Jaeckle and Jaeckle (Child support)

[2021] AATA 1976

Jaeckle and Jaeckle (Child support) [2021] AATA 1976 (6 May 2021)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/MC019833

APPLICANT:  Mr Jaeckle

OTHER PARTIES:  Child Support Registrar

Ms Jaeckle

TRIBUNAL:Member T Bubutievski

DECISION DATE:  6 May 2021

DECISION:

The decision under review is varied so that:

• Mr Jaeckle’s adjusted taxable income is set at $112,128 per annum for the period 1 November 2021 to 31 December 2022;

• The annual rate of child support payable by Mr Jaeckle is increased by $3,985 for the period 1 January 2021 to 31 December 2021; and

• The annual rate of child support payable by Mr Jaeckle is increased by $4,000 for the period 1 January 2022 to 31 December 2022.

The other provisions of the decision of the objections officer will continue to operate.

CATCHWORDS

CHILD SUPPORT – departure determination – whether there was a ground for departure - costs of special needs do not significantly affect the cost of maintaining the child – costs of education - manner expected by both parents – expectations of parents had not changed – cost of maintaining the children are significantly affected – just and equitable to make change – 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. Ms Jaeckle and Mr Jaeckle are the parents of two children, R, aged 16 and H, aged 14 (names redacted for privacy reasons). The case was registered with Services Australia (Child Support) (the Agency) for collection from 30 May 2018. Mr Jaeckle is the parent assessed to pay child support.

2. For the period 1 July 2019 to 24 November 2019 the annual rate of child support payable by Mr Jaeckle was $8,458 per annum, based on the parents’ 2017/18 adjusted taxable incomes of $56,593 for Mr Jaeckle and $9,096 for Ms Jaeckle. Mr Jaeckle then made an estimate of income of $40,097 on 25 November 2019 which markedly reduced the assessment to $3,992 per annum for 25 to 28 November 2019; and then $4,368 for the period 29 November 2019 to 31 December 2019. The change was due to H turning 13 years of age. From 1 January 2020 to 30 June 2020 the annual rate payable was $4,212 based on Mr Jaeckle’s estimated income of $40,097 and Ms Jaeckle’s 2018/19 adjusted taxable income of $31,589.

3. After Mr Jaeckle made this estimate, on 10 December 2019, Ms Jaeckle made an application for a change to the child support assessment on the basis that the children have special needs (Reason 2); that they are being privately educated at the expectation of their parents (Reason 3); that Mr Jaeckle’s income and financial resources were not correctly reflected in the assessment (Reason 8A); and that Mr Jaeckle was not exercising his earning capacity (Reason 8B).

4. On 24 April 2020 an Agency delegate of the Child Support Registrar found Reasons 3 and 8A established in the application. The delegate set Mr Jaeckle’s adjusted taxable income at $118,673 for the period 4 February 2020 to 31 January 2022. They also increased the annual rate of child support payable by Mr Jaeckle in respect of the school fees by $6,583 for the period 1 January 2020 to 31 December 2020 and $6,848 for the period 1 January 2021 to 31 January 2021.

5. Mr Jaeckle objected to this decision on 25 May 2020, and on 3 September 2020 the decision was reconsidered by an Agency objections officer, who also found Reasons 3 and 8A established. The objections officer set Mr Jaeckle’s adjusted taxable income at $112,128 for the period 4 February 2020 to 31 October 2021; and increased the annual rate by $4,388 in respect of Mr Jaeckle’s share of private school fees for the period 1 January 2020 to 31 December 2020.

6. On 10 September 2020 Mr Jaeckle made an application for review by the Social Services and Child Support Division of this Tribunal. The Tribunal held a telephone directions hearing on 8 December 2020 and issued directions, with which the parties largely complied. The matter was scheduled for hearing on 9 February 2021. At the hearing, the representative for Mr Jaeckle requested that the matter be adjourned as they did not have all the evidence which had been provided to the Tribunal by Ms Jaeckle. As there was a significant amount of material, the matter was rescheduled to 30 March 2021 to ensure that both parties had all the relevant documents.

7. The matter was heard by the Tribunal on 30 March 2021. Ms Jaeckle and Mr Jaeckle both attended the hearing by telephone and gave sworn evidence. The Child Support Registrar did not seek leave to appear. Mr Jaeckle was represented by [Representative A], of counsel. The Tribunal also took evidence from [Accountant A], Mr Jaeckle’s accountant, as a witness. Both parties and the Tribunal had access to documents numbered 1 to 838 from the Agency, and after all submissions were received documents A1 to A262 and B1 to B190 from the parties.

8. At both the directions hearing and the substantive hearing the Tribunal warned Mr Jaeckle that there was a strong possibility of an adverse decision in his matter. Mr Jaeckle had legal advice available to him on both occasions and elected to proceed with his application.

9. Following the hearing the Tribunal deferred the matter to allow detailed consideration of all the financial documents. Ms Jaeckle also sought a further deferment to allow her to have a forensic accountant review Mr Jaeckle’s financials and to seek a ruling from the Australian Taxation Office in relation to Division 7A loans made by the business while the parties were together. The Tribunal did not grant the request for a further deferral as the evidence referred to was not currently in existence and was not before the Tribunal. If Ms Jaeckle pursues this course of action and it yields a result which would affect the child support assessment, she can make a further application to the Agency for a change of assessment on the basis of materially changed circumstances and new evidence.

10. The Tribunal reconvened in the absence of the parties on 6 May 2021 and made a decision.

ISSUES

1. The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Assessment Act). This requires the application of a statutory formula which takes into account factors such 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 a carer may apply to the Child Support Registrar for a determination to depart from the administrative assessment under Part 6A of the Assessment Act. The application for departure is authorised by section 98B of the Assessment Act. Section 98C of the Assessment Act provides that the Registrar may make a determination to depart from the formula assessment and establishes a three step process. In order to depart from the administrative assessment the Registrar, and the Tribunal standing in place of the Registrar, must be satisfied:

   (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 otherwise proper to make a particular determination under this Part;

3. The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Assessment Act.

4. If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, 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 or the adjusted taxable income of the parties.

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

Does a ground exist to depart from the administrative assessment under Reason 2?

1. Ms Jaeckle sought a departure from the administrative assessment on the ground that the cost of maintaining R is significantly affected by his special needs. This is the ground reflected in subparagraph 117(2)(b)(ia) of the Assessment Act. This application was made because R was referred to attend psychology. Ms Jaeckle advised that the out-of-pocket cost was $70 per appointment, but that R only attended two appointments before deciding that he did not wish to continue. This means that the total cost to Ms Jaeckle has been $140. In the context of the assessment and the resources of the parents the Tribunal cannot find that this expense has added significantly to the cost of R’s maintenance. The reason is not established in the application.

Does a ground exist to depart from the administrative assessment under Reason 3?

1. Ms Jaeckle sought a departure from the administrative assessment on the ground that the cost of maintaining R and H are significantly affected by the cost of educating them in the manner that was expected by her and Mr Jaeckle. This is the ground reflected in subparagraph 117(2)(b)(ii) of the Assessment Act.

2. Both the children are educated privately at [College 1]. R has been there since Year 3 and H commenced there for prep at three years of age. They are both now in high school. Both parents signed the enrolment forms and agreed that it would have been a mutual decision at the time it was made. The full cost of school fees for both children is more than $20,000 per annum.

3. [Representative A] submitted that by the end of 2018 it became apparent to Mr Jaeckle that he could no longer afford private school fees. He began looking for other arrangements and contacted the school to seek sponsored places for the children. Mr Jaeckle said that he did not sign the authority forms for the payment of school fees for the children for 2020 and as a consequence Ms Jaeckle has taken on full responsibility for payment of the school fees since that time. Mr Jaeckle said that after the separation he could no longer afford the cost of private school fees. He said that he contacted the school to try and negotiate sponsored places due to changed financial circumstances. He said that he thought that he would have verbally let Ms Jaeckle know that he could no longer afford the fees. Ms Jaeckle said that Mr Jaeckle did not speak to her directly about this, it was the school that let her know that Mr Jaeckle had made contact seeking a fee reduction. Ms Jaeckle did not think that Mr Jaeckle’s financial circumstances would have changed so significantly as to make it unaffordable. [Representative A] submitted that there was no mutual intention for the children to be privately educated from 2020 onwards, and that there should be no change to the child support assessment in respect of private school fees from 2020.

4. Mr Jaeckle advised that he is still repaying outstanding school fees from 2019 at the rate of $50 per week as he was unable to pay them at the time.

5. Documentation from [College 1] confirms that R and H have been provided with a discount of 75% of the tuition fee for 2020, leaving a balance of $8,776.75 including devices but excluding additional subject fees and bus expenses.

6. For 2021, the school’s invoices show that the fees are $3,010.75 for one child and $3,180 for the second child after all applicable discounts. There is also a compulsory $1,000 capital works fee and $780 for a device. This totals $7,970.75. There are also fees for the bus, but the Tribunal does not find that these are private school tuition fees and does not propose to include them.

7. For a reason to change the child support assessment to be established on the basis of private school fees it is first necessary to find that the children are being educated in the manner expected by the parents, and that there was a mutual intention by the parents that this education occur. A mutual intention is a positive choice and decision. It is more than simply not disagreeing or having a preference. In this case, there was clearly a mutual intention at the time the children were enrolled in the school but Mr Jaeckle argues that there was no longer a mutual intention from 2020 onwards due to his changed financial circumstances. In deciding whether the reason is established the Tribunal needs to consider the type of education intended by both parents for the children, rather than any particular school intended by the parents (Wild and Ballard (1997) FLC 92-771).

8. There are two issues at play here, and it appears that they have become somewhat conflated. The first issue is the expectation of the parents in relation to the children's education, and the second issue is whether or not parental intention can change. This matter was considered by the court in Dobbins & Devlin & Anor (SSAT Appeal) [2014] FCCA 1274 (at paragraph 43):

   ….43.The simplistic argument of the mother that it is not open to a parent to change their expectations with respect to their child’s education simply due to financial reasons cannot be correct. Throughout life people change their expectations both with respect to their own lives and their children as a result of the resources available to them. As set out in para.30 of the SSAT decision, in this case the expectations of the parents had certainly changed at the time they enrolled the child in a government school due to their circumstances at the time. Whether these changes should be viewed as a temporary change, with the continuing underlying expectations, or a general change in expectations, is a matter of fact for the Tribunal. …

9. The issue of changing expectation is an important one in this particular case. The children have not been educated in the public system at any time since being enrolled at [College 1]. Mr Jaeckle and Ms Jaeckle have not had any discussions about moving them to a public school and no attempt has been made to do so. When Mr Jaeckle came to the view that he could no longer afford the private school fees he did not seek an agreement from Ms Jaeckle to move the children out of the private system. He contacted the school to seek fee relief. The Tribunal finds that although Mr Jaeckle may be of the view that he can no longer afford to pay private school fees, the actions he has taken stop short of demonstrating an intention that the children no longer be privately educated. They simply demonstrate that he no longer wishes to pay for it. The Tribunal cannot find that the previously demonstrated mutual intention has been changed by Mr Jaeckle’s actions.

10. Even with the significant discounts being provided by the school, the annual cost of approximately $8,000 per annum adds significantly to the cost of maintaining R and H. The term “special circumstances” is not defined in the Assessment Act. In Gyselman and Gyselman [1991] FamCA 93 the Full 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. The Tribunal is satisfied that the expense of a private education is a special circumstance which renders the assessment unfair to Ms Jaeckle and the children. The Tribunal finds this ground established. As a ground is established, the Tribunal must also consider whether it is just and equitable, and otherwise proper, to change the assessment. This involves a consideration of all the circumstances of the parents and the children. This will cover the issues in relation to Mr Jaeckle’s financial circumstances raised by Ms Jaeckle under Reasons 8A and 8B.

Issue 2 – Would departure from the administrative assessment be just and equitable?

1. As the Tribunal is satisfied that a ground has been established 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 Assessment 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.

2. Section 3 of the Assessment Act states that it is the duty of both parents to financially support their children. All children should receive a proper amount of financial support from their parents in accordance with their capacity to contribute. The Tribunal only has to consider the factors set out in subsection 117(4) of the Assessment Act to the extent they are relevant in any particular case (see Gyselman).

3. Mr Jaeckle owns and operates [Business 1], which trades as [a franchise name]. There are two other related entities, [Business 2] and [Business 3]. There is also the [named] Family Trust (the Trust), which receives the income from the other business structures and then distributes it to Mr Jaeckle in the form of a dividend. [Business 3] is a dormant entity which was formed with the purpose of buying a second franchise, but this did not eventuate.

4. Mr Jaeckle is a qualified [occupation 1] and works in the business full-time. Mr Jaeckle has operated the business for more than 20 years. He advised that in the last two or three years turnover has decreased by half a million dollars from $1.5 million to $1 million. He explained this was the result of three or four [businesses] opening within 1 km from his store and another [same franchise business] opening within 2 km. Mr Jaeckle stated the lease on the shop expires [in] October 2022 and he does not know what will happen then because he understands that there are redevelopment plans. [Representative A] submitted that the business has insufficient capital to fit out another premises and that given its debt ratios it is also unlikely that it could borrow funds to do so. [Representative A] noted that the franchise agreement expires in 2024. [Representative A] advised that a forensic accountant had valued the business in 2019 for the purpose of the parties’ settlement of property and valued the business at $nil. [Representative A] acknowledged that the business is not running at a loss, but said that it is running ‘on borrowed time’.

5. Ms Jaeckle said that there are no plans in Council for redevelopment of the shopping strip where the business is located. She said that there is a small parcel of land which would need to be acquired before any redevelopment could occur and that as far as she is aware the owner of that land will not sell it. She was of the opinion that there had not been any marked change to the income or profitability of the business since the parties’ separated. She said that prior to separation they lived a ‘lavish lifestyle’ and never went without anything. She said that she could see from Mr Jaeckle’s bank and credit card statements that he is still travelling to Sydney and Noosa, and that these are things that he would not be able to do on a reduced income. She questioned how Mr Jaeckle could have an income of $40,000 when the turnover of the business is still more than $1 million per annum.

1. Before making their decision, the objections officer served a notice on Mr Jaeckle’s accountant. In response to that they received the [Business 1] financial statements for 2017/18 and 2018/19. The accountant also advised that [Business 1] and [Business 2] are part of a consolidated group, so there is only one tax return prepared under the name of [Business 2]. Mr Jaeckle is the sole director of [Business 1] and [Business 2] owns the single [Business 1] share. Mr Jaeckle is the sole director and shareholder of [Business 2]. He is also the sole named beneficiary of the Trust, however several members of the family are eligible beneficiaries of the Trust.

2. Mr Jaeckle’s accountant advised the objections officer that the business has struggled with cash flow and debt. Mr Jaeckle borrowed $78,200 from his mother in the 2018/19 financial year to support the business. In 2018/19 the business retained profit of $27,000. The accountant advised the objections officer that [Business 1] lent $107,000 to [Business 2] in 2018/19, and that this loan represents Mr Jaeckle’s drawings from the business. The accountant also noted that the taxable incomes for [Business 1] for the previous two years were reduced due to additional depreciation, and that this will not be the case in future. The accountant confirmed that business turnover has reduced by approximately 30% and that at that time Mr Jaeckle had a debt to the Australian Taxation Office of $72,000 due to unpaid tax in previous years. The accountant also advised that some of Mr Jaeckle’s suppliers have increased their charges because their accounts have not been paid on time. This has reduced the gross profit to total income ratio.

3. Ms Jaeckle queried the validity of the loans allegedly made to the business by Mr Jaeckle’s mother. She thought that they may have been paper transactions so that the business appeared to be in a worse financial position than it actually was. Ms Jaeckle also queried whether Mr Jaeckle receives cash income which has not been declared. These types of allegations are frequently made in this forum and they are all but impossible to prove. The business accounts show the loans as valid business liabilities, and the Tribunal has no reason not to accept them as such. These loans impact more on the asset value of the business, rather than its profitability. For the purposes of child support, the asset value of the business is not particularly relevant, it is the income and resources that are available to a parent which are the relevant considerations. Other than Ms Jaeckle’s assertions, the Tribunal has no evidence before it indicating that Mr Jaeckle has cash income. It can therefore proceed no further in this regard.

4. Mr Jaeckle’s income comes from [Business 1] via the Trust. In 2019 the Trust received dividends of $29,000 and had retained profits of $2,853. It paid Mr Jaeckle a dividend of $29,000. Mr Jaeckle’s 2019 income tax return shows his income to be $40,000 in franked distributions (the $29,000 paid from the Trust, plus $11,000 in franking credits) and $95 in interest.

5. In 2018 the Trust received dividends of $80,000 and paid a dividend of $40,000 each to Mr Jaeckle and Ms Jaeckle.

6. The [Business 1] 2018/19 profit and loss statement shows total sales of $1,034,036 and an employee fringe benefit contribution of $5,330. Mr Jaeckle’s accountant advised the objections officer that this amount was an adjustment made in respect of Mr Jaeckle’s private use of the business motor vehicle and food taken from the business.

7. The [Business 2] 2018/19 balance sheet shows that Mr Jaeckle’s loan balance decreased by $139,933 between 2018 and 2019. Financially, this is partly reflected as a return of capital rather than income so does not all appear in Mr Jaeckle’s income tax return, but still represents a financial resource available to Mr Jaeckle during that year.

8. The expenses listed for the business are as follows:

   ·            Cost of sales $657,171

   ·            Salary and wages $412,687

   ·            Rent expenses $66,213

   ·            Interest expenses $20,459

   ·            Royalty expenses $91,833

   ·            Depreciation $46,871

   ·            Motor vehicle expenses $3,652

   ·            Phone $7,756

   ·            Repairs and maintenance $3,821

   ·            All other expenses $84,638

   ·            Profit after expenses $64,708

   ·            Non-deductible expenses $12,401

   ·            Other deductible expenses $10,181

   ·            Tax losses deducted $63,240 (2017/18 carried forward tax losses)

   Net income was $3,688, and franked dividends of $29,000 were paid, with a franking credit of $11,000 (paid to the Trust and representing Mr Jaeckle’s taxable income). The franking account balance was $81,225 after this transaction.

9. The statements for the [business] credit card show a mix of business expenses and expenses which appear to be either personal in nature or which would not take priority over Mr Jaeckle’s child support obligations (such [specified entertainment providers, websites, charities]). The business bank accounts show considerable transfers to Mr Jaeckle, which he said is reimbursement for payment of business expenses paid on his personal credit card (for example, $20,000 in September 2020 alone) and also payments which appear to be of a personal nature ([specified optical and pharmacy, transport providers]). Between 16 September 2020 and 27 November 2020 $85,078.14 was paid directly to Mr Jaeckle from the business bank account, not including payments for personal expenses and child support. Mr Jaeckle’s personal [credit card] does show some business expenses, but the expenses are mainly personal.

10. Mr Jaeckle said that in lieu of a wage he has his personal expenses paid by the business. This includes purchases, school fees, rent (which is paid to his mother) and child support. The Tribunal noted a payment of $6,400 in child support made from the business account in January 2021. [Representative A] submitted that Mr Jaeckle’s 2019/20 drawings were $93,708 including the dividends from the Trust. Mr Jaeckle acknowledged that he would also have a private telephone expense which is paid for by the business which he estimated to amount to $2,578.44. The submission before the Tribunal was that Mr Jaeckle’s child support income should be no more than the combination of these two amounts, $96,286.

11. In response to the directions Mr Jaeckle provided the 2019/20 financial statements. For 2019/20 total income was $1,088,910. Net operating profit was $84,608 plus a COVID cash flow boost, giving a net profit before income tax of $113,855. Motor vehicle expenses were $9,250; depreciation was $24,852 and the loan from [Business 2] decreased by $62,593. A dividend of $29,000 was paid once again, with the rest remaining in retained earnings, which increased by $74,660. The Tribunal asked [Representative A] why the full amount of the profit had not been distributed to the Trust for Mr Jaeckle. [Representative A] said that due to the debt position of the business it is not in a position to sustain a full distribution of profit.

12. The [Business 2] 2019/20 balance sheet shows that Mr Jaeckle’s loan balance decreased by $93,708 between 2019 and 2020. Again, this does not all appear in Mr Jaeckle’s income tax return, but still represents a financial resource available to Mr Jaeckle during that year. This is equivalent to the amount [Representative A] submitted to be Mr Jaeckle’s drawings from the business in the financial year. He said that of this amount Mr Jaeckle immediately lent $29,000 back to the business, so he only received $64,708.

13. In the period 1 July 2020 to 31 December 2020 Mr Jaeckle said that he had drawn $42,546.33 from the business. A statement which appears to have been prepared by Mr Jaeckle’s accountant says that average drawings were $1,637.09 per week during this period which would be equivalent to an annual income of $85,128.68. Mr Jaeckle confirmed to the Tribunal that he expects to draw from the business at the same rate for the second half of the current financial year.

14. The Business Activity Statements for the same period show turnover of $289,931 between July and September 2020 and $370,811 between October and December 2020. This seems to indicate that gross business income is largely similar to the past two years and may in fact have increased a little.

15. It does appear that the business is encumbered by liabilities incurred, but not paid, in previous years. A [Bank 1] overdraft was not repaid as required and was consequently frozen by the bank. [Business 1] entered into a written payment arrangement with [Bank 1] to repay $3,000 per month starting on 31 May 2020. At the time of the objections officer’s decision there was $51,896 outstanding. At the time of the Tribunal hearing there was $36,000 outstanding, which was all due to be repaid in the next 12 months.

16. Mr Jaeckle said that there are also payments on [equipment] of $6,445.80 per annum; the business is paying overdue superannuation of $34,200 at the rate of $1,000 per month; and also has an overdue company tax bill of $13,877. Mr Jaeckle said that the business also owes his mother $121,000.

17. [Accountant A] confirmed that the private expenses paid by the business are represented by the movements in Mr Jaeckle’s loan account with [Business 2]. The dividend is not paid in cash, but as drawings. He said that there is no private use component expense for the motor vehicle as it is considered to be a business vehicle even though Mr Jaeckle uses it as his personal vehicle. He is able to claim the whole amount through the business. [Accountant A] said that his view is that the business is profitable, but that it will be difficult for it to meet its obligations over the next two to three years because of the debts that have been accrued. He said that liquidation is not out of the question but that the business has a profit before tax of around $80,000 per annum and that does not seem likely to change significantly. He noted that profit in 2020 was inflated due to the COVID cash boost and that would not continue.

18. This is a case where the evidence given by both parties appears to have some truth. The financial statements for the business show that there has been a reduction in turnover, but that this has now stabilised and may even be improving. Ms Jaeckle is probably correct in her assessment that in the past the family lived well and did not miss out on anything. The financial statements of the business, however, show that this was at the cost of the business failing to meet its liabilities at that time (taxation, superannuation and overdraft). Mr Jaeckle and Ms Jaeckle were able to take more money out of the business at that time because the business was not actually paying things that it should have been paying. This has now caught up with it. [Business 1] is in a less liquid position than it has been in the past as it is meeting these liabilities and trading out of difficulty. It does appear to have the capacity to meet its ongoing debt burden and the bulk of this debt should be repaid by the end of next year.

19. The Family Court has established the principle that in the case of self-employed parents, their taxable income may not be an accurate reflection of their earning capacity and financial resources. Several cases in particular have examined this issue closely, including Scott and Scott (1994) FLC 92 - 457, and Carey and Carey (1994) FLC 92 - 489. The Courts consider that self-employed people are able to derive additional benefits from their business in addition to wages. They also have greater control over the structure of their finances than an employee receiving salary or wages, and so may be able to use the income of the business in ways other than paying wages. Expenses and deductions which may be legitimate for tax purposes may not be considered to take precedence over child support obligations. Under child support law, other than the basic expenses necessary for self-support there are very few expenses which take precedence over the support of children. There is considerable divergence between the taxation system, which is intended to provide general support for many, and the child support system, which is intended to provide specific support for the children of relationships.

20. Mr Jaeckle needs to understand that a person’s adjusted child support income may bear no relationship to their taxable income when they are self-employed. It may also bear little relationship to the actual resources that they take from their business if there are resources that are available to them that they do not take, or there are expenses paid for them by their business that can be claimed for taxation purposes but which are really of personal benefit. While the financial statements provided gave a good insight into the businesses’ activities, the bank account and credit card statements indicate that there is considerable opacity around the way that Mr Jaeckle operates his financial affairs on a day-to-day basis and that it is likely that there are many expenses claimed through the business which are not in fact business expenses or which would not take priority over Mr Jaeckle’s primary duty to support the children. For example, it is common in such cases to add depreciation back to a parent’s income for child support purposes on the basis that this is usually just a book entry and not money that is genuinely put aside for the replacement of assets. In this case, the Tribunal has not done this as the depreciation being claimed is less than the annual repayments on the debts being serviced by the business and it is reasonable to assume that this expense is fully used in debt repayment.

21. Even if the Tribunal were to accept the submissions made by [Representative A] in relation to Mr Jaeckle’s total drawings from the business being equivalent to $96,286 in 2019/20 there is still the matter of the undistributed profit of $74,660. While the Tribunal accepts that Mr Jaeckle did not take this money, he could certainly have taken a portion of it even considering the full extent of the debt repayments per annum. As a parent, it is his duty to maximise the resources available to meet the current needs of his children, not any future needs.

22. In cases such as these, it is not the Tribunal's role to conduct a forensic accountancy examination. The Tribunal only needs to be broadly satisfied that the person has income and financial resources that are sufficient to pay a particular amount of child support. The Tribunal's role is not to tell Mr Jaeckle how to spend his money, but it does have a role in impressing upon Mr Jaeckle the importance of meeting his child support liability, even at the expense of some of his current lifestyle and business decisions.

23. Mr Jaeckle said that he drives the business vehicle, a [Brand 1]. He does not own another car. His Statement of Financial Circumstances shows that he has no significant assets or liabilities. He pays a reduced rent of $300 per week as he rents from his mother. He declares a half interest in money held in a solicitors’ trust account on behalf of both parties, around $84,000 each. The main thing that he has is the ability to generate income through [Business 1].

24. The objections officer set Mr Jaeckle’s adjusted taxable income at $112,128 for the period 4 February 2020 to 31 December 2021. On the evidence before it the Tribunal does not find this to be an unreasonable amount taking account of the movements in Mr Jaeckle’s loan accounts, the nature of the expenses claimed through the business which appear to have a personal component, and the profitability of the business as a whole. It may in fact be on the low side of the appropriate range. The Tribunal gave consideration to increasing Mr Jaeckle’s adjusted child support income amount but decided not to do so due to the debt servicing issues being experienced by the business at the present time.

25. Ms Jaeckle also requested that the decision be backdated to the start date of liability in 2018. The Agency’s file shows that Ms Jaeckle was advised about the change of assessment process on 7 August 2018 and 22 March 2019, but that she did not make her application until 10 December 2019. Mr Jaeckle was advised of the application on 4 February 2020. This is the date used as the start date by the objections officer. The Tribunal did not disturb this start date as Ms Jaeckle was clearly aware of her options early on and did not use them, and the period between 2018 and 2019 was a financially difficult period for the business, with considerable cash flow and liquidity problems. It would not be fair to Mr Jaeckle to create arrears of child support for that period.

26. The Tribunal finds that Mr Jaeckle is working full-time and does not have an unexercised earning capacity. Although Ms Jaeckle made an application under Reason 8B in relation to his earning capacity, she was really saying that his declared income is less than he would earn as an employed full-time [occupation 1]. This has been dealt with above and the Tribunal cannot find that an earning capacity decision should be made in relation to Mr Jaeckle.

27. The Tribunal considered the time period for which the present decision runs and was of the view that it ought to be extended. October 2021 will shortly be upon us and the evidence before the Tribunal is that there will be no significant change in Mr Jaeckle’s financial circumstances before late 2022 when the lease on his current business property expires. While it does seem unlikely on the evidence before the Tribunal that there will be a redevelopment at that time it would be prudent to re-examine the circumstances of both parents. The indications are that [Business 1] will likely still be trading at the end of 2022, and it will have significantly cleared its debt burden and therefore be able to provide Mr Jaeckle with greater financial returns. Of course, it may have ceased trading by that time due to a failure to renegotiate its lease. Mr Jaeckle should be aware that any business decisions he makes that significantly impact on his income and financial resources may not result in a change to the child support assessment if there was a capacity for him to continue to operate his business. He needs to make any decisions at the end of the lease with regard to his child support obligations. On balance, the Tribunal decided that Mr Jaeckle’s adjusted taxable income should be set at $112,128 for a further period from 1 November 2021 to 31 December 2022.

28. Ms Jaeckle is also self-employed, running a [service] business from her home. This provides her with a fairly minimal income. Gross income for January and February 2021 was $2,992. The benefit of the business is that it does allow her to claim some of her own personal expenses as business expenses as her profit and loss statement shows that for those two months she claimed rent of $1,500, motor vehicle expenses of $75, $60 for power and $50 for telephone leaving net profit of $155.50. The bulk of her income comes from government benefits and allowances although she has also recently returned to casual employment as required after being stood down during the COVID-19 pandemic. She also has a second small [product business], which she started during the pandemic. She thought that her income would be around $38,000 in the current financial year. The adjusted child support income maintained for Ms Jaeckle in the assessment is her 2019/20 taxable income of $40,085. The Tribunal finds that her income is correctly reflected in the assessment, even allowing for the modest personal benefit she receives from her business.

29. Following Mr Jaeckle’s decision to withdraw from financial liability for the school fees she is paying the full amount of the school fees for both children, albeit with a significant discount from the school. She said that she has funded this with her property settlement, income tax refund, and a $5,000 loan from her parents. She has around $34,000 in savings and no other significant assets. Ms Jaeckle said that H also needs braces but is yet to see the orthodontist. The Tribunal explained that it cannot make changes to the assessment for prospective expenses but that Ms Jaeckle could make a further application to the Agency in respect of the orthodontics if the parents cannot come to an agreed outcome.

1. The objections officer increased the annual rate of child support payable by Mr Jaeckle in respect of school fees by $4,388 for the period 1 January 2020 to 31 December 2020. This was half the cost of the private school tuition fees for the children for that year. Again, the Tribunal agrees that this is a reasonable approach given that Reason 3 has been found. Given the disparity in income between the parents it is arguable that Mr Jaeckle should pay more than 50% of the school fees, but the Tribunal could not find that he has a capacity to do so. Payment of 50% of the school fees is the extent of Mr Jaeckle’s capacity given that he has no financial resources on which to draw other than his capital in the business.

2. The current decision makes no change to the child support assessment in respect of school fees for 2021. The Tribunal considered that it would be correct to remedy this by increasing the annual rate of child support payable by Mr Jaeckle by $3,985 for the period 1 January 2021 to 31 December 2021 in respect of half of the school fees. The Tribunal notes that R is in Year 11 in 2021 and will finish school in 2022. Given this, the Tribunal proposes to make a further increase in the annual rate of child support payable by Mr Jaeckle for the 2022 calendar year of $4,000 in respect of school fees. This will give the parents and the children certainty until the end of R’s education. If R turns 18 prior to finish year 12, Ms Jaeckle can make an application to the Agency for the child support to be extended after his 18th birthday until the end of his school year. Any such application must be made before R’s 18th birthday.

3. The Tribunal is satisfied that it would be just and equitable to set Mr Jaeckle’s adjusted taxable income at $112,188 for the period 4 February 2020 to 31 December 2022 in total, and also increase the annual rate of child support payable in respect of private school fees until R completes his education at the end of 2022, as long as it is otherwise proper to do so. Essentially, this decision merely extends the decision of the objections officer.

Issue 3 – Is it otherwise proper to depart from the administrative assessment?

1. The final step for the Tribunal is to determine whether it is “otherwise proper” to depart from the administrative assessment. Subsection 117(5) of the Assessment Act requires the Tribunal to take into consideration the nature of the duty of a parent to maintain a child, and the effect that any change to the assessment would have on the rate of any Centrelink benefits being received by the parties or the children.

2. The child support law recognises that each parent has a primary duty to maintain their children. In the case that they cannot, the government may assist in the form of family assistance payments. This decision will reduce the amount of family assistance Ms Jaeckle receives in respect of the children. The Tribunal is satisfied that a departure from the assessment will better reflect the financial resources that have been available to both parents and ensure that the level of financial support provided by the parties for the children is determined according to their capacity to provide that support. The Tribunal finds that it otherwise proper to depart from the administrative assessment in this matter. 

DECISION

The decision under review is varied so that:

• Mr Jaeckle’s adjusted taxable income is set at $112,128 per annum for the period 1 November 2021 to 31 December 2022;

• The annual rate of child support payable by Mr Jaeckle is increased by $3,985 for the period 1 January 2021 to 31 December 2021; and

• The annual rate of child support payable by Mr Jaeckle is increased by $4,000 for the period 1 January 2022 to 31 December 2022.

The other provisions of the decision of the objections officer will continue to operate.