Fry and Peyton (Child support)

Fry and Peyton (Child support) [2020] AATA 1035 (16 March 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2019/SC017102
APPLICANT:  Ms Fry
OTHER PARTIES:  Child Support Registrar
Mr Peyton

TRIBUNAL:Senior Member A Freeman
DECISION DATE: 16 March 2020
DECISION:

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

· For the period from 2 July 2018 until 31 July 2020, Mr Peyton’s adjusted taxable income is varied to $154,707 per annum; and
· For the period from 14 October 2019 until 31 July 2020, Ms Fry’s adjusted taxable income is varied to $140,000 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – earning capacity of 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

Ms Fry and Mr Peyton are the parents of two children. Each parent’s care percentage at the time of the objection decision was recorded as 50% for each child for the purposes of assessing child support. On 17 September 2018, Ms Fry’s care percentage concerning the eldest child increased to 100%.
Ms Fry lodged an application with the Department of Human Services (the Department) on 7 August 2018 seeking a departure from the administrative assessment of child support. At the time of the application, Ms Fry was liable to pay an annual rate of child support of about $686 to Mr Peyton. This was calculated using an adjusted taxable income (ATI) of $131,735 for Ms Fry and an ATI of $123,630 for Mr Peyton.
On 27 March 2019, the Department found that grounds to depart existed and varied Mr Peyton’s ATI to $164,400 for a period from 13 June 2018 to 31 October 2020.
Mr Peyton objected to this decision and on 30 July 2019 an objections officer allowed the objection and varied Mr Peyton’s ATI to $123,630 for a period from 1 July 2019 to 2 August 2019.
Ms Fry has sought a further review of this decision.
Ms Fry submits that Mr Peyton’s earning capacity makes the assessment of child support unfair. Mr Peyton contends that child support should be assessed based on the income reflected in his tax returns.
The Tribunal hearing was conducted on 16 March 2020. 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 Fry (exhibit 2) and the documentation provided by Mr Peyton (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 earning capacity 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).

Ms Fry’s initial change of assessment application sought a departure from the assessment in place at the time on the grounds that, in the special circumstances of the case, Mr Peyton’s earning capacity made the assessment of child support unfair because it was greater than that which is reflected in his income for the purposes of the Act.
A ground to depart from the administrative assessment of child support may exist if, in the special circumstances of the case, the application of the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent because of either parent’s income, property and financial resources[4] or the earning capacity of either parent[5].
[4] See subparagraph 117(2)(c)(ia).
[5] See subparagraph 117(1)(c)(ib).
The term “special circumstances” is not defined in the Act. In Gyselman v 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.
Under the Act, in order to find that a ground to depart exists because of the earning capacity of Mr Peyton, 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 weekly hours of work to below full-time work (subparagraph 117(7B)(a)(ii)); and/or
iii.has changed his occupation, industry or working pattern (subparagraph 117(7B)(a)(iii)); and
b)    the parent’s decision about his work arrangements is not justified by either his caring responsibilities (subparagraph 117(7B)(b)(i)) or his 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.
It is also necessary to consider whether it would be possible for the parent to increase their income by changing work arrangements. That is, work must be available for the parent in their area and the parent must have the necessary qualifications and experience to perform that work.
Mr Peyton is currently employed as [an occupation 1] in a [business]. From October 2017 up until 2 July 2018, Mr Peyton was employed full-time. His full-time salary was $180,000 gross per annum including superannuation, or $164,400 excluding superannuation.
The evidence before the Tribunal is that on 18 June 2018, Mr Peyton approached his employer and sought a reduction of his hours of work.
Following this, as of 2 July 2018, Mr Peyton commenced working the equivalent of four days each week, working a half day Thursday, Friday, Monday and Tuesday each fortnight.
This reduced his salary to $135,000 per annum including superannuation, or $123,630 excluding superannuation.
By way of background, the Tribunal heard evidence that the parties separated in early January 2018 but continued to live in the matrimonial home until Ms Fry moved out on 2 July 2018.
Mr Peyton told the Tribunal that the change in working arrangements was promoted by Ms Fry moving out of the family home and the need to provide greater support to his daughter who was struggling to cope with the separation. According to Mr Peyton, the reduction to some half days at work was arranged so that he could pick up his daughter from school in the weeks she spent time with him.
Ms Fry contends that the only reason Mr Peyton reduced his income was because she had applied to the Department for an assessment of child support on 13 June 2018 and he immediately took steps to reduce his income in order to affect such assessment.
The first criteria to be considered under the Act is whether Mr Peyton has reduced the number of hours worked per week below the normal number of hours per week that constitutes full-time work for the occupation or industry in which he is employed or otherwise engaged. There does not appear to be any dispute on the material that as at 2 July 2018, Mr Peyton’s hours of work were reduced to the equivalent of four days per week, when previously he had worked five days per week.
Therefore, the Tribunal finds that the first criteria under subparagraph 117(7B)(a)(ii) of the Act is satisfied.
The second criterion requires a consideration of whether the decision to cease work was justified by Mr Peyton’s caring responsibilities.
Mr Peyton told the Tribunal that he changed his work arrangements so that he could pick up his daughter from school the week she spent time with him and that she was significantly affected by the circumstances of the parents’ separation such that he was required to spend extra time with her.
Prior to separation, the children were enrolled in a day care facility that provided before and after school care for the children whilst they attended primary school. This enrolment commenced in 2017 and ended at the end of last year as a result of the youngest finishing primary school.
Ms Fry, both before and after separation, maintained full-time employment and utilised the day care arrangements in the weeks the children spent time with her to facilitate this.
Whilst the Tribunal accepts that a breakdown of the marital relationship between the parents is likely to have an effect upon the children, this is regrettably a scenario that confronts many families facing separation. The Tribunal finds that given the care of the children was shared equally at the time, both parents had the same caring responsibilities for the children. Despite these caring responsibilities, Ms Fry was able to maintain full-time employment by utilising the arrangements that were put into place prior to separation concerning before and after school care.
Therefore, in the circumstances, the Tribunal concludes that the decision to reduce his working hours to below full-time was not justified by Mr Peyton’s caring responsibilities at the relevant time because he had the same responsibilities as Ms Fry and she was able to maintain full-time employment and Mr Peyton had options open to him that would have allowed him to continue to work full-time.
Finally, the Tribunal also must consider whether Mr Peyton has demonstrated that it was not a major purpose of the decision to change his work arrangements to affect the administrative assessment of child support.
This is a rebuttable presumption that the parent who has reduced their work hours must discharge to the Tribunal’s satisfaction. It is a subjective test and the Tribunal is required to consider what the parent’s purposes were in making the decision about working arrangements. It is not necessary to be satisfied that the parent’s decision was objectively reasonable, but the reasonableness of the decision is a factor that may be taken into account.
In considering this issue, the Tribunal considers the timing of and the circumstances surrounding Mr Peyton’s decision to reduce his work hours to be significant.
As noted above, Ms Fry made an application for the assessment of child support by the Department on 13 June 2018. Mr Peyton was notified of this by telephone on 15 June 2018. On 18 June 2018, Mr Peyton approached his employer with the intention of reducing his work hours, purportedly so that he could take his daughter to and from school when she was in his care. The difficulty with this proposition is that at this time Ms Fry had not moved out of the family home and the arrangements regarding the children had not yet been determined.
In an email to the Department dated 22 June 2018, Mr Peyton stated as follows:
I confirm that the above child support application appears to be premature. My solicitors have written to the Applicant’s solicitors in relation to having the application withdrawn in the circumstances. We are yet to receive a reply.
I confirm that the Applicant, both children of the marriage, and I continue to cohabit the family home. The Applicant and I have been sharing all of the costs of the home and the children and are presently paying the costs 50/50. As there is no parenting plan in place and the Applicant and I share the responsibilities as the care of the children equally.
My wife and I (through our respective solicitors) are having discussions in relation to parenting after separation but we have not yet reached an agreement. In anticipation of putting into effect my care proposals on separation my employer, [named], has prepared a Variation of Employment document. It states that it can commence on 2 July 2018, however, it will commence in due course upon orders being agreed or ordered. A copy of that Variation of Employment document is attached for your information.
Therefore, as at 22 June 2018, the parties were still living under the one roof and arrangements regarding any future separation and the care of the children had yet to be determined. Despite this, Mr Peyton took steps to arrange a reduction in working hours with his employer. The only thing that changed as at 18 June 2018 when Mr Peyton approached his employer about reducing his hours was the fact that Ms Fry had made an application for the assessment of child support by the Department.
It is apparent from the email above and correspondence between the parties’ solicitors at the relevant time, that Mr Peyton objected to the application by Ms Fry for the assessment of child support by the Department and considered it inappropriate.
Therefore, in the circumstances the Tribunal does find that a major purpose of the decision to reduce Mr Peyton’s working hours to below full-time was to affect the assessment of child support, particularly when he objected to the initial application made by Ms Fry and he made changes to his working arrangements almost immediately after he was made aware of this application.
Whilst Mr Peyton provided other reasons that he says led to the decision to reduce his work hours, the Tribunal does not have to be satisfied that affecting the assessment of child support was the only purpose for the decision, just that it was a major purpose. The Tribunal is satisfied, based on the timing of the decision, some three days after being notified of Ms Fry’s application for the assessment of child support and in circumstances where there was no agreement in place as to the care arrangements for the children and no other circumstances existed at the time that might have justified Mr Peyton’s decision to reduce his hours and therefore his income, that affecting the assessment of child support was a major purpose of the decision.
Therefore, the Tribunal is satisfied that all the criteria under subsection 117(7B) have been met and the Tribunal may then consider whether Mr Peyton’s earning capacity is greater than what is reflected in his income and whether the assessment of child support is rendered unfair because of that greater earning capacity.
At the time of Ms Fry’s change of assessment application, the ATI for Mr Peyton that was applied to the assessment of child support was $123,630. Prior to July 2018, Mr Peyton’s full-time income was $164,400 gross per annum (minus superannuation).
The Tribunal concludes, based on the evidence before it, that Mr Peyton could have continued with his full-time employment beyond 2 July 2019 if he chose to do so and had he done so, he would have continued to earn the same amount he had in the 2017/2018 year, being about $164,400 gross per annum.
There is a considerable difference between the ATI of $123,630 and the figure of $164,400 per annum determined by the Tribunal above as representing Mr Peyton’s earning capacity.
Therefore, the Tribunal considers, in the special circumstances of the case, that Mr Peyton’s earning capacity is greater than that reflected in his income for the purposes of assessing child support and this renders the assessment of child support unfair such that a ground to depart has been established.
The Tribunal must now consider whether it is just and equitable to depart from the administrative assessment of child support.

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.

Ms Fry’s circumstances

Ms Fry is currently employed full-time. Her income as of 14 October 2019 is $140,000 gross per annum. Prior to that, she worked for a different employer. Her 2018/2019 taxable income was $128,238 which included an amount of $12,464 representing net capital gains received from the sale of [a product] in that financial year. Mr Peyton raised some issues regarding the ownership of that [product] (he claims to own 50%) but that is not a matter for the Tribunal to determine on this review application. What is relevant is how the Tribunal ought to take this into account in terms of Ms Fry’s income and financial resources. There did not seem to be any dispute between the parties that the capital gains received by Ms Fry were included in her tax return and therefore were reflected in her taxable income for that year.
Whilst Mr Peyton raised issues regarding Ms Fry’s earning capacity during the change of assessment process, the Tribunal finds that Ms Fry has maintained full-time employment over the last three years at least and her income has increased as of October 2019. Therefore there is no basis for a finding that she has reduced her work hours to below full-time or stopped working such that the first criteria under paragraph 117(7B)(a) would be triggered. Therefore the Tribunal cannot consider whether her earning capacity is greater than that reflected in her income.

Since separation Ms Fry since has re-partnered and lives with her partner and the children when they are with her.
There are property settlement proceedings on foot in the Family Court as between the parties and in late July/early August 2019, both parties received an interim distribution of $500,000 each from the matrimonial property pool, following the sale of the family home.
Ms Fry utilised her distribution to contribute to the purchase of a home with her partner and they moved into this residence in early 2020. Ms Fry told the Tribunal that since then, both their incomes are deposited into a joint account and these are pooled and then used to pay their household expenses.
Ms Fry told the Tribunal that her son, the subject of this assessment, has recently been receiving psychological treatment but that both parties currently share these costs.

Mr Peyton’s circumstances

Mr Peyton’s financial circumstances have been outlined in some detail above.
Mr Peyton has lived with his parents since the sale of the matrimonial home last year.
He pays $500 per week in board to his parents and also contributes to groceries for the household. He estimates his average weekly expenses amount to about $1,763 per week which includes about $200 per week in insurance premiums and about $160 per week to run his car.
As already noted, Mr Peyton also received a distribution from the matrimonial property pool of $500,000 in late July/early August last year. He told the Tribunal that he loaned about $95,000 to his partner which she is paying back with interest. The interest component amounts to about $36.54 per week.
Mr Peyton told the Tribunal that there is about $1.5 million still remaining in the property pool which is subject to the Family Court proceedings that will determine to how that is to be distributed between the parties in the future.

Consideration of whether a departure is just and equitable

a)Mr Peyton’ s income and earning capacity

As outlined above, the Tribunal finds that Mr Peyton’s earning capacity is greater than that reflected in the ATI of $123,630 as applied to the assessment of child support at the time of Ms Fry’s change of assessment application.
But for the reduction in work hours, Mr Peyton would have earned $164,400 gross per annum and had done so since October 2017.
Mr Peyton told the Tribunal that it was likely that he would return to full-time work in July 2020.
Despite the reduction in Mr Peyton’s work hours, in the 2018/2019 financial year, Mr Peyton’s total income was $160,847 which included about $38,184 net paid to him in relation to an outstanding invoice generated when he operated his own firm.
The total amount of this invoice was $68,941 but about $30,757 worth of work-related expenses was deducted from this to arrive at the net figure of $38,184. About $6,475 of these expenses related to depreciation on computers and office equipment, which was confirmed as a book entry, rather than an actual expense. The Tribunal therefore considers it appropriate that this amount be added back to Mr Peyton’s income.
Mr Peyton’s taxable income that year was $148,232 following the deduction of about $12,615 in expenses which included an amount of $11,353 representing interest charged by the ATO. If the depreciation expense of $6,475 is added back to this amount, a figure of $154,707 results.
If an ATI of $154,707 for Mr Peyton is applied to the assessment of child support,[6] an annual rate of $7,791 results. This amounts to about $150 per week for both children. A gross income of $154,707 per annum amounts to about $2,054 net per week. Taking into account Mr Peyton’s expenses (about $1,763 per week) and other financial resources, including his ability to lend to another person about $95,000 in August 2019, the Tribunal considers that he has the capacity to pay the annual rate that results if an ATI of $154,707 is applied to the assessment of child support.
[6] Using a care percentage for the eldest child of 100% and an ATI of $131,735 for Ms Fry.
The Tribunal therefore finds that it is just and equitable to vary Mr Peyton’s ATI for the purposes of assessing child support to $154,707 from 1 July 2018.

b)Ms Fry’s income and financial resources

Ms Fry is in full-time employment and from 14 October 2019, commenced earning $140,000 gross per annum.
The ATI for Ms Fry that was applied to the assessment of child support as at the date of the objection decision was $131,735 which was based on her 2017/2018 taxable income. Given the increase in Ms Fry’s income from 14 October 2019, the Tribunal considers it appropriate to vary Ms Fry’s ATI from that date to $140,000 per annum so that it adequately reflects her income and financial resources.

c) Length of decision

Ms Fry made her change of assessment application on 7 August 2018. The Tribunal may vary the assessment up to 18 months prior to this date without leave of the court if it considers it is just and equitable to do so.
The Tribunal has made findings regarding Mr Peyton’s income from 2 July 2018 (when his change in working arrangements was put into effect). The Tribunal therefore considers it appropriate to commence its decision from that date.
Ms Fry submitted that any decision made by the Tribunal should apply for at least 12 months from the date of the decision so that there can be some certainty for the parties going forward.
Mr Peyton gave evidence that he was considering a return to full-time work from July 2020. This clearly suggests that full-time work is available to Mr Peyton and but for his decision to reduce his work hours in June 2018, he would have continued to earn an income in excess of $160,000 gross per annum. The Tribunal therefore considers that it is appropriate that the variation to Mr Peyton’s ATI as proposed above continue up until his return to full-time work occurs. Once this does occur then it is likely that Mr Peyton’s income would be greater than that assessed by the Tribunal currently and Ms Fry would then be required to lodge a further change of assessment application in order to have the assessment rectified to reflect the true position. This is undesirable.
In the circumstances, the Tribunal therefore considers it appropriate to end the decision on 31 July 2020 to allow for any changes in Mr Peyton’s income to take effect thereafter.

Issue 3 – 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.
Neither parent is in receipt of family tax benefits. Therefore the proposed departure is unlikely to have any impact upon cost to the community. The Tribunal therefore considers that the departure proposed is otherwise proper in the circumstances of this case.

DECISION
The Tribunal sets aside the decision under review and, in substitution, decides as follows:

For the period from 2 July 2018 until 31 July 2020, Mr Peyton’s adjusted taxable income is varied to $154,707 per annum; and
For the period from 14 October 2019 until 31 July 2020, Ms Fry’s adjusted taxable income is varied to $140,000 per annum.

[2020] AATA 1035

16 March 2020

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Jurisdiction

Statutory Construction

Remedies

Judicial Review