Goff and Goff (Child support)

[2020] AATA 883

Goff and Goff (Child support) [2020] AATA 883 (11 February 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/BC016838

APPLICANT:  Mr Goff

OTHER PARTIES:  Child Support Registrar

Ms Goff

REVIEW NUMBER:  2019/SC016847

APPLICANT:  Ms Goff

OTHER PARTIES:  Child Support Registrar

Mr Goff

TRIBUNAL:Member K Buxton

DECISION DATE:  11 February 2020

DECISION:

The decision under review is varied so that, for the period 19 November 2018 to 30 November 2021, Mr Goff’s adjusted taxable income is varied to $62,000 per annum.

CATCHWORDS

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

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 Goff and Ms Goff are the parents of [Child 1], aged 11 years, and [Child 2], aged eight years, for whom a child support case is registered with the Child Support Agency (CSA). The children were recorded by the CSA as in the 65% care of Ms Goff and the 35% care of Mr Goff until 8 November 2018 when Mr Goff’s care percentage for the children reduced to 31% and then from 25 March 2019 from when Ms Goff’s care percentage for the children increased to 69%. This review is about how much child support Mr Goff has been assessed as liable to pay to Ms Goff in relation to the children.

2. On 19 November 2018 Ms Goff applied for a departure from the administrative assessment of child support on the basis that the assessment of child support was calculated without taking into account income received by Mr Goff from the operation of his own business. Ms Goff identified other departure grounds in her initial application but the parents have proceeded only to pursue a departure based on income and financial circumstances.

3. For the period 9 May 2018 to 23 December 2018 Ms Goff was assessed to pay child support to Mr Goff for the two children in the amount of $2,724, calculated using 2016/17 adjusted taxable incomes of $69,935 for Ms Goff and $1,276 for Mr Goff. From 24 December 2018 Ms Goff’s estimated income of $52,090 per annum was applied to the child support case, resulting in a reduction in the annual rate of child support she was liable to pay to around $1,600 per annum until 30 June 2019. For the period 1 July 2019 to 31 March 2020 Ms Goff was assessed to pay child support to Mr Goff for the two children in the amount of $2,898, calculated using 2017/18 adjusted taxable incomes of $73,804 for Ms Goff and $235 for Mr Goff.

4. On 15 March 2019 a delegate from the CSA considered Ms Goff’s departure application and decided to vary Mr Goff’s adjusted taxable income used in the child support assessment to $72,800 for the period 1 November 2018 to 31 October 2021. Mr Goff objected to that decision and, on 19 June 2019, an objections officer partly allowed the objection, deciding that Mr Goff’s adjusted taxable income used in the child support assessment should instead be varied to $62,000 for the period 19 November 2018 to 30 November 2020.

5. Both Mr Goff and Ms Goff sought review of the objection decision by the tribunal. A hearing took place on 11 February 2020 and both parents participated by telephone, giving sworn evidence. The CSA provided subsection 37(1) documents which were marked Exhibit 1; Mr Goff’s documents were marked Exhibit A and Ms Goff’s documents were marked Exhibit B. In reaching its decision the tribunal has considered all the available material.

CONSIDERATION

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Act). A formula is used. It 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. Part 6A of the Act allows for a departure from an administrative assessment. Under subsection 98C(1), the Registrar may make such 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;

   ·a departure is just and equitable as regards the children and each parent;  and

   ·it is otherwise proper to make a departure decision. 

2. Subsection 98C(2) provides that the grounds for departure are the same as the grounds 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 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 for a child.

3. Subparagraph 117(2)(c)(ia) of the Act provides as a ground for departure:

   (c)   that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessments 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…

4. 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. That is, the intention of the legislature is that the tribunal will not interfere with the administrative formula result in the ordinary run of cases. In Gyselman v 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’s approach to the interpretation and application of the particular grounds in subsection 117(2) must be guided by that qualification.

Does a ground for departure from the administrative assessment exist?

10.  The tribunal will consider whether special circumstances exist in this case such that the administrative assessments of child support result in an unjust and inequitable determination of the level of child support payable by Mr Goff because of the income and financial resources available to the parents at that time.

11.  Ms Goff has been assessed on taxable incomes of between, roughly, $59,000 and $73,000 over the period from October 2017 onward. Her incomes were derived from a combination of income from employment and, more recently, income protection insurance whilst unable to work for health reasons. There is no basis to conclude that Ms Goff’s income for child support purposes is not fairly reflected in the adjusted taxable incomes calculated based on her income tax returns lodged from time to time. 

12.  The administrative assessments issued by the CSA have calculated child support based on reported taxable incomes for Mr Goff which have not exceeded $1,300 annually since 2014/15 which was prior to the parents’ separation. Mr Goff stated that he has earned between $16,000 and $18,000 from his business over its ten years of operation but that this has not been captured in the child support assessment because it is under the tax-free threshold. The tribunal notes that the administrative assessments of child support use adjusted taxable incomes and ignore tax-free thresholds and conclude that Mr Goff has not reported any, or any substantial, profits from the business, whether at the level of $16,000 to $18,000 per annum or otherwise, since the 2014/15 year.

13.  Despite reporting low or no income for many years, Mr Goff continued to be self-employed in his own [business]. He is a sole trader and the business received gross income of just under $128,000 in gross receipts in the 2017/18 year and reported business-related expenses of about the same amount, leading to a reported business loss of $46. Mr Goff also partly owned a rental property which has since been sold, and which generated a rental loss of $235 during that year. This figure was used to calculate Mr Goff’s adjusted taxable income of $235 for the 2017/18 year which was used in the administrative assessment of child support from February 2019.

14.  Mr Goff stated that he was injured in [an] accident in January 2015 and stated that he could not work more than ten hours per week as a result. Mr Goff produced to the tribunal a medico-legal report from an occupational therapist which was prepared at the request of his lawyers during his application for compensation for injuries sustained in the accident. In that report, dated November 2016, his functional capacity to work in his business was assessed at 25 hours per week. The material collected by the CSA during the departure process indicates that Mr Goff’s business generated gross income of $135,931 in the 2015/16 year and $166,053 in the 2016/17 year, which would suggest that he was still able to undertake substantial income-generating work, notwithstanding his injuries, and the evidence available for the 2017/18 year showed that substantial income-earning activity continued within the business during that financial year. Mr Goff stated during the hearing that he works four days each week for around three hours or so, and also drives for over four hours each day to and from work.

15.  Mr Goff was directed by the tribunal, prior to the hearing, to provide his income tax return and financial records of his business for the 2018/19 year. He was also directed to produce documents showing how the expenses of the business were incurred, and to identify any expenses incurred by the business that had a personal benefit to Mr Goff. Mr Goff failed to comply with the tribunal’s direction. As a result the tribunal does not have any documentary evidence from Mr Goff about his business (and any other) income, his business-related expenditure and to what extent his personal expenses are met by business income from 1 July 2018 onwards. When the directions were issued by the tribunal to Mr Goff he was informed in writing that failure to comply with the directions may result in the tribunal drawing an adverse inference against him.

16.  The tribunal notes that Mr Goff has worked in his own business for many years and, during those years, has continued to report little or no income through his income tax returns. Mr Goff prepared and submitted to the tribunal a Statement of Financial Circumstances in which he reported weekly estimated income of about $350, and weekly estimated expenses of about $1,950 for the household. Mr Goff stated in the document that he lives with his partner, who earns income of about $865 per week. Even if Mr Goff’s partner also contributes to the household expenses there is a significant shortfall between reported household income and estimated household expenditure.

17.  That shortfall is partly explained by the fact that a large portion of the household expenditure identified by Mr Goff relates to the use of his motor vehicle. Mr Goff stated that all of the costs of the vehicle are claimed as expenses for his business. As Mr Goff has only one vehicle, a [specified model], he likely derives a personal financial benefit from this vehicle which is recorded as a business expense. The tribunal has considered whether Mr Goff had additional financial resources available to him from the operation of his business that are not captured in his adjusted taxable income. As he had not provided any material for the 2018/19 year or beyond, the tribunal has considered as a starting point the material provided by Mr Goff in relation to the operation of his business in the 2017/18 year.

18.  Mr Goff did provide to the tribunal a copy of his 2017/18 income tax return which shows the following financial information for his business:

·Gross receipts of $127,984

·Costs of sale $76,876

·Interest expense $3,104

·Depreciation expense $9,143

·Motor vehicle expense $17,630

·Other expenses $21,277

·Total expenses of $128,023

19.  Mr Goff accepted that the depreciation claimed was not a cash expense but simply a book entry based on his accountant’s recommendations. The tribunal notes that depreciation expenses are unlikely to vary greatly from year to year and it is therefore reasonable to assume that around $9,000 in non-cash depreciation expenses would be claimed in the 2018/19 year and ongoing. Mr Goff also stated that he rents a storage unit for his tools and trailers at a cost of $24,000 per annum. He was not clear how this cost was accounted for in the expenses of the business in the 2017/18 year or whether this represented a new expense which led to the reported loss in the 2018/19 year.

20.  Although Mr Goff failed to provide any evidence of personal expenses met through the business for the 2018/19 year, Mr Goff gave evidence during the hearing that the business continues to operate in order to meet expenses associated with two motor vehicles he leased some years ago. Mr Goff continues to operate the [specified] vehicle and uses it for business and personal purposes. He claims every expense associated with the vehicle as an expense of the business. The second vehicle has been repossessed by the financier but a debt of about $17,000 remains and Mr Goff stated that he makes repayments of this debt when he can.

21.  Mr Goff prepared a statement of financial circumstances which he provided to the tribunal. His largest identified weekly expenses were those related to the use of his motor vehicle, of $500 per week in petrol, $280 per week in maintenance (he stated during the hearing that his vehicle has required expensive repairs and this may be understated) and $35 per week in insurance, or $42,380 per annum. Mr Goff stated during the hearing that he also meets car lease repayments of $1,350 per month, or $16,200 annually, bringing the total annual cost of owning and operating his motor vehicle to the substantial figure of $58,580. The tribunal notes that this expenditure is significantly higher than the claim of $17,630 for business-related vehicle expenses in the 2017/18 year.

22.  Mr Goff stated that he only works ten to 15 hours each week because of his health, and explained that he drives a round trip from home to Brisbane of 400km each day (more than two hours with the necessary breaks for health reasons) in order to work for about three hours at a time and generate the turnover of the business. Mr Goff accepted during the hearing that it made “no sense”, given these costs, for him to continue to operate his business in this way. However, he stated that his main source of work is currently in Brisbane and that he has no choice but to continue to meet the payment on the leased vehicle and to drive to Brisbane to undertake contract work.

23.  Given Mr Goff’s petrol costs are largely associated with his attendance at work and carrying tools to site a portion of these are an expense related to earning income. However, Mr Goff does not have another vehicle and uses the [specified vehicle] personally, as well as for business use. If he were an arms’ length employee, rather than self-employed, he would have to meet the costs of registration, insurance, maintenance and leasing of the vehicle from his pre-tax income. Mr Goff has stated that these costs amounted to around $32,580. When a reasonable level of personal fuel expenses of around $50 per week (10% of his total costs) is also considered, the business is providing Mr Goff with a total of about $35,000 in financial benefits by meeting all costs, including these personal costs, associated with the ownership and operation of his [specified] vehicle.

24.  The CSA papers contain copies of statements from Mr Goff’s [credit] card and [bank] account for the period 1 January 2019 to 31 March 2019. Deposits into the [bank] account include income from the business. Payments for the [credit] card were made from the [bank] account. Substantial personal expenditure is incurred from both accounts. Despite Mr Goff’s insistence that he claims as deductions only those business-related costs for which he obtains a tax receipt, the evidence shows that there appears to be very little separation between business-related spending and personal spending. However, there is no accounting in Mr Goff’s income tax return of any profit from which this personal expenditure could be met. There is no documentary information available to the tribunal from which the tribunal could determine how the “costs of sale” of the business, which included over $76,000 in the 2017/18 year, were comprised. Mr Goff gave evidence during the hearing that these costs include items like [machine] units, fittings and parts. He stated that he will often make a profit of only $400 on the installation of [a machine] unit that may have cost $2,500. Therefore, he submitted, the tribunal should conclude that his costs of sale are ordinarily high as a percentage of his overall business income.

25.  However, it would have been simple enough for Mr Goff to produce documents showing what the costs of sale consist of for the business and the tribunal can conclude from Mr Goff’s failure to produce that information that it would not have been consistent with his oral evidence, nor would it have been favourable to him. Without this evidence it is not possible to determine the nature of all of the expenses claimed as “costs of sale” or whether any of them provided any personal benefit to Mr Goff. Mr Goff stated during the hearing that he paid his business expenses and what was left over he would put aside for his use. However, he has not reported any, or any significant, income “left over” in the years of operation of his business, and yet he still meets his daily costs such as food, utilities and accommodation. In the absence of any other explanation the tribunal will conclude that at least a portion of Mr Goff’s personal expenses of daily living are claimed as “costs of sale” and used to reduce what would otherwise be assessable profits of the business. This conclusion is consistent with Mr Goff’s evidence that he spent, for his own use, whatever was “left over” from the business, and is also consistent with the movement of funds between his personal and business bank accounts. It is not possible to quantify with accuracy the financial benefit to Mr Goff of meeting personal expenses through business income.

26.  As for the 2018/19 year, the tribunal is left in a position where it must make assumptions based on the evidence as a whole, including Mr Goff’s expenditure and the previous year’s financial information. Mr Goff stated during the hearing that the gross business income was about $138,000 which was substantially higher than in the previous financial year. However, he stated that the business reported a loss of $21,000 for that year. He did not produce accounts to support those figures.

27.  Mr Goff’s accountant was contacted by the CSA during 2019 when the delegate was first considering the departure application. Mr Goff’s accountant is recorded as having informed the CSA in writing that Mr Goff’s business did not generate profit and that his mother supplemented his income as he had inadequate income to support his lifestyle. Mr Goff stated, during the hearing, that his parents had loaned to him a total of about $138,000 over the course of many years. Mr Goff stated that he had made one repayment of $7,500 to his parents from the proceeds of accident compensation he had received. He did not identify other repayments. He stated that his parents hoped that the loan would be repaid but stated that it would otherwise be repaid from his share of his inheritance should he not repay the loan before then. The tribunal finds that Mr Goff’s parents provide ad hoc financial support to Mr Goff as needed, but the tribunal is not satisfied that there is any reasonable expectation of repayment of the amounts provided. This financial support therefore represents a financial resource from which Mr Goff can meet his own expenses and those of the children. Mr Goff stated that he had been paid $7,000 in the past year from his parents. There is no reason to conclude that financial support at this level will not continue indefinitely.

28.  Mr Goff stated that he is “lucky enough” to have a partner with “plenty of money” and that his partner meets various expenses, including holidays that Mr Goff has enjoyed with his partner, and she has provided about $20,000 over the last 12 months to meet his business-related expenses. Again, there is no reason to conclude that this level of financial support will not continue as needed by Mr Goff in order to meet whatever expenses he incurs.

29.  Mr Goff stated that his living expenses are met through a combination of advances from his parents and the generosity of his partner. The tribunal accepts that this level of financial support and accommodation is given.

30.  Mr Goff stated that he was in [a specified role] until June 2019 and earned $7,000 in tax-free income that year. Mr Goff stated that he had earned up to $15,000 in previous years but has since resigned for health reasons and the tribunal accepts that this income won’t be available on an ongoing basis. Mr Goff also stated that he had raised funds over the last 12 months by selling a [Vehicle 1] and [Vehicle 2] for $12,000 and [an item] for $700 but Mr Goff stated that the proceeds of sale of these personal effects were used to retire debt and, again, will not be available on an ongoing basis.

31.  Mr Goff has stated that in the last 12 months he had received a total of $7,000 in financial assistance from the cash reserves of his parents, and also stated that his partner has contributed $20,000 to his business and the business has met substantial personal vehicle expenses of around $35,000 and has likely met other various expenses from the proceeds of his business and recorded those as “costs of sale”. When considered together, the tribunal finds that Mr Goff has had access to financial resources totalling at least $62,000 in the past year from which his expenses, and the expenses of the children, can be met. There is no basis to conclude that that will not continue as Mr Goff meets personal expenses through his business and has his lifestyle supplemented by his parents and his partner. Mr Goff’s children are entitled to share in the financial resources available to both parents, and it is therefore proper to consider whether those resources are adequately reflected in the administrative assessment of child support.

32.  Ms Goff invited the tribunal to conclude that Mr Goff’s income and financial resources were higher than $62,000 per annum. The tribunal has found that Mr Goff’s income and financial resources were at least $62,000 per annum, but cannot conclude with certainty that those resources exceed that level.

33.  If child support were calculated from November 2018 using Mr Goff’s income and financial resources of $62,000 and Ms Goff’s 2017/18 adjusted taxable income of $73,804 Mr Goff would be the parent required to pay child support to Ms Goff, at the annual rate of just under $4,000 based on the care percentages then recorded. The administratively assessed rate required Ms Goff to pay child support to Mr Goff across that period. The disparity in the annual rate of child support, which arises because Mr Goff’s low reported taxable income was used to calculate his child support liability at that time, sets this case apart from others. The tribunal is satisfied that, in the special circumstances of this case, the administrative assessment of child support produces a result which is unjust and inequitable having regard to the parents’ respective incomes and financial resources. The tribunal therefore finds that there is a ground to depart from the administrative assessment.

Just and equitable

34.  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’ commitments and any hardship that would be caused by departing or not departing from the formula.

35.  Ms Goff’s circumstances are discussed above. She has recently moved in with her parents in order to minimise expenses and she stated that she will pay $300 in rent together with any increased utility costs. There is nothing in the evidence to suggest that the self-support amount allowed for by the child support formula (of approximately $23,000 per annum) is not an appropriate measure of Ms Goff’s proper needs.

36.  Mr Goff lives with his partner and the tribunal has found that he has had income and financial resources available to him from his business of about $62,000 per annum from the time of lodgement of the departure application. There is nothing in the evidence to suggest that the self-support amount allowed for by the child support formula (of approximately $23,000 per annum) is not an appropriate measure of Mr Goff’s proper needs.

37.  The tribunal therefore proposes varying the adjusted taxable income used in the child support case for Mr Goff to $62,000 per annum from 19 November 2018 to 30 November 2021 in order to provide a reasonable period of certainty for the parents. The tribunal is satisfied that the proposed departure will not cause hardship for either parent, or for the children, and is satisfied that it would be just and equitable to vary the formula in this way.

Otherwise proper

38.  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. Varying the rate of child support from that used in the administrative assessment, based on the income and financial resources of Mr Goff which are not reflected in the administrative assessment, and the other factors considered above, will result in an appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

Conclusion

39.  The tribunal has decided to vary the adjusted taxable income of Mr Goff to $62,000 per annum for the period 19 November 2018 to 30 November 2021. As the tribunal has reached the same decision as that of the objections officer, but has extended the application of that decision for the longer period through to the end of November 2021, that decision is varied accordingly.

DECISION

The decision under review is varied so that, for the period 19 November 2018 to 30 November 2021, Mr Goff’s adjusted taxable income is varied to $62,000 per annum.