Gardener and Edwards (Child support)

[2019] AATA 5020

Gardener and Edwards (Child support) [2019] AATA 5020 (2 October 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/SC015625

APPLICANT:  Mr Gardener

OTHER PARTIES:  Child Support Registrar

Ms Edwards

TRIBUNAL:Member J Thomson

DECISION DATE:  2 October 2019

DECISION:

The decision under review is set aside and a decision substituted that Mr Gardener’s departure application, lodged 13 June 2018, is refused.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the carer parent - benefits derived from business – no special circumstances – no grounds for departure – application for departure is refused - 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. Mr Gardener and Ms Edwards are the parents of [Child 1], born 2003. [Child 1] is recorded as being in the primary care (81%) of Ms Edwards, and the regular care (19%) of Mr Gardener. Mr Gardener is the parent liable to pay child support to Ms Edwards.

2. For the period 1 January 2018 to 31 March 2019, the administrative assessment formula requires Mr Gardener to pay Ms Edwards an annual rate of child support of $7,266. This assessment was based on Mr Gardener’s adjusted taxable income for the 2016/17 financial year of $89,419, and Ms Edwards’ provisional income for the 2016/17 financial year of $60,125.

3. On 13 June 2018, Mr Gardener applied for a change of assessment on the ground commonly referred to as Reason 8A, that Ms Edwards’ income, property and financial resources made the child support assessment unfair.

4. On 16 August 2018, a Department decision maker, [named] refused Mr Gardener’s application, finding no reason to change the assessment had been established.

5. On 26 September 2018, Mr Gardener objected to [this] decision, and on 22 November 2018, a Department objections officer allowed Mr Gardener’s objection, setting aside [the] decision of 16 August 2018 and, in substitution, deciding that for the period 13 June 2018 to 31 December 2020, Ms Edwards’ adjusted taxable income should be set at $141,234.

6. On 17 December 2018, Mr Gardener applied to the Tribunal for review of the objections officer’s decision of 22 November 2018.

7. The Tribunal heard the matter on 4 June 2019. Mr Gardener attended the hearing in person and gave affirmed evidence. Ms Edwards attended the hearing via conference telephone and gave affirmed evidence. The Department provided documentation, admitted into evidence and marked Exhibit 1. Mr Gardener, and Ms Edwards both provided documentation, admitted into evidence and marked, respectively, Exhibits A and B.

8. At the conclusion of the hearing, the Tribunal directed Ms Edwards to provide further documents and information. The additional documents provided by her have been added to Exhibit B, and copies have been provided to Mr Gardener for his consideration and comment.

CONSIDERATION

1. In reaching its decision, the Tribunal has considered the affirmed evidence given by both parents at the hearing, the documentation provided by the Department (Exhibit 1), the documents provided by Mr Gardener (Exhibit A) and the documents provided by Ms Edwards (Exhibit B).

2. The statutory legislation relevant to this matter is 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 which takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent. A parent may apply for a departure from the assessment, under Part 6A of the Act, in certain circumstances. However, the legislative intent is that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. Under subsection 98C(1), a change of assessment can be made only if:

   (a)    a ground (or more than one ground) for departure exists; and

   (b)    departure from the administrative assessment would be:

   (i)   just and equitable as regards the children and each parent; and

   (ii)     otherwise proper.

3. Subsection 98C(2) of the Act provides that the grounds for departure are the same as those set out in subsection 117(2). 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 Tribunal may make one of the range of determinations, prescribed in section 98S of the Act, which include varying the rate of child support payable, the adjusted taxable income or the cost percentage of a child.

Grounds for departure

Income, property, financial resources and earning capacity

1. The Act provides, as grounds for departure from the administrative assessment of child support (in subparagraph 117(2)(c)(ia)):

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

   (ia) because of the income, property and financial resources of either parent.

2. 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 which is special or out of the ordinary. 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. Mr Gardener did not challenge the objections officer’s determination of Ms Edwards’ adjusted taxable income for the period 13 June 2018 to 31 December 2020 at $141,234. His case at hearing was that Ms Edwards’ income, property and financial resources available to her for child support purposes should be reviewed for a period of 18 months prior to the date of his application for change of assessment on 13 June 2018 ( i.e. from 13 December 2016), because Ms Edwards had not filed income tax returns for the past three years, and her income reflected in the administrative assessment of child support for the period 13 December 2016 to 13 June 2018 did not accurately reflect her actual income and financial resources available to her for child support purposes for that period.

4. He asserted the objections officer’s determination of her adjusted taxable income at $141,234 did not take into account shares issued to Ms Edwards by the [Business 1] company ([Business 1]), from whom she purchased [products] for sale/distribution in the [specified regions], under her business name, [Business 2] (the business). He asserted these shares had a monetary value which should be taken into account as a financial resource for child support purposes.

5. He also asserted that Ms Edwards receives bonus payments from [Business 1], which are not reflected in her income tax returns, that she owns [an expensive model] motor vehicle, and travels interstate and overseas regularly, which, he said, suggests she is deriving a substantial income from the business. He also asserted that Ms Edwards disproportionately shares the income from the business with her partner, [Mr A], in order to reduce her income and child support liability.

6. Mr Gardener acknowledged in evidence that [Mr A] did participate to a limited extent in the conduct of the business, but asserted he was essentially a “stay at home” partner, responsible for caring for Ms Edwards and [Mr A’s] children,

7. In her evidence to the Tribunal, Ms Edwards said she does not dispute Mr Gardener’s 2016/17 adjusted taxable income at $89,419 used in the administrative assessment of child support payable by Mr Gardener. She denied receiving any shares in [Business 1], and disputed the objections officer’s determination of her adjusted taxable income at $141,234 for the period 13 June 2018 to 31 December 2020, contending that her income for the financial years 1 July 2016 to 30 June 2018 was never more than approximately $40,000 per annum.

8. She acknowledged that she did receive bonus payments from [Business 1], but said these payments were recorded in a bonus summary maintained and published by [Business 1], copies of which she provided to the Tribunal. She said she provided these summaries to her accountants, [named] for inclusion in her income tax returns.

9. Ms Edwards gave evidence of her work history from the date she was made redundant in December 2012 to the date of the hearing.

10. She said she received a redundancy payment in December 2012 upon which her adjusted taxable income for the 2013/14 financial year was based. She said she did not derive any taxable income for the period December 2012 to 30 June 2015.

11. Although Ms Edwards gave no direct evidence as to precisely when she commenced her [Business 2] business, it seems from the bank statements she provided to the Tribunal that it may have been during the course of the 2015/16 financial year. In any event, Ms Edwards provided the Tribunal with copies of the [Business 1] bonus summaries reflecting bonus payments made to her for the 2016/17 and 2017/18 financial years, together with copies of financial reports for the business for those financial years. She also provided copies of the [Business 1] bonus summaries for the financial year 1 July 2018 to 30 June 2019 which she intended submitting to her accountant for preparation of her 2018/19 income tax return.

12. She gave evidence that her business operates on a [business model] basis. She has no formal written [contract] with [Business 1], the [company] based in [Country 1] which supplies her with its [products]. She gave evidence that she derives her income from bonuses paid to her by [Business 1] based on [product] stock orders she places with the company. She said that the level of bonuses she receives is geared to the value of [products] she purchases from [Business 1], subject to the requirement that she places and pays for stock orders to a minimum value of $130 per month. She said she outlays significant funds purchasing essential stocks for the business, and the recent high level of her purchases of [Business 1] [products] qualified for the corresponding [level] status bonus payments reflected in the bonus summaries she provided to the Tribunal. Ms Edwards said that since commencing the business, she has established a marketing network of some 4,300 clients located predominantly in [specified regions], through whom she distributes the [products] she purchases from [Business 1].

13. Ms Edwards gave evidence that [Business 1] also promotes courses in the conduct of [related services] sessions, using its [products]. She said she and [Mr A] conduct these courses as well as seminars on the marketing, application and benefits of [her] products throughout the regions in which she has established her client network.

14. She said she conducts her business from home, utilising [venues] as contact points with her clients, and renting [venues] and other similar venues in the regions she services for the purpose of conducting seminars to promote her [products] and [related services] sessions, in the course of which she is required to travel extensively, and incurs significant motor vehicle, accommodation and venue hiring costs related to that travel.

15. She gave evidence that she outlays funds to provide [refreshments] for clients and prospective clients as part of her [venue] marketing technique, and also distributes some of the stock products she purchases from [Business 1] together with other “gifts” of [products] she buys as incentives to her [network].

16. During the initial stages of the establishment of her business, she said her current partner, [Mr A], supported her from his income as [an occupation 1], until the business began returning a taxable profit in the 2016/17 financial year.

17. Ms Edwards said she returns the bonus and other income she derives from the business in her own name as a sole trader. From 1 July 2017, she said [Mr A] became a partner in the business, and quit his [occupation 1] employment with [Business 3] in August 2017. Ms Edwards gave evidence that since that date [Mr A] has assisted in the operation of the business, accompanying her on trips to regional areas where she conducts seminars and other business promotional activities, assisting in the setting up of conferencing facilities, and the hosting of her seminars and promotional functions. She said he also accompanies her when she travels to [Business 1’s] annual conference in [Country 1]. She said a formal written partnership agreement between her and [Mr A] was prepared and executed, but did not provide a copy of that document, in spite of the Tribunal’s direction at hearing that she do so.

18. She gave evidence that she achieved [level] status in December 2018, receiving $23,244.80 in November 2018, but she had incurred expenses of $12,000 in product purchases to achieve that bonus level. She also incurred travel, accommodation, fuel and other expenses to reach that level of bonus income.

19. The Tribunal has scrutinised the [Business 1] bonus payment summaries provided by Ms Edwards for the periods 1 July 2016 to 30 June 2017, and 1 July 2017 to 30 June 2018 reflecting total payments of $87,067.65 and $154,897.03 respectively. The bonus summary for the 2018/19 financial year provided by Ms Edwards was not complete – there were no payments recorded for the March, April and June months of that year. Averaging the total of recorded payments for the period 1 July 2018 to March 2019 of $136,519.67 reflected a likely total of bonus payments for that period of $182,026.22 ($136,519.67 / 9 x 12 = $182,026.22).

20. The financial statements for the business for the 2016/17 and 2017/18 financial years prepared by Ms Edwards’ accountants, and provided to the Tribunal by Ms Edwards reflected receipt of the bonus payments referred to above as part of the gross income of the business. These receipts, when added to stock on hand reflected gross incomes for the 2016/17 and 2017/18 financial years of $102,590 and $183,075 respectively. Allowing for cost of purchases, freight and cartage of $49,066 and $108,197 for the respective years, resulted in net gross incomes of $53,524 and $74,878 respectively. The expenses for those financial years equalled the net sales for the business, reflecting $0 profit for both years.

21. The Tribunal has scrutinised the expense items claimed for those years. With the exception of the travel expenses claimed in the 2017/18 financial year of $22,563, compared with the corresponding item for the 2016/17 financial year of $5,091, the Tribunal considers the remaining expense items unremarkable. Notable among the expenses for each of those years were the partners’ wages of $33,944 and $36,921 respectively.

22. Mr Gardener asserted at hearing that Ms Edwards was sharing the profits of the business with [Mr A], or alternatively, he was being paid a salary from the business. As noted above, Ms Edwards gave evidence that once it became apparent the business was capable of returning profits, [Mr A] resigned from his [occupation 1] position with [Business 3] to work permanently in the business, becoming a partner from 1 July 2017.A copy of [Mr A’s] income tax return for the 2016/17 financial year was produced by Ms Edwards at the direction of the Tribunal. It reflected his only sources of income for that year as [Business 3] ($61,072), and [another named business] ($7,437).

23. The Tribunal noted that the financial statements Ms Edwards provided for her business suggested, by reference to the headings on those documents (“[business partner names]”), the existence of a partnership from the commencement of the 2016/17 financial year. When questioned by the Tribunal, Ms Edwards gave evidence that [Mr A] did not become a partner in the business until 1 July 2017, and the suggestion of a partnership existing for that financial year by reference to the heading on the profit and loss and balance sheet statements for that year was an erroneous misrepresentation on the part of her accountant in preparing the financial reports.

24. At the direction of the Tribunal, Ms Edwards provided copies of her 2016/17 and 2017/18 income tax returns as prepared by her accountant, reflecting the return of wages of $33,944 and $36,921 respectively, corresponding with the partners’ wage items reflected in the profit and loss statements for her business for those years. Ms Edwards also provided a copy of [Mr A’s] 2017/18 income tax return, reflecting his only source of income for that year from his employment as [an occupation 1] with [Business 3]. The Tribunal is satisfied, on the evidence before it, that [Mr A] did not receive any income from the business for the 2016/17 or 2017/18 financial years, and that the wages reflected in the profit and loss statement for the business for those years were paid to Ms Edwards and accounted for as income in her income tax returns for the 2016/17 and 2017/18 financial years.

25. Ms Edwards gave evidence that until January 2019, she used her [car 1] vehicle for travel purposes in connection with the business. She gave evidence that she did not maintain a motor vehicle log book recording the business use of her vehicle, and on her accountant’s advice, she claimed the nominal, Australian Taxation Office accepted motor vehicle expenses allowance of $3,500 for each of the 2016/17 and 2017/18 financial years, which she said was reflected in the accounts of the business and is attributable to 90% of the registration, maintenance and running costs of the vehicle. The Tribunal considers this to be a reasonable apportionment of business use for that vehicle and that no adjustment of that item should be made to reflect Ms Edwards’ personal use of the vehicle.

26. Ms Edwards said that the [car 1] motor vehicle was replaced in January 2019 by a 2011 [expensive model vehicle] she acquired for use in the business, the purchase price for which was funded by a loan of $25,000 from her mother, [Ms A], facilitated by Ms Edwards’ sister, [named] in her capacity as [Ms A’s] duly constituted attorney. Evidence was provided to the Tribunal of that loan and the repayment arrangements of $500 per month, which Ms Edwards said was paid from the business account when funds permitted, and otherwise from her personal bank account. She gave evidence that the [car 1] motor vehicle has been retained for the family’s personal transportation needs.

27. Ms Edwards acknowledged in evidence that [Mr A] accompanied her on the occasions she travelled to the various country regions she serviced as part of her [Business 2] marketing operation, and the conferences held in [Country 1] by the parent company, [Business 1]. As noted above, there was a significant increase in the travel costs for the business reflected in the profit and loss statement for the 2017/18 financial year, compared with the corresponding figure for the 2016/17 year of $5,091. The Tribunal directed Ms Edwards to provide a copy of her business travel log, but she failed to do so. In the absence of evidence to the contrary, the Tribunal considers it reasonable to conclude that part of the increased travel expenses of $22,563 claimed in the 2017/18 financial year profit and loss statement would be attributable to [Mr A’s] travel and accommodation costs, and accordingly, are a discretionary expenditure item.

39.The Tribunal attributes an amount of $10,000 to [Mr A’s] travel and accommodation costs, and will therefore add back an adjustment of $10,000 to the gross profit of the business for [Mr A’s] travel and accommodation costs, increasing Ms Edwards’ 2017/18 income and financial resources available to her for that financial year to $46,921.

1. Ms Edwards’ 2018/19 income tax return had not been prepared or lodged at the time of hearing, and the only information she provided regarding the business’ financial performance for that year was the bonus summary of payments she received from [Business 1] for that financial year. As noted above, that summary was not complete. The Tribunal has calculated her likely income from this source to be approximately $182,026. Averaging the cost of purchases and freight reflected in the 2016/17 and the 2017/18 financial profit and loss statements results in the likely costs of sales for the 2018/19 financial year of approximately $78,631, and gross net sales of $103,395.

2. Ms Edwards gave evidence that she estimated her income for the 2018/19 financial year would be approximately $40,000. Assuming this would be reflected in the business’ expenses as wages, and assuming travel expenses discounted to reflect  travel and accommodation costs attributable to [Mr A’s] expenses for that year would be approximately $67,957, and the net profit $35,438, which is less than Ms Edwards’s anticipated income for that financial year of $40,000.

3. The Tribunal finds there was no evidence to support Mr Gardener’s assertion that Ms Edwards received any allocation of shares in [Business 1] constituting a resource for child support purposes. The Tribunal is satisfied Ms Edwards’ only source of income is from the business and is accurately reflected in the bonus summaries, the wages recorded in the financial reports of the business for the 2016/17 and 2017/18 financial years, and her income tax returns for those years. The Tribunal finds her income and financial resources for the 2017/18 financial year was $46,921, adjusted to reflect an amount attributable to [Mr A’s] travel and accommodation costs for that financial year. There was no evidence to suggest that [Mr A] received any income from the business for those financial years.

4. The administrative assessment in place at the time of Mr Gardener’s application for a change of assessment on 13 June 2018 required him to pay child support for the period 1 July 2018 to 31 March 2019 at an annual rate of $7,266, based on his adjusted taxable income for the 2016/17 financial year of $89,419 and Ms Edwards’ provisional income for the 2016/17 financial year of $60,125. The Tribunal has found that her income and financial resources available for child support for the 2016/17 and 2017/18 financial years was $33,944 and $46,921 respectively, significantly less than the amount of $141,234 determined by the objections officer in the decision under review for the period 13 June 2018 to 31 December 2020, and significantly less than the amount used in the administrative assessment upon which Mr Gardener’s annual rate of child support of $7,266 was based.

5. Application of the child support calculator, substituting an income of $46,921 for the 2017/18 financial year for Ms Edwards, and using the same adjusted taxable income for Mr Gardener results in an annual rate of child support payable by Mr Gardener of approximately $8,304. The administrative assessment for the period 1 January 2018 to 21 November 2018 required Mr Gardener to pay an annual rate of child support of $7,266. However, from 2 November 2018 to 31 March 2019, his annual rate of child support increased to $8,920 because Ms Edwards’ income used in the assessment decreased. The Tribunal is satisfied that the result produced by the administrative assessment is not unjust and inequitable, or unfair, and accordingly, no ground for departure from the assessment is established.

6. Mr Gardener said he is not disputing the objections officer’s decision to set Ms Edwards’ adjusted taxable income at $141,234. His issue is that the change of assessment should apply from a date 18 months earlier than the date of his application on 13 June 2018, i.e. from 13 December 2016.

7. As the Tribunal has found Ms Edwards’ income and financial resources available to her for child support purposes for the 2016/17 and 2017/18 financial years was $33,944 and $46,921 respectively, not $141,234, and the difference in the rate of child support payable by Mr Gardener using those reduced incomes in the child support formula, as demonstrated above, is negligible, the Tribunal finds that there is nothing special about this case which suggests that the assessments should be changed or backdated.

8. Ms Edwards did not challenge Mr Gardener’s adjusted taxable income of $89,419 at the hearing, nor did she challenge her income for child support purposes used in the administrative assessment.

DECISION

The decision under review is set aside and a decision substituted that Mr Gardener’s departure application, lodged 13 June 2018, is refused.