Jager and Jager (Child support)

Jager and Jager (Child support) [2018] AATA 4158 (6 September 2018)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2018/MC013827
APPLICANT:  Mr Jager
OTHER PARTIES:  Child Support Registrar
Miss Jager

TRIBUNAL:Member A Schiwy
DECISION DATE: 6 September 2018
DECISION:

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

· For the period 4 May 2017 to 30 April 2018, Mr Jager’s annual rate of child support is varied to $7,800; and
· For the period 1 May 2018 to 30 September 2019, Mr Jager’s annual rate of child support is varied to $5,200.

CATCHWORDS
CHILD SUPPORT - departure determination - income, property and financial resources of the liable parent - a ground for departure exists - decision to depart - decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been 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

This application for review is about the amount of child support payable by Mr Jager to Miss Jager and whether a departure should be made from the child support formula assessment.
Mr Jager and Miss Jager are the parents of [Child 1] (born in April 2009). A child support case was registered in early 2016.
The Department of Human Services (Child Support) has recorded that Miss Jager has 85% care of [Child 1] and Mr Jager has 15% care. Mr Jager is the parent liable to pay child support.
Mr Jager owns and runs a [farm] and his taxable income has been nil for several years. The administrative assessments for child support have been based on this level of income. As a result, the amount of child support payable has been assessed at the ‘fixed annual rate’ which was $1,373 in 2017.
On 4 May 2017, Miss Jager applied to Child Support for an increase to the assessed rate of child support 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 Mr Jager’s income, property and financial resources. Miss Jager made this application because Mr Jager had become a director of [Company 1] in November 2016. Mr Jager was not notified of the application until 6 June 2017.
On 7 September 2017, a Child Support case officer, delegate of the Child Support Registrar, considered the departure application and decided that there was a ground to depart from the administrative assessment. The officer decided that for the period 1 June 2017 to 30 November 2018, the adjusted taxable income of Mr Jager is varied to $128,853.
On 23 October 2017, Mr Jager objected to this decision. On 14 December 2017, the objections officer decided that for the period 6 June 2017 to 30 June 2019 the adjusted taxable income of Mr Jager is varied to $126,700.
On 29 January 2018, Mr Jager lodged an application for a review with the Administrative Appeals Tribunal (the tribunal) seeking review of the decision of Child Support.
Prior to the hearing of the application for review, directions were issued to both Mr Jager and Miss Jager to provide the tribunal with specified documents. Mr Jager provided the tribunal with documents (folios A1 to A27). Miss Jager provided the tribunal with documents (folios B1 to B10). Both parties were provided with a copy. The tribunal and the parties also had access to the statement and documents provided by Child Support under subsection 37(1) and section 38AA of the Administrative Appeals Tribunal Act 1975 (folios 1 to 281).
The matter was heard on 27 August 2018. Both Mr Jager and Miss Jager attended the hearing by conference telephone and gave evidence on affirmation.
The decision was deferred as Miss Jager was then directed to provide further documents, which she provided on 28 August 2018 (A11–85). Mr Jager was then given an opportunity to see the documents and provide a submission about them. The Tribunal made its decision on 6 September 2018.

ISSUES

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.
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.

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

Subparagraph 117(2)(c)(ia) of the Assessment Act provides that a ground for departure exists where, in the special circumstances of the case, application of the provisions of the Assessment Act relating to the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the children because of the income, property and financial resources and earning capacity of either parent.
The term ‘special circumstances’ is not defined in the Assessment Act. In Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) 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.
It is not disputed, and the tribunal finds, that Mr Jager was appointed as a Director of [Company 1] from around November 2016 until it was taken over at the end of April 2018. His remuneration, including superannuation, was $140,000 per annum (approximately $128,000 salary).
Miss Jager’s submission is that while he was in receipt of his director’s fees, Mr Jager should pay an increased rate of child support. Mr Jager’s submission is that although he did receive the remuneration, this was offset by the need to hire additional staff and reduced efficiencies in the running of the farm while he was not managing it.
Mr Jager was found by the tribunal to be a reliable and credible witness. He was frank about his financial situation and business affairs and provided detailed information about his business and financial situation. The following evidence was provided by Mr Jager. It was not disputed by Miss Jager:
·He has run a [farm] for around 40 years. He also runs a farm contracting business undertaking services such as [other services].
·He is suffering from a [medical] condition (Mr Jager is 59 years old) and is facing surgery with a six-month down time. He is in constant pain and he has had to curtail his physical activities; he ‘lives on pain killers’. Years ago he was able to run the farm on his own but this is no longer possible. He has a full-time employee, [to] assist with the running of the farm. His younger son, [helps] out when he can.
·Mr Jager said the farm was last profitable around eight years ago and a combination of factors have resulted in losses; the most significant being global demand, [product] price and input costs; in particular [food products]. His debt levels have also increased over the years resulting in higher interest costs. Prior to separation, Miss Jager used to prepare the accounts for the business and is well aware of the situation.
·Mr Jager said the [industry] has gone backwards in recent years. [Product] prices dropped significantly during the 2016–17 financial year and his gross sales went from around $1.5 million to $1 million. In 2017–18 the prices improved and his sales were nearly $1.3 million.
·Mr Jager’s farm is located in [an area] and has been impacted by the current drought and also a caterpillar infestation that consumed the remaining grass. The price of [food products] has escalated and went from $311,131 in 2016–17 to around $426,000 in 2017–18. [Other products] is double its normal cost.
·[Product] prices are currently increasing but this is being offset by the cost of [food products].
·Mr Jager considered selling the farm but for the last couple of years, due to the various negative impacts on the industry, he does not think he would be able to give away the land. It would also be a very difficult decision personally for him to sell the farm as he has built it up over a number of years.
·Mr Jager is hopeful that things will improve over the next couple of years and he will then be able to sell the properties with sufficient proceeds to clear his debts and provide for his retirement.
·Mr Jager’s contracting business has also had fluctuating returns. In 2015–16 he grossed $232,743 and this went up to $468,423 in 2016–17. His son was assisting with the contracting business at this time. In 2017–18 he only grossed $244,000 because of the lack of work directly resulting from the loss of grass in the district.
·He took on the director role after he was approached by other board members and farmers. He is well known around the district and was on the [board] for a number of years (according to his CV Mr Jager was on the [board] and [other] boards for a total of 17 years). [Company 1] was in trouble at the time, facing litigation and suffering large financial losses. He agreed to take on the role and try and guide them forward. The role involved a significant amount of work with numerous phone hook-ups and face-to-face meetings. It became a full-time role.
·Mr Jager could not spend much time on the farm and needed a replacement. He hired a manager but this was a disaster and he had to terminate his employment. He attempted to run the farm again on his own but was unable to and so hired a husband/wife/daughter team ([Family A]).
·The management of the farm suffered with the reduction in Mr Jager’s involvement; for example, machinery would not be run correctly, which resulted in expensive repair bills. He had problems with the [Family A] and they left in February 2018 (hired from July 2017).
·Wages in 2015–16 were $243,681 and they increased to $283,787 in 2016–17. They reduced to $244,974 as the [Family A] finished in February 2018. Contract labour, which is directly related to the contract business, increased in 2016–17 and decreased in 2017–18 (from $40,446 to $21,000) in accordance with the reduction in income.
·Now that he is no longer a director it is just himself and a full-time employee running the farm. His son, [sometimes] helps out with the contracting business. Backpackers are also employed on occasion.
·The draft figures for 2017–18 have been prepared and show an operating loss of $8,388 after depreciation. One of the major reductions in expenses was repairs; going from $195,000 to $119,000.
·On 14 May 2018, Mr Jager received $195,815 for the sale of [Company 1] shares due to the takeover of the company. This was used to reduce debt. As part of the property settlement with Miss Jager, Mr Jager had to pay her $322,800 cash (and $50,000 transfer of superannuation). This increased his [bank] debt and his debt/equity ratio became too high and no longer in accordance with [bank’s] limits; he therefore had to use the share money to reduce debt.
·He has more [Company 1] shares with a book value of $195,800. [Company 1] has held back $200 million to meet possible settlement costs related to ongoing litigation so it is not known if he will receive anything for the shares.
·His farm is made up of four properties and he has an additional two properties nearby, which are used for growing [food products]. The properties were valued by an independent valuer recently as part of the property settlement process between Mr Jager and Miss Jager. The properties have been valued at a total of $2.57 million. Their book value as at 30 June 2017 was $3.6 million (including buildings) so there has been a significant reduction in their value.
·Given his debt/equity ratio, Mr Jager said he does not have the capacity to borrow any more.
·There is a ‘manager’s house’ on the farm that was rented out to [Family A] for $60 per week (rent is included in Mr Jager’s tax return) and is now vacant.
·He lives very frugally but will help with [Child 1’s] costs whenever she needs something such as clothes. He pays for his personal expenses from his savings account as evidenced by regular debits at Australia Post where he pays bills and gets cash if needed. He is flat out trying to keep everything together and is too busy to take a holiday/spend money.
·When asked why he was paying $400 per week for term life and death benefits listed in a Statement of Financial Circumstances; Mr Jager said that completing the statement has prompted him to review the cost. He has been paying this amount for many years but now that the farm is not so reliant on his labour he should be able to get a better premium.
·He offered to settle this case prior to hearing by paying $400 per month; he is happy to contribute to [Child 1’s] costs. However he cannot afford the amount assessed by Child Support and now owes over $13,000. He said he would try and cut costs as much as possible to afford $400 per month.
Miss Jager stated the following:
·Mr Jager is a good farmer, politician and business man and she accepts what he has said about the [industry].
·He needs to put [Child 1] first and he could have afforded to pay more child support when he received director’s fees.
·She would be happy with $400 per month from cessation of the directorship but considers he should pay an increased amount for the time he was a director.
·Mr Jager could sell stock to meet the child support liability.
Mr Jager runs his business as a sole trader. His taxable incomes since at least 2010–11 have been nil indicating that the farm has run at a loss for many years. In 2017, the business made a loss of $123,611. Depreciation was $163,867 with net profit on the sale of plant and equipment of $34,781. The business purchased around $175,000 of new plant. The business’s total liabilities increased by around $90,000 to $4 million. This includes $3.3 million owing to [the bank]. Mr Jager stated that as at May 2018 he owed $3.5 million to [the bank], $250,000 for equipment financing, and $150,000 to trade creditors.
Mr Jager’s income tax return for 2016–17 discloses carry forward losses as at 30 June 2012 to be $248,273 and losses since then varying from around $75,000 to $139,000. The losses the business has made over the years are after depreciation however the tribunal noted that Mr Jager has also made several purchases and sales of plant and equipment in 2016 and 2017 (and presumably earlier years).
It would appear from Mr Jager’s evidence that the business’s profitability increased significantly during 2018 as it made a loss, after depreciation, of only $8,388.
The tribunal accepted that Mr Jager, in recent years, has not had access to significant financial resources from the business however he has clearly been supporting himself for several years and must take some drawings from the business and receive non-cash benefits such as the provision of housing. However the tribunal accepts that Mr Jager lives relatively frugally.
The tribunal also accepted that Mr Jager’s capacity for drawing down any further on the [bank] loan has diminished given the fall in the value of his properties and are probably negligible at the moment. If drought conditions abate and [product] prices remain steady, or increase, this will improve the business profitability significantly and more than likely increase the property value allowing for an increase in borrowings.
The tribunal accepted that Mr Jager had to pay increased wages, and incurred an increase in some running costs, while he was a director of [Company 1] although the actual amount is difficult to quantify.
After considering the evidence provided, the tribunal decided that Mr Jager did have some capacity to pay an increased rate of child support when he was being paid as a director and decided that it would be reasonable to find that he had access to two-thirds of the salary component, approximately $86,000. The child support liability based on this amount is approximately $150 per week.
The tribunal also decided that Mr Jager has the capacity to pay around $100 per week on an ongoing basis. His own evidence is that he would, with cost savings, be able to afford $400 per month, which is $92 per week. If profitably increases over the next couple of years his capacity to pay more will obviously increase.
Mr Jager is currently assessed to pay $1,373 per annum in child support. The tribunal has decided that he has the financial resources to pay $7,800 per annum while he was a director and $5,200 per annum thereafter. The tribunal was therefore satisfied that there are special circumstances in this case and finds that the ground for departure in subparagraph 117(2)(c)(ia) does exist in relation to the income and financial resources of Mr Jager.
As a ground for departure has been established, the tribunal then considered whether or not it would be just and equitable to make a departure determination.

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

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 the self-support costs of either parent. The tribunal is not limited to exploring these parameters and is required to consider the global circumstances (Gyselman).
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 children

Miss Jager and Mr Jager each have a duty to maintain the child. Further, the tribunal notes the statements contained in sections 3 and 4 of the Assessment Act to the following effect:
·       Parents of a child have a primary duty to maintain the child and this 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, property, financial resources and earning capacity of the child

There was no evidence presented to the tribunal that [Child 1] has anything other than the usual expenses and needs of a child her age, expenses that are dealt with in the administrative assessment and addressed in the Costs of the Children Table.
There was no evidence that [Child 1] currently has significant independent income or resources.

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

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 respective abilities to support them.

Income, property, financial resources and earning capacity of each parent
Mr Jager’s income, property, financial resources and earning capacity

Mr Jager’s income and financial resources has been discussed above. Mr Jager works full-time on the farm and the tribunal accepted that he has no further earning capacity.
Mr Jager stated in his Statement of Financial Circumstances that he spends $568 on household expenses and he pays $510 per week for term life insurance (claimed as a business expense) and health insurance. As discussed earlier, he is going to review his insurance costs.

Miss Jager’s circumstances

Miss Jager’s taxable incomes in recent years have been:
·2014–15   $17,909
·2015–16   $23,370
·2016–17   $18,695
She was reliant on government income support payments however she commenced working as a pharmacy assistance in 2016–17. Mr Jager stated that Miss Jager is earning cash income from selling [goods]. Miss Jager stated that she only sells to herself and friends and it is merely a hobby.
The tribunal reviewed Miss Jager’s bank statements over a three-month period and there was only one very small purchase from [the retail company]. She also withdraws cash from her account and the tribunal decided that there was insufficient evidence to show that she is making a profit from selling [goods].
Miss Jager said she worked on a casual basis and her hours vary. She has been earning around $500 to $560 a week (although last week she was away for one week so her fortnightly income reduced). She is currently studying for a diploma and hopes to get extra work over Christmas and during the holidays.
Miss Jager provided her last three payslips (fortnightly pays) and this showed that up until 19 August 2018 she had grossed $2,910 and her fortnightly pay is normally around $1,000 with only $545 received in her last pay due to taking leave. The tribunal was satisfied that Miss Jager would earn around $24,000 per annum, after allowing for leave. This is currently greater than her adjusted taxable income being used for child support. Miss Jager also has $300,000 on deposit (see below) and with interest of 2% would be earning another $6,000 per annum. Her income tax return will include these earnings and newstart allowance and therefore when she lodges her tax return for 2017–18 in around September 2019 her adjusted taxable income will reflect these actual earnings.
It is possible that when she completes her studies, Miss Jager will be able to earn more income and increase her hours as [Child 1] gets older.
Miss Jager received the $322,000 property settlement and used $17,000 to pay legal fees and $5,000 to clear credit card debts. She has invested $300,000 to save for a residence. She is waiting until property prices fall before she buys. She currently owes about $2,000 on her credit card.
In her Statement of Financial Circumstances Miss Jager stated that she spends $963 per week on household expenses including $200 per week on holidays. When questioned about this Miss Jager said she is originally from [another country] and plans to go back to see her family on occasion. Apart from this there were no extraordinary expenses listed. Miss Jager did not list any child care costs.

Necessary commitments to support themselves

The self-support amount used in the administrative assessment is approximately $24,500. On the documentary evidence available to the tribunal, including the Statement of Financial Circumstance completed by both parties, the tribunal was satisfied that both Miss Jager and Mr Jager have sufficient funds at their disposal to meet their necessary commitments, none of which are extraordinary.

Hardship that would be caused to the parents and the child

The tribunal considers Mr Jager would not suffer financial hardship if required to pay $150 per week in child support during the time he was a director and $100 per week thereafter. His business is currently profitable (when considered on a cash business) and his own evidence is that he may be able to reduce expenses of the farm and his term insurance.
Miss Jager is on a relatively low income and although she has a substantial amount invested, the tribunal considered it reasonable that she uses this to purchase a home. She would incur the majority of [Child 1’s] expenses and the tribunal was satisfied that she would, and does, experience financial hardship if assessed to receive only $1,373 per annum.
The proposed change in the child support assessment will ensure that both Mr Jager and Miss Jager share in the costs of caring for the child at a level commensurate with their resources.
Mr Jager has child support arrears of $8,446 as at 21 April 2018. He has been paying $114 per month and assessed on $962 a month so his arrears would have increased significantly (Mr Jager said he now owes around $13,000). The arrears will decrease significantly as a result of this decision.
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 to increase his child support liability to $150 per week while he was employed as a director and $100 per week thereafter.
The tribunal then considered what an appropriate start and end date would be for a departure determination.
Mr Jager commenced as a director in November 2016 and Miss Jager made her application in May 2017. Mr Jager has submitted that the director’s fees form part of his taxable income and have been disclosed correctly. In addition, he believes the fees are part of his business income and he has not actually made a profit after taking the fees into account; there was no deliberate attempt to hide his income. The tribunal decided that an appropriate start date would be from when Miss Jager lodged her application; it would not be equitable to backdate the decision.
Miss Jager’s adjusted taxable income will increase from around October 2019, when she lodges her taxation return and this will impact on the child support assessment. Mr Jager’s business is also likely to become more profitable into the future but there is no certainty about this. The tribunal therefore decided that the departure determination should end on 30 September 2019.
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?

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. Miss Jager receives family assistance. The proposed departure determination may decrease Miss Jager’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 4 May 2017 to 30 April 2018, Mr Jager’s annual rate of child support is varied to $7,800; and
· For the period 1 May 2018 to 30 September 2019, Mr Jager’s annual rate of child support is varied to $5,200.

[2018] AATA 4158

6 September 2018

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Jurisdiction

Judicial Review

Remedies

Statutory Construction