Hempsell and Kembell (Child support)

[2022] AATA 4100

Hempsell and Kembell (Child support) [2022] AATA 4100 (12 September 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/MC022917

APPLICANT:  Mr Hempsell

OTHER PARTIES:  Child Support Registrar

Mrs Kembell

TRIBUNAL:Member P Noonan

DECISION DATE:  12 September 2022

DECISION:

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

·For the period 1 May 2021 to 30 July 2024, the annual adjusted taxable income of Mr Hempsell is varied to $153,111. Further, the annual amount of child support payable by Mr Hempsell is varied (increased) by $2,956 per annum for the period 1 May 2021 to 30 April 2023.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – cost of orthodontic work for children – 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. Mr Hempsell and Mrs Kembell are the parents of two children who are currently relevant to the child support assessment.

2. A child support case was first registered with Services Australia (the Agency) on 16 September 2013 and child support has been registered for collection by the Agency since then. The Agency currently maintains a case completion date for this matter of 6 July 2028.

3. On 13 April 2021 Mrs Kembell applied for a departure from the assessment of child support payable at that time. At the time of Mrs Kembell’s departure application, the applicable assessment of child support payable stipulated that:

   ·      For the period 1 March 2019 to 31 December 2021, Mr Hempsell’s adjustable taxable income is set at $70,000.

4. On 29 July 2021 an Agency officer, acting as a delegate of the Child Support Registrar, found that a ground for departure was established and decided to depart from the assessment in the following terms:

   ·      For the period 13 April 2021 to 31 March 2024, Mr Hempsell’s adjustable taxable income is set at $186,000.

5. Mr Hempsell objected to this decision and on 17 September 2021, an Agency objections officer partly allowed his objection in the following terms:

   ·      For the period 1 May 2021 to 30 April 2026, the adjusted taxable income (ATI) used in the assessment for Mr Hempsell is set to $150,000. Further, Mr Hempsell’s ATI will be increased on 1 July 2022 and each year thereafter on 1 July by the CPI Amount Weighted Average for the preceding March quarter.

6. Mr Hempsell subsequently applied to the Tribunal for an independent review of the Agency’s decision. A hearing for the matter was held on 12 September 2022 by conference telephone. The Child Support Registrar did not attend the hearing. Both Mr Hempsell and Mrs Kembell attended the hearing and gave evidence on affirmation. Mr Hempsell was represented by his accountant, Mr Tim Lew.

7. Pursuant to paragraph 98C(1)(b) of the Child Support (Assessment) Act 1989 (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; …

CONSIDERATION

The parents’ incomes and access to financial resources

1. Subparagraphs 117(2)(c)(ia) and (ib) of the Act, commonly referred to as Reason 8, provide as grounds 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….

   (ib) because of the earning capacity of either parent.

2. The term “special circumstances” is not defined in the Act. In Gyselman and Gyselman (1992) FLC 92-279, the Full Family Court indicated that for special circumstances to exist, the facts of the case must establish something which is special or out of the ordinary.

3. Mr Hempsell owns and operates a [business]. He also has interests in an investment property. It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott and Scott (1994) FLC 92-457; Carey and Carey (1994) FLC 92-489).

4. Mr Hempsell has supplied his 2020/21 individual, business trust and family trust tax returns and financials. His declared personal taxable income was $16,620.

5. As discussed at hearing, Mr Hempsell’s individual tax return declares a rental property loss of $55,419. It was submitted that this was an unavoidable expense, and the asset is being held for the long-term benefit of the children. However, it is clear that investment losses are to be added back for the purposes of calculating ATIs, as explained at point 2.4.4.10 of the Child Support Guide[1]. Accordingly, this amount must be incorporated into Mr Hempsell’s ATI for the purposes of calculating his income and overall access to financial resources in assessing his capacity to financially support the children.

   [1] 2.4.4.10 Adjusted taxable income | Child Support Guide (dss.gov.au) (accessed 16 September 2022)

6. As discussed at hearing, Mr Hempsell’s late father was a beneficiary (while still alive) of the business trust. He received a distribution of $26,000. Mr Hempsell informed the Tribunal that his father did not have any active involvement in the generating of the business’s income. It is appropriate that this amount is added back to Mr Hempsell’s ATI as the income generated is entirely as a result of his labours and not his father’s.

7. The business also pays rent to Mr Hempsell’s family trust, which distributed $39,682 to Mr Hempsell’s father. Again, it is appropriate that this amount is attributed to Mr Hempsell’s ATI.

8. The business also retains [two vehicles]. Mr Hempsell informed the Tribunal that this is used [for work purpuse]. The Tribunal noted that Mr Hempsell does not retain a personal vehicle. [Mr B] submitted personal use should be attributed at around 10 to 15%. Mrs Kembell submitted that Mr Hempsell uses this vehicle to travel for personal reasons to Melbourne each week from the business [location] . The Tribunal notes that $44,021 in motor vehicle expenses were claimed by the business in 2020/21. The Tribunal does not consider the argument that the [vehichle] is used for client transport to be reasonably plausible. The Tribunal considers that 50% of the claimed vehicle expense is a reasonable apportionment for the personal use of Mr Hempsell, noting that the Tribunal considers claimed depreciation is adequately covered by this figure. Such an amount is $22,010.

9. Mr Hempsell also has no personal accommodation costs. This is clearly a benefit to him not available to the ordinary pay as you earn taxpayer. The Tribunal attributes a personal benefit of $10,000 for this.

10. Given the above points, the Tribunal considers that Mr Hempsell’s 2020/21 ATI is appropriately reflected by an amount of $153,111. The Tribunal considers this figure is a reasonable reflection of his income and overall access to financial resources when considering his capacity to financially support the children.

11. The Tribunal has reviewed Mrs Kembell’s income and overall access to financial resources. There is nothing in the evidence that refutes her evidence that she is a PAYE taxpayer employed, but also currently receiving some jobseeker allowance. The Tribunal is satisfied that her income and overall access to financial resources, when considering her capacity to financially support the children, is accurately reflected by her reported taxable incomes.

12. Under the assessment subject to this departure consideration, the annual rate of child support payable by Mr Hempsell was $4,830. Given the above considerations, the annual amount of child support payable by Mr Hempsell at the time of the departure application would be around $14,600 per annum. The Tribunal considers that such a difference in the child support payable constitutes special circumstances as the application of the applicable assessment would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Hempsell in support of the children. As a result, a ground for departure in subparagraph 117(2)(c)(ia) of the Act does exist.

Other grounds

1. Another departure ground was raised with the Tribunal by Mrs Kembell relating to the special needs costs of the children related to dental work.

2. In Marsh & Eccles [2008] FMCAfam 1417, Riethmuller FM stated, in regard to determining multiple grounds for departure from the administrative assessment, as follows (at paragraph 13):

   Once a “special circumstance” is established, it is then necessary to determine what would be a just and equitable and otherwise proper child support assessment … once a special circumstance has been established for each period, as only one special circumstance in the period is sufficient to satisfy the first step of the departure process.

3. The Tribunal will therefore consider this ground in the context of whether it is just and equitable and otherwise proper to depart from the administrative assessment.

Would departure from the assessment be just and equitable?

1. Both parents submitted a Statement of Financial Circumstances for the Tribunal’s consideration. Mr Hempsell disclosed minimal personal debt. He also has minimal household expenses of around $330 per week. He disclosed minimal savings but did disclose a superannuation balance of $1,638,964.

2. Mrs Kembell disclosed some savings, a personal vehicle, $101,100 in superannuation, minimal personal debt and $727 per week in household expenses plus credit card repayments. She owns her home outright.

3. On balance, the Tribunal considers that there is nothing within these Statements of Financial Circumstances or the other evidence given at hearing that might reflect access to financial resources that are not commensurate with the Tribunal’s findings with respect to the respective incomes above.

   The children

4. In determining the proper needs of the child, it is necessary to have regard 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 Eades & Cadell (SSAT Appeal) [2009] FMCAfam 275, at paragraph 22, Slack FM stated as follows:

   In considering the proper needs of the child [s 117(4)(b)], the SSAT:

   a.would ordinarily consider the evidence of the parties about the needs of the children to assess the reasonableness and quantum of those needs;

   b.may have regard to publish guidelines as to the needs of the children (see Hallinan & Witynski at 94.323);

   c.may also have regard to the costs of children used in the assessment of child support under the existing formula arrangements (although it is not sufficient or appropriate to rely upon the formula to perform that task, Lindenmayer J in Dwyer & McGuire (1993) FLC92-420 (and see also Gyselman (supra) at 79.078).

5. Mrs Kembell disclosed children’s orthodontic costs recently incurred. Mr Hempsell did not dispute the medical necessity of these treatments. The total cost is $11,827. The Tribunal considers that it is just and equitable that Mr Hempsell make a 50% contribution to this cost. Accordingly, the amount of child support payable will be varied by $5,913. This amount will be annualised over two years. There were no other special needs costs associated with the children raised.

Conclusions

1. The Tribunal considers that it is just and equitable to depart from the administrative assessment of child support payable in this matter.

2. With respect to an appropriate date range for this departure determination, the Tribunal considers the departure date of 1 May 2021 as set by the objections officer to be appropriate. The Tribunal took submissions on this issue and notes [Mr B]’s advice that there is an imminent change in the structure of Mr Hempsell’s business planned. The Tribunal notes that this is a future planned change and the overall impact on Mr Hempsell’s income and finances was unclear as at the date of the hearing. However, the Tribunal considers it reasonable that his affairs be revisited in a shorter period of time than that set by the objections officer. The Tribunal will extend the departure determination to 30 July 2024, which will afford a potential examination of 2021/22 and 2022/23 financials with respect to Mr Hempsell should it be desired by either parent at that stage. This will give both parents some degree of certainty in planning their finances for supporting the children in the immediate future while acknowledging the inherent uncertainty of the sole trader business trading environment.

3. As discussed during the hearing, the principal object of the Act is to ensure that children receive a proper level of financial support from their parents. Further, the Tribunal notes the statements contained in sections 3 and 4 of the Act to the following effect:

   ·      Parents of a child have a primary duty to maintain the child;

   ·      The duty has a priority over all other 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; and

   ·      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.

4. The Tribunal is satisfied that an appropriate departure determination in this matter is as follows:

   ·      For the period 1 May 2021 to 30 July 2024, the annual ATI of Mr Hempsell is varied to $153,111. Further, the annual amount of child support payable by Mr Hempsell is varied (increased) by $2,956 per annum for the period 1 May 2021 to 30 April 2023 to take account of the special needs costs of the children.

5. The current annual rate of child support payable by Mr Hempsell will be approximately $19,500 or $372 per week, based on the currently maintained care percentages, which drops by $2,956 from 1 May 2023.

6. The Tribunal has considered the respective arguments of the parents regarding hardship. Neither parent provided compelling evidence that the departure application would cause them undue hardship. The Tribunal is satisfied that neither parent will be placed in undue hardship by this decision. Mr Hempsell is considerably in arrears so an overpayment to Mrs Kembell will not occur due to this decision. Overall, the Tribunal considers this departure determination is a just and equitable outcome, with regard to the respective situations of each parent.

Otherwise proper

1. The Tribunal is satisfied that changing the amount of child support payable will not have any adverse effect upon the community as this decision results in the parents being required to pay child support according to their actual capacity to do so. Such a result would be otherwise proper.

DECISION

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

·      For the period 1 May 2021 to 30 July 2024, the annual adjusted taxable income of Mr Hempsell is varied to $153,111. Further, the annual amount of child support payable by Mr Hempsell is varied (increased) by $2,956 per annum for the period 1 May 2021 to 30 April 2023.