Grant and Saylor (Child support)

Grant and Saylor (Child support) [2020] AATA 587 (29 January 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2019/SC017149
APPLICANT:  Mr Grant
OTHER PARTIES:  Child Support Registrar
Ms Saylor

TRIBUNAL:Member M Kennedy
DECISION DATE: 29 January 2020
DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that the objection is allowed so as to:

vary Mr Grant’s annual rate of child support to the amount of $9000pa from 11 January 2019 to 27 October 2019;
vary Mr Grant’s annual rate of child support to $475pa from 28 October 2019 to the date of the publication of this decision and reasons (14 February 2020);
vary the self-support amount in respect of Mr Grant by reducing it by $9360 from 15 February 2020 until 30 September 2022.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents - benefits derived from business – high child care costs - 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

Mr Grant and Ms Saylor are the parents of [Child 1], in respect of whom a child support assessment is in place.
Under the assessment from 8 March 2019, Mr Grant was assessed to pay an annual rate of child support of $2,558 based on his below regular care of [Child 1], his 2017/2018 adjusted taxable income of $40,489 and Ms Saylor’s adjusted taxable income of $80,129. Ms Saylor has subsequently lodged an estimate of her income in light of unemployment.
On 11 January 2019, Ms Saylor applied for a change of assessment on the basis that the assessment was unjust and inequitable because of Mr Grant’s income, property and financial resources. Mr Grant subsequently cross applied under the same ground. Each parent abandoned claims based on the other parent’s earning capacity.
On 2 May 2019, the Child Support Registrar (the Department or Registrar) decided that he ground had been established, and decided to vary Mr Grant’s adjusted taxable income to $63,600 for the period 1 April 2019 to 31 March 2021.
Mr Grant objected to that decision on 14 May 2019. On 7 August 2019, an objection officer allowed the objection but in a way adverse to Mr Grant. The objection officer varied Mr Grant’s income to $90,000 for the period 1 April 2019 to 31 October 2020.
Mr Grant applied to the Tribunal for review on 12 August 2019.
The parties participated in a telephone directions hearing on 3 December 2019, but neither party fully complied with my directions. Nonetheless, in Mr Grant’s case in particular, relevant and better quality financial information has been forthcoming that was unavailable to the objections officer.
The parties both participated helpfully in a hearing on 29 January 2019. At the conclusion of the hearing Ms Saylor raised issues regarding out-of-pocket child care expenses that required further documentary evidence to be provided. I adjourned to allow for that information to be provided and for Mr Grant to comment on that information in writing.
Also, it emerged that the parties had not been provided with the material lodged after the directions hearing. I arranged for that material to be sent after the hearing and set down a timetable for written comment. I have taken all further comments into account, but unfortunately adopting this process, as was necessary because the papers had not been exchanged prior to the hearing, had the effect that I was unable to guide the parties as to the relevance and appropriateness of further submissions.

Legislative framework

The legislation relevant to this review is contained in the Child Support (Assessment) Act 1989 (the Act) and in the Child Support (Registration and Collection) Act 1988 (the Registration and Collection Act). The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. This requires the application of a statutory formula which takes into account factors such as the number and age of children, the level of care provided and the income of each parent.
Under section 98B of the Act, if special circumstances exist, a liable parent or a carer entitled to child support may apply to the Child Support Registrar (the Registrar) in writing, requesting a departure from the administrative assessment in relation to a child.
Under section 98C of the Act, before making a departure determination on an application made under section 98B of the Act, the Registrar must be satisfied that in the special circumstances of the case, one or more grounds under subsection 117(2) of the Act exist, and that it would be just and equitable and otherwise proper to make a particular determination.
The issues for me to determine in this case are therefore:
·Whether one or more of the grounds for departure referred to in subsection 117(2) of the Child Support (Assessment) Act 1989 (the Act) exists; and, if so
·Whether it would be just and equitable as regards the child, the liable parent, and the carer entitled to child support; and otherwise proper; to make a particular determination to depart from the administrative assessment of child support.

CONSIDERATION

A ground is established in respect of Mr Grant’s financial resources

Subparagraph 117(2)(c)(ia) of the Act provides that, in the special circumstances of the case, a ground for a departure determination may be established if application of the legislative provisions relating to administrative assessment ‘result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent’ due to the income, property and financial resources of either parent.
Until recent medical problems intervened, Mr Grant has worked for a business owned by his parents. Mr Grant undertakes [specified work] operations for the business.
The business is structured as a partnership, and the partners are Mr Grant’s parents. Mr Grant has provided financial disclosure of the operations of the partnership in accordance with my directions up to 2017/2018.
I have examined the financial statements for the business, and asked a range of questions regarding the operation and structure of the business. Mr Grant was unable to answer all of my questions, but I accept this was because Mr Grant may be unfamiliar with the financial side of the business.
Mr Grant was clear that the operations of the business now related almost solely to [specified work], and he was the only person who undertook [specified work]. I observed that some of the activity of the business described in the financial statements was primary production, but this was minimal and insignificant. Mr Grant agreed that some hobby farming may have been undertaken by his parents, but they were not farmers. Mr Grant confirmed that the business had been established for some time, and his father had previously also [worked in a field] but has not done so to any significant degree recently.
The financial statements show typical expenses in relation to the operation of motor vehicles, but the balance sheet did not identify a [Vehicle 1] until 2017/2018 when a ‘General Pool’ Asset entry appears showing $118,227. Mr Grant explained that this accords with his understanding that at about that time the business purchased a new [Vehicle 1]. Mr Grant could not be specific about the ownership or finance arrangements for the [Vehicle 1], but I have noted that at the same time as the [Vehicle 1] appeared in the balance sheet, the proprietors funds increased by about that amount. I infer therefore that Mr Grant’s parents purchased [Vehicle 1] from their funds and applied it as an asset to the partnership.
This observation relates to a fundamental question I asked Mr Grant; namely, why the business was structured this way if its only remunerative activity was him [working in this field]? I questioned why, for example, Mr Grant did not undertake [working in this field] as a sole trader? Mr Grant could not explain why other than by indicating that the business had always been structured in this way. I accept this to be the case in light of Mr Grant’s earlier evidence that his father had previously driven [Vehicle 1] in the business.
I explained to Mr Grant that having his [Vehicle 1] driving activities structured through his parent’s partnership introduced potential for the alienation of income from his own personal exertion through distribution of profits to his parents.
However, I accept that the financial statements show that the partners have introduced significant capital into the business through the acquisition of the new [Vehicle 1], and I accept that if there is a degree of alienation of income it is not through design. In this regard, I note that the main expense of the business after motor vehicle operating costs is Mr Grant’s wages. The partners, (Mr Grant’s parents) receive modest distribution of profits from the business, ranging from $97 each in 2014/2015 to $13,515 each in 2017/2018.
Mr Grant’s wages have remained generally consistent for a number of years, around $40,000pa - $50,000pa, although Mr Grant struggled to explain if and how the wages are set in advance. Mr Grant described a very informal employment arrangement with his parents, as might be expected in a family business of this nature.
Other than in relation to motor vehicle expenses and telephone expenses, there is little opportunity for personal expenses to be met through the business. I note a large depreciation deduction appears in 2017/2018 that has reduced the profitability of the business.
With those observations in mind, I have formed the view that Mr Grant’s wages from the business is generally an accurate representation of the financial resources he can draw from the business, having regard to the legitimate and long term interest that his parents have in the business as owners, a form of investment, and as is demonstrated by the provision of a valuable asset to the business recently. One exception to this observation is the increase in profit distribution to the partners in 2017/2018 and the expense line pertaining to depreciation. These items tend to cross the line in my view in relation to the structure of the business alienating Mr Grant’s income from his own personal exertion.
A further issue in the review arises from Mr Grant’s use of a property owned either by his parents or by the business (it is not clear) for his personal residence. Mr Grant confirmed that he lives in a home he does not own, but is not required to pay rent as the arrangement is viewed by all parties as part of his ‘employment’.
I accept that the arrangement is as described by Mr Grant, but reject a recent attempt to characterise and value the arrangement as Mr Grant receiving the benefit of only one room at the premises. The question is therefore how this benefit is to be reasonably valued.
The Registrar initially decided that the value of this benefit equated to rent of $330 per week. The evidence behind this conclusion is not clear, although when the Tribunal itself accessed online sources regarding properties advertised for rent in [a town] and surrounding areas I observed a number of properties advertised for about this amount. These observations were raised at the hearing for comment.
Mr Grant has provided a letter from a local real estate agent appraising the property at $180 per week (T284) based on similar properties under management with the Agency. No further justification is provided for what appears to be a substantially lower rent than is evident on publicly available listings for free standing properties in [an] area. Mr Grant told me that the agent had informed him that she could not actually rent the property out in its current condition, and I accept that the lower amount of appraised rent is likely to reflect the property’s age and condition.
Ultimately, I consider the best evidence before me to quantify the value of Mr Grant’s ability to reside in the premises without paying rent is the opinion of the agent. I accept therefore that the value of that financial resource is $180 per week, or $9360pa per year.
Returning to the question before me, I consider that my findings lead me to conclude that relying on adjusted taxable income for Mr Grant fails to fully take into account the financial resources available to him through his association with his parent’s business. I have not formed the view that income earned from Mr Grant’s personal exertion is being alienated to his parents through the division of profits within the partnership on a wholesale basis however. In relation to the observations I made in respect of 2017/2018 I consider that the increase in profit available for distribution to the partners reflects the depreciation deduction, which in turn exists only because the partners increased their capital investment into the business. This expense line does however tend to conceal the true financial resources and underlying profitability in the business for that year.
I do however consider that the availability of accommodation to Mr Grant through his association with the business is valuable, and has the potential to affect the child support assessment. To demonstrate, the value I place on the availability of that accommodation is about 20% of Mr Grant’s typical wages.
By way of illustration, if Mr Grant were to receive taxable income to meet equivalent rental payments, he would have to earn approximately $240 more per week (taking into account tax). This would equate to $12,402 per year. In 2018, if a child support assessment was calculated on an adjusted taxable income for Mr Grant of $52,891 (with all other variables remaining the same), the rate of child support would be $4397pa, instead of $2,558pa, which was the rate when Mr Grant’s actual adjusted taxable income of $40,489 was used.
In my view therefore, using the administrative provisions of the child support law produces a result that is unjust and inequitable having regard to Mr Grant’s financial resources, and the difference is significant enough to constitute special circumstances. I find the ground is therefore established.

A just, equitable and otherwise proper departure

As I am satisfied that there is at least one ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to depart from the assessment. In deciding whether it is just and equitable, the Tribunal must have regard to the following matters set out in subsection 117(4) of the Act:
(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)       himself 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 incurred 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 (see subsection (10)) by the making of, or the refusal to make, the order.

As I explained to the parents at the hearing, I am to approach this task on the basis that a duty that a parent has to maintain their children has a priority over all other commitments of the parent other than commitments necessary to support other children and themselves: section 3 of the Act.
As to the proper needs of [Child 1], Ms Saylor explained that [Child 1] has the typical needs of a 4-year old, and she does not face any unusual expenses in relation to maintaining her. Mr Grant agreed that [Child 1] does not have any special needs.
Ms Saylor did however mention that she had recently calculated that she had incurred over $20,000 in out of pocket child care expenses as she attempted to work full time and raise a very young child herself. Unfortunately, and for whatever reason, this issue has not previously been explored in this change of assessment process even though such claims are typically entertained as a ground to depart from the assessment in itself.
I must take into account the direct and indirect costs incurred by the carer entitled to child support in forming a view about what a just and equitable departure would be, and so I allowed Ms Saylor to provide evidence in support of her contention about child care.
At the hearing Ms Saylor provided oral evidence of very substantial out of pocket expenses associated with child care expenses for [Child 1]. Discussions of child care expenses inevitably resulted in a contention from Mr Grant that he or his family could provide more care for [Child 1] and avoid those expenses, and that he did not think it appropriate for his daughter to have spent so much time in childcare.. I am unable to approach Ms Saylor’s case about child care expenses on that basis, and disputes about care and access must be pursued through the family courts.
Supporting documentary evidence from Ms Saylor identifies that from one child care provider, she incurred out of pocket expenses of $353.25 for the period 24 July 2019 to 2 February 2020. From another child care provider however, her out of pocket expenses were much higher. Ms Saylor has provided an account statement demonstrating that between 7 August 2016 and 2 February 2020 she incurred $20,252.74 in out of pocket expenses. Weekly out of pocket expenses have varied, including to nil when the service was not used, but I calculate that on average therefore over 182 weeks to be $111 per week. The more recent figures are generally supportive of this long term average, when combined with the out of pocket expenses from the other service.
This is a substantial direct cost on Ms Saylor, and in my view in reaching a just and equitable determination, it must be taken into account.
As to the parent’s income, property and financial resources, I have addressed in detail above my findings as to Mr Grant’s financial resources through his association with his parent’s business. Further to that however, I accept Mr Grant’s evidence that from late October he has suffered a very serious health problem that has impacted his capacity to work. This is corroborated by a Centrelink medical certificate and hospital discharge notes.
Mr Grant explained that recently he has had very limited capacity to work, and is now in receipt of sickness benefits. Mr Grant is unable to predict when he might return to full-time work, and I note the Centrelink medical certificate also provides a wide prognosis as to how long the medical condition will affect Mr Grant’s capacity to work.
In her subsequent written comments, Ms Saylor asks why, if Mr Grant is an employee, he is not receiving sick pay. I accept however that the revenue of the business is entirely dependent on Mr Grant’s personal exertion. The employer/employee relationship is largely artificial in this case. There is no financial capacity to pay Mr Grant ordinary sick leave entitlements beyond Mr Grant drawing on the wider financial resources of the business.

Mr Grant told me that his parents have not employed an alternative [Vehicle 1] driver, and the [Vehicle 1] has been sitting idle. I can draw no relevant inference from this.
I accept that Mr Grant’s income and financial resources have therefore fundamentally changed from October 2019 given his serious health condition.
As to Ms Saylor’s income, property and financial resources, I accept that prior to September 2019 Ms Saylor was an employee of [a company], and had no other interest in a business, trust or company. In this regard, Ms Saylor explained in some detail her potential future interest in some family properties, but I accept she has no present interest in those properties.
Mr Grant has asserted that Ms Saylor received income in the form of rent or lodging from visitors to her home. I had directed Ms Saylor to produce a record of amounts of rent, board or lodging fees that she had received, but this document was not provided. In her sworn evidence, Ms Saylor explained that she did have people residing at her home, but they were typically friends of friends, who contributed to household expenses in an informal way. The only evidence that may contradict this is at T277 which is a social media message in which Ms Saylor appears to invite contact for anyone that might be interested in sharing her home. It is not sufficiently specific for me to conclude that his invitation was on the basis of any particular amount of rent or board being required.
Although I am entitled to draw an adverse interest from Ms Saylor’s failure to comply with my directions, I will refrain from doing so in light of Ms Saylor’s sworn evidence. I am not satisfied that if any payment was made to Ms Saylor in return for permitting people to share her house it was a significant enough payment to render the assessment unfair, particularly in light of the care arrangements.
Furthermore, and in any event, Ms Saylor explained that she lost her job in September 2019 and is currently unemployed and in receipt of parenting payment and family assistance. I accept Ms Saylor’s evidence that she was essentially made redundant and her unemployment was not voluntary.
This also, I note, coincides with a reduction on the use of child care services.
I note Ms Saylor’s financial capacity has previously been taken into account in the ordinary way by using her adjusted taxable income, but from 15 October 2019 an estimate has been accepted reflecting her changed circumstances. I agree that the use of the adjusted taxable income and estimate in these circumstances accurately reflects Ms Saylor’s financial resources.
Furthermore, I note that Ms Saylor is experiencing difficulty in servicing her mortgage due to her change in financial circumstances. Ms Saylor described a number of steps she is taking to address this issue.
In relation to the commitments of each parent necessary to enable the parent to support themselves, neither parent identified any unusual expenses in this regard in their statement of financial circumstances.
Ms Saylor provided evidence of expenses associated with medical consultations and her pregnancy and [Child 1’s] birth. Expenses of this nature are either not relevant or already adequately addressed in the costs of the child component of the formula.
In light of my findings regarding the financial resource of free accommodation available to Mr Grant through his association with his parents’ business, I have considered whether the value of that resource is best reflected by an increase to the adjusted taxable income component of the formula or whether it is best reflected as a reduction to the self-support amount. In this regard, I am not satisfied that the business would have financial capacity to pay Mr Grant salary in the amount required to reflect the value of the financial resource afforded to him in occupying the premises, and so increasing the adjusted taxable income may not properly reflect the circumstances.
Arriving at a just and equitable determination in this matter involves some complexity because of the nature in which the financial resources of the business benefit Mr Grant, the high out-of pocket child care expenses that have not previously been the subject of evidence or consideration, and the significant change of circumstances each parent encountered in September / October 2019 and the possibility that they may change again if Ms Saylor secures employment and/or Mr Grant’s capacity to work in the business returns.
In relation to the change of circumstances, I consider that while each parent is in receipt of social security benefits, and there is little to no use of child care for [Child 1], any departure determination that I may make will not improve on the way the administrative formula makes provision for parents to estimate their income. Given Mr Grant’s future capacity to work is uncertain, I am not confident to predict the extent to which the business will provide a financial resource in the future.
I consider it is appropriate to reduce Mr Grant’s self-support amount by $9,360pa to reflect his access to resources of the business to meet his accommodation costs. This is unlikely to have any practical effect on the rate of child support while Mr Grant remains in receipt of social security, but will have an effect if his income increases. It is appropriate therefore to extend this change into the future for some time.
As Mr Grant has not had the opportunity to lodge an estimate despite his change in circumstances, I will vary his adjusted taxable income to the annual rate of sickness benefit with effect from 27 October 2019. Parents in receipt of social security benefits will typically pay the minimum rate of child support.
In relation to the Mr Grant’s financial resources from the business, I quantify the value of the financial resources by reducing Mr Grant’s self-support amount by $9,360pa as discussed above, but also by varying his income to $60,000pa from 1 January 2019. I reach this figure using a broad brush by recognising that the introduction of the depreciation expense has reduced the profitability of the business, and by also recognising that while Mr Grant’s parents are entitled to participate in the profits of the business given their long association with it and the introduction of capital, the profit in reality alienates some of the financial resources from Mr Grant in a way that the salary he receives from the business inadequately reflects that it was his personal exertion the provided the source of all revenue for the business. Where the business is a family business of this nature, I consider it is appropriate to make such an adjustment in all the circumstances.
While I recognise that the business has previously been less profitable (without the depreciation expense), this relates to periods prior to the application for a change of assessment.
In order to reflect the high out of pocket expenses Ms Saylor has encountered for child care expenses, I have considered increasing the costs of the child component of the formula by an amount reflecting the averages I have calculated above, and also simply splitting the out of pocket costs of child care equally.
By my calculations, the effects of the departures I have considered above are as follows:
The ordinary formula produced an annual rate of $2,482pa from 8 March 2019. Increasing the adjusted taxable income by varying Mr Grant’s income to $60,000pa produces an annual rate of $5,362pa. Introducing a reduction in Mr Grant’s self-support amount by $9,360pa produces a rate of $6,658pa.
Between the date of the application for a change of assessment (11 January 2019) and 13 October 2019 (39 weeks), using the weekly average identified above, Ms Saylor incurred approximately $4329 in out of pocket child care expenses (annualised to $5772). If an equal share of this is added to the annual rate of child support, it is $9,544. If the total amount is added to the costs of the child (which means the cost is proportioned in accordance with income earning) it is this is added to the ‘costs of the child’ component of the formula, the result is an annual rate of $7,625.
As I am in a position to deal with the various adjustments to different components of the formula (reflecting these reasons) in arrears, and as I also recognise that Ms Saylor was incurring significant out of pocket expenses prior to the date of the change of assessment application, I consider a just and equitable departure from the administrative assessment of child support would be reflected by setting a rounded annual rate of child support at $9000pa from the date of the application (11 January 2019) until 27 October 2019.
From that date, I consider it desirable that both parents have access to the estimate provisions of the child support scheme given their substantially changed circumstances. Mr Grant however cannot access those provisions while a departure determination varying his income had been in place, and it cannot now be applied retrospectively other than by departure. Therefore, adjusting my calculations to remove the changes to the costs of the child component and the variation of Mr Grant’s income, the annual rate from 27 October 2019 to the date of this decision (when Mr Grant may make an estimate of his income) is the minimum rate of $435pa, even taking into account his capacity to use the financial resources of the business in providing him with a residence.
These adjustments and the ultimate calculations reflect my understanding of the parents’ circumstances, and Mr Grant’s capacity to pay at the time the rate I have identified is intended to apply. I do not consider that Mr Grant will face undue hardship by meeting the rates I have identified.
I accept that Ms Saylor will face hardship when Mr Grant’s rate of child support reduces to the minimum rate. Indeed, Ms Saylor has set out her circumstances and the need to sell or rent her home. However, I consider it would nonetheless be unjust and inequitable to continue to asses Mr Grant at the higher rate after his medical condition prevented him from working and he commenced receiving social security benefits.
My determination must also be ‘otherwise proper’, and take into account the effect of any determination on each parent’s entitlement to means tested payments. In this regard, I note that Ms Saylor is in receipt of family assistance, and it is likely that my determination that Mr Grant pay the minimum rate of child support from 27 October 2019 to the date of this decision (and perhaps on an ongoing basis subject to any estimate) will result in an increase to her rate of family assistance, and thus a greater financial burden on the taxpayer for the maintenance of [Child 1]. I nonetheless consider this entirely proper having regard to the changed circumstances of the parents.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that the objection is allowed so as to:

vary Mr Grant’s annual rate of child support to the amount of $9000pa from 11 January 2019 to 27 October 2019;
vary Mr Grant’s annual rate of child support to $475pa from 28 October 2019 to the date of the publication of this decision and reasons (14 February 2020);
vary the self-support amount in respect of Mr Grant by reducing it by $9360 from 15 February 2020 until 30 September 2022.

[2020] AATA 587

29 January 2020

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Judicial Review

Statutory Construction

Remedies

Jurisdiction