether it is otherwise proper to make a particular departure.

CONSIDERATION

1. In reaching its decision, the Tribunal has considered the affirmed evidence given by the parents at the hearing and the documents contained in Exhibits 1, A and B before the Tribunal.

2. The statutory provisions relevant to this matter are contained in the Child Support (Assessment) Act 1989 (the Act). The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. A formula is used. It takes into account variables including each parent’s ATI for the last relevant year of income, the number of children, and the level of care provided by each parent. Part 6A of the Act allows for a departure from the administrative assessment (a process commonly known as a “change of assessment”). Under subsection 98C(1), the Registrar may make a departure determination if three matters are established:

   ·      One, or more than one, of the grounds for departure referred to in subsection 98C(2) exists (subparagraph 98C(1)(b)(ii));

   ·      A departure is just and equitable as regards the children and each parent (sub- subparagraph 98C(1)(b)(ii)(A)); and

   ·      It is otherwise proper to make a departure decision (sub-subparagraph 98C(1)(b)(ii)(B)).

3. Subsection 98(2) provides that the grounds for departure are the same as the grounds set out in subsection 117(2) of the Act.

4. If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the Registrar may make one of the determinations prescribed in section 98S of the Act. It permits a range of determinations, including varying the rate of child support payable, the adjusted taxable income or the cost percentage of the child.

Grounds for departure

1. Subparagraph 117(2)(c)(ia) provides as a ground for departure:

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

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

2. The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something that is special or out of the ordinary. That is, the intention of the legislation in section 117(2) must be guided by the qualification that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. In Gyselman and Gyselman (1992) FLC 92-279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The Tribunal will consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence relevant to the parents’ financial positions.

3. Both parents acknowledged and agreed at the hearing that the primary issue for determination by the Tribunal was Mr Franco’s ATI for child support purposes. Mr Franco acknowledged he did not seek to challenge the objections officer’s finding rejecting his claim for contribution by Ms Franco to the child, [Child 1]’s school fees.

4. Ms Franco’s initial application for change of assessment was lodged on 15 May 2022, and the assessment determination by the objections officer in the decision under review commences from the date of her application, 15 May 2022 to 31 May 2025, with increases in Mr Franco’s ATI determined at $80,000 increased on 1 June 2023 and 2024 by the Child Support Inflation Factor.

5. The financial years upon which the objections officer based the determination of Mr Franco’s ATI in the decision under review were 2020/21 and 2021/22, for which Mr Franco provided detailed financial reports for the business entity, [Company 1], the principal income source in issue, prepared by his professional accountant, [Mr A] of [Firm 1].

6. Mr Franco gave evidence that his principal source of income is from his regular day job as an [Occupation 1] in the employ of [Employer 1] in Western Australia on a current salary of approximately $73,000. The current payslips he provided reflect his gross income at $73,770 (see pages B78 to B83, Exhibit B). His other source of income is from the company, [Company 1], operated by him and his business partner [Mr B], both of whom are directors and 50% shareholders (see Australian Securities and Investments Commission (ASIC) search, pages A21 to A26, Exhibit A).

7. He gave evidence that [Company 1] operates a [business] under the registered business name of [Business 1] at [Address 1], Western Australia which he and [Mr B] purchased prior to the advent of the COVID-19 pandemic on a terms contract pursuant to which the vendor provided the purchase finance which Mr Franco and [Mr B] are repaying by periodic payments of $1,000 from the proceeds of the [business]. A copy of the vendor finance contract was provided by Mr Franco (see pages B210 and B211, Exhibit B). Mr Franco gave the following summary of [Company 1]’s operational structure.

8. [Company 1] conducts two business banking accounts with [Bank 1]:

   ·      [Bank 1] account number 4417 which records the income from [business operations]. This account is linked to the company’s EFTPOS credit card machine, the primary medium through which customers of the [business] pay their [fees];

   ·      [Bank 1] account number 3937 to which funds are remitted from [Company 1] account 4417 and from which the expenses of the business are paid. Both directors of the company have access to these accounts.

9. [Company 1] employs a [manager], [Ms C], cleaning contractors, [and other staff and contractors]. [Ms C] is responsible for the day-to-day running of the [business] which operates primarily in the evenings, Monday to Thursday from 6pm to 10pm catering for [regular] bookings, and Friday evenings for occasional [customers]. The busiest evenings are on Mondays and there are also occasional school bookings during the week. [Ms C] is responsible for recording [details] and other bookings for [business] usage on nightly cash sheets which reflect [specified] booking details, the method of payment to [Company 1]’s [Bank 1] 4417 bank account, the [employees] and other [staff] engaged for the night and their payments to each staff member for their nightly services. The [business] also caters for the sale of bottled water, soft drinks, confectionery and snack food and although the cash sheets provide for recording these details, the copies of the relevant sheets provided by Mr Franco (see pages B17 to B74, Exhibit B) do not reflect those details being recorded.

10. [Ms C] provided a summary of her responsibilities, operational procedures and salary arrangements at page B212, Exhibit B. Mr Franco said he also participates in the nightly operation of the [Company 1] business, attending between the hours of 6pm and 8.15pm on Mondays and Thursdays, and his co-director, [Mr B] attends to the business’s banking arrangements. Mr Franco gave evidence that [Ms C] is authorised to take cash from the business to make payment of her wages, [fees] and wages for other casual employees, to the extent that booking fees and retail sales are paid in cash at the [business] and from a cash float provided by [Mr B]. Mr Franco also gave evidence that [Ms C] is now paid her salary by regular bank funds transfers, as evidenced in the [Company 1] [Bank 1] bank account statements at pages B154, B155 and B162, Exhibit B. However, he denied drawing a salary from [Company 1] for his services.

11. He acknowledged in his evidence to the Tribunal that [Company 1] does not maintain a dedicated wages and salaries register, relying instead on the [Bank 1] account statements recording payment of [bookings] and expenditure for accounting purposes.

12. Mr Franco also gave evidence of his personal banking details comprising his joint [Bank 2] banking account number 2719 with his current partner [Ms D], his [Bank 3] [savings] account number 3058 into which his [Employer 1] salary is deposited and which services his personal [Bank 1] account number 0648. Copies of bank statements for the relevant periods for the bank accounts referred to in these Reasons were before the Tribunal at hearing and post hearing.

13. As noted above, Mr Franco provided copies of [Company 1]’s financial reports for the financial years 2020/21 and 2021/22 prepared by Mr Franco and the company’s accountants, [Firm 1] (see pages 344 to 352 and pages 383 to 391 of Exhibit 1). Mr Franco’s accountant also provided a letter dated 5 July 2022 attesting to the solvency of [Company 1] and forecasting a trading profit for the 2022 financial year of $5,000 (see page 258, Exhibit 1).

14. Mr Franco acknowledged in his evidence at the hearing that he does not challenge the objections officer’s determination of his ATI at $80,000, representing his combined [Company 1] and [Employer 1] incomes. He also gave evidence that he anticipates his [Employer 1] income will shortly increase to between $75,000 and $76,000, and that he has sought an increase to $80,000.

15. Ms Franco’s case at the hearing focused on the discrepancy between the nightly cash sheets and the deposits to the [Company 1] [Bank 1] account 4417 reflecting [registrations] for [business sales], the lack of any identifiable records for sales of drinks, confectionery and other retail items. She also complained of only receiving Mr Franco’s nightly cash sheets on Monday 24 April 2023 and not having sufficient time to consider and correlate the information in those sheets with the relevant [Company 1] banking records prior to hearing, in recognition of which, the Tribunal allowed her to provide further submissions post hearing, to which the Tribunal will refer later in these Reasons.

16. In the course of the objection process, Mr Franco acknowledged and agreed that his accountant had deliberately omitted bringing a number of expense items to account in the preparation of the financial reports and income tax return for [Company 1] for the 2020/21 financial year in order to reflect a significant profit of approximately $69,217. He acknowledged this in the course of his explanation for the dramatic change in the financial performance of [Company 1] reflected by the same accounting firm in the preparation of the financial reports and income tax return for the company for the following 2021/22 financial year, recording a loss of $903.99. He said the accountant prepared the 2020/21 financial reports to reflect the profit of $69,217 for the purpose of enhancing the prospects of Mr Franco’s business partner, [Mr B]’ prospects of successfully obtaining a housing loan.

17. In the course of his evidence to the Tribunal at the hearing, Mr Franco gave evidence of his significant previous year’s income tax debt of $9,000 recorded in his Statement of Financial Circumstances (SOFC) dated 9 January 2023, before the Tribunal at pages B1 to B9 of Exhibit B which he said had accrued as a consequence of the significant profit recorded in the financial reports and income tax return for [Company 1] for the 2020/21 financial year by omitting a number of expense items from the profit and loss statement for that year to achieve that result.

18. The Tribunal notes the objections officer specifically commented on this anomaly in the decision under review.

19. The [Company 1] financial reports for the 2020/21 and 2021/22 financial years, in particular, the expenses listed in those reports, were considered and discussed in detail with Mr Franco in the course of the Tribunal hearing. In the course of his responses to the Tribunal’s questioning, he acknowledged that the travel expenses of $7,368 related to his personal trip to Melbourne, ostensibly to inspect [business] equipment, but which he conceded was more in the nature of a personal benefit rather than a legitimate business deduction. He also conceded his personal telephone expenses were reflected in the telephone expenses of approximately $7,222 and $5,704 respectively claimed in the 2022 and 2021 [Company 1] financial reports. However, he said the motor vehicle expenses related solely to his co-director, [Mr B]’ motor vehicle, the only vehicle used in [Company 1]’s [business].

20. The Tribunal considers there is negligible advantage to Mr Franco’s financial position in adjusting the profit levels for the 2020/21 and 2021/22 financial years by adding back an appropriate apportionment of the travel and telephone expenses to reflect his personal benefit. The Tribunal has also considered the remaining expense items claimed for both financial years and determined them to be otherwise reasonable. However, in light of the questionable circumstances in which the profit for the 2020/21 financial year was contrived, the Tribunal is sceptical of the financial reports prepared by the accountants for the 2020/21 and 2021/22 financial years.

21. Ms Franco provided a detailed submission, post hearing, based on her analysis of the [Company 1] [Bank 1] account statements, nightly cash sheets and other financial data provided by Mr Franco. She noted in her submissions at pages A38 and A39 of Exhibit A that there were a number of missing documents as a consequence of which she could only make assumptions as to the ultimate level of income she suggested he was likely to have derived from the [Company 1] business, concluding with her estimate of his combined [Company 1] and [Employer 1] income at $110,000.

22. It is not the Tribunal’s function to conduct a forensic examination of the evidence provided by the parents to determine the probity of their cases. Ms Franco’s submission was based on extensive analyses of bank statements and other financial data and assumptions upon which the Tribunal is not confident to rely in making its determination as to the level of Mr Franco’s income and financial resources derived from his occupation and business activities.

23. To determine an approximate estimate of the financial position of [Company 1] for the 2020/21 and 2021/22 financial years, the Tribunal intends averaging the gross incomes and expenses reflected in the financial reports to those years to determine the level of profit available to Mr Franco and his co-director, [Mr B] by reference to the profit and loss statements prepared by Mr Franco’s accountants at the pages identified in paragraph 29 above:

    ·      [Company 1] 2020/21 recorded profit: $69,217.83

    ·      [Company 1] 2021/22 recorded loss ($903.99) = $68,313.84 average profit.

1. The Tribunal finds [Company 1]’s average profit over the course of the 2020/21 and 2021/22 financial years would have been $68,313.84, of which Mr Franco’s share would have been $34,156.92, rounded up to $34,157 for each of the 2020/21 and 2021/22 financial years.

2. Mr Franco’s year-to-date payslips for his [Occupation 1]’s occupation with the [Employer 1] service as at 22 July 2022 is reflected at page 68 of Exhibit 1 in DM Bowdern’s decision of 28 July 2022 as approximately $59,418. Adding his share of the [Company 1] profit for that year the Tribunal finds Mr Franco’s combined income for the 2021/22 financial year was approximately $93,575.

3. The underlying administrative assessment in place from 1 June 2022 to 31 July 2022 required Mr Franco to pay child support based on his ATI set at $37,970. The Tribunal has found his adjusted taxable income for the 2021/22 financial year was approximately $93,575, making the assessment unfair, unjust and inequitable, the case special and a ground for departure 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’ requirements and any hardship that would be caused by departing or not departing from the formula. The Tribunal has considered each of the factors in subsection 117(4) and does not propose to provide detailed reasons about each of the considerations but will discuss those it regards as pertinent in this review.

2. Both parents provided SOFCs.

3. Mr Franco affirmed his SOFC dated 9 January 2023, reporting his occupation as an [Occupation 1] employed with [Employer 1] on a salary of between $73,000 and $75,000 per annum. He lists his interest in the [business] conducted by [Company 1], of which he is a co-director and 50% shareholder with [Mr B], but does not attribute any income from that source, or ascribe any value to his interest in the company. He reports his current partner, [Ms D]’s gross weekly income of $3,126 (annualised to $162,552).

4. His assets totalling $291,938 comprise his 50% interest in his residential property, valued at $260,000, modest bank savings of $1,938, a [motor vehicle], for which he has ascribed no value, his shareholding in [Company 1], to which he has not ascribed any value and household contents valued at $30,000.

5. His liabilities totalling $299,260 comprise his 50% share of a [Bank 2] house mortgage debt, the outstanding income tax debt of $9,000 on his share of the 2020/21 contrived profit from [Company 1], credit card debt of $4,101, solar panel debt of $3,750 and his share of the outstanding balance of purchase moneys for [Company 1] of $64,000. He reports superannuation of $40,000 with [Fund 1], personal weekly expenditure on PAYG tax, superannuation contributions and child support totalling $660.32, and average weekly household expenses totalling $1,132.90, annualised to $58,911, including contribution to mortgage payments of $281, car payments of $230.90 and education costs of $81.

6. Ms Franco did not challenge Mr Franco’s evidence with respect to his SOFC.

7. Ms Franco provided a SOFC dated 2 December 2022. At the time of completion of her SOFC she was employed in an administrative capacity with [Employer 2] on an annual salary of $12,480.72 according to the payslip she provided at page A33, Exhibit A, and receiving jobseeker payments up until 5 December 2022 of $256.56 per week. At the hearing, she amended her statement to reflect her current employment with [Employer 3], since 20 December 2022 on a salary of approximately $70,000, for which she provided copies of her payslips from 20 December 2022 to 28 February 2023 (see pages A27 to A32, Exhibit A). She also amended her receipt of weekly family tax benefits A and B from $171.77 to $180 and listed weekly carer allowance of $68.25.

8. She reported no other income earners residing in her household.

9. Ms Franco listed assets totalling $395,300, comprising her residential property valued at $375,000, bank savings of $7,300, a [motor vehicle] valued at $3,000 and household contents valued at $10,000, liabilities comprising mortgage debt on her home to [Bank 4] of $215,326, and superannuation of $37,790. Her listed weekly personal expenditure was negligible at $22 for health insurance premiums and her average weekly household expenses totalling $961 (annualised to $49,972) comprising mortgage payments of $300, and food and other usual household and motor vehicle items, none of which were extraordinary.

10. There was no evidence before the Tribunal to suggest any of the children had special needs, or that either parent had health or other special needs.

Conclusion

1. The Tribunal has found a ground for departure from the administrative assessment established with respect to Mr Franco’s adjusted taxable income for the 2021/22 financial year determined at $93,575, compared with the income of $37,970 applied in the assessment for the period 1 June 2022 to 31 July 2022 and will vary his income from 1 June 2022 to 31 October 2024 to $93,575. To provide some certainty about the child support obligations the Tribunal has decided to extend the period of its determination to 31 October 2024.

2. A comparison of the proposed change to Mr Franco’s adjusted taxable income referred to above with the underlying assessment would produce the following results:

   ·      From 1 June 2022 to 31 July 2022, using Mr Franco’s income of $93,575 and Ms Franco’s income of $42,848 would produce an annual rate of around $12,231 compared to the underlying assessment’s annual rate of $1,242;

   ·      From 1 August 2022 to 12 May 2023, using Mr Franco’s income of $93,575 and Ms Franco’s income of $33,979 would produce an annual rate of around $12,786 compared to the underlying assessment’s annual rate of $6,471.

3. The Tribunal is satisfied a departure in this manner is just and equitable and will not cause either parent or the children to suffer any undue hardship.

4. The Tribunal is satisfied Ms Franco’s income will be reflected in the assessment based on her income tax returns in the normal course of the formula assessment process.

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 effects 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. Varying Mr Franco’s income upon which child support is calculated from that used in the administrative assessment, based on his income and financial resources as set out above which are not reflected in the administrative assessment will result in an appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that Mr Franco’s adjusted taxable income for the period 1 June 2022 to 31 October 2024 is varied to $93,575.