Jahoda and Jahoda (Child support)

[2020] AATA 5128

Jahoda and Jahoda (Child support) [2020] AATA 5128 (7 October 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/SC018925

APPLICANT:  Mr Jahoda

OTHER PARTIES:  Child Support Registrar

Ms Jahoda

TRIBUNAL:Member J D'Arcy

DECISION DATE:  7 October 2020

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that from 4 September 2019 until a terminating event occurs for [Child 1], Mr Jahoda is to be assessed on an adjusted taxable income of $98,676.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from business – a ground for departure established – decision to depart – decision under review set aside and substituted

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

BACKGROUND

1. Mr Jahoda is seeking a review of the decision by the Department of Human Services (Child Support), (now Services Australia), to increase his adjusted taxable income to $200,000.

2. Mr Jahoda and Ms Jahoda are the parents of [Child 1] who was born in August 2005 and is in the primary care of Ms Jahoda.

3. When Ms Jahoda applied for a change of assessment on 21 September 2019 under Reason 8A (Mr Jahoda’s income and financial resources), Mr Jahoda was assessed to pay the following annual rates of child support on an estimate of $45,103: $1,060 from 4 September 2019 to 9 October 2019, $5,778 from 10 October 2019 to 11 November 2019 and $4,573 from 12 November 2019 to 30 June 2020.

4. On 7 February 2020 Child Support found Reason 8A established and increased Mr Jahoda’s adjusted taxable income to $200,000 for the period 21 September 2019 until a terminating event takes place for [Child 1]. Child Support disallowed Mr Jahoda’s objection to this decision.

5. On 28 April 2020 Mr Jahoda lodged an application for review with the Administrative Appeals Tribunal (the tribunal).

6. A tribunal hearing was conducted on 7 October 2020 with Mr Jahoda and Ms Jahoda by telephone.

7. Child Support supplied the parties and the tribunal with the subsection 37(1) of the Administrative Appeals Tribunal Act 1975 statement and documents (211 pages). Additional documents marked A1 to A721 were provided by Mr Jahoda and B1 to B10 by Ms Jahoda.

ISSUES

1. The statutory provisions relevant to this review are set out in the Child Support (Assessment) Act 1989 (the Assessment Act). Section 98C provides that the Registrar may make a determination to depart from the formula assessment and establishes a three-step process. The Registrar, and the tribunal standing in place of the Registrar, must consider:

   (i)Whether a ground for departure exists; and

   (ii)Whether it is just and equitable as regards the child, the liable parent, and the carer entitled to child support to change the administrative assessment, having regard to the matters set out in subsection 117(4) of the Assessment Act; and

   (iii)Whether it is otherwise proper to change the administrative assessment of child support.

2. The grounds for departure from an administrative assessment of child support are covered by subsection 117(2) of the Assessment Act. The relevant reason in this case is:

   ·Reason 8 - That in the special circumstances of the case, an application relating to an 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 income, property and financial resources of either parent – reason 8A (subparagraph 117(2)(c)(ia)); or because of the earning capacity of either parent – reason 8B (subparagraph 117(2)(c)(ib)).

3. The term “special circumstances” is not defined in the Assessment Act. In Gyselman v Gyselman (1992) FLC 92-279 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.

CONSIDERATION

Does a ground for departure exist?

1. Mr Jahoda is the sole director and shareholder of [Company 1], a [specified] company for [specified] industries.

2. Mr Jahoda explained that his taxable income has reduced from $140,979 in 2018, to $88,404 in 2019 and then to $37,254 in 2020 because his company was “going broke”, which he attributed to his mental health and alcohol abuse problems. In early 2020 he spent several months in [Country 1] with his fiancée and then spent two periods of four weeks each in [a medical] Clinic on a rehabilitation program to deal with his alcohol problems. He stated that he intends to liquidate the company soon (in the next six to eight weeks), move to [Country 1] and marry his fiancée.        

3. Mr Jahoda provided profit and loss statements for [Company 1] for 2018 showing gross income of $1,621,316 with a loss of $226,670; in 2020 the company’s gross income was $1,425,018 with a loss of $109,657.

4. In response to the tribunal’s directions Mr Jahoda supplied the tribunal with the following bank statements for his personal and company accounts:

   ·[Credit card 1]

   ·[Credit card 2]

   ·[Bank 1 savings account]

   ·[Bank 2] Personal Loan account

   ·[Bank 2 savings account]

   ·[Bank 3 savings] account

   ·[Bank 3 transactional] account

   ·[Bank 4] Business Transaction account for [Company 1]

   ·[Bank 4] Business Online Saver account for [Company 1]

5. Mr Jahoda stated that the credit card accounts and all but the last two business accounts were personal accounts in his name.

6. The [Credit card 1] account showed a closing balance of $33,885 at 7 May 2020. The account was accruing significant overdue and interest fees. The [Credit card 2] account showed a closing balance of $13,930 on 12 July 2020. That account was also accruing interest charges and missed payment charges. The [Bank 2] personal loan account showed a closing balance of $30,652 on 13 September 2020. The [Bank 2 savings] account held a closing balance of $0.98 on 12 September 2020. The [Bank 3 savings] account showed a closing balance of $13,078 on 30 June 2020. The [Bank 3 transactional] account had a closing balance of $822.56 on 30 June 2020.

7. Mr Jahoda acknowledged that he used the [Bank 4] Business Transaction company account for some items of personal expenditure. The tribunal carefully analysed bank statements of that account for the period 31 March 2020 to 30 June 2020. In addition to the business transactions, the tribunal identified many transactions which appeared to be personal transactions made by Mr Jahoda. The type and value of those transactions is set out below:

   ·Jimmy Brings (an alcohol delivery service)  $459.93

   ·Coles, Woolworths, 7 Eleven  $750.70

   ·Household cleaning service   $440.00

   ·Foxtel   $406.79

   ·Storage   $1,170.00

   ·Chemist   $31.94

   ·[Medical] Clinic   $565.65

   ·Medical imaging   $1,183.40

   ·Café meals   $560.14

   ·Apple and Spotify accounts  $459.93

8. The above transactions total $6,028.48. They do not include numerous purchases of coffee and petrol. A review of the transactions for proceeding three-month periods show a similar pattern of purchases. Mr Jahoda’s explanation that he gifted alcohol to clients was not credible considering his alcohol problem and the nature of the alcohol purchases. He acknowledged that he stored his personal belongings in the storage facility after the sale of the house but stated that it was also used to store unwanted desks, computer monitors and unused telephone systems.

9. In his Statement of Financial Circumstances Mr Jahoda indicated that he is currently earning $1,048 per week being $750 from wages and $298 from jobkeeper. His expenses including income tax, child support, payment of credit cards and loans and health insurance amount to $1,232 per week. His household expenses are $545 a week.

10. Until 4 October 2020 the company was paying for his car registration ($1,800), electricity and gas ($2,020), rent ($31,980), fuel ($1,500), and car insurance for two vehicles ($3,000). The financial resources provided to him from the company on an annual basis for accommodation, utilities and motor vehicles totalled $40,300. He explained that he is now living with his mother in her unit and the additional benefits that he is receiving from the company amount to $2,400; that is, $900 for car registration and $1,500 for car insurance. He is also receiving reduced income because of the limited amount of work that he is performing for the company. The [Bank 1] account shows wages deposits of $378.53 per week – child support is paid from the company account.

11. The information provided by Mr Jahoda indicates that his taxable incomes for the past two financial years do not represent the financial resources available to him. In his Statement of Financial Circumstances he stated that he was currently receiving $54,496 per year in gross income ($1,048 per week). Until 4 October 2020, his company was paying for his rent, utilities and motor vehicle expenses in the amount of $40,300. Although he may have been working from home, he also gave evidence that he had not done much work in 2020 due to a two-month overseas trip and up to eight weeks in rehabilitation. Thus, it would be reasonable to estimate the work usage component of his home and motor vehicle expenses of $40,300 at 40% or $16,120. He was also using the company bank account to pay for personal expenditure, estimated conservatively at around $20,000 per year.

12. The complexities arising from Mr Jahoda having multiple accounts, transferring funds between accounts and the lack of differentiation between company and personal spending in his company trading account does not allow for an exact calculation of the income and financial resources available to him. The tribunal’s determination of his adjusted taxable income is therefore a best estimate in these circumstances.

13. On the above figures and considering the complexities of his financial situation, the tribunal determined the income and financial resources available to Mr Jahoda in the 2020 financial year amount to be  $98,676. (This figure is close to the amount which Mr Jahoda would need to meet the expenses stated in his Statement of Financial Circumstances.)

14. From 4 September 2019 Mr Jahoda’s child support was assessed on his estimate of $45,103. An administrative assessment based on this estimate would result in an unjust and inequitable determination of the level of financial support by Mr Jahoda for [Child 1] considering the additional financial resources available to him through his company and creates the special circumstances to establish Reason 8.

Is it just and equitable to depart from the administrative assessment, having regard to the following matters set out in subsection 117(4) of the Assessment Act?

1. In considering this issue the tribunal must have regard to the matters stated below:

   (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.

2. Mr Jahoda’s Statement of Financial Circumstances indicates that he owns property valued at $131,973 and has superannuation of $223,400. His liabilities total $100,660.

3. Mr Jahoda provided medical evidence of his current medical conditions. In a report dated 21 September 2020 [Dr A], general practitioner, noted that Mr Jahoda has been diagnosed with depression, poorly controlled hypertension and alcohol addiction. He has had several admissions to hospital including admissions to [a] Hospital and [a medical] Clinic. She stated: “He has been unable to work due to this off and on and has had long periods of inability to work for many years.”

4. [Ms B] has been Mr Jahoda’s treating psychologist since September 2019. In an undated report she stated that he has been diagnosed with a major depressive disorder with anxiety and an alcohol abuse disorder. It has been difficult for Mr Jahoda to maintain a steady work schedule because he has been dealing with severe mental health issues for over 10 years. His capacity for full-time employment is limited. She described Mr Jahoda’s condition as severe, ongoing and permanent for the foreseeable future.

5. The tribunal notes Mr Jahoda’s evidence that he has always supported his children and he would continue to do so.

6. Ms Jahoda works as an [Occupation 1] at a [workplace] and earns an average weekly income of $570. She has re-partnered and, with her partner, has purchased a home in which she owns a 33% share. She valued her assets at $425,800 and her superannuation at $215,595. Her liabilities, including her mortgage, are $222,516. She estimated her household expenses at $2,025 per week explaining that she only paid what she could afford but paid for all her children’s expenses. Her partner assisted her in meeting her other financial commitments.

7. The tribunal accepts that both parents have a duty to support [Child 1] and finds that the last years of secondary education can cause additional financial burdens for parents. [Child 1] has no personal income or financial resources.

8. According to the medical evidence, Mr Jahoda’s work capacity is impacted by his mental health conditions. However, until the last financial year he has earned reasonable incomes, notwithstanding the effect of his mental health on his work capacity. His taxable income in 2017 was $121,439, in 2018 it was $140,979 and in 2019 it was $88,404. His 2020 taxable income was impacted in part by a two-month trip to [Country 1]. Mr Jahoda receives additional financial resources from the company and, as sole director and shareholder, he was able to make decisions about his income and financial resources to adjust to changes in his circumstances.

9. Mr Jahoda’s evidence that he intends to liquidate the company and move to [Country 1] to marry and live with his fiancée, raises concerns that he may be manipulating his financial situation to avoid paying child support, notwithstanding his protestations that he would continue to support [Child 1].

10. Without her father’s financial support, [Child 1] would suffer hardship in the final years of her secondary education. Ms Jahoda would also experience hardship in supporting [Child 1] because she earns a relatively low income and is dependent on her partner for some financial support.

11. Given the disparity between Mr and Ms Jahoda’s access to financial resources, the tribunal finds that the administrative assessment does not properly reflect the financial resources available to Mr Jahoda to support [Child 1].

12. It is therefore just and equitable to increase Mr Jahoda’s child support liability based on the tribunal’s determination of Mr Jahoda’s financial resources.

13. From 4 September 2019 until a terminating event occurs Mr Jahoda is to be assessed on an adjusted taxable income of $98,676 as determined by the tribunal at paragraph 23 above. This adjusted taxable income figure recognises the impact of Mr Jahoda’s mental health conditions on his work capacity and the reduced company income due to COVID-19. It also recognises that Mr Jahoda maintains the capacity to earn an income at the level set for him by this decision beyond 2020.

Is it otherwise proper to make a change the administrative assessment of child support?

1. Subsection 117(5) requires the tribunal to take into consideration the following matters:

   (a)the nature of the duty of a parent to maintain a child (as stated in section 3) and, in particular, the fact that it is the parents of a child themselves who have the primary duty to maintain the child; and

   (b)      the effect that the making of the order would have on:

   (i)any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or

   (ii)the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.

36. An increase in child support payable by Mr Jahoda will reduce the cost to the community because the rate of family tax benefit payable to Ms Jahoda will reduce. In these circumstances the tribunal therefore decided it was otherwise proper to change the assessment of child support.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that from 4 September 2019 until a terminating event occurs for [Child 1], Mr Jahoda is to be assessed on an adjusted taxable income of $98,676.