Hezon and Hezon (Child support)

[2018] AATA 3062

Hezon and Hezon (Child support) [2018] AATA 3062 (4 July 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/MC012841

APPLICANT:  Mr Hezon

OTHER PARTIES:  Child Support Registrar

Mrs Hezon

TRIBUNAL:Member S Lewis

DECISION DATE:  04 July 2018

DECISION:

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

·         For the period 1 January 2017 to 30 September 2017, the adjusted taxable income of Mr Hezon is varied to $105,000; and

·         For the period 1 January 2017 to 30 September 2017, the adjusted taxable income of Mrs Hezon is varied to $41,600.

CATCHWORDS
Child support - Departure determination - Income, property and financial resources of both parents - A ground for departure exists in relation the liable parent - No legal duty to maintain another person - Decision to depart - Adjusted taxable incomes of both parent varied - 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. This application for review has been brought by Mr Hezon who disagrees with a decision made by the Department of Human Services, Child Support (the Department).

2. Mrs Hezon and Mr Hezon are the parents of the children [Child 1] (born May 2000) and [Child 2] (born May 2006).  The Department records that Mrs Hezon currently has 100% care of the children and Mr Hezon has 0%.  Mr Hezon is the parent liable to pay child support.

3. On 8 February 2017 Mrs Hezon applied to the Department for an increase to the assessed rate of child support on the ground that in the special circumstances of the case the administrative assessment results in an unjust and inequitable level of child support because of Mr Hezon’s income, property, financial resources and earning capacity.

4. There was a previous departure determination made on 15 May 2015 in which Mr Hezon’s adjusted taxable income was varied to $125,000 in the period 2 January 2015 to 31 December 2016.  Mr Hezon also applied for a change of assessment on 6 June 2016 which was refused on the basis that no ground for departure had been established. 

5. At the time of the current application, Mr Hezon was assessed to pay an annual rate of child support of $2,746.  This amount is the fixed annual rate; the administrative assessment was based on Mr Hezon’s income estimate of $16,294 and Mrs Hezon’s 2015/2016 provisional income of $7,511.  The estimate applied from 31 January 2017.  Mr Hezon lodged a further estimate of income of $0 on 28 April 2017.  As a result, he was assessed to pay $414, the minimum rate of child support.

6. On 1 May 2017, Mr Hezon lodged a response to the current application and cross application.  He sought a departure from the administrative assessment and decrease in child support payable on the ground that in the special circumstances of this case the administrative assessment results in an unjust and inequitable level of child support because of Mrs Hezon’s income, property and financial resources.

7. On 6 July 2017, a senior case officer, acting as a delegate of the Child Support Registrar, considered the departure application and determined that for the period 8 February 2017 until 31 December 2018, Mr Hezon’s adjusted taxable income is varied to $77,004.

8. On 28 July 2017, Mr Hezon objected to this decision.  Mr Hezon’s objection was allowed in part by an objections officer on 9 October 2017.  The objections officer determined that:

   ·         For the period 8 February 2017 until 31 December 2019, Mr Hezon’s adjusted taxable income is varied to $128,715; and

   ·         the period 8 February 2017 until 31 December 2019, Mrs Hezon’s adjusted taxable income is varied to $41,694.

9. This resulted in an annual rate of child support payable of $20,336 and created arrears of $6,201.43.

10. On 3 November 2017 Mr Hezon lodged an application for a review with the Administrative Appeals Tribunal (the tribunal) seeking review of the decision of the Department.

11. Prior to the hearing of the application for review, directions were issued to both Mr Hezon and Mrs Hezon directing them to provide the tribunal with specified documents.  Mr Hezon provided the tribunal with documents (folios A1 to A235).  Mrs Hezon provided the tribunal with documents (folios B1 to B11).  Both parties were provided with a copy.

12. The matter was heard on 6 June 2018.  The tribunal and the parties also had access to the statement and documents provided by the Department under subsection 37(1) and section 38AA of the Administrative Appeals Tribunal Act 1975 (the AAT Act) (folios 1 to 1,199). Mr Hezon attended the hearing in person and gave evidence. He was represented by [Mr A], accountant of [a company]. Mrs Hezon attended the hearing by conference telephone and gave evidence on affirmation.

13. The matter was adjourned after the hearing to seek additional evidence from the Department under section 95J of the Child Support (Registration and Collection) Act 1988 and to allow both parties to provide further evidence. In response to the section 95J requests, the Department provided documents (folios C1 – C35). Mr Hezon provided additional documents (folios A236 – A268) and Mrs Hezon provided documents (B12 – B15). A copy of the additional material was provided to the parties.

14. The tribunal considered the matter and made its decision on 4 July 2018.

ISSUES

1. The statutory provisions relevant to this review are found in the Child Support (Assessment) Act 1989 (the Assessment Act). The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Assessment Act. This requires the application of a statutory formula which takes into account such factors as the number of children, the level of care provided, the income of each parent and the costs of the children.

2. The liable parent or carer may apply to the Child Support Registrar for a determination to depart from the administrative assessment under Part 6A of the Assessment Act (section 98B). Section 98C provides that the Registrar may make a determination to depart from the formula assessment and establishes a three step process. In the first instance, a ground for departure from an administrative assessment must be established. The grounds are set out in subsection 117(2) of the Assessment Act. If satisfied that:

   ·         a ground or grounds exist (step one); and

   ·         that it would be just and equitable (step two); and

   ·         otherwise proper to make a particular determination (step three);

   the tribunal may make one of the determinations prescribed in section 98S of the Assessment Act. Section 98S permits a range of determinations, including varying the annual rate of child support payable and/or the adjusted taxable income of a parent.

3. To deal with Mr Hezon’s application for review, the tribunal stands in the shoes of the Child Support Registrar.  Many of Mr Hezon’s written submissions related to the past determinations and the accuracy of the findings.  The tribunal notes that this is not a review of the 2015 decision or the subsequent decision in 2016 to refuse Mr Hezon’s application for a change of assessment. 

CONSIDERATION

Issue 1 – Does a ground exist to depart from the administrative assessment?

1. Both Mr Hezon and Mrs Hezon have sought a departure from the administrative assessment on the ground that in the special circumstances of this case the administrative assessment would result in an unjust and inequitable level of child support because of Mr Hezon’s and Mrs Hezon’s income, property, and financial resources. This ground for departure is found in subparagraph 117(2)(c)(ia) of the Assessment Act.

2. The term ‘special circumstances’ is not defined in the Assessment Act. In Gyselman v Gyselman (1992) FLC 92-279 (Gyselman) the Full Court of the Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.

3. There are a range of circumstances which may support the finding that the administrative assessment would result in an unjust and inequitable determination of the level of child support.  The tribunal referred to case law and the Child Support Guide (the Guide) which sets out government policy in relation to child support.  The tribunal notes that the calculation of income and benefits for the purposes of taxation law does not limit its consideration of the true resources available to a party to child support proceedings and is but one factor to be taken into account in the particular circumstances of the case.

4. 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 (DJM and JLM [1988] FamCA 97; Scott v Scott (1994) FLC 92-457; Carey v Carey (1994) FLC 92-489 (Carey)).  When summarised, these cases establish that a ground for departure may be established where self-employed people are able to derive additional benefits from their businesses, and also have greater control over the structure of their finances than a PAYG employee. As is discussed further below, this is evident in this case.

5. 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 (see in particular Stein v Stein (1986) FLC 91-779 and Ashton and Ashton (1986) FLC 91-777 (Ashton)). In Ashton, the Court stated that: ‘this Court is not bound by formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner’. Similarly, the Full Court of the Family Court said: ‘In our view, the Company [the Trustee of the Family Trust] is a mere puppet of the husband’ and could be disregarded. These principles have been affirmed by the Family Court in cases such as Carey, with regard to the determination of a parent’s income for child support purposes.  In these cases, effective control of the businesses was found to rest with the person conducting the business and not the intermediary. As is discussed further below, this is evident in this case.  The tribunal took this case law into account in reaching its conclusions.

6. In Mr Hezon’s written submissions and his evidence to the tribunal, Mr Hezon’s major reasons for seeking review in relation to this ground are summarised as follows:

   ·         Mr Hezon’s financial position has significantly declined and not improved since the 2015 decision.  The current decision to increase his adjusted taxable income is not a fair outcome or reflection of the annual value of his financial resources;

   ·         Mr Hezon is no longer involved in the [business] operated by [Company 1].  He ceased involvement in this business on 1 April 2016.  The adjusted taxable income determined in the 2015 decision was based on Mr Hezon’s access to income and drawings from the operation of the joinery business;

   ·         After divesting his interest in [Company 1], Mr Hezon was briefly employed by [Company 2].  Since November 2017, Mr Hezon has been employed as a part-time casual [tradesperson] with [Company 3]; and

   ·         Mr Hezon resides with his wife and two relevant dependants.  His wife has some independent means in the form of investments in real property but requires his assistance in household tasks due to her and the children’s medical conditions which impacts on her ability to work.   Mr Hezon also noted that he has mental health concerns which further impacts on his ability to undertake full-time employment.

7. Mrs Hezon submitted at the hearing that Mr Hezon’s adjusted taxable income should be at least $125,000 (consistent with the previous decision).  The essence of her submissions to the tribunal and the Department are that since the 2015 decision Mr Hezon’s financial position has not changed; he enjoys a lifestyle which is reflected in an annual income as determined by the objections officer; Mr Hezon has the skills and experience to generate this amount in a business; and he must have annual income and financial resources equivalent to this amount, albeit hidden in his wife’s name.

8. The tribunal has reviewed the evidence provided by the parties and the evidence arising from the Department’s investigation of the case.  Mr Hezon has disclosed extensive information to the tribunal in relation to both his financial position and that of his wife.  In this case, the tribunal has reached the level of satisfaction required for an administrative decision to be made.  Mrs Hezon was less forthcoming.  On balance, the tribunal considered that both Mrs Hezon and Mr Hezon substantially complied with their obligations to make full and frank disclosure of their respective financial circumstances to the tribunal for the purposes of the review.  Both parties’ submissions and verbal evidence was largely self-serving and they both questioned each other’s credibility; the tribunal has preferred the documentary evidence in reaching its conclusions.

What incomes are used in the administrative assessment of child support?

1. The administrative assessment of child support is calculated for a child support period.    The child support period at the time of Mrs Hezon’s application for a change of assessment ran from 1 October 2016 to 30 September 2017.  The incomes reflected in the administrative assessment at that time were:

   ·         To 31 December 2016, Mr Hezon’s adjusted taxable income:                 $125,000

   ·         From 1 January 2017, Mr Hezon’s 2016 adjusted taxable income:          $77,004

   ·         From 31 January 2017, Mr Hezon’s estimate of income:  $16,294

   ·         From 28 April 2017, Mr Hezon’s estimate of income:  $0

   ·         Mrs Hezon’s 2016 adjusted taxable income:  $7,511

2. The current child support period runs from 1 October 2017 to 31 December 2018.  In the absence of a change of assessment, the incomes which would be reflected in the administrative assessment are:

   ·         To 30 June 2018, Mr Hezon’s estimate (subject to reconciliation):          $0

   ·         From 1 July 2018, Mr Hezon’s 2017 adjusted taxable income:                $43,944

   ·         Mrs Hezon’s 2017 adjusted taxable income:  $40,000

3. The tribunal then considered Mr Hezon’s income, property and financial resources.

Mr Hezon’s income, property and financial resources

[Company 1], [Company 4] and [Company 5]

1. It is undisputed that Mr Hezon is a [tradesperson] with over 20 years experience.  Mr Hezon told the tribunal that he entered the trade when he was approximately 15 years of age.  He explained that he and his business partner operated [Company 1] for around nine years before Mr Hezon ceased in April 2016.  His business partner continues to operate [Company 1].   The financial statements record that at 30 June 2015, the net operating profit of [Company 1] was $329,664.  After declaring a dividend of $152,000 in that year, [Company 1] had retained earnings at 30 June 2016 of $315,898.

2. Mr Hezon told the tribunal that his involvement in [Company 1] had progressively decreased over time due to the competing demands and stresses associated with having young children and his wife having ongoing medical issues related to her pregnancies.  He explained that this caused friction in the relationship with his business partner, [Mr B], as [Mr B] was working full-time and Mr Hezon wished to reduce his already part-time hours to 16 hours per week.  Mr Hezon said that his ongoing absences and part-time commitment was not fair to [Mr B].  Mr Hezon said that his mental health also suffered.  Mr Hezon also noted that at the time he left [Company 1] he expected to return after a couple of years when his relevant dependants were older and he was in a better position personally to focus on the business.  Mr Hezon told the tribunal that since leaving [Company 1], he has no further interest in [Company 1] or its business and has not worked for any entity which has had a business relationship with [Company 1]; a return to this business is not feasible.  There was no documentary evidence that there was any ongoing relationship between Mr Hezon, or any entity associated with him, and [Company 1] after 30 June 2016.

3. Based on the ASIC records and the financial documents available to the tribunal, the tribunal makes the following findings:

   ·         [Company 4] is the trustee of the Hezon Family Trust.  [Company 4] is controlled by Mr Hezon and so the tribunal accepts that he controls the Hezon Family Trust;

   ·         [Company 4] as trustee of the Hezon Family Trust owned 50% of [Company 1] until it ceased to hold the shares on 1 April 2016; 

   ·         The resolution of the directors of [Company 1] dated 1 April 2016 indicates that the shares were transferred from [Company 4] to [a named entity] as trustee for the [Mr B] Family Trust ([Mr B]) for the sum of $50,000 (being 50% of the agreed business interruption amount of $100,000).  The tribunal understands that [Mr B] was Mr Hezon’s business partner and he became sole controller of [Company 1];

   ·         The net assets of [Company 1] were agreed in a schedule signed on 26 May 2016. [Company 4] received settlement payments totalling $78,490.74;

   ·         Mr Hezon was a director and secretary of [Company 1] from 24 July 2006 until he ceased to occupy these positions on 1 April 2016;

   ·         [Company 1] declared a dividend for the period 1 July 2015 to 31 March 2016 of $388,400 to the shareholders of [Company 1] of which $194,200 was declared in favour of [Company 4].  The resolution notes:

   This dividend will be issued to clear shareholder loans at settlement date plus the settlement amount.  This is required to settle amounts taken by the shareholders out of retained earnings in prior years through to 31 March 2016.

   ·         At 30 June 2016, [Company 4] had net operating profit of $243,632 comprising capital gains and the dividend from [Company 1].  [Company 4] distributed $60,990 in favour of Mr Hezon (included in his 2016 taxable income of $77,004) and $182,642 to [Company 5].  The distribution to [Company 5] is identified in the 2016 financial accounts of the Hezon Family Trust as an unpaid trust entitlement;

   ·         The 2016 financial accounts prepared for [Company 5] indicate that its assets comprise cash of $100 and an unpaid present entitlement of $182,642.  Mr Hezon was once the sole shareholder of [Company 5].  His shares were subsequently transferred to [Company 4].  Mr Hezon is the sole director and secretary of [Company 5].  Mr Hezon controls [Company 5].  At the date of application the tribunal accepts that the unpaid present entitlement represents a potential financial resource but there was no current benefit for Mr Hezon.

4. [Mr A] told the tribunal that following the divestment of the interest in [Company 1] and the demise of that business relationship with [Mr B], steps were taken by Mr Hezon and the former accountant to shut down the Hezon Family Trust and to deregister [Company 4] and [Company 5].  The ASIC records indicate that [Company 4] was deregistered [in] September 2016.  [Mr A] explained that this was not suitable action in light of the Division 7A loan difficulties facing the Hezon Family Trust and so an application has been made to reinstate the registration of [Company 4].  The 2017 financial accounts for the Hezon Family Trust have not been prepared as the trust has not been trading nor made any distributions.  The tribunal accepts that the final dividend paid by [Company 1] to the Hezon Family Trust was largely paid from prior year profits and helped to account for drawings made in prior years which exceeded the distributed profits.

1. The tribunal also accepts that the Hezon Family Trust has no assets from which the entitlement could be paid to [Company 5].  However, based on the financial records, the tribunal finds that Mr Hezon was paid his personal entitlement ($60,990) by the Hezon Family Trust.  Given that this amount was paid at the time of the sale of the shares in [Company 1], the tribunal also considers that whilst the income was reflected in Mr Hezon’s 2016 income tax return, the actual funds from the distribution and final settlement payments were available to Mr Hezon as a financial resource in the 2017 financial year.

Joinery House Pty Ltd

1. The tribunal notes that at the date of application Mr Hezon was employed by [Company 2].  In his 2017 income tax return Mr Hezon reported wages of $47,580 from [Company 2].  Mr Hezon told the tribunal that:

   ·         after leaving [Company 1], he sought part-time employment with [Company 2].  [Company 2] operated a [business] which employed Mr Hezon as a floor manager, three [tradespeople] and Mr Hezon’s wife, [Ms C], as the bookkeeper; 

   ·         The owner of the business was [Ms D].  [Ms D] is an elderly woman who planned on emigrating from [overseas] with her husband.  Mr Hezon described [Ms C] as an acquaintance of [Ms D].  He said that [Ms C] provided a guarantee for [Ms D]’s visa application and an assurance of support for Centrelink purposes;

   ·         Mr Hezon worked for [Company 2] for about 18 months.  The business ceased as [Ms D]’s husband became unwell and could not travel to Australia.

2. The tribunal notes that the ASIC report indicates that [Company 2] was established [in] April 2016 and was 100% owned by [Ms D] (born 1930); [Company 2] was deregistered [in] October 2017.  Given that the establishment of the business coincided with Mr Hezon’s departure from [Company 1] and that [Ms D] is elderly and was dependent on [Ms C] for her support in Australia, the tribunal considers that there was a non-arm’s length relationship between [Company 2] and Mr Hezon.  Mr Hezon was the floor manager and, as Mr Hezon told the tribunal, he had contacts in the industry.  The tribunal considers that [Company 2] and its business was more likely than not established as a conduit for Mr Hezon to continue in the [industry] on his own terms.   However, based on the available evidence, the tribunal was not persuaded that Mr Hezon was able to replicate the success of [Company 1] in the business conducted by [Company 2].  [Company 2] was clearly a short-lived enterprise.  The tribunal notes that [Ms C] was paid approximately $30,000 by [Company 2] in the 2017 financial year; Mr Hezon said that this was for her administrative contribution to the business.  There may be some financial benefit to Mr Hezon in having both he and his wife paid by [Company 2], that is, in the form of income splitting; however, the tribunal had insufficient evidence on which to quantify any such advantage.  The tribunal considers it reasonable that [Ms C] be remunerated for her contribution and, as Mr Hezon received the larger share, the tribunal did not consider that any financial benefit was significant.  The Australian Taxation Office (ATO) confirmed that no income tax returns have been lodged for [Company 2]; [Mr A] said that his recollection is that the enterprise was not profitable.  This is consistent with the business being abandoned. 

3. In terms of valuing Mr Hezon’s resources at the date of application, the tribunal was in a difficult position – the financial circumstances of [Company 2] are not transparent and Mr Hezon’s desire to disregard the financial benefits from [Company 1] by reference to the ongoing taxation problems is not appropriate for child support purposes.  On balance, the tribunal was satisfied that in the period from April 2016 (the sale of [Company 1]) leading to the demise of the business conducted by [Company 2] by the end of September 2017, Mr Hezon has had access to income, property and financial resources commensurate with a person earning approximately $105,000 per annum.  In reaching this conclusion the tribunal has taken into account the sale of the [Company 1] shares and subsequent personal distribution paid to Mr Hezon as well as Mr Hezon’s ongoing and broadly continuous involvement in the provision of [services] for which he received wages.  The tribunal also took into account a moderate level of tax deduction on a similar basis reported in Mr Hezon’s 2017 income tax return.

Mr Hezon’s other financial circumstances

1. Mr Hezon is currently employed by [Company 3]; he commenced in November 2017.  There was no evidence to suggest that this employment relationship was formed on a non-arm’s length basis.  The payslips provided indicate that Mr Hezon is paid at the rate of $35 per hour (in the fortnight ended 23 May 2018 he was paid $1,306.20 with year to date earnings of $17,430.95).  The tribunal was satisfied that this level of income is appropriately reflected in the administrative assessment of child support which, in the absence of a departure determination, would apply from 1 October 2017.   If an estimate is lodged, then Mr Hezon’s wages income would be subject to a reconciliation process when his income tax return is lodged. 

2. Mr Hezon identified superannuation to which he has no access, and personal/household contents.  The tribunal notes that Mr Hezon has an interest in the Hezon Superannuation Fund which is a self-managed fund.  The financial accounts support that this fund has been involved in property investments.  Mr Hezon made a personal contribution in the 2017 financial year of $12,741.   The tribunal considers this level of contribution is consistent with its findings that Mr Hezon had income property and financial resources with an annual value of around $105,000. 

3. Mr Hezon reported that he resides in a property owned by his wife, who has also been involved in property development. It is apparent from the documentary evidence that Mr Hezon has co-signed large loans in support of this enterprise. Mr Hezon reported that his wife provides additional support to the household through her rental income. There is also a letter from [Ms C]’s accountant which reiterates her independent financial position prior to her relationship with Mr Hezon and notes the accountant’s advice to secure that independence from Mr Hezon. The tribunal accepts that since leaving [Company 1], Mr Hezon is financially vulnerable and is reliant on his spouse to supplement his income and to meet some of the expenses associated with their joint lifestyle. It is also apparent that during his time with [Company 1] Mr Hezon enjoyed excellent cash flow and high levels of income. The evidence does not support that he has been able to replicate this success without his business partner in [Company 1]. Paragraph 117(7A)(b) of the Assessment Act prevents the income or financial resources of another person who does not have a duty to maintain the children from being taken into account, unless there are special circumstances that make it appropriate to do so. In Jordan & Verne (SSAT Appeal) [2012] FMCAfam 21, the Federal Magistrates Court considered the position of a parent who was supported by her spouse whilst she was unemployed. The Court accepted that the support of the spouse was a relevant financial resource, but noted that spousal support was a usual or ordinary circumstance. The tribunal has taken this reasoning into consideration. The tribunal accepts that Mr Hezon may have an equitable interest in the properties which are legally held by his wife. As one of the residential properties is occupied by Mr Hezon, his wife and his relevant dependants as their primary place of residence, the tribunal was not persuaded that any such interest in that property is an additional financial resource which should be accounted for in the administrative assessment of child support. Given the level of debt, the tribunal was not persuaded that there is significant benefit to Mr Hezon from [Ms C]’s investment properties. The security of his residence and the support from his wife means that the costs associated with the children’s education under the private agreement (noted below) are more affordable than they otherwise would be. The support derived from a spouse during a period in which a career is being reshaped or young children are being transitioned through to school is not unusual or of the kind which should change the administrative assessment of child support in this case. There was no further evidence that Mr Hezon has significant alternative sources of income or additional financial resources.

4. Aside from the income and resources discussed above, the tribunal did not consider that any of these items has a significant impact on Mr Hezon’s ability to contribute to the children’s support.  There was no further evidence that Mr Hezon has significant alternative sources of income or additional financial resources.  Mr Hezon reported that he will owe the ATO $42,000 in relation to the division 7A loan when [Company 5] starts to declare dividends and he has credit card debts of around $60,000.  On balance, the tribunal was not satisfied that the ATO debt currently impact on his ability to pay child support or that repayment of the credit card debt takes priority over his responsibility to provide for the children.

5. On the available documentary evidence, the tribunal was not persuaded that Mr Hezon’s financial resources at the date of application yielded an annual income substantially higher than that calculated by the tribunal (around $105,000).   

Mrs Hezon’s circumstances

1. Based on Mrs Hezon’s submissions and the documents provided, the tribunal accepts that at the date of application Mrs Hezon was employed on a full-time basis as [an occupation] earning approximately $1,600 per fortnight ($41,600 per annum).  The tribunal notes that Mrs Hezon has not lodged income tax returns and so her adjusted taxable income of $7,511 at the date of application was derived from other sources.  The tribunal was not satisfied that at the date of Mr Hezon’s cross application for a change of assessment, Mrs Hezon’s income, property and financial resources were accurately reflected in the administrative assessment of child support.

2. However, the practical reality is that this is not significant in this case.  Given that Mrs Hezon has 100% care of the children, her income has very minimal impact on the actual level of child support payable by Mr Hezon.  The tribunal calculated that the increase in her income would reduce the child support payable by Mr Hezon by approximately $4 per week.  This is not significant nor does it amount to special circumstances.

3. The tribunal did not consider that any of the items disclosed by Mrs Hezon has a significant impact on her ability to contribute to the children’s support.  The tribunal accepts that Mrs Hezon is bankrupt (she entered bankruptcy on 25 October 2017); she has no significant assets and is financially vulnerable to changes in her cash flow.  There was no evidence that she has significant alternative sources of income or additional financial resources. 

Summary and application of the law

1. Having considered the documentary and other evidence, the tribunal is of the view that as a result of the following findings:

   ·         Mr Hezon had access to financial resources through his control of [Company 4] and its divestment of the interest in [Company 1];

   ·         Mr Hezon was employed by [Company 2] which operated a business reliant on his experience and reputation;

   ·         At the date of application, Mr Hezon had access to income, property and financial resources with an annual value of approximately $105,000; and

   ·         Mr Hezon’s 2017 adjusted taxable income of $43,944, which in the absence of a departure determination would have been used in the administrative assessment to reconcile Mr Hezon’s income estimates in January 2017 and April 2017, is only 42% of the annual value of his income and resources which the tribunal has found were at least $105,000;

   There are special circumstances in this case that make the level of child support payable under the administrative assessment unjust and inequitable.  In particular, the tribunal considers that the availability of additional income and resources are significant and would have a significant impact on an assessment which reflected these amounts.  The tribunal calculated that under an administrative assessment which varies Mr Hezon’s adjusted taxable incomes to reflect his additional income and resources and which varies Mrs Hezon’s adjusted taxable income to $41,600, Mr Hezon would be required to pay an annual rate of child support of approximately $16,000.  This amount is significant when compared with the administrative assessment of child support requiring Mr Hezon to pay the fixed annual rate and the minimum rate.  As a result, the tribunal decided that the ground for departure in subparagraph 117(2)(c)(ia) of the Act does exist in this case in relation to Mr Hezon’s income, property and financial resources. 

Issue 2 – Would it be just and equitable to make a particular departure determination?

1. As the tribunal is satisfied that 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 to make a particular departure determination. In doing so, the tribunal must have regard to a number of matters in subsections 117(4) to (9) of the Assessment Act. In summary this requires consideration of the parents’ duty to support the children, the income, assets and financial resources of the children and of the parents, the children’s proper needs and self-support costs of either parent. The tribunal is not limited to exploring these parameters and is required to consider the global circumstances (Gyselman).

2. The tribunal had regard to the evidence which was presented, including the evidence which has been discussed above. This evidence is further considered below.

The duty to maintain the child

1. Mrs Hezon and Mr Hezon each have a duty to maintain the child.  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 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.

Proper needs of the children and the income, earning capacity, property and financial resources of the children

1. Mrs Hezon reported that [Child 1] is 18 years of age and in year 12; the administrative assessment has been extended until she completes her secondary education.  Mrs Hezon noted that [Child 1] is borderline [with a medical condition] and required [surgery] in 2016 at a cost of around $5,000.  [Child 2] is currently in year six.  There was no documentary evidence presented to the tribunal that the children have anything other than the usual expenses and needs of children of their respective ages; expenses which are dealt with in the administrative assessment and addressed in the Costs of the Children Table.    

2. Both children attend Catholic fee-paying schools.  The evidence supports that there is a private child support agreement for the payment of school fees for the children.  Mr Hezon reported that he is currently seeking variation of this agreement in the Federal Circuit Court. 

3. There was no evidence that the children currently have significant independent income or resources.  

Other party receiving money, goods, and property for the benefit of the children

1. Given the available evidence, the tribunal concludes that neither party received money, goods or property for the benefit of the children which impacts on their ability to support the children.

Income, property and financial resources and earning capacity of each parent

1. Mr Hezon’s financial circumstances have been discussed above and further considered in this context.  In summary, the tribunal considers that Mr Hezon had access to income, property and financial resources with an annual value of around $105,000.  In reaching this conclusion the tribunal finds that the personal distribution declared in favour of Mr Hezon at 30 June 2016 by the Hezon Family Trust was available to him as a financial resource throughout the child support period ending 30 September 2017.  The tribunal has also taken into account the wages paid by [Company 2] until its demise by late September 2017.  Thereafter, the tribunal accepts that Mr Hezon has been in receipt of wages and this is the appropriate measure of his income property and financial resources after the demise of [Company 2].  The tribunal did not consider that Mr Hezon has an annual earning capacity any greater than the value of financial resources, income and benefits as determined by the tribunal.

2. Mr Hezon reported that he is [of a certain] age and his mental health causes him concern and impacts on his ability to undertake full-time employment.  The medical evidence supports this.  The tribunal was satisfied that Mr Hezon has no additional earning capacity at this time.

3. Mrs Hezon’s financial circumstances have been discussed above and further considered.  Mrs Hezon also has mental health concerns which have been exacerbated by her uncertain financial circumstances.  She submitted recent medical certificates to the tribunal.  Mrs Hezon reported that she became homeless for a period in May/June 2018 and left her full-time employment to manage her crisis situation.  The tribunal was satisfied that Mrs Hezon has no additional earning capacity.  The tribunal notes further that Mrs Hezon’s income has minimal impact on the administrative assessment of child support.  Given her difficult financial situation, the tribunal considers that in the current child support period Mrs Hezon’s situation is best reflected by reference to the administrative formula; this will permit her to lodge an estimate of her income in the event that she does not return to employment in a timely manner.

The direct and indirect costs incurred by the carer entitled to child support in providing care for the child

1. On the available evidence, the tribunal was satisfied that Mrs Hezon is the parent entitled to child support from Mr Hezon for the care of the children who are 18 and 12 years of age.  The tribunal was satisfied that neither parent has forgone income or earning capacity in this regard.

Necessary commitments to support themselves

1. The self-support amount used in the administrative assessment is approximately $23,750.  On the documentary evidence available to the tribunal, including the disclosures to the Department and the financial information supplied by both parties, the tribunal was satisfied that both Mrs Hezon and Mr Hezon have sufficient funds at their disposal to meet their necessary commitments.  It is clear that the costs of Mr Hezon’s necessary commitments are minimised; he has no rent or personal mortgage obligations as he receives support from his wife.  The tribunal considers that this makes child support and the payments due under the private agreement more affordable for him.  The tribunal was satisfied that Mrs Hezon is in need of child support to provide for the children.

Legal duty to support another person

1. The tribunal must take into account the commitments that are necessary to support any other child or another person that the parent has a duty to maintain.  Such commitments shall not however take priority over the obligation to the child whose maintenance is under consideration.  There was no evidence before the tribunal that either party has any outlays related to a legal duty to support another person which reduce their ability to support the child. 

1. Mr Hezon’s evidence supports that his partner is independent and capable of supporting herself through her investments.  Relevant dependants are taken into consideration in the administrative assessment of child support.  Mr Hezon submitted medical evidence in relation to his relevant dependants which the tribunal has considered.  The tribunal was not persuaded on the available evidence that the costs associated with the needs of those children reduce Mr Hezon’s ability to contribute to the costs of [Child 1] and [Child 2] in the form of child support.  The needs of the relevant dependant are adequately dealt with by the administrative assessment of child support.  The challenges of caring for two young children and a wife in a changing financial situation does not eliminate Mr Hezon’s child support obligation for the children of the assessment at a level commensurate with his resources. 

Hardship that would be caused to the parents and the child

1. If assessments were to be made from 1 January 2017 to 30 September 2017 in which Mr Hezon’s adjusted taxable income was varied to $105,000 and Mrs Hezon’s adjusted taxable income was varied to $41,600, the annual child support payable by Mr Hezon would be approximately $16,000 at the date of application ($308 per week; $1,333 per month).

2. The tribunal considers that payment of child support at this level for that brief period will not cause Mr Hezon hardship.  While Mr Hezon will need to adjust his priorities and reduce his discretionary expenditure, he has ongoing wages from which he can pay the current child support liability and progressively reduce the arrears for the prior periods.  On the basis of the available evidence, the tribunal is satisfied that there is no evidence to suggest that there would be hardship caused on Mrs Hezon or the children by any departure from the child support assessment.  The proposed change in the child support assessment will ensure that both Mr Hezon and Mrs Hezon share in the costs of caring for the children at a level commensurate with their resources.  The tribunal was satisfied that no hardship would be caused.

3. The child support documents indicate that there are arrears in this case of $37,533.38 at 16 May 2018.  The proposed decision of the tribunal will reduce this amount as the case will revert to the administrative assessment in the current child support period.  The tribunal did not consider that the overall level of child support indebtedness was primarily related to financial hardship.  It is clear that the relationship between the parents is acrimonious and the payment of child support is challenged by Mr Hezon; it is apparent that he does not consider it should take priority over any other expense or liability that he has.

4. Overall the tribunal finds that it is just and equitable that the child support assessment reflects that Mr Hezon has income and financial resources commensurate with a person on an annual gross income of $105,000.  In reaching this conclusion, the tribunal has not been too robust but has taken a modest position taking into account that Mr Hezon had exited a very successful business in favour of non-arm’s length employment and currently part-time employment.  The tribunal notes that Mr Hezon expressed cautious optimism about his future as a [tradesperson].  Overall, the tribunal considers it just and equitable that Mrs Hezon’s adjusted taxable income be increased to her actual annual employment income of $41,600 until 30 September 2017.  Thereafter, the tribunal considers it just and equitable that the administrative formula be permitted to run its course.

5. After consideration of all of the factors in subsection 117(4), the tribunal is satisfied that it is just and equitable to depart from the administrative assessment.  Having regard to all of the evidence, the tribunal considered that the decision under review should be set aside and a decision made as follows:

   ·         For the period 1 January 2017 to 30 September 2017, the adjusted taxable income of Mr Hezon is varied to $105,000; and

   ·         For the period 1 January 2017 to 30 September 2017, the adjusted taxable income of Mrs Hezon is varied to $41,600.

6. Taking into account the totality of the evidence, the tribunal considers it appropriate to determine that the assessment period should extend from 1 January 2017 until 30 September 2017.  The Department records support that the proposed start date is the date from which the previous departure ended.  The tribunal notes that there is a small amount of backdating but taking into account the totality of the circumstances, the tribunal considers that this is appropriate in this case.   The end date coincides with the demise of [Company 2] and hence, Mr Hezon’s self-employment options concluded.  Thereafter, Mr Hezon became an employee of an unrelated employer; and the tribunal considers the administrative assessment has sufficient flexibility to accommodate both parties’ circumstances.  The end date also coincides with the end of the child support period underway at the date of application. 

7. In the event that either party’s circumstances change during the assessment period, they have the opportunity to lodge a further change of assessment application.  The tribunal considers these dates to be in the best interests of the child and the parents as they promote certainty and consistency for those concerned. 

Issue 3 – Would it be otherwise proper to make a particular departure determination?

1. The final step for the tribunal to undertake is to determine whether it is ‘otherwise proper’ to make a particular departure determination (subsection 117(5) of the Assessment Act). It is a prime objective of the child support legislation that parents should be obliged to support their own children to the extent of their real capacity, and that that obligation should not be unnecessarily abrogated to the public welfare system when the parents themselves have the capacity to maintain their children. Mrs Hezon receives family assistance. The proposed departure determination may to varying degrees decrease Mrs Hezon’s entitlement to family assistance but will reflect the parties’ real capacities to support the child. The tribunal concludes that it is otherwise proper to depart from the administrative assessment.

DECISION

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

·         For the period 1 January 2017 to 30 September 2017, the adjusted taxable income of Mr Hezon is varied to $105,000; and

·         For the period 1 January 2017 to 30 September 2017, the adjusted taxable income of Mrs Hezon is varied to $41,600.