Hudson and Westwood (Child support)

Hudson and Westwood (Child support) [2018] AATA 2231 (21 May 2018)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2017/AC013186
APPLICANT:  Mr Hudson
OTHER PARTIES:  Child Support Registrar
Ms Westwood

TRIBUNAL:Member M Kennedy
DECISION DATE: 21 May 2018
DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that the objection is allowed so as to determine that Mr Hudson’s adjusted taxable income is varied to $48,308pa for the period 18 July 2017 to 31 March 2019.

CATCHWORDS

Child support – Departure from assessment – Income and financial resources of parents – Business income – 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

Mr Hudson and Ms Westwood are the parents of [Child 1] (10), in respect of whom a child support assessment is in place. Care arrangements for child support, expressed in percentage terms, see [Child 1] in Ms Westwood’s care 58% of the time, and in Mr Hudson’s care 42%.
At the time of Ms Westwood’s application for a change of assessment, Ms Westwood had a liability to pay Mr Hudson child support based on her adjusted taxable income of $39,099 for 2015/2016, and Mr Hudson’s provisional income of $28,608.
By the time of the objection decision, but for the change of assessment, Mr Hudson would have been assessed to pay an annual rate of child support of $1,454 to Ms Westwood, using a 2016/2017 provisional income of $48,308 (based on two-thirds of the Male Total Average Weekly Earnings (MTAWE)) for Mr Hudson, and a provisional income of $39,764 for Ms Westwood.
Mr Hudson has subsequently lodged a tax return, and now, but for the subsequent change of assessment, child support would be calculated on Mr Hudson’s adjusted taxable income for 2016/2017 of $6,109 and Ms Westwood’s adjusted taxable income of $35,968, producing an annual assessment requiring Ms Westwood to pay Mr Hudson $783pa.
Ms Westwood applied for a change of assessment on 18 July 2017, on the basis that she believed the assessment to be unjust and inequitable on account of Mr Hudson’s income, property and financial resources. In her application, Ms Westwood alleged that Mr Hudson had reduced his income when told he had to pay child support and alleged that his lifestyle did not reflect the income used in the assessment.
Following investigation, the Registrar obtained financial statements and business activity statements (BAS) for Mr Hudson’s business from his accountant. In the absence of a taxation assessment, the Registrar considered that it was reasonable to identify Mr Hudson’s income from his business on the basis of his total sales, less 30% for expenses. The figures considered by the Registrar were compared with a typical annual income for a person with an occupation the Registrar considered was similar to the business operated by Mr Hudson – that of a migration agent. On this basis, the Registrar considered that Mr Hudson had financial resources reflecting an annual income of approximately $65,000. As the child support assessment was not calculated on this basis, the Registrar found the ground established and decided to fix Mr Hudson’s income at $65,000pa, and then index it upwards each year for three years.
Mr Hudson objected to this decision on 26 October 2017. Mr Hudson considered Ms Westwood’s income should also be changed as she was able to earn a cash income.
It appears that Mr Hudson was not able to effectively participate in the objection process, with the decision made while he was overseas and despite Mr Hudson requesting further time to provide financial information. The objection officer decided to set Mr Hudson’s income on objection to an amount based on statistical information pertaining to typical earnings of a migration agent. The objection officer did not turn her mind to Ms Westwood’s income, property or financial resources. The objection officer decided to fix Mr Hudson’s income at $73,424pa from 18 July 2017 to 31 December 2019. This produced an annual rate of $3,914.
Mr Hudson applied to the Tribunal for review on 20 December 2017.
The parties participated in a telephone directions hearing on 19 March 2018 and have substantially complied with the directions I made on that occasion.
The documentary evidence before the Tribunal consists of documents C1 to C428, being the documents provided by the Registrar pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (including a supplementary bundle and material provided to the Registrar after the objection decision was made), documents A1 to A44, being documentary evidence provided by Mr Hudson and documents B1 to B18, being documentary evidence provided by Ms Westwood.

LEGISLATIVE FRAMEWORK

The legislation relevant to this review is contained in the Child Support (Assessment) Act 1989 (the Act) and in the Child Support (Registration and Collection) Act 1988 (the Registration and Collection Act). The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. This requires the application of a statutory formula which takes into account factors such as the number and age of children, the level of care provided and the income of each parent.
Under section 98B of the Act, if special circumstances exist, a liable parent or a carer entitled to child support may apply to the Child Support Registrar (the Registrar) in writing, requesting a departure from the administrative assessment in relation to a child.
Under section 98C of the Act, before making a departure determination on an application made under section 98B of the Act, the Registrar must be satisfied that in the special circumstances of the case, one or more grounds under subsection 117(2) of the Act exist, and that it would be just, equitable and otherwise proper to make a particular determination.

ISSUES

The issues for me to determine in this case are therefore:
· Whether one or more of the grounds for departure referred to in subsection 117(2) of the Act exists; and, if so
· Whether it would be just and equitable as regards the child, the liable parent, and the carer entitled to child support; and otherwise proper; to make a particular determination to depart from the administrative assessment of child support.

CONSIDERATION

Is there a ground to depart from the administrative assessment of child support?

As to Reason 8, subparagraphs 117(2)(c)(ia) and (ib) provide that, in the special circumstances of the case, a ground for a departure determination may be established if application of the legislative provisions relating to administrative assessment ‘result 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, or the earning capacity of either parent.

Mr Hudson’s financial resources

In compliance with my directions, Mr Hudson has lodged a statutory declaration (A26) stating that for the past 18 months he has been self-employed as a sole trader trading under the business name ‘[Company 1]’ and ‘[Company 2]’. Mr Hudson deposes that this business is his sole source of income.
In his evidence, Mr Hudson explained that he works essentially as a recruitment consultant, by finding employment places and sponsors for people wishing to move to Australia from overseas. He found himself in this business because he had developed connections in the recruitment industry when he had come to Australia in 2005. Mr Hudson explained that his clients are candidate employees, and he finds them employers and sponsors essentially by ‘cold-calling’ but also has ongoing relationships with some employers.
Mr Hudson is not a registered migration agent, and he has expressed objection to the use of statistical earning information for this industry by the Registrar. Mr Hudson first explained that he sources his work from a business partner who is a registered migration agent and is paid a commission when he secures employment places for candidates. The nature of this arrangement became increasingly unclear throughout the course of Mr Hudson’s evidence as I explored aspects of his financial statements, with the consequence that I am not of the view that I have a clear understanding of the nature and structure of Mr Hudson’s remunerative activities.
Mr Hudson confirmed that he does not have an office or presence overseas, and relies on referrals from agents, including agents overseas. Again, Mr Hudson’s evidence about the particular source of his clientele became more difficult to follow as particular details of the financial statements were explored.
As to those financial statements, I examined the profit and loss statement at A27, pertaining to 2016/2017. Aspects of the document are concerning and irregular. Mr Hudson lists ‘Government fees’ and ‘Vetassess’ as very significant lines of expenditure. Mr Hudson explained that the reference to ‘Government fees’ essentially related to funds provided by clients for the payment of visa application charges. Likewise, the ‘Vetassess’ expenditure line related to fees for vocational assessments for clients. I confirmed with Mr Hudson that these items are accounted for in his profit and loss statement as turnover. Mr Hudson said that the only income line ‘Professional fees’ includes funds received for the payment of visa application charges and vocational assessments, and these funds are then applied to their purpose as his business expenditure.
In my view, the manner of accounting for these items is irregular. Funds taken from clients for the payment of visa application charges should not typically be considered part of a business’ turnover, putting to one side why Mr Hudson is handling funds of this nature when he is not a registered migration agent. Furthermore, Mr Hudson told me that his BAS also include the receipt of visa application charge monies from clients as sales.
As to why Mr Hudson is handling the visa application charges in this way, Mr Hudson said that he has credit card facilities while the migration agent he partners with did not. I observed that the Department of Immigration uses credit card facilities, and queried why the migration agent did not have credit card facilities. Ultimately, I could not fully understand why Mr Hudson was handling visa application charges instead of the migration agent, and certainly could not understand why they were being accounted for as his business turnover.
A further area of concern arising out of the financial statements relied upon by Mr Hudson arises out of a comparison of the profit and loss statement at A27 with that at C250. The document at C250 is a business worksheet obtained by the Registrar from Mr Hudson’s accountant in respect of 2013/2014.
There are similarities between the two documents in relation to income (2014: $108,824, 2017: $103,478). However, there are also striking differences. The bottom line profit in 2014 was $60,927, but in 2017 was $7,573. The main component of this outcome is the increase in the expense line of ‘Consultant fees’ (2014: $2,439, 2017: $43,309).
In exploring this issue further with Mr Hudson, I first obtained his evidence that in general terms the nature of his business had not really changed since 2014. I explained to Mr Hudson that by my observation, a business which had previously been reasonably remunerative and enough to support a reasonable standard of living had, by 2017, become an implausible proposition in terms of the return on the amount of time Mr Hudson spent on his business. I note also that the situation is even worse for the first three quarters of 2017/2018 (A29 shows a $15,403 loss over this period). I asked Mr Hudson to explain what had changed to bring about this result.
As I understand it, Mr Hudson attributes this change to a change in the way he secures clients. As I understand it, he would previously be referred clients by the migration agent and therefore would receive a commission. Now, he sources the clients and refers them to the migration agent (because people wish to pay by credit card), and so he must pay the migration agent a consultancy fee. Mr Hudson told me that ‘consultant fees’ expense line relates almost entirely to payments made to one individual.
On that point, I asked Mr Hudson whether he had written arrangements in place with that individual setting out the basis of commissions and the like, noting for example that on his evidence approximately 40% of his income went to that individual as a fee. Mr Hudson told me that there was no written agreement. I explored with Mr Hudson why he had not become registered as a migration agent given the amount of expense he incurred on consultancy. Mr Hudson explained he cannot become a registered migration agent on account of his conviction in 2015 for a deception offence.
I was concerned that I was unable to follow Mr Hudson’s explanation for the change in the fortunes of his business. Mr Hudson clarified that there had been a change in his business practices because in 2014 he was dealing with employers, and in 2017 he was dealing with candidates for employment. I asked Mr Hudson why he made that change. Mr Hudson explained that things were getting harder and harder in dealing with employers, as it was harder to secure visas and be paid the fees. I observed however that since making that change his business had become essentially unprofitable. Mr Hudson emphasised that things were getting harder. I note that earlier in the hearing, albeit in general terms, I had received Mr Hudson’s evidence that his business practices had not changed.
As to the further downturn in the financial performance of his business demonstrated by A29, Mr Hudson explained that he had reduced his work after his father passed away, and spent considerable time in the UK hoping to grow his business but this had not been successful.
Generally as to the business as a financial resource for Mr Hudson, Mr Hudson confirmed that his personal and business finances are intermingled. In responding to contentions from Ms Westwood that Mr Hudson appeared to live beyond the means demonstrated by his financial statements, with a particular example of a $100 per month gym membership being raised, Mr Hudson said that he meets that payment through funds available to him through the business. In relation to a motor vehicle, Mr Hudson said that he secured a loan for the motor vehicle based on his 2014 financials, but has presented evidence that he is behind in his payments (A17). Mr Hudson also explained that he had obtained a $15,000 business loan without the need to provide supporting financial records and this has allowed him to meet his expenses despite his business operating at a loss.
Another aspect of Ms Westwood’s contention that Mr Hudson’s lifestyle is beyond what his financial statements would appear to permit relates to the meeting of private school fees and associated educational and sporting expenditure for [Child 1]. There is conflict between [Child 1’s] parents as to future arrangements for his schooling. However, in addressing how he meets these expenses in light of his low to non-existent income, Mr Hudson relies on A20, a statement from his mother to the effect that she assists financially in meeting Mr Hudson’s contribution to the private school fees.
Finally, in relation to the evidence before me about Mr Hudson’s financial circumstances, I noted that Mr Hudson had indicated that he draws $600 per week from his business at exhibit A3 (Statement of Financial Circumstances). I queried how Mr Hudson had arrived at this figure, but I understood from Mr Hudson that it had essentially been a guess.
Having reflected on all the evidence provided by Mr Hudson regarding his business and financial resources, I have concluded that my concerns about the documentary evidence are such that I will place no weight on this evidence. I have no confidence in my understanding as to Mr Hudson’s business practices, or the reliability of the profit and loss statements that have been provided. Fundamentally, the manner of accounting for government charges paid on behalf of clients is irregular and is of a sufficient proportion of expense (and perhaps income) that the financial picture is entirely obscured. Furthermore, I did not find persuasive Mr Hudson’s explanation about why the consultant’s fees expense line had increased nearly eighteen-fold between 2014 and 2017 on the same amount of income. I do not consider as plausible the explanation offered that any change was in response to things becoming harder in 2014, when at that point the business was generating a healthy profit and any changes have now produced a loss. Ultimately, I have no confidence in the accuracy of Mr Hudson’s evidence about his financial circumstances, or the financial resources available to him through his business. It follows that I also have no confidence that Mr Hudson’s taxable income is representative of his capacity to provide support for [Child 1] under a child support assessment.
I have concluded that it is not possible to quantify the financial resources available to Mr Hudson from his business activities on the financial information and evidence available to me, other than to conclude in general terms that the bottom line profit for the business is implausibly low in light of other aspects of Mr Hudson’s lifestyle and indeed his own estimate of his income from the business.
Returning to the question as to whether a ground for a departure determination is established, I am satisfied in the special circumstances of this case that if the legislative provisions relating to administrative assessment were applied, this would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Hudson due to his financial resources. I am of the view that relying on Mr Hudson’s adjusted taxable income as assessed by the Australian Taxation Office prepared on the basis of the financial statements I have examined would result in an unjust and inequitable determination of the level of financial support because the figures in my view are inherently unreliable and implausibly low. For example, if Mr Hudson’s current adjusted taxable income were to be used ($6,109), the child support assessment would require Ms Westwood to pay an annual rate of child support of $783 to him. I note in this regard that Mr Hudson’s estimate as reproduced in his statement of financial resources as income from his business (annualised to $31,200) exceeds that taxable income figure considerably.
I therefore find the ground established.
I am conscious that Mr Hudson is aggrieved that scrutiny was not applied to Ms Westwood’s financial circumstances in the consideration undertaken by the Registrar and objection officer. I will scrutinise Ms Westwood’s financial circumstances in the next stage of my decision.

Whether it would be just, equitable and otherwise proper to make a particular determination to depart from the administrative assessment of child support

As I am satisfied that there is at least one ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to depart from the assessment. In deciding whether it is just and equitable, the Tribunal must have regard to the following matters set out in subsection 117(4) of the Act:
(a)the nature of the duty of a parent to maintain a child (as stated in section 3); and
(b)the proper needs of the child; and
(c)the income, earning capacity, property and financial resources of the child; and
(d)the income, property and financial resources of each parent who is a party to the proceeding; and
(da)the earning capacity of each parent who is a party to the proceeding; and
(e)the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support:
(i)    himself or herself; or
(ii)    any other child or another person that the person has a duty to maintain;
and
(f)the direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and
(g)any hardship that would be caused:
(i)    to:
(A)the child; or
(B)the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii)    to:
(A) the liable parent; or
(B) any other child or another person that the liable parent has a duty to support;
by the making of, or the refusal to make, the order; and
(iii)   to any resident child of the parent (see subsection (10)) by the making of, or the refusal to make, the order.

In the course of the hearing, I invited each parent to address the factors provided for in subsection 117(4) of the Act. I have also taken into account the Statements of Financial Circumstances completed by the parents. I have taken into account all the matters provided for in subsection 117(4) of the Act, but specifically address the following elements.
As to the proper needs of [Child 1], both Mr Hudson and Ms Westwood agreed that identifying [Child 1’s] proper needs on the basis of the usual statistical approach would be suitable in his case. Also, Mr Hudson and Ms Westwood agree that [Child 1] has no alternative source of income or support, and is wholly reliant on his parents.
As to Ms Westwood’s income, property and financial resources, I obtained detailed evidence from Ms Westwood about her remunerative activities over the last few years.
Ms Westwood is [an Occupation 1]. She explained that two years ago, she worked part-time as salary earner at ‘[Business name]’, working 20 to 30 hours per week. In addition she would work one or two days extra by ‘renting [an item]’ at [another business]. Ms Westwood has provided a profit and loss statement (B14) for this work covering the period July 2016 to May 2017, and is up to date with her taxation returns. I accept Ms Westwood’s evidence about her remuneration arrangements during this period, and consider that her taxable income as reported to the taxation office would adequately reflect her income and financial resources from her paid employment and sole trader activities in relation to that period.
Ms Westwood explained that about a year ago she decided to move south of Adelaide, where she has established her own [business] ‘[Business name]’. She has incorporated a company to operate this business, but it has only traded from October 2017. Prior to that, she had spent spare time and weekends renovating heritage premises (as I understand it, without incurring rental liability) which the business now occupies.
As to the financial performance of ‘[Business name]’ and its value as a financial resource, Ms Westwood has not yet completed financial reports for the newly established company. In response to my request for detailed financial information about her business in this regard, Ms Westwood has provided her cash flow budget in spreadsheet form. It consists of projections and anticipated earnings and expenses. In her evidence, Ms Westwood indicated that she considered the business was performing as expected. When pressed for a further assessment based on the previous month, Ms Westwood told me that she considered she had sales of approximately $2,000 per week, with the business taking customers four days per week. Ms Westwood confirmed that she had engaged an apprentice as her budget had forecast, and in response to Mr Hudson identifying that she was recruiting, Ms Westwood confirmed that she hoped to recruit [Occupation 1] so the business could be opened throughout the week.
Mr Hudson questioned how the business could have been established with limited capital, suggesting that Ms Westwood may have been able to draw on undisclosed capital for this purpose. Ms Westwood told me that she was able to access funds from superannuation, received compensation for unfair dismissal from another employer and had taken out a business loan of $7,000. Ms Westwood also explained that she is paying for her stock over time from turnover, and had access to furniture and family support in establishing the business.
In response to my question as to whether she considered her financial position materially different to that reflected in her 2016/2017 taxable income ($35,968), Ms Westwood told me she felt she might be doing slightly better than that, and hoped to grow her business further.
Mr Hudson was concerned that the amount of sales represented in the budget seemed too low. I explored further the nature of Ms Westwood’s business with her and noted that if her business was operating 4 days per week, she would have sales of $500 per day for one [Occupation 1] and an apprentice. I do not agree that the turnover described by Ms Westwood, being an estimate in the absence of prepared financial statements, is low – I accept the accuracy of Ms Westwood’s evidence. Extrapolating the profit Ms Westwood would earn through her company over twelve months on the basis of her projected budget and evidence of $2000 per week in sales, I arrive at a figure of approximately $37,000 – which is very similar to the taxable income declared in 2016/2017 and used for the child support assessment. On the basis of this analysis, I do not see any good reason to make a change to the use of adjusted taxable income under the administrative assessment in order to take account of Ms Westwood’s income, property and financial resources.
As to the earning capacity of each parent, the evidence before me, in my view, focusses on identifying the financial resources of each parent rather than identifying an unused earning capacity. I do not consider this to be a case where the legislative requirements for making a change on the basis of perceived earning capacity would be satisfied – at this time.
No particular issue was raised by either parent in relation to their own self-support. Again, I explained the provision in the child support formula for the self-support of each parent, and both parents agreed there was nothing in their circumstances that were out of the ordinary in this regard. I consider this is also reflected in the Statements of Financial circumstances provided by the parents.
In considering whether it is otherwise proper to make a particular departure determination, I take into account that both parents are in receipt of family tax benefit and the rate of this payment will be affected by any child support assessment. I consider it otherwise proper to arrive at a departure determination based on the facts as I have found in this review.
I turn therefore to the difficult matter of quantifying the financial resources available to Mr Hudson through his business in circumstances where I am not confident to draw any findings from the financial statements before me. I note in this regard that the original decision-maker drew inferences from the BAS. I do not have confidence in the accuracy of the BAS in light of Mr Hudson’s indication that visa application fees he collects for clients are treated as sales in his business. Similarly, given the description of the business provided by Mr Hudson, I do not consider that statistical information regarding average earnings for migration agents is helpful.
In circumstances where I am not confident to reach any particular finding quantifying Mr Hudson’s income on the financial records before me, I have turned my mind to a number of different approaches:
·         I note that the original decision maker assessed Mr Hudson’s income on the basis of a blanket deduction of business expenses from total sales obtained from BAS. While I reject that approach out of concerns about the accuracy of the BAS, I do note that the figure arrived at was approximately the same as the profit Mr Hudson made from his business before the eighteen-fold increase in consultancy fees. If I were to use a figure of $60,000 for the assessment, the annual rate of child support would be $2,851.
·         In circumstances where I am unable to make clear findings quantifying financial resources, I have considered the use of the default income amount of two-thirds of the MTAWE. For 2017, this figure is $48,308pa. This produces an annual assessment of $1,721.
·         I have also considered the ‘Fixed Annual Rate’ of $1,390. In a sense, this rate is irrelevant to Mr Hudson’s circumstances because he has shared care of [Child 1] – but I recognise that the Fixed Annual Rate is used when a parent has little taxable income but does not receive social security (and therefore in circumstances where it is difficult or impossible to ascertain and quantify the parent’s true financial resources).
·         I have also considered accepting Mr Hudson’s estimate of $600 per week ($31,200pa) as set out in his Statement of Financial Circumstances. This would produce a rate where Ms Westwood would pay Mr Hudson $53pa.
In respect of each of these alternatives, I have not made any further change to the operation of the child support formula. I do not consider the evidence before me warrants any departure other than in respect of Mr Hudson’s income.
None of these four approaches are particularly attractive, but as I do not accept Mr Hudson’s very low taxable income to be accurate, and have no confidence in the reliability generally of the financial information before me I consider some level of default finding must be applied.
In this regard, in all the circumstances of this case, I prefer to use the two-thirds MTAWE figure. I reach this view because I consider that in the past Mr Hudson has operated his business (on the records before me) profitably and I accept that aspects of his lifestyle demonstrate that he is capable of operating his business in such a way that he is able to draw that figure from it. The figure is higher than the amount identified in Mr Hudson’s statement of financial circumstances, but I place limited weight on that figure in light of Mr Hudson explaining it was essentially a guess.
Taking into account all the matters provided for in subsection 117(4) and 117(5) of the Act, I consider that applying a default income figure of two-thirds MTAWE for Mr Hudson’s income is an approach that is just, equitable and otherwise proper. In the circumstances of this case, I consider that a departure determination that substitutes two-thirds MTAWE ($48,308) for Mr Hudson’s adjusted taxable income from 18 July 2017 is a just, equitable and otherwise proper determination.
I am conscious that in assessing Ms Westwood’s financial resources, I have relied on projections and estimates, which is undesirable but understandable in circumstances where Ms Westwood’s business is newly established. I consider it appropriate to limit the departure determination to a point in time when Ms Westwood will be able to produce more accurate financial information. In this regard, given the shared care arrangements it can be seen that changes in income of either parent can have a significant effect on the child support assessment, including changing which parent is assessed to pay child support.
I will therefore reduce the duration of the departure determination to 31 March 2019 (from 31 December 2019) when Ms Westwood will be in a position to produce more detailed and reliable financial information, and Mr Hudson’s financial circumstances can again be examined.

DECISION

[2018] AATA 2231

21 May 2018

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Family Law

Administrative Law

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Statutory Construction

Judicial Review

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