Hailey and Childers (Child support)

Hailey and Childers (Child support) [2023] AATA 2135 (30 May 2023)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2022/AC025065
APPLICANT:  Mr Hailey
OTHER PARTIES:  Child Support Registrar
Ms Childers

TRIBUNAL:Senior Member R Ellis
DECISION DATE: 30 May 2023
DECISION:

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

for the period from 19 May 2022 to 30 June 2022 the adjusted taxable income of Mr Hailey is varied to $102,669; and
for the period from 1 July 2022 to 30 September 2024 the adjusted taxable income of Mr Hailey is varied to $94,231.

CATCHWORDS

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

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

This review is about whether or not there should be a departure from the administrative assessment of child support.
Mr Hailey and Ms Childers are the parents of [Child 1] (born March 2004) and [Child 2] (born April 2007). There has been a child support assessment in place since 21 April 2004 and Mr Hailey is currently the liable parent.
The following administrative assessments of child support are under consideration:
· for the period from 18 March 2022 to 31 July 2022 Mr Hailey was assessed to pay the fixed annual rate of $2,954 based on a 2020-21 adjusted taxable income of $8,537 for Mr Hailey and a 2020-21 adjusted taxable income for Ms Childers of $44,873; and
· for the period from 1 August 2022 to 1 November 2022 Mr Hailey was assessed to pay the fixed annual rate of $3,042 based on a provisional 2021-22 adjusted taxable income of $8,785 for Mr Hailey and a 2021-22 adjusted taxable income for Ms Childers of $51,384.
On 19 May 2022 Ms Childers applied to Services Australia – Child Support (Child Support) for a change to the assessment on the basis of the special needs of the child (the ground more commonly known as Reason 2) and a parent’s income, property and financial resources or earning capacity (Reasons 8A & 8B).
On 11 August 2022 Child Support made the decision to change the assessment so that for the period from 19 May 2022 to 31 August 2024 the adjusted taxable income of Mr Hailey is set at $130,119 with this amount to be indexed by the relevant child support inflation factor from 1 August 2023 (the original decision).
On 13 September 2022 Mr Hailey objected to this decision and on 16 November 2022 Child Support disallowed the objection (the objection decision).
On 17 November 2022 Mr Hailey applied for a review of the objection decision by the Administrative Appeals Tribunal (the Tribunal).
A directions hearing was held on 14 February 2023. Mr Hailey attended by Microsoft Teams audio. At the commencement of the directions hearing Ms Childers informed the Tribunal she did not wish to participate if Mr Hailey was also present. Prior to the directions hearing Child Support provided the Tribunal and the parties with a bundle of documents in accordance with section 37 of the Administrative Appeals Tribunal Act 1975 (496 pages).
Mr Hailey was directed to provide additional information and complied to the satisfaction of the Tribunal.
On 29 May 2023 Ms Childers informed a tribunal officer she did not wish to participate in the hearing and would instead provide a written submission.
A hearing was held on 30 May 2023. Mr Hailey gave evidence on affirmation by Microsoft Teams audio. At the commencement of the hearing Ms Childers again advised she did not wish to participate. Prior to the hearing the Tribunal received documents folioed A1 to A30 from Mr Hailey and a copy was distributed to the parties. A written submission was received from Ms Childers on 30 May 2023. The Tribunal accepted this submission and a copy was sent to Mr Hailey for his review and response (B1–B34). A written response was received from Mr Hailey on 30 May 2023 (A31).
At the hearing the Tribunal sought clarification from Mr Hailey as to the reasons for his application. Mr Hailey said he disagreed with the assessment of his income made by Child Support. Mr Hailey added that he was also concerned Child Support had varied his income until 31 August 2024 when his income may change in the intervening period.

ISSUES

The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act). The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Act.
Under Part 6A of the Act, the liable parent or the carer of the child or children may apply to the Child Support Registrar for a determination to depart from the administrative assessment (section 98B).
Section 98C provides that the Registrar may make a determination to depart from the administrative assessment and establishes a three-step process such that the issues for determination by this Tribunal are:
·     whether or not a ground is established to depart from the administrative assessment of child support; and if so,
·     whether or not it is just and equitable to make a particular departure determination; and if so,
·     whether or not it is otherwise proper to make a particular departure determination.
The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Act.
Each ground is prefaced by the words “in the special circumstances of the case”. The meaning of this expression is not defined in the Act, but the Family Court in Gyselman and Gyselman [1991] FamCA 93 has held that:
as a generality 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 court will not interfere with the administrative formula result in the ordinary run of cases.
In Philippe and Philippe (1978) FLC 90-433 the Court held that “special circumstances” are “facts peculiar to the particular case which set it apart from other cases”.
If the Tribunal is satisfied that a ground exists 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.
The range of determinations which can be made includes variations to the annual rate of child support payable; or to the adjusted taxable incomes of the parents and/or carer; or to other components of the statutory formula used to calculate child support.

CONSIDERATION

Issue 1 – Is there a ground for departure?

A ground for departure exists where, in the special circumstances of the case, application of the administrative assessment of child support would result in an unjust and inequitable determination of child support to be provided by the liable parent in respect of the child because of the income, property and financial resources of either parent (subparagraph 117(2)(c)(ia) of the Act).
Mr Hailey told the Tribunal he was employed by labour hire firm [Firm 1] as a [Occupation 1] on a casual basis and had been for around three years. Mr Hailey said he was paid on an hourly basis and it was difficult to predict his income from one year to the next as the work was seasonal. Mr Hailey pointed out that he drove in northern Australia and if the wet season was bigger than usual he would end up working less.
Mr Hailey said when he was not driving he would try to pick up some work with his [specified equipment] or doing [other work]. He said he did this as a sole trader and all income was declared through his individual tax return. Mr Hailey explained that he purchased the [specified equipment] with savings in early 2022 in the hope of building a business so he was less reliant on [Occupation 1]. Mr Hailey said prior to this he was trading [specified goods] but that ended in the 2020-21 financial year when he stopped leasing the land he was also living on.
In response to directions Mr Hailey provided the Tribunal with a copy of his individual tax return for 2021-22. It shows total income of $22,804 comprised of income from [Occupation 1] of $104,794 plus allowances of $864 less supplement losses of $82,854. After accounting for various deductions totalling $3,353, most of which related to the cost of managing his tax affairs, Mr Hailey had a taxable income of $19,451 in 2021-22.
The tax return also sets out financial information for his [specified equipment] business showing total income of $20,400 and total expenses of $103,618 leaving a net loss from his business activities of $83,218. Added back to this was a small net capital gain of $364 for total supplement losses of $82,854. It was this amount that was offset against Mr Hailey’s income from employment as a [Occupation 1] to arrive at his total income figure in 2021-22.
Mr Hailey said his business expenses were all legitimate and incurred in the normal operation of the work he did with his [specified equipment] and [deleted] activities. Mr Hailey acknowledged that the business did meet some of his personal expenses, such as his motor vehicle costs, but he was uncertain of the amount and left this to his accountant.
In response to directions Mr Hailey also provided the Tribunal with financial statements for [himself], sole trader, for 2021-22. The profit and loss statement for the year ended 30 June 2022 shows total income in the form of “other revenue” of $20,400 and no income from [trading]. Expenses total $103,618 leaving a net loss of $83,218 as reflected in his tax return. Major expenses include depreciation of $66,325, materials of $18,583, motor vehicle expenses of $7,061 and repairs of $4,151. The depreciation schedule shows items depreciated in 2021-22 were the [specified equipment and other items]. The schedule indicates the [specified equipment] was purchased on 25 March 2022.
Mr Hailey told the Tribunal he felt he would earn less as a [Occupation 1] in the current financial year due to the longer wet season. Mr Hailey said his income from his [specified equipment] business was likely to be around the same but he did not prepare running accounts and could not be certain until the financial year ended. He pointed out that generating extra income from his [specified equipment] business was difficult as he needed to [work in Occupation 1] in order to live and meet his child support obligations. He said this meant he was unable to spend as much time growing the business as he would like. He described it as a “catch 22” situation.
In response to directions Mr Hailey provided the Tribunal with three recent payslips from [Firm 1]. The payslip for the pay period ending 19 March 2023 shows gross year-to-date income of $70,046.75 including allowances. This would equal approximately $97,584 on an annualised basis ($70,046.75 divided by 262 days in the period multiplied by 365 days in a year).
Although Ms Childers did not participate in the hearing the Tribunal notes that in her application for a change of assessment made on 19 May 2022 she states that Mr Hailey hides his income through his business and by other means. Ms Childers argues that his tax returns do not reflect his true income. Ms Childers also seeks a change from 19 May 2019. In her written submission to the Tribunal Ms Childers submits the income determined by Child Support for Mr Hailey of $130,000 is reasonable. Ms Childers also points out that Mr Hailey continues to minimise his income by running his business at a loss.
Mr Hailey also provided the Tribunal with a Statement of Financial Circumstances received on 28 April 2023. Mr Hailey states his total average weekly expenditure is $942 including $354 for mortgage repayments, $273 in total motor vehicle costs and $150 for food. Mr Hailey declares personal expenditure of $1,137 per week including income tax of $518, child support of $439, minimum credit card payments of $113 and private health insurance premiums of $67. He has assets valued at $437,000 including his home of $330,000 and a 2011 [vehicle] valued at $40,000. Mr Hailey lists total liabilities of $304,225 including his mortgage of $254,714, an overdraft of $48,051 and unpaid tax of $1,460. Mr Hailey has superannuation of $200,000.
Mr Hailey is running his own business as a sole trader and the financial statements show that it operates at a loss. Mr Hailey also works as a [Occupation 1] on a casual basis and his income from employment is offset against the losses from his business so that his taxable income is reduced. It is not unusual for a person to utilise business losses in such a fashion. The Child Support Guide, a policy document released by the Australian Government, states at 2.6.14 in relation to such circumstances:
A parent who is a salary or wage earner may operate a business as well as receiving a salary or wage. Expenses relating to the business activity may legitimately be offset against salary or wage income for tax purposes. This can result in a reduced taxable income, which will in turn affect the child support assessment.
However, when considering a change of assessment application, the Registrar may decide that the offsetting of business expenses has led to a taxable income which does not accurately reflect the parent's full capacity to contribute to the support of the child from their income, property and financial resources …
While Mr Hailey has legitimate expenses in the operation of his business the Tribunal is of the view this should not preclude a fair outcome in relation to the provision of child support. The Family Court has held that in circumstances where a parent is self-employed it can be appropriate to look behind their taxable income. For example, in Voss & Child Support Registrar & Anor (SSAT Appeal) [2009] FMCAfam 1296, the Court commented on the common situation of a self-employed person’s taxable income not corresponding with his or her income or financial resources for child support purposes:
There is a body of cases where simple reference to a person’s tax return does not provide an appropriate quantification of their capacity to provide financial support. Most commonly this occurs in cases involving the self-employed, where it is well accepted that legal structures and arrangements may generate taxable income that doesn’t properly reflect the realistic capacity of the person to provide financial support for their children.
In 2021-22 Mr Hailey generated additional revenue of $20,400 from his [specified equipment] business and after accounting for costs of $103,618 the business recorded a net loss of $83,218. Costs such as depreciation, for example, are a legitimate expense for taxation purposes but are not an actual expense incurred until such time as the equipment depreciated is replaced. In many instances the cash flow effect of a claim for depreciation is not matched by actual capital expenditure in the same year. Mr Hailey is also able to write off some personal expenses against the business, such as motor vehicle and telephone costs, thus reducing his tax liability as a result of the way the business is structured. The Tribunal nonetheless acknowledges his costs significantly outweighed his revenue in 2021-22. The Tribunal accepts this is likely to be the case in 2022-23 until the business is better established.
The Tribunal is satisfied it is reasonable, in the circumstances of this case, to disregard the effect of the business losses and instead assess Mr Hailey on his gross income from employment as a [Occupation 1]. In doing so the Tribunal accepts the [specified equipment] business will continue to have expenses that will exceed income, at least in the short term, and so will not take account of the income from the business.
The Tribunal finds that Mr Hailey had access to income, property and financial resources equivalent to a person with an adjusted taxable income of approximately $102,669 in
2021-22. This allows for total tax deductions of $3,353 as indicated in his tax return but also accounts for the amount of his small net capital gain.
Mr Hailey has submitted that his income from [Occupation 1] is likely to be slightly less in the current financial year and has provided evidence of his gross year-to-date earnings up to 19 March 2023. This annualises to an income of approximately $97,584 which the Tribunal considers fair. The Tribunal finds, on the same basis as above, that Mr Hailey has access to income, property and financial resources equivalent to a person with an adjusted taxable income of approximately $94,231 in 2022-23 after allowing for a similar level of tax deductions. The Tribunal is satisfied this is a fair representation of the income, property and financial resources available to Mr Hailey going forward.
The Tribunal also considered the income, property and financial resources of Ms Childers.
The Tribunal notes in evidence from Child Support that Ms Childers is employed as a [Occupation 2]. Her adjusted taxable income was $44,873 in 2020-21 and $51,384 in 2021-22. There is no evidence before the Tribunal to indicate Ms Childers has changed employment.
Ms Childers did not provide the Tribunal with a Statement of Financial Circumstances. The Tribunal notes, however, that in her application to Child Support for a change of assessment she lists no out-of-the-ordinary expenses aside from $500 per fortnight for medical/insurance bills. These expenses will be considered by the Tribunal when making a just and equitable determination.
The Tribunal is satisfied that, for the purposes of child support, Ms Childers is fairly assessed under the usual administrative processes.
The administrative assessment in place at the time Ms Childers made her application for a change of assessment on 19 May 2022 was based on a 2020-21 adjusted taxable income of $8,537 for Mr Hailey. From 1 August 2022 Mr Hailey was assessed on a provisional 2021-22 adjusted taxable income of $8,785.
The Tribunal has found, however, that Mr Hailey had access to income, property and financial resources equivalent to a person with an adjusted taxable income of approximately $102,669 in 2021-22. When this amount is applied in the child support formula, the annual rate of child support payable by Mr Hailey would be approximately $21,390.
The Tribunal finds this to be significantly more than his liability under the administrative assessment. The Tribunal is satisfied that special circumstances exist and the application of the administrative assessment of child support would result in an unjust and inequitable determination of child support to be provided by Mr Hailey. On this basis the Tribunal finds there is a ground for departure from the administrative assessment.

Issue 2 – Is it just or equitable to make a particular determination?

As the Tribunal finds there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable as regards the child, the liable parent, and the carer entitled to child support to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act. This in turn requires the Tribunal to consider the matters discussed below,[1] which are as set out in subsection 117(4) of the Act:
[1] The Tribunal is required to give “overt consideration” to relevant factors listed in subsection 117(4) of the Act: Tyagi & Meares(SSAT Appeal) [2008] FMCAfam 886.
(4)In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order under this Division, the court must have regard to:
(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.

The nature of the duty of a parent to maintain a child

Section 3 of the Act states that it is the primary duty of a parent to maintain the child and this has priority over nearly all other commitments.
In this case the parents have a duty to support [Child 1] and [Child 2]. Ms Childers also has another relevant dependent child. The Tribunal will take this into account under subparagraph 117(4)(e)(ii) of the Act when making its assessment.

The proper needs of the child

In relation to the proper needs of the child, regard must be had to the manner in which the child is being, and in which the parents expected the child to be, cared for, educated or trained, and any special needs of the child (subsection 117(6) of the Act).
In her application to Child Support for a change of assessment Ms Childers submits that [Child 1] and [Child 2] have been diagnosed with post-traumatic stress syndrome which requires them to see a psychologist for treatment. According to her application the sessions cost $100 per week for [Child 1] and $175 per week for [Child 2]. Ms Childers was asked by Child Support to provide evidence to substantiate these costs but did not. While the children may well have special needs there is no evidence before the Tribunal to verify this is the case. The Tribunal will not consider this matter further.
The Tribunal is satisfied it is therefore appropriate to calculate the costs of their needs by reference to the Costs of the Children Table (provided for in Schedule 1 of the Act).

The income, earning capacity, property and financial resources of the child

The Tribunal is satisfied that the children have no income, earning capacity, property and financial resources which should be taken into account for the purpose of child support.

The income, property, financial resources and earning capacity of each parent

The Tribunal has already considered in detail the income, property and financial resources of both parents.
In her application for a change Ms Childers also raised the earning capacity of Mr Hailey. In order to establish that Mr Hailey’s earning capacity might be greater than that in the child support assessment and render the assessment unfair, all three compulsory criteria set out in subsection 117(7B) of the Act must be satisfied. Those three criteria are:
(a)    one or more of the following applies:
·the parent does not work despite ample opportunity to do so (subparagraph 117(7B)(a)(i));
·the parent has reduced the number of hours per week of their employment or other work below the normal number of hours per week that constitutes full-time work for the occupation or industry in which the parent is employed or otherwise engaged (subparagraph 117(7B)(a)(ii));
·the parent has changed their occupation, industry or working pattern (subparagraph 117(7B)(a)(iii)); and
(b)    the parent’s decision not to work, to reduce the number of hours, or to change their occupation, industry or working pattern is not justified on the basis of:
·the parent’s caring responsibilities (subparagraph 117(7B)(b)(i)); or
·the parent’s state of health (subparagraph 117(7B)(b)(ii)); and
(c)    the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child (paragraph 117(7B)(c)).
Mr Hailey is currently working as a casual [Occupation 1] for a labour hire firm and has done so for several years. Mr Hailey also operates his own [specified equipment] business and prior to that operated his own [specified goods] trading business.
As Mr Hailey is working and continues to run his own business the first criterion is not met. As all three criteria must be satisfied, it follows that if one is not satisfied, then this ground cannot be considered.
The Tribunal finds that the earning capacity criteria (set out in subsection 117(7B) of the Act) are not met for Mr Hailey in this case. The Tribunal is also satisfied that the earning capacity criteria are not met in relation to Ms Childers.

Any hardship that would be caused

Mr Hailey works as a casual [Occupation 1]. He also runs his own [specified equipment] business. The Tribunal has found he had access to income, property and financial resources equivalent to a person with an adjusted taxable income of approximately $102,669 in 2021-22. The Tribunal has calculated this will fall to approximately $94,231 in 2022-23 and going forward. His average household expenses total $48,984 and the Tribunal notes this includes some discretionary expenditure. Mr Hailey declares annual personal expenditure of $59,153 and this includes child support of $22,828 per annum.
Ms Childers had an adjusted taxable income of $44,873 in 2020-21 and $51,384 in 2021-22. The Tribunal is satisfied Ms Childers’s adjusted taxable income is a fair representation of the income, property and financial resources available to her for the purposes of child support. Ms Childers clearly relies on child support from Mr Hailey to assist in meeting the children’s needs.
The Tribunal is limited to making a determination in respect of a day in a period that is not more than 18 months prior to the date the change of assessment application was made (paragraph 98S(3B)(a) of the Act). The Tribunal must decide whether or not it is just and equitable to backdate the determination.
Ms Childers applied for a change of assessment on 19 May 2022 and requested that any change be made from 19 May 2019. In her written submission to the Tribunal Ms Childers raised concerns about a previous decision made by Child Support on 15 January 2020. This decision arose from her change of assessment application made on 9 September 2019. Mr Hailey objected to this particular decision and an objection decision was made by Child Support on 1 February 2021. Mr Hailey then lodged an application for review and the Tribunal, separately constituted, made a decision on 7 July 2021 to refuse the change of assessment application made by Ms Childers on 9 September 2019.
Having considered the interests of both parents the Tribunal proposes to make the following determination:
· for the period from 19 May 2022 to 30 June 2022 the adjusted taxable income of Mr Hailey is varied to $102,669; and
· for the period from 1 July 2022 to 30 September 2024 the adjusted taxable income of Mr Hailey is varied to $94,231.

The Tribunal has commenced its determination from 19 May 2022 being the date Ms Childers lodged her application to Child Support. It would be inappropriate for the Tribunal to review a previous decision of the Tribunal. In the decision of 7 July 2021 the Tribunal, separately constituted, concluded that either parent could lodge a new change of assessment if they considered the rates of child support to be unfairly low or unfairly high. Ms Childers did not lodge her current application until 19 May 2022. The Tribunal considers there was nothing preventing Ms Childers from lodging her application sooner.
In accordance with the determination of this Tribunal the annual rate of child support payable by Mr Hailey from 19 May 2022 will be approximately $21,390. The annual rate will fall to approximately $19,232 from 1 July 2022 when using the lower adjusted taxable income amount of $94,231 for Mr Hailey. It will fall slightly to approximately $19,094 from 1 August 2022 when Ms Childers’ 2021-22 adjusted taxable income is applied to the assessment. The annual rate of child support will reduce again to approximately $14,496 from 2 November 2022 when the child support assessment for [Child 1] ended.
The Tribunal has varied the income of Mr Hailey until 30 September 2024. This provides the parents with some certainty about the level of child support for [Child 1] and [Child 2] while not being so far into the future as to render the decision out of touch with Mr Hailey’s financial circumstances. In doing so the Tribunal is also conscious that Mr Hailey’s [specified equipment] business should generate a profit at some point in the future.
Should Ms Childers wish to pursue the matter of the children’s special needs this would require a new application for a change of assessment and evidence verifying the costs associated with those special needs.
The Tribunal is satisfied the proposed determination will not cause hardship to Mr Hailey, Ms Childers or the children and is just and equitable.

Issue 3 – Is it otherwise proper to make a particular determination?

The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act. Subsection 117(5) sets out the matters that must be considered when deciding whether it would be otherwise proper to make a departure determination. It focuses on the balance of support carried between the parents on one hand and the taxpayer on the other. It is appropriate for the children to be primarily supported by their parents rather than by government assistance. The Tribunal must consider whether the level of a benefit, in particular family tax benefit, received by the party caring for the children may be affected by the level of child support.
Ms Childers is in receipt of family tax benefit for the children. The Tribunal is satisfied that its determination will result in an appropriate apportionment of financial responsibility between the parents and the community and would be otherwise proper.

DECISION

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

for the period from 19 May 2022 to 30 June 2022 the adjusted taxable income of Mr Hailey is varied to $102,669; and
for the period from 1 July 2022 to 30 September 2024 the adjusted taxable income of Mr Hailey is varied to $94,231.

[2023] AATA 2135

30 May 2023

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Family Law

Administrative Law

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Jurisdiction

Judicial Review

Statutory Construction

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