Jenner and Morton (Child support)

[2021] AATA 4246

Jenner and Morton (Child support) [2021] AATA 4246 (19 October 2021)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/MC021480

APPLICANT:  Miss Jenner

OTHER PARTIES:  Child Support Registrar

Mr Morton

TRIBUNAL:Member C Breheny

DECISION DATE:  19 October 2021

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from business and trust – ground to depart established – decision under review affirmed

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. Miss Jenner  and Mr Morton are the separated parents of [the child], born September 2012. A child support case has been registered with the (then) Department of Human Services – Child Support (Child Support) since 13 December 2012, but only registered for collection from 27 May 2020. Mr Morton is assessed as liable to pay child support to Miss Jenner on the basis that she has 100% care of [the child].

2. For the period 1 October 2019 to 30 June 2020 Mr Morton’s child support liability had been administratively assessed as being $22,911 per annum initially based on his 2018/19 adjusted taxable income of $616,454 and from 22 May 2020 on his reconciled estimate of $278,358 and Miss Jenner’s 2018/19 adjusted taxable income of $22,242.

3. For the period from 1 July 2020 onwards Mr Morton was liable to pay the minimum annual rate based on his 2020/21 income estimate of $25,028 and Miss Jenner’s 2018/19 adjusted taxable income of $22,242.

4. On 3 July 2020, Miss Jenner applied to Child Support for a change of assessment on the basis that Mr Morton’s income, property and financial resources were not accurately reflected in the assessment. Mr Morton lodged a cross-application in relation to Miss Jenner’s income, property and financial resources.

5. On 25 November 2020, decision maker [Ms A] decided to change the administrative assessment on the basis of Mr Morton’s income and financial resources and determined that for the period 1 July 2020 to 31 October 2022 Mr Morton’s adjusted taxable income was set at $150,000.

6. On 3 March 2021, Mr Morton objected to the decision and on 7 May 2021, a Child Support objections officer decided to partly allow the objection. The objections officer determined that for the period 1 July 2020 to 6 May 2021 Mr Morton’s adjusted taxable income was set at $150,000 and for the period 7 May 2021 to 31 October 2023 Mr Morton’s adjusted taxable income was set at $83,337.

7. On 12 May 2021, Miss Jenner applied to the Social Services and Child Support Division of the Administrative Appeals Tribunal (the Tribunal) for an independent review of Child Support’s decision. A hearing into Miss Jenner’s application for review was held on 19 October 2021. Both Miss Jenner and Mr Morton attended the hearing by conference telephone and gave evidence on affirmation. 

8. I had before me the statement and documents provided by Child Support pursuant to subsection 37(1) and section 38AA of the Administrative Appeals Tribunal Act 1975, received on 22 September 2020 and 11 June 2021 respectively and numbered 1–549. I also considered additional documents provided by Miss Jenner (marked A1–A183) and Mr Morton (marked B1–B442) as a result of written directions issued on 17 August 2021.

LEGISLATIVE FRAMEWORK AND ISSUES

1. The legislation relevant to this review is contained in the child support law, in particular the Child Support (Assessment) Act 1989 (the Act) and the Child Support (Registration and Collection) Act 1988 (the Registration and Collection Act).

2. 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 of children, the level of care provided and the income of each parent. Either the liable parent or the carer entitled to child support may apply to the Registrar for a determination to depart from the child support administrative assessment under Part 6A of the 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. The Registrar, and the Tribunal standing in place of the Registrar, must be satisfied that a ground for departure exists and that it is just and equitable and otherwise proper to make a departure determination.

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

4. In the legislation, each ground for departure is prefaced by the words, “in the special circumstances of the case”. Therefore, when considering whether one (or more) grounds exists, the Tribunal must be satisfied that there are “special circumstances” in the case. The phrase “special circumstances of the case” is not defined in the Act. The Full Family Court, in the case of Gyselman and Gyselman (1992) FLC 92-279 stated that:

   It is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. That is, the intention of the Legislature is that the court will not interfere with the administrative formula result in the ordinary run of cases.

5. Subsection 98C(3) of the Act provides that subsections 117(4) to (9) of the Act apply and the Tribunal must consider these when deciding whether it would be just and equitable or otherwise proper to make the departure decision.

CONSIDERATION

A ground for departure

1. Both Miss Jenner and Mr Morton asked for a departure from the administrative assessment on the basis that the assessment does not correctly reflect the parties’ respective income, property and financial resources (also known as “Reason 8A”).

2. Neither party contended that the other had any greater earning capacity than they currently exercised.

Income, property and financial resources of both parties

1. Subparagraph 117(2)(c)(ia) of the Act provides that, in the special circumstances of the case, a ground for departure may be established if application of the legislative provisions relating to an administrative assessment results 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.

Mr Morton – income, property and financial resources

1. At the time Miss Jenner lodged her application on 3 July 2020 child support liability was $435[1] per annum, based on Mr Morton’s 2020/21 income estimate of $25,028. Miss Jenner submitted that Mr Morton is the owner/director of several companies and has the ability to reduce his taxable income significantly (folio 51). His actual financial resources were therefore far greater than his taxable income indicated. Miss Jenner submitted that Mr Morton is associated with (at least) two companies, “[Company 1]” and “[Company 2]” (folios 53–59).

   [1] Being the minimum annual rate at that point in time

2. Mr Morton said that he is a self-employed [Occupation]. His main source of income is [a job task for a principal client]. He operates the business through a trust, the “[Trust]”. Mr Morton provided a letter from his accountant, dated 21 September 2021 (folio B440), stating that the “[Company 1]” is the trustee for the [Trust], but does not actually trade and the company “[Company 2]” has been dormant since 2010.

3. Mr Morton stated that he will get work allocated from [the principal client] and he either does the [work] himself or employs contractors. He currently only uses one contractor. Mr Morton said that he had been working for many years and had hoped to be able to retire. He had reached preservation age and withdrew his superannuation to refinance his home and purchase an investment property. The superannuation payout increased his 2018/19 taxable income to $605,709 and he believes that is why Miss Jenner lodged her application with Child Support. Mr Morton said that he now has to continue to work to meet his financial obligations.

4. Mr Morton provided all relevant bank statements and financial information for the [Trust]. Financial statements for the business (folios B407–B437) indicate business performance as follows for the last four financial years (in summary):

2017/18	2818/19	2019/20	2020/21
Income	$100,694	$127,824	$217,337	$282,241 (incl. Gov’t assistance
Cost of Sales	$25,701	$14,690	$17,052	$4,681
All other expenses	$83,258	$46,922	$195,465	$275,084
Profit (Loss)	($8,265)	$66,212	$4,820	$2,476

1. Evidence shows that, apart from the 2018/19 financial year, business expenses are either close to or exceed business income.

2. Mr Morton acknowledged that the trust’s financial statements contain a number of “book entries” to reduce business income. Previous years’ losses, “bad debts”, “employee entitlements” and other acceptable amounts are deducted in accordance with taxation guidelines.

3. Miss Jenner contended that a lot of private expenses also appear to be paid from the trust’s bank account, for example transfers to Mr Morton’s home loan offset account and to the business credit card, which Mr Morton also uses for private purposes.

4. Mr Morton agreed that he does make drawings from the trust for private expenses and these are listed as “unsecured loans” in the financial statements. In 2020/21 these drawings amounted to $97,789 (folio B432), which reflects the payments to his home loan account, personal use of the business credit card and other personal expenses paid from the business account.

5. Mr Morton’s 2020/21 personal income tax return (folio B353) indicates a taxable income of $45,000, including further “Director’s fees/allowances” from the [Trust] (not included in the drawings from the trust) and rental income from his investment property.

6. Based on the information before me I am satisfied that Mr Morton’s 2020/12 income and financial resources from his business amount to (at least) $142,789 (personal income plus drawings from the trust).

7. Mr Morton contended that his business has been affected by the pandemic and his income for the current financial year is significantly reduced. I note that the business only received two payments from [the principal client] between 1 July 2021 and 31 August 2021, a total of $24,343 (folios B184 and B188), which is an average of about $12,100 per month. In 2020/21, the average monthly business income was about $22,000.

8. I only have limited evidence on business performance in the current financial year, but it appears that Mr Morton’s business income will be less, a reduction of approximately 45%.

Miss Jenner – income, property and financial resources

1. Miss Jenner has been working in a casual position as [an Occupation 2] since about March 2021. Her 2020/21 taxable income was $30,380 comprising of income from her employer and Centrelink payments (folio A94). Her 2019/20 taxable income was $23,722 from Centrelink payments (folio A96).

2. Miss Jenner said that her employment contract ceased in June 2021. She has since returned to full-time study and relies on Centrelink payments (jobseeker) of about $692.50 per fortnight (folio A89). Bank statements indicate that she receives additional payments of approximately $180 per fortnight in family assistance and education payments from Centrelink (folio 183). Thus her total current income (excluding child support payments) is about $872.50 per fortnight.

3. I have no evidence that Miss Jenner has any other source of income and I am therefore satisfied that Miss Jenner’s income, property and financial resources are adequately represented by her annual income tax returns.

Conclusion – income, property and financial resources of both parties

1. When Miss Jenner lodged her departure application on 3 July 2020 (the 2020/21 financial year), the rate of child support was based on Mr Morton’s 2020/21 income estimate of $25,028 resulting in the minimum annual rate of child support ($435).

2. I have found that Mr Morton’s actual income and financial resources in 2020/21 amounted to (at least) $142,789 and I have estimated that Mr Morton’s child support liability for [the child], if calculated on the basis of his actual financial resources and Miss Jenner’s 2018/19 taxable income of $22,242, would be $17,093 per year at the time Miss Jenner lodged her application. This amount would only change marginally[2] if Miss Jenner’s 2020/21 adjusted taxable income of $30,380 were to be substituted.

   [2] Reduction of $4 per week

3. I find that the difference between an annual child support liability of $17,093 and the annual rate of child support ($435) based on Mr Morton’s 2020/21 income estimate at the time, is so great that it gives rise to special circumstances in this particular case.

4. I am therefore satisfied that the ground for departure set out in subparagraph 117(2)(c)(ia) of the Act has been made out in respect of Mr Morton’s income, property and financial resources only.

5. Subparagraph 98C(1)(b)(i) of the Act is satisfied if “one, or more than one” of the grounds for departure are established. Having found one ground for departure established, I will now consider whether it is just and equitable to make a departure determination.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable directs that my attention is turned to what is fair to the parents and their children. To do so I must have regard to a number of factors set out in subsection 117(4) of the Act, such as the needs of [the child], the parents’ commitments and any hardships that would be caused by departing, or not departing, from the statutory formula.

2. Mr Morton’s income, property and financial resources have been discussed in some detail above. I have found that at the time Miss Jenner lodged her application for a change of assessment (in the 2020/21 financial year) Mr Morton’s income, property and financial resources amounted to (at least) $142,789. Evidence for the first two months of the 2021/22 financial year indicates however that Mr Morton’s income has reduced.

3. Mr Morton did not provide a completed Statement of Financial Circumstances. He advised Child Support in September 2020 that his income (including rental income) was $9,112 per month and his expenses amounted to $8,706 per month (folio 95/96). Without any more recent evidence I find that Mr Morton is able to meet all of his expenses.

4. Miss Jenner indicated on her Statement of Financial Circumstances (folio A1–A8) that her expenses amounted to about $500 per week. Her home is jointly owned with her parents and she has no mortgage or rent payments. Apart from food Miss Jenner’s most significant expenses are her study costs of about $89 per week.

5. Mr Morton noted that Miss Jenner was able to make regular payments into a savings account for [the child]. As at May 2021 the balance of that account was $30,297 (folio A80). Miss Jenner agreed that she was able to mee her expenses and I find accordingly.

6. Miss Jenner did not indicate any out of the ordinary expenses for [the child]. He is now nine years old and attends school. He has no income, property or financial resources relevant to my determination.

Otherwise proper  

1. The requirement to consider whether it is “otherwise proper” to depart from the administrative assessment directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances or benefits (subsection 117(5) of the Act).

2. 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.

3. Miss Jenner is in receipt of family assistance payments from Centrelink, which are affected by maintenance payments such as child support. Any increase or decrease to child support payable would result in an appropriate increase or decrease in these payments. Such a result would be otherwise proper.

Conclusion

1. Section 98S of the Act describes the determinations that the Registrar, and the Tribunal standing in the shoes of the Registrar, may make if it decides to depart from the administrative assessment. It is open to the Tribunal to set a rate of child support payable or set some of the variables used in the administrative assessment formula (for example, vary one or both parents’ adjusted taxable income).

2. Miss Jenner lodged her departure application on 3 July 2020 on the basis that Mr Morton’s income and financial resources were far greater that his income estimate of $25,028. Mr Morton did not dispute that he was self-employed and that there were some financial benefits in running a business. He stated though that his business income was reduced in the current financial year and he has not been able to draw any money for private expenses from the business since August 2021.

3. I note the objections officer set an income amount of $150,000 for the period 1 July 2020 to 6 May 2021 and reduced the income amount to $83,337 from 7 May 2021, a reduction of approximately 45%.

4. I have found that Mr Morton’s actual financial resources amounted to about $142,789 in 2020/21 and I have also found that his current business income appears to be reduced by about 45%.

5. I note the objections officer did not apply an income of $150,000 for the entire 2020/21 financial year and I have contemplated substituting the lower income amount ($142,789) for the period to 30 June 2021. The difference between the two possibilities however is not significant (about $10 per week).

6. The reduced income amount found by the objections officer appears to be a reasonable amount, given that the limited evidence before me indicates that Mr Morton’s business income has reduced.

7. In view of all the evidence before me, I therefore see no reason to disturb the objection decision.

8. I note Mr Morton’s child support liability is up to date and he noted that he did not ask for a review of the objection decision. Miss Jenner is able to meet her (limited) expenses and she is able to save money for [the child]’s future. I am thus not persuaded that my decision will place either Mr Morton or Miss Jenner in financial hardship.

9. I have reached the same conclusion as the objections officer. This means there is no change to the departure determination that is currently in place and I affirm the decision under review.

DECISION

The decision under review is affirmed.