Harley and Payton (Child support)

[2019] AATA 6343

Harley and Payton (Child support) [2019] AATA 6343 (16 December 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/CC016830

APPLICANT:  Mr Harley

OTHER PARTIES:  Child Support Registrar

Ms Payton

TRIBUNAL:Member F Hewson

DECISION DATE:  16 December 2019

DECISION:

The tribunal decided to set aside the decision under review and substitute its decision to depart from the administrative assessment of child support so that:

• For the period from 22 October 2018 to 31 July 2019 Ms Payton’s adjusted taxable income is varied to $45,550;

• For the period from 1 August 2019 to 31 October 2020 Ms Payton’s adjusted taxable income is varied to $40,702;

• For the period from 1 November 2020 until there is a terminating event in respect of the child, Ms Payton’s adjusted taxable income is varied to $43,000.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business – salary sacrifice - 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 Harley and Ms Payton are the parents of a child now aged 15, in respect of whom there is a child support assessment. A child support case commenced in April 2017. Ms Payton is assessed as liable to pay child support to Mr Harley.   

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 child support liability is currently assessed on the basis that Mr Harley has a percentage of care of the child of 100%.

3. The Act provides for a departure from the administrative assessment of child support in certain circumstances. The administrative assessments in this case provides as follows:

   • for Ms Payton to pay child support of $1,015 per annum for the period from 1 September 2018 to 25 October 2018, based on her 2017/18 adjusted taxable income of $29,050 and Mr Harley’s 2017/18 adjusted taxable income of $93,789.
   • for Ms Payton to pay child support of $427 per annum (the minimum annual rate) for the period from 26 October 2018 to 30 June 2019, based on her estimated 2018/19 adjusted taxable income of $22,370 and Mr Harley’s 2017/18 adjusted taxable income of $93,789.

4. On 22 October 2018 Mr Harley lodged a departure application on the basis that the assessment is not fair because of the income, property, financial resources and earning capacity of Ms Payton (Reasons 8A and 8B).

5. On 14 February 2019 a decision maker of the Department of Human Services – Child Support (the Department) concluded that a ground for departure was established on the basis of Reason 8A, in relation to Ms Payton’s income, property and financial resources, and decided to depart from the administrative assessment of child support so that for the period from 22 October 2018 until a terminating event occurs in relation to the child, the adjusted taxable income for Ms Payton is varied to $63,148 per annum.

6. Ms Payton lodged an objection to the decision and on 31 May 2019 an objections officer allowed the objection. The objections officer decided that a ground for departure from the administrative assessment of child support was not established, and decided to refuse Mr Harley’s change of assessment application.

7. On 27 June 2019 Mr Harley lodged an application for review with the Administrative Appeals Tribunal (the tribunal). The application was heard on 14 November 2019. Mr Harley attended the hearing in person and gave affirmed evidence. Ms Payton also attended the hearing in person and gave affirmed evidence. The Child Support Registrar did not attend the hearing.

8. In reaching its decision the tribunal had regard to the evidence of Mr Harley and Ms Payton at the hearing as well as the documentation provided by the Department, Mr Harley (numbered A1-A54) and Ms Payton (numbered B1-B40). 

ISSUES

1. Pursuant to section 98C of the Act, a decision to depart from the administrative assessment may be made if the following 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. Subparagraph 117(2)(c)(ia) and (ib) of the Act, commonly referred to as Reasons 8A and 8B, provide 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 assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child:

   …

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

   (ib)because of the earning capacity of either parent

3. In this case the tribunal must determine whether a ground for departure from the administrative assessment of child support is established on the basis of Ms Payton’s income, property, financial resources or earning capacity, and if so, whether it would be just and equitable and otherwise proper to make a particular determination.

CONSIDERATION

Income, property and financial resources of Ms Payton

1. The tribunal first considered whether a ground for departure is established on the basis of Ms Payton’s income, property and financial resources (Reason 8A).

2. The administrative assessments in this case are set out above. The child is in the care of Mr Harley, and Ms Payton was assessed to pay an annual rate of child support of $1,015 for the period from 1 September 2018 to 25 October 2018 and the minimum annual rate of $427 for the period from 26 October 2018 to 30 June 2019.

3. The documents provided by the Department show the adjusted taxable incomes for Ms Payton and Mr Harley, as assessed by the Australian Tax Office:

ADJUSTED TAXABLE INCOMES
Ms Payton	Mr Harley
2018/19	24,202	96,415 (deemed)
2017/18	29,050	93,789
2016/17	43,010	105,777

1. The tribunal discussed the income, property and financial resources of Ms Payton with the parties in detail at the hearing. Ms Payton is employed part-time and also operates a [business], as a sole trader. As well as the financial benefits she derives because she is able to claim some of her expenses against the business (e.g. motor vehicle expenses), Ms Payton agreed that she also received non-reportable fringe benefits, valued at $2,000, from two employers, and salary sacrificed to superannuation with another employer, which is reportable and included in her tax return. Ms Payton’s 2016/17, 2017/18 and 2018/19 income tax returns included deductions for gifts/donations of $2,495, $2,187 and $2,187 in each year respectively.

2. Although her income is low, Ms Payton has significant assets, including property valued at $1,164,754 and superannuation of about $640,000. Part of her income is derived from an investment property, against which there is a mortgage of about $376,000. Ms Payton lives in a large home with her adult daughter, son-in-law and grandchild. Her daughter and son-in-law are both employed. They contribute to household bills, but do not pay rent.

3. Given Ms Payton’s low incomes in the 2017/18 and 2018/19 financial years, and taking into account each parent’s percentage of care of the child, a relatively small adjustment in Ms Payton’s income would have a significant impact on the overall amount of the child support she is assessed to pay. Mr Harley is in a good financial position, but he is meeting all of the expenses for the child.

4. The tribunal was satisfied, having regard to the financial position of both parties, that special circumstances exist such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. As a result, the tribunal concluded that a ground for departure is established on the basis of the income, property and financial resources of Ms Payton.

5. It is not necessary for the tribunal to consider whether another ground for departure from the administrative assessment is established. The tribunal notes, however, that Mr Harley also sought a departure determination on the basis of Ms Payton’s earning capacity. Mr Harley referred to the reduction in Ms Payton’s income each year since the child support assessment commenced in 2017 as evidence of her intention to affect the child support assessment. Ms Payton said her income had reduced in recent years because some of her clients had taken the work “in house”, changed software and another died. She said at age 58 she has treated it as a “transition to retirement”; that is, she is open to new clients and has submitted three expressions of interest in 12 months, but she is not pursuing new clients as actively as in the past. Ms Payton said she works 20-25 hours a week and has spent some time caring for her grandchild. The tribunal was satisfied, on balance, that it is not a major purpose of the reduction in Ms Payton’s income over a number of years to affect the assessment of child support.

Just and equitable

1. The tribunal considered whether it would be just and equitable to make a particular departure determination having regard to the matters in subsection 117(4) of the Act.

2. 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 proper needs of the children, the parents’ income, earning capacity, property and financial resources, their commitments and any hardship that would be caused by departing or not departing from the administrative assessment.

The child

1. The child, now aged 15, is the only child of the child support assessment between Mr Harley and Ms Payton. The child is currently in full-time secondary education and does not have any income or financial resources of her own. It was Mr Harley’s evidence that the child is in good health and he does not incur any unusual expenses in caring for her.

2. There is no evidence before the tribunal that the child has any special needs which are relevant to the assessment of child support. Mr Harley’s expenses in relation to the child are discussed below. 

Mr Harley

1. In his Statement of Financial Circumstances, completed in July 2019, Mr Harley indicated his income is $1,924 per week, from his self-employment as an accountant, employment as a finance officer, his position as a government board member and from rental income. He reported that he receives family tax benefit of $83 per week. The value of his assets, including superannuation of about $571,000, amount to about $2,400,000. His liabilities include two mortgages (about $360,000 combined) and an interest free non-bank loan (about $135,000), against which he is not currently making repayments. Mr Harley’s weekly personal expenditure includes income tax of $464, minimum credit card payments of $24 and health insurance premiums of $30. He reported total household expenditure is $1,607 per week, including $695 in relation to the child. He agreed that his household expenses include some amounts that he can claim as an expense of the business (e.g. a portion of vehicle expenses). The household expenditure also includes discretionary expenditure, such as $96 per week for holidays, $69 per week for entertainment and hobbies, $138 per week for children’s activities and $46 per week for gifts.

Ms Payton

1. Ms Payton’s income, property and financial resources are discussed above. In her Statement of Financial Circumstances, completed in July 2019, Ms Payton reported that she does not have any personal expenditure apart from child support. She reported that total household expenditure is $938 per week, but agreed that this includes some amounts that are claimed as an expense against her rental income (e.g. mortgage interest payments, council rates etc).

2. Mr Harley said he does not believe the information provided by Ms Payton is accurate at a “fundamental level”. He said, for example, Ms Payton’s accounts for a three month period do not include expenditure for utilities or telephone/internet. He queried whether Ms Payton has another account. Ms Payton said she pays for some things in cash and receives cash from her daughter for her contribution to the household expenses.

Conclusion

1. As discussed above, Ms Payton is assessed to have a low income, but she has income and financial resources, including non-reportable fringe benefits ($4,000 per annum) and benefits she derives from self-employment (a notional amount of $2,500), which are not reflected in her adjusted taxable incomes for 2017/18 and 2018/19. Other items included in her tax returns, such as expenditure related to gifts and donations, of about $2,200 for each of the last three years, do not take precedence over child support. In addition, Ms Payton lives in a large house with her daughter and son-in-law, both of whom are employed, and she reported that she provides some care for their child. They do not pay rent, but contribute to utilities. The tribunal was of view that the value of the rent Ms Payton is forgoing (a notional amount of $7,800 per annum) is also a financial resource. It is not possible in this case to come to a precise determination of Ms Payton’s income, property and financial resources. The tribunal concluded that they amount to about $16,500 per annum in addition to Ms Payton’s assessed adjusted taxable income for 2017/18 and 2018/19 (i.e. $45,550 in 2017/18 and $40,702 in 2018/19). As the tribunal has arrived at these incomes in part using notional amounts, it decided not to “gross-up” the components to arrive at the final amount.

2. Having regard to the particular circumstances of this case, the tribunal concluded that it is just and equitable to depart from the administrative assessment of child support. In making such a determination the tribunal can, in accordance with section 98S of the Assessment Act, vary the rate of child support payable or it can vary any of a number of variables that are used in the administrative formula. It proposed to depart from the administrative assessment of child support as follows:

   ·     For the period from 22 October 2018 to 31 July 2019 Ms Payton’s adjusted taxable income is varied to $45,550;

   ·     For the period from 1 August 2019 to 31 October 2020 Ms Payton’s adjusted taxable income is varied to $40,702;

   ·     For the period from 1 November 2020 until there is a terminating event in respect of the child, Ms Payton’s adjusted taxable income is varied to $43,000.

3. This would increase the annual rate of child support payable by Ms Payton to about $4,300, $3,400 and $3,800 for those periods respectively. The tribunal considered whether the proposed departure determination will cause hardship to the parties or the child.

4. Ms Payton said she does not have the resources to meet an increased assessment of child support and cannot immediately access her superannuation. The tribunal was satisfied, however, that Ms Payton has the capacity to make arrangements to meet the increase in the child support liability. She could immediately increase the funds available to her by ceasing the salary sacrifice arrangement whereby part of her pre-tax income is directed to superannuation. She also has a small amount of savings and shares, and an increase in her daughter’s contribution to the household could be directed to the payment of child support. As noted above, if Ms Payton’s work decreases, it is likely she will be able to access her superannuation now, or when she turns 60 in about 18 months.  Ms Payton’s transition to retirement should not be at the expense of support for the child, especially where she has resources she can draw on to meet the liability.

5. The tribunal was satisfied that the proposed departure determination will not cause hardship for Mr Harley or the child. It will increase the amount of child support currently payable and although he was seeking to have Ms Payton assessed on a higher income, the tribunal notes that it does not propose making any adjustments to his income, although he does receive some benefits through the operation of his business. His living expenses are relatively low because he lives in a home that is unencumbered.   

6. The tribunal concluded, having regard to the available evidence, that the departure determination will not cause hardship to the parties or to the child and is just and equitable. The period of the departure, until the child support assessment ends, will give both parties some certainty about the assessment and, unless there is a significant change in their circumstances, should exclude the need for further changes.

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 their child.

2. Mr Harley receives family tax benefit. The proposed departure determination results in a more appropriate apportionment of financial responsibility between the parents and the community. Such a result is otherwise proper.

DECISION

The tribunal decided to set aside the decision under review and substitute its decision to depart from the administrative assessment of child support so that:

• For the period from 22 October 2018 to 31 July 2019 Ms Payton’s adjusted taxable income is varied to $45,550;

• For the period from 1 August 2019 to 31 October 2020 Ms Payton’s adjusted taxable income is varied to $40,702;

• For the period from 1 November 2020 until there is a terminating event in respect of the child, Ms Payton’s adjusted taxable income is varied to $43,000.