Hawksley and Harker (Child support)

[2023] AATA 276

Hawksley and Harker (Child support) [2023] AATA 276 (18 January 2023)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2022/MC024372

APPLICANT:  Ms Hawksley

OTHER PARTIES:  Child Support Registrar

Mr Harker

TRIBUNAL:Member M Baulch

DECISION DATE:  18 January 2023

DECISION:

The tribunal set aside the decision under review and, in substitution, decided that there are to be departures from the administrative assessment in both child support cases, such that:

• For the period 1 July 2021 to 31 December 2021, Ms Hawksley’s adjusted taxable income is varied to be $70,622 per annum.

• From 1 July 2021 until the date [Child 2] ceases to be an eligible child, Mr Harker’s adjusted taxable income is varied to be $575,000 per annum.

• From 1 July 2021 to 31 December 2021, the annual rate of child support otherwise payable by Mr Harker is to be increased by $4,600.

• From 1 January 2023 until the date [Child 2] ceases to be an eligible child, the annual rate of child support otherwise payable by Mr Harker is to be increased by $2,800.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – costs of education – 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 omitted 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. This application for review concerns the amount of child support paid by Ms Hawksley and Mr Harker in respect of [Child 1] and [Child 2] who were born in 2006 and 2008.

2. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable by one separated parent to the other.  It uses a statutory formula which contains variables such as the parents’ income, the number of children, their ages and their percentages of care. 

3. There are two child support cases in this matter, with each parent assessed as liable, by Services Australia – Child Support (Child Support) to pay child support to the other.  Mr Harker has been assessed as liable to pay child support to Ms Hawksley since 8 May 2015 and, since 1 January 2022, Ms Hawksley has been assessed as liable to pay child support to Mr Harker.

4. A parent can make an application to Child Support for a change to the administrative assessment based on the statutory formula in the special circumstances of their case – referred to in the Act as a departure determination.  Mr Harker made such an application, on 3 November 2021, seeking a change to the child support assessment on the basis that he had provided goods or property for the benefit of the children and the assessment did not correctly reflect one or both parents’ income, property and/or financial resources.  On 30 January 2022, Ms Hawksley made her own application for a departure determination, seeking a change to the child support assessment because it did not correctly reflect one or both parents’ income, property and/or financial resources and the parents’ earning capacity. 

5. On 30 March 2022, a Child Support decision maker decided to make a departure determination, such that for the period 1 January 2022 to 31 May 2024, the adjusted taxable income of Mr Harker was set at $437,275.

6. Mr Harker objected to that decision and, on 4 July 2022, that objection was partly allowed.  The objections officer decided that there should be a departure determination, such that for the period 1 January 2022 to 31 December 2024, Mr Harker’s adjusted taxable income was set at $240,000 per annum (the decision under review).  Ms Hawksley has now applied to this tribunal seeking an independent review.

7. A hearing into the application for review was held by the tribunal on 18 January 2023.  Ms Hawksley and Mr Harker both participated in the hearing by conference telephone, and both gave evidence under affirmation during the hearing.  A representative of the Child Support Registrar (the Registrar) did not participate in the hearing. 

8. The tribunal had before it relevant documents provided to it by the Registrar pursuant to sections 37 and 38AA of the Administrative Appeals Tribunal Act 1975 (710 pages).  The tribunal also had regard to additional material provided by Ms Hawksley (labelled folios A1 to A168) and Mr Harker (labelled folios B1 to B317). 

ISSUES

1. The statutory provisions relevant to this review application are found within the child support legislation, in particular, the Act.

2. Pursuant to section 98C of the Act, a determination to depart from the administrative assessment of child support may be made if the following three requirements are met:

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

CONSIDERATION

1. At the time Mr Harker made his application for a departure determination a previous departure determination had applied for the 2021 calendar year which increased Mr Harker’s liability to pay child support by $3,508 per annum.  Another departure determination had been made in relation to the adjusted taxable incomes of both parents, which also applied until 31 December 2021.

2. As a consequence, the administrative assessments of child support in this matter are:

   ·      From 21 October 2021 to 13 November 2021, Mr Harker was assessed as liable to pay child support to Ms Hawksley of $4,958 per annum, based upon Mr Harker’s adjusted taxable income of $120,000 and Ms Hawksley’s adjusted taxable income of $50,000, amounts set in a previous departure determination.

   ·      On 14 November 2021, [Child 2] turned 13 years of age and Mr Harker was assessed as liable to pay child support of $5,102 per annum based upon the same adjusted taxable incomes for both parents.

   ·      On 1 December 2021, a new child support period commenced, and Mr Harker was assessed as liable to pay child support of $5,216 per annum based upon the same adjusted taxable incomes for both parents.

   ·      On 1 January 2022, all the previous departure determinations lapsed and Ms Hawksley’s liability to pay child support to Mr Harker commenced.  The administrative assessments of child support applying until 31 October 2022 required Ms Hawksley to pay child support of $2,528 per annum to Mr Harker, based upon her adjusted taxable income of $70,622, determined by reference to her 2000–21 taxable income and Mr Harker’s adjusted taxable income of $118,157, a provisional amount determined by the Registrar as Mr Harker has not lodged his 2020–21 income tax return.

   ·      On 1 November 2022, a new child support period commenced.  Had the decision I am reviewing not been made, I estimated that the administrative assessment of child support would require Ms Hawksley to pay child support of $2,851 per annum to Mr Harker, based upon Mr Harker’s adjusted taxable income of $108,435, determined by reference to his 2021­­–22 taxable income and Ms Hawksley’s adjusted taxable income of $72,670, an amount determined by the Registrar as Ms Hawksley had not lodged her 2021–22 income tax return.

   These, therefore, are the administrative assessments of child support from which I am considering departing.

Is there a ground, or grounds, for departure?

1. All the grounds for departing from the administrative assessment of child support are prefaced by the term “in the special circumstances of the case”.  As noted by the Full Court of the Family Court:[1]

   Whilst it is not possible to define with precision the meaning of that term, 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 Savery’s case (at Fam LR 815 FLC 77,897), Kay J, adopting the view in In the Marriage of Philippe (1977) 4 Fam LR 153; [1978] FLC 90–433 at Fam LR 155 FLC 77,202 in a different context, said that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The approach to the interpretation and application of the particular grounds in s 117(2) must be guided by that qualification.

   My consideration will be guided by this principle.

   [1] See Gyselman and Gyselman [1991] FamCA 93.

2. Both parents’ application for a departure determination relied upon the ground for departure set out in subparagraph 117(2)(c)(ia) of the Act.  This provision – commonly referred to as “Reason 8A” by Child Support – provides that a ground to depart from the statutory formula may be established if, in the special circumstances of the case, the child support assessment results 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.

3. I noted that the calculation of income for the purposes of taxation law does not limit my consideration of the true resources available to a party to child support proceedings and is but one factor to take into account in the particular circumstances of the case. 

4. It is a long–established principle of law when a person conducts their business through an intermediary, such as a company or trust, that it is proper to lift the corporate veil to determine the value of the company or trust to that person.  In the context of child support assessments, the Federal Magistrates Court said in Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623:

   ...when a person conducts their business through an intermediary company or trust, it is proper to lift the corporate veil to that person with regard to the determination of a parent’s income for child support purposes...

5. In Costa & Fairbank (SSAT Appeal) [2010] FMCAfam 39, the Federal Magistrates Court said about the interpretation of the term “financial resources”:

   “Financial resource” refers to something which is not property but from which financial benefit is or may be gained. In light of the objects of the Act, the term should be broadly defined and would refer to any financial benefit that would enhance the capacity of parents to provide a proper level of financial support for their children.

6. Regarding the extent of the examination required by a tribunal, the Federal Magistrates Court has referred to the tribunal’s obligation to pursue the objective of providing a mechanism of review that it fair, just, economical, informal and quick. The Court has observed that the tribunal is accordingly not required to undertake a “forensic audit” or major investigation of the financial circumstances of a party.  Rather, it must be satisfied on the balance of probabilities as to the party’s income, property and financial resources (see for example, Morse & Potts (SSAT Appeal) [2010] FMCAfam 1305 and Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623).

7. I took this case law into account in reaching my conclusions in this matter.

Mr Harker

1. Under the administrative assessments of child support, Mr Harker’s adjusted taxable incomes are:

   ·      $120,000 per annum until 31 December 2021, an amount determined in a previous departure determination decision.

   ·      $118,157 per annum from 1 January 2022, a provisional amount determined by the Registrar because Mr Harker has not lodged his 2020­–21 income tax return.

   ·      $108,435 per annum from 1 November 2022, an amount determined by reference to Mr Harker’s 2021–22 taxable income.

2. Mr Harker has more than $200,000 in his personal bank accounts and has credit card debt of approximately $15,000.  He owns his own home which he values at $750,000 and which is the subject of two loans in respect of which approximately $160,000 is owed.

3. Mr Harker operates a business through a corporate entity, [Company].  He has been the sole shareholder in [Company] since 1 July 2021 and the company’s sole director since 22 November 2021.  Mr Harker holds 10,000 shares in [Company] directly, with the remaining 110,000 shares held in his role as the trustee of [a Family Trust] (the Trust). 

4. The Trust is a discretionary trust, and Mr Harker is alone in exercising the powers of trustee for the Trust.  While Ms Hawksley has not yet finalised her resignation as trustee, there is no evidence that she has been active in the management of the Trust.  In 2019–20 and 2020–21 the Trust was used to distribute [Company’s] dividends, with the dividends being paid to the Trust, before being distributed to Mr Harker and four others.

5. In 2021–22, being the first year Mr Harker was the sole shareholder, [Company] made a profit of $465,064, after paying Mr Harker a wage of $110,000 per annum to run the business.  None of that profit was distributed but remained within the company.  As of 30 June 2022, [Company] held $887,496 in retained profits.  It was submitted that all these profits needed to be retained within [Company] to support the business’ cash flow going forward. 

6. Mr Harker did not deny that, as [Company] sole shareholder and director, that [Company] was essentially his alter–ego.  However, Mr Harker denied that [Company] was a very profitable company.  An examination of the financial statements for the 2019–20, 2020–21 and 2021–22 financial years suggest otherwise:

Profit before tax	Dividend paid	After tax profits retained	Mr Harker’s shareholding
2019–20	$560,206	$317,100	$227,433	50%
2020–21	$807,103	$427,092	$179,613	50%
2021–22	$465,064	$0	$352,913	100%

1. Mr Harker denied that his decision to start paying himself a wage, seeking to sell the business – with a balance sheet of $916,158 as of 30 June 2022 – for the lowly sum of $120,000 (a sale which has since fallen through) and not paying a dividend for 2021–22 were motivated by a desire to reduce his child support liability or to disguise his true financial means.

2. I noted that the [Company] did not retain all its profits and made dividend payments in 2019–20 and 2020–21.  Submissions were made that business conditions are now more uncertain, and it is prudent to manage the business’ cash flow by now retaining all previous years’ profits.  I was not persuaded by that argument. 

3. I was satisfied that the use of corporate entities does not occur in the usual case and constitutes a special circumstance for Mr Harker in the context of this case.

4. Ultimately, Mr Harker is the director of [Company], and he holds 100% of the shares either directly or through the Trust, in respect of which he is the only active trustee.  As director, he can choose how [Company’s] profits are directed.  Irrespective of what means he chooses to use to manage [Company’s] profits, I was satisfied that those profits are a financial resource available to Mr Harker and considered that they should be taken into account when the quantum of his and Ms Hawksley’s child support liabilities are determined.

5. Of the recent financial years, the 2021–22 year has resulted in the lowest level of profits.  Profits in previous financial years had the benefit from various government payments to support business through the COVID–19 pandemic.  Those government payments were not available in 2021–22.  I also noted that Mr Harker was not the sole shareholder of [Company] until the commencement of the 2021–22 financial year. 

6. Giving weight to the factors mentioned above, I considered [Company’s] 2021–22 profits should be the basis on which my determination of Mr Harker’s financial resources is based.  In addition to [Company’s] 2021–22 profit of approximately $465,000, [Company] paid Mr Harker a wage of $110,000.  I therefore decided that the sum of $575,000 per annum ($465,000 + $110,000) is the appropriate amount that reflects the true level of Mr Harker’s income, property and financial resources.

7. The administrative assessments are based upon Mr Harker’s adjusted taxable income of approximately $108,000 to $120,000 per annum.  If the amount of $575,000 were used in the assessment, he would be liable to pay child support to Ms Hawksley of at least $17,000 per annum.  I was therefore satisfied that Mr Harker’s income, property and financial resources render the administrative assessment of child support unjust and inequitable.

8. I was therefore found that the ground for departure set out in subparagraph 117(2)(c)(ia) of the Act has been satisfied in respect of Mr Harker’s income, property and financial resources.

Ms Hawksley

1. Under the administrative assessments of child support applicable, Ms Hawksley’s adjusted taxable incomes are:

   ·      $50,000 per annum until 31 December 2021, an amount determined in a previous departure determination decision.

   ·      $70,622 per annum from 1 January 2022, determined by reference to Ms Hawksley’s 2020–21 taxable income.

   ·      $72,670 per annum from 1 November 2022, an amount determined by the Registrar as Ms Hawksley had not lodged her 2021–22 income tax return.

2. Ms Hawksley’s evidence was that she has recently changed employers and she estimated that her current income to be approximately $80,000.  Mr Harker submitted that Ms Hawksley’s payslips suggest that her current income would be closer to $86,000.

3. I noted that Ms Hawksley is a PAYG taxpayer, and any increases in her income will ultimately flow through to the administrative assessment in the normal way.  Changes in income over time are not out of the ordinary for a PAYG taxpayer and I was not persuaded that there are any out of the ordinary circumstances in Ms Hawksley’s case.   I could not identify anything that constituted a special circumstance in relation to Ms Hawksley’s income.

4. Ms Hawksley has approximately $2,600 in bank accounts, held jointly with her partner.  She owns her own home jointly with her partner, and values her share at $400,000, suggesting the total value of the home is $800,000.  That home is subject to a joint home loan in respect of which about $388,000 is owed.

5. I identified nothing in Ms Hawksley’s property or financial resources which render the administrative assessment of child support unjust and inequitable.

6. I therefore found that the ground for departure set out in subparagraph 117(2)(c)(ia) of the Act has not been satisfied in respect of Ms Hawksley’s income, property and financial resources.

Other grounds

1. Any other ground for departure relied upon by either parent in their application for a departure determination will be considered in the context of just and equitable.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable directs that my attention is turned to what is fair to the parents and their children.  Regard must be had to a variety of factors, set out in subsection 117(4) of the Act, such as the needs of the children, the parents’ necessary commitments and any hardships that would be caused by departing, or not departing, from the statutory formula.

The children

1. Prior to 21 October 2021, Ms Hawksley had 53% care of both children and Mr Harker had 47% care.  On 21 October 2021, there was a change in the care percentages applying in the child support assessment for [Child 1], but not for [Child 2].  From 21 October 2021, Ms Hawksley was recorded as having 1% care of [Child 1] and Mr Harker as having 99% care.

2. Under the administrative assessments of child support, the cost of raising the two children is assessed as approximately $29,000 prior to [Child 2] turning 13 years of age, and approximately $32,000 per annum after her 13th birthday.  There is no evidence that the children have any special needs that have a significant effect on the cost of their care.  I was satisfied that neither child has any income, property, financial resources or earning capacity which should be taken into account in a child support assessment.

1. The children attend a private school and until the end of the 2021 school year those costs were being borne by Ms Hawksley.  In 2021, the school fees for [Child 1] were $5,430 and for [Child 2] they were $3,845. 

2. For the 2022 school year, Ms Hawksley paid the school fees for [Child 2], which were $4,000 and Mr Harker paid the school fees for [Child 1], which were $5,435. 

3. For the 2023 school year, [Child 2] will remain at the same school and Ms Hawksley will be paying the school fees of $5,610. Mr Harker’s evidence was that [Child 1] will be attending a public school for years 11 and 12, starting in the 2023 school year.  Thus, he will no longer be paying school fees for [Child 1].

Ms Hawksley

1. Ms Hawksley’s income, property and financial resources have been discussed in detail above.  I identified no issues relating to Ms Hawksley’s earning capacity that are relevant to my consideration. 

2. Ms Hawksley advised me that there is no other person or child in respect of which she has a duty to maintain.  Under the statutory formula, Ms Hawksley has the benefit of a self-support amount of approximately $27,000 per annum.  I received no submissions that this amount is insufficient to meet Ms Hawksley’s necessary costs for her own support. 

3. Ms Hawksley submitted that a refusal to make a departure determination would cause her financial hardship as the administrative assessment will not pay for half the school fees.

Mr Harker

1. Mr Harker’s income, property and financial resources have been discussed in detail above.  I identified no issues relating to Mr Harker’s earning capacity that are relevant to my consideration. 

2. Mr Harker advised me that there is no other person or child in respect of which he has a duty to maintain.  Under the statutory formula, Mr Harker has the benefit of a self-support amount of approximately $27,000 per annum.  I received no submissions that this amount is insufficient to meet Mr Harker’s necessary commitments for his own support. 

3. Mr Harker advised me that if I were to make a departure determination that increased his child support liability, he would not incur any financial hardship but stated that he would feel hard done by.

Conclusion

1. Having considered the matters set out in subsection 117(4) of the Act, I was satisfied that it would be just and equitable to make a change to the child support assessment.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper is set out in subsection 117(5) of the Act, which directs my attention to what is fair to the community.  It is necessary to consider the effect, if any, that a departure from the administrative assessment would have on entitlements to any income-tested pension, allowance or benefit of the carer entitled to child support.  Parents, rather than the community, have the primary duty to maintain their children.

2. Under the administrative assessment, both Ms Hawksley and Mr Harker are, at various times, the carers entitled to receive child support.  However, neither Ms Hawksley nor Mr Harker receives family tax benefit so any decision to make, or not make, a departure determination will have no impact on any income-tested pension, allowance or benefit.

3. I was satisfied that the departure determination I am contemplating is otherwise proper.

Conclusion

1. Section 4 of the Act sets out the objectives of the Act; these objectives include:

   ·      Parents of a child have a primary duty to maintain that child.

   ·      That duty has a priority over all commitments of the parent other than commitments necessary for self-support.

   ·      The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards.

   ·      The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.

2. I have found that there is a ground for departure in this case; that it would be just and equitable and otherwise proper for me to make a departure determination.  Section 98S of the Act describes the determinations that I may make if a decision is made to depart from the administrative assessment of child support.

3. I have found that Mr Harker’s income, property and financial resources render the administrative assessments of child support unjust and inequitable and give rise to a ground for departure.  I therefore decided that there ought to be a departure determination in respect of Mr Harker’s income which sets his adjusted taxable income at $575,000 per annum. 

4. I decided that my departure determination should commence from 1 July 2021.  This is the date from which Mr Harker became the sole shareholder of [Company].  I decided that my departure determination should apply until [Child 2] ceases to be an eligible child.  I noted that this will not occur until 2026.  If, in the future, there is a change in Mr Harker’s financial circumstances, he will always have the option of making a new application for a departure determination based upon those changed circumstances.

5. It is my intention that any earlier departure determination ends with effect from 1 July 2021.  As a consequence, I intend to make a departure determination which sets Ms Hawksley’s adjusted taxable income at $70,622 for the period 1 July 2021 to 31 December 2021.  I do not intend to make any departure determination in relation to Ms Hawksley’s income that will apply after 1 January 2022.  Any increases in her income will flow through to the assessment as her tax returns are lodged.

6. In relation to the school fees, I decided to make a departure determination that result in the parents sharing the costs of school fees approximately equally from 1 July 2021.  To achieve this, I have increased Mr Harker’s liability by $4,600 per annum for the period 1 July 2021 to 31 December 2021 and by $2,800 per annum for the 2023 calendar year. I have not made any adjustment for the 2022 school year as both parents were each paying fees for one child during that year. 

7. Increases in school fees in 2024, 2025 and 2026 might result in Mr Harker’s contribution falling below 50%, but I was nevertheless satisfied that my departure determination in relation to school fees is reasonable when the other aspects of my departure determination are considered.

8. I estimated that my departure determination will result in Mr Harker to be liable to pay child support to Ms Hawksley of:

   ·      Approximately $20,116 per annum from 1 July 2021 to 13 November 2021.

   ·      Approximately $21,886 per annum from 14 November 2021 to 30 November 2021.

   ·      Approximately $22,058 per annum from 1 December 2021 to 31 December 2021.

   ·      Approximately $17,458 per annum from 1 January 2022 to 31 October 2022.

   ·      Approximately $17,367 per annum from 1 November 2022 to 31 December 2022.

   ·      Approximately $20,167 per annum from 1 January 2023.

   Having regard to his submissions, I was satisfied that my departure determination will not result in Mr Harker suffering financial hardship. 

9. Therefore, and for these reasons, I decided to set aside the decision under review and substitute my own decision.

DECISION

The tribunal set aside the decision under review and, in substitution, decided that there are to be departures from the administrative assessment in both child support cases, such that:

• For the period 1 July 2021 to 31 December 2021, Ms Hawksley’s adjusted taxable income is varied to be $70,622 per annum.

• From 1 July 2021 until the date [Child 2] ceases to be an eligible child, Mr Harker’s adjusted taxable income is varied to be $575,000 per annum.

• From 1 July 2021 to 31 December 2021, the annual rate of child support otherwise payable by Mr Harker is to be increased by $4,600.

• From 1 January 2023 until the date [Child 2] ceases to be an eligible child, the annual rate of child support otherwise payable by Mr Harker is to be increased by $2,800.