Girling and Armitt (Child support)

[2018] AATA 4419

Girling and Armitt (Child support) [2018] AATA 4419 (27 September 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/SC014398

APPLICANT:  Mr Girling

OTHER PARTIES:  Child Support Registrar

Ms Armitt

TRIBUNAL:Member K Dordevic

DECISION DATE:  27 September 2018

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that for the period 1 October 2017 to 31 December 2021 Mr Girling’s adjusted taxable income is varied to $122,310 per annum.

CATCHWORDS
CHILD SUPPORT – departure determination – income, property and financial resources of a parent from a company and trust – 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 Girling and Ms Armitt are the parents of [Child 1] (born 2004) and [Child 2] (born 2008). The children are in the shared care of their parents. 

2. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances.

3. On 19 January 2018 Mr Girling lodged a departure application with the Department of Human Services (the Department). On 20 March 2018 a senior case officer determined that for the period 1 October 2017 to 31 December 2019 Mr Girling’s adjusted taxable income was to be varied to $122,310 per annum.

4. Mr Girling lodged an objection to that decision on 18 April 2018. On 15 June 2018 his objection was disallowed.

5. On 22 June 2018 Mr Girling sought further review with the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal).

6. The matter was heard on 27 September 2018. Both parties appeared by conference telephone. In reaching its decision the tribunal has considered the sworn evidence of Mr Girling and Ms Armitt. The tribunal also considered the documentation provided by the Department (folios 1–236) and Ms Armitt (folios B1–10).

ISSUES

1. The statutory provisions relevant to this review are outlined in section 98C of the Act, which states that a decision to depart from the administrative assessment may be made if the following three requirements are met:

   (i)that one, or more than one, of the grounds for departure referred to in [subsection 117(2)] exists; and

   (ii)that it would be:

   (A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)otherwise proper;

   to make a particular determination under this Part …

2. Therefore, the issues which arise in this case are:

   ·     Does a ground exist for departure from the administrative assessment of child support? and, if so,

   ·     Would it be just and equitable and otherwise proper to make a particular determination?

CONSIDERATION

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure if 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 the income, property and financial resources of either parent. The central issue in this matter is whether the administrative assessment accurately reflects Mr Girling’s income and financial resources.

2. At the time of lodging his departure application, Mr Girling was liable to pay an annual rate of child support of $17,664 for the child support period 1 October 2017 to 31 December 2018 based on his 2017 adjusted taxable income of $189,810 and Ms Armitt’s 2017 adjusted taxable income of $27,077.

3. Mr Girling’s 2017 adjusted taxable income of $189,810 was amended to $54,145 on 16 November 2017. The tax returns can be summarised as follows:

Income	Original tax return	Amended tax return
Distribution from partnerships	$521	$521
Net income from trusts	$121,789	$121,789
Business income	$80,021	$60,842
Expenses
All	$13,176	$94,042
Motor vehicle	$3,300	$16,335
Rent	$0	$7,962
Depreciation	$0	$23,000
Other expenses	$9,876	$42,482
Repairs/Maintenance	$0	$4,263

1. Mr Girling submits that his child support liability must be calculated on the basis of his 2017 amended tax return. He explained that his original return was prepared by his accountant, who was instructed to inflate his income so that he could obtain finance. When amending the tax return, he instructed his accountant to minimise his taxable income “within the bounds of what is legal”; he stressed that his amended return was the most accurate means by which to assess his income and financial resources for the 2017 financial year.

2. When asked about the increase in rental expenses, the depreciation and increase in his motor vehicle expenses, Mr Girling merely stated that he was not prepared to go into any detail and instead merely relied on his amended tax return. Despite repeated explanations by the tribunal, Mr Girling appeared unwilling or unable to understand the different treatment of his income for taxation and child support purposes.

3. As the tribunal understands it, Mr Girling operates [Business 1] and is also [an Occupation 1]. Mr Girling provided the Department with a profit and loss statement for the 2017 financial year which indicates that there were gross profits from both enterprises of $61,391.69 and expenses of $94,572.31, resulting in a loss of $33,180.62. This, together with deferred commercial losses of $35,639, resulted in net business losses of $68,839.

4. Mr Girling was reluctant to provide direct and unqualified answers to the tribunal’s questions. He initially stated that he was unwilling to provide any explanation as to the expenses listed in his amended return or the profit and loss statement. He went on to state that these expenses included his living costs, business costs, and money used to invest in his businesses. He stressed that all these expenses were tax deductible. When the tribunal clarified that the listed expenses included his living costs, he replied “obviously”. Mr Girling concluded by stating that to provide more details regarding his expenses would breach his privacy.

5. The tribunal explained to Mr Girling that the relevant case law states that the principle of full and frank disclosure applies to a review conducted by this tribunal. In particular the tribunal cautioned that when a proper disclosure has not been made, it allows the tribunal to accept what evidence there may be with more confidence than would otherwise have been the case. Mr Girling’s evidence following this warning can be summarised as follows.  He was unable to explain why the profit and loss statement included both his [businesses]. He assumed the $2,435.35 in [certain] clothing was correct, though he was not sure if he actually spent this amount of money. As to the motor vehicle expense of $16,334.78, Mr Girling explained that he maintains two [which] are both primarily used for work purposes. When questioned directly about his private usage of the vehicles, Mr Girling seemed to suggest that the only personal usage was for the transportation of the children. He also submitted that the $3,093 in telephone and internet expenses were predominantly for business usage. Mr Girling claimed $7,962 in rental expenses. During this period, Mr Girling states that he was living at his mother’s home and apparently contributing $250 per week in rent. The claimed rental expense represents over 61% of the total rent Mr Girling paid during this period.  Mr Girling was unable to account for the $20,000 reduction in gross income in the amended tax return.

6. There were some discrepancies between the profit and loss statement and Mr Girling’s amended tax return. By way of example, there was a difference of $550 in income and $8,000 in claimed depreciation expenses. Also, the amended tax return only referred to income and expenses regarding [Business 1]; however the profit and loss statement also referred to both income and expenses relating to the [Occupation 1] business.

7. Mr Girling was unwilling to provide any evidence regarding the source of $121,789 or about the GirlingTrust or [another] Trust more generally. The tribunal is not persuaded that Mr Girling made a full and frank disclosure of his 2017 income and financial resources and is not satisfied that his amended tax return accurately reflects his necessary business expenses. His own evidence is that on his instruction, his accountant inflated his income in the original return. On 3 September 2017 the Department advised Mr Girling of the fourfold increase in his child support liability. His amended return was submitted on 16 November 2017; Mr Girling was clear that his instruction to his account was to minimise his taxable income. Mr Girling refuted the suggestion that his direction to his accountant to inflate and then deflate his 2017 taxable income indicated that he is willing to provide false or misleading information for financial gain. The tribunal was not so persuaded and formed the view that it would not be prudent to accept Mr Girling’s declared expenses in his 2017 amended return.

8. At the time of lodging his departure application, Mr Girling was liable to pay $17,644 in child support per annum. Application of Mr Girling’s amended taxable income to the child support assessment would decrease his child support liability to $3,690 per annum. Application of an adjusted taxable income of $122,310 would result in an annual child support liability of $11,910. The consistent evidence between the two tax returns is that Mr Girling received trust and partnership distributions totalling $122,310. This is probably a conservative estimate of his actual income and financial resources, as it is clear that he receives personal benefits from some of the business expenses claimed. The tribunal is satisfied that this is reflective of the income and financial resources available to him in the 2017 financial year.

9. The tribunal is satisfied that as Mr Girling’s actual 2017 income and financial resources are not accurately reflected in the child support assessment. There are special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. The tribunal therefore concludes that the ground provided for in subparagraph 117(2)(c)(ia) of the Act is 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 child, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. The tribunal has already found that Mr Girling’s income and financial resources in the 2017 financial year was in the vicinity of $122,310. The tribunal next considered whether it would be just and equitable to depart from the administrative assessment on this basis.

3. Mr Girling failed to provide a completed Statement of Financial Circumstances. Instead, he insisted that the information contained in his amended tax return was a sufficient declaration.  When lodging his departure application in January 2018, Mr Girling disclosed annual personal expenses and living costs of $95,000 (excluding monthly motor vehicle repayments of about $1,500 per month). This is consistent with a person who has income and financial resources of $122,310 per annum. At hearing, Mr Girling reported no savings and no real property interests. His liabilities include $65,000 in motor vehicle finance and about $500–$600 relating to the purchase of a computer. He has lodged his 2018 tax return and thinks his adjusted taxable income was about $30,000. He states that he is in good health and has no out of the ordinary expenses. Mr Girling stated that should his child support liability not decrease, he would potentially lose his business, his home and his ability to parent his children. He stated that the current assessment has affected his mental health and “driven him to a place of extreme darkness”.

4. At the time that she completed her Statement of Financial Circumstances Ms Armitt was working on contract basis in [a certain field]. She too operates as a sole trader, undertaking [certain] work, and is also an [Occupation 2]. She stated that her gross income as a sole trader was below $40,000. She reports that her average gross weekly salary was $850–$930 per week, which is supplemented by newstart allowance. She owns her own home valued at $440,000 and has a mortgage of $405,000. She has savings of $5,500 and a motor vehicle valued at $8,000. She values her household contents at $50,000 and she has superannuation valued at $28,000. She has outstanding liabilities, including credit card liability of $1,000 and rates of $2,400. She lists personal expenses of $253 per week and household expenses of $1,033, of which $413 relate to the children. She has lodged her 2018 tax return and states her adjusted taxable income was about $45,000. The tribunal is of the view that there is no reason to suggest that Ms Armitt’s income and financial resources will not be reflected in her future taxable incomes.

5. Both parties’ testimony was consistent in regard to the children. They are in good health. [Child 1] has transferred to a [private] school and [Child 2] will transfer next term. Mr Girling has agreed to contribute to half of [Child 1]’s current education costs and will contribute to [Child 2]’s school costs from 2019. Both parties also agree that [Child 1] will require braces and there is a tacit agreement that they will each contribute half to this expense.

6. The tribunal is of the view that the administrative assessment should reflect Mr Girling’s actual 2017 income and financial resources from the month following the lodgement of his original 2017 tax return. Ms Armitt has only recently lodged an application for the Department to collect her child support. The tribunal understands that Mr Girling has not made any contribution towards the children’s costs for some time. Therefore, it is likely that there will be a situation of overpayment if Ms Armitt seeks statutorily available arrears. However, given Mr Girling’s past and current income and financial resources, the tribunal is satisfied that the arrears will not cause him undue hardship and that these funds are necessary for Ms Armitt to adequately provide for the children.

7. The tribunal is persuaded that it is unlikely Mr Girling’s income and financial resources will be reflected in his future income tax assessments. Given the desirability of predictability and of avoiding repeated proceedings, the tribunal has decided to extend the period of departure until 31 December 2021. It seems unlikely that the circumstances of either party will alter significantly during this period. The extended departure period will provide certainty to both parties.

8. The tribunal is satisfied that the administrative assessment is unfair, given Mr Girling’s income and financial resources, and that this results in an unjust and inequitable level of child support, given the circumstances of each parent. For all the reasons above, the tribunal finds it just and equitable to depart from the administrative assessment.

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 effect 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. Ms Armitt is in receipt of income-tested benefits. Departing from the administrative assessment by decreasing the level of child support payable by Mr Girling will result in a more appropriate apportionment of financial responsibility between the parents and the community.

2. The determination is otherwise proper.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that for the period 1 October 2017 to 31 December 2021 Mr Girling’s adjusted taxable income is varied to $122,310 per annum.