Jenson and Jenson (Child support)
[2024] AATA 3246
•24 July 2024
Jenson and Jenson (Child support) [2024] AATA 3246 (24 July 2024)
DIVISION:Social Services & Child Support Division
REVIEW NUMBER: 2023/BC027124
APPLICANT: Mr Jenson
OTHER PARTIES: Child Support Registrar
Ms Jenson
TRIBUNAL:Member E Kidston
DECISION DATE: 24 July 2024
DECISION:
The Tribunal sets aside the decision under review and, in substitution, decides that:
For the period 10 May 2022 to 30 June 2022 Mr Jenson’s adjusted taxable income will be varied to $198,886;
For the period 1 July 2022 to 30 June 2023 Mr Jenson’s adjusted taxable income will be varied to $334,485;
For the period 1 July 2023 to 30 June 2025 Mr Jenson’s adjusted taxable income will be varied to $231,500.
CATCHWORDS
CHILD SUPPORT – departure from the administrative assessment – income, property and financial resources – father’s adjusted taxable income – no jurisdiction to consider father’s claim of procedural unfairness – inaccurate and unfair amounts – self-employment company structures, financial information, change of accountants and Family Court and ATO proceedings – significantly higher additional financial benefits from business – mother and child’s hardship if departure determination not made – 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
Mr Jenson and Ms Jenson are the separated parents of [the child] (born 2017). A child support case was registered with Services Australia − Child Support (Child Support) in March 2017 with collection from 10 February 2022.
The Child Support (Assessment) Act 1989 (the Assessment Act) provides for an administrative assessment of child support payable. It uses a statutory formula which takes into account factors such as the number and age of the children, the level of care provided by each parent and the income of each parent. The Assessment Act also provides for a departure from the administrative assessment (commonly termed a change of assessment) in certain circumstances.
On 10 May 2023 Ms Jenson made an application for a change of assessment on the basis of Mr Jenson’s income and financial resources not being fairly reflected in the assessment for child support. The administrative assessments relevantly in place from that time were:
For the period 10 February 2022 to 30 April 2022, Mr Jenson was assessed to pay child support at annual rate of $5721. This assessment was based on Ms Jenson’s 2020-21 provisional adjusted taxable income amount of $50 000 and Mr Jenson’s 2020-21 adjusted taxable income amount of $122 549.
For the period 1 May 2022 to 14 June 2022, Mr Jenson was assessed to pay child support at annual rate of $5986. This assessment was based on Ms Jenson’s 2020-21 provisional adjusted taxable income amount of $50 000 and Mr Jenson’s 2020-21 adjusted taxable income amount of $122 549. Ms Jenson’s allowances changed at the commencement of this period.
For the period 15 June 2022 to 7 July 2022, Mr Jenson was assessed to pay child support at annual rate of $5756. This assessment was based on Ms Jenson’s 2020-21 provisional adjusted taxable income amount of $50 000 and Mr Jenson’s 2020-21 adjusted taxable income amount of $122 549. Ms Jenson’s allowances changed at the commencement of this period.
For the period 8 July 2022 to 31 July 2022, Mr Jenson was assessed to pay child support at annual rate of $5232. This assessment was based on Ms Jenson’s 2020-21 adjusted taxable income amount of $36,154 and Mr Jenson’s 2020-21 adjusted taxable income amount of $122 549.
For the period 1 August 2022 to 31 October 2023, Mr Jenson was assessed to pay child support at annual rate of $5020. This assessment was based on Ms Jenson’s 2021-22 adjusted taxable income amount of $14,412 and Mr Jenson’s 2021-22 adjusted taxable income amount of $88,576.
On 13 August 2023 a delegate of Child Support granted Ms Jenson’s application having found that grounds for departure existed and changed the child support assessment for the period 10 February 2022 to 31 October 2027 by setting Mr Jenson’s adjusted taxable income as follows:
For the period 10 February 2022 to 31 July 2022 Mr Jenson adjusted taxable income is set to $259 528 per annum.
For the period 1 August 2022 to 31 October 2023 Mr Jenson adjusted taxable income is set to $193 889 per annum.
For the period 1 November 2023 to 31 October 2027 Mr Jenson adjusted taxable income is set to $242 000 per annum.
On 28 August 2023 new information concerning Ms Jenson’s adjusted taxable income for 2022−23 was applied to the child support assessment such that:
For the period 1 October 2023 to 31 October 2023 Mr Jenson was assessed to pay child support at annual rate of $11,187 based on Ms Jenson’s 2022-23 adjusted taxable income of $23,828 and Mr Jenson’s adjusted taxable income set amount of $193,889; and
For the period 1 November 2023 to 31 December 2024 Mr Jenson was assessed to pay child support at annual rate of $12,585 based on Ms Jenson’s 2022-23 adjusted taxable income of $23,828 and Mr Jenson’s adjusted taxable income set amount of $242,000.
On 8 September 2023 Mr Jenson lodged an objection to the original decision and on 6 November 2023 an objections officer of Child Support partly allowed the objection and decided to set aside the original decision and changed the assessment as follows:
For the period 10 February 2022 to 30 June 2022 Mr Jenson’s adjusted taxable income is set at $248,937; and
For the period 1 July 2022 to 31 May 2026 Mr Jenson’s adjusted taxable income is set at $183,000.
On 29 November 2023 Mr Jenson applied to the Social Services and Child Support Division of the Administrative Appeals Tribunal (the Tribunal) seeking independent review of Child Support’s objection decision.
The Tribunal conducted a directions hearing concerning the substantive matters under review on 1 May 2024 and then a full hearing on 10 July 2024. Mr Jenson and Ms Jenson participated in the hearings by telephone conference and each gave evidence on affirmation. As is customary, the Child Support Registrar or a delegate did not attend the hearings.
In considering the application, the Tribunal took into account the oral evidence and submissions made by Mr Jenson and Ms Jenson respectively, documentary material in evidence as provided by Child Support in accordance with sections 37 and 38AA of the Administrative Appeals Tribunal Act 1975 (marked Exhibit 1), as well as the additional documents provided by Mr Jenson prior to the hearing (marked Exhibit A) and additional documents provided by Ms Jenson prior to the hearing (marked Exhibit B). Mr Jenson and Ms Jenson each confirmed at the hearing they had received the documents marked Exhibits 1, A and B.
10. It is relevant to state from the outset that there are a number of background issues and other circumstances of understandable importance to both Ms Jenson and Mr Jenson that were raised at the hearings which are not addressed specifically in these Reasons as they are not considered to be relevant to the issues before the Tribunal in this application.
LEGISLATIVE FRAMEWORK AND ISSUES
As already noted, the rate of child support payable by a liable parent is usually based on an administrative assessment calculated using a statutory formula, which takes into account (among other things) the income of each parent. The income used in the calculation has a number of components making up the adjusted taxable income, which is worked out using section 43 of the Assessment Act. The usual approach is that Child Support will utilise a parent’s adjusted taxable income as assessed by the Australian Taxation Office (ATO) for the last relevant year of income.
Part 6A of the Assessment Act allows for a departure from an administrative assessment only if the three-step process under section 98C is 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
b. otherwise proper;
to make a particular determination under this Part.
There are 10 possible grounds for a change of assessment set out in subsection 117(2) of the Assessment Act. Each ground for a departure from the administrative formula is prefaced by the words “in the special circumstances of the case”. Therefore, when considering whether the ground exists in this case, the Tribunal must be satisfied that there are “special circumstances” present. Although the term “in the special circumstances of the case” is not defined in the Assessment Act, in the matter of Gyselman and Gyselman (1992) FLC 92-279 it was held that:
…as a generality 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 formula in the ordinary run of cases.
The Tribunal’s approach to the interpretation and application of the particular grounds in subsection 117(2) of the Assessment Act must be guided by that principle. If satisfied that a reason exists and that it would be just and equitable and otherwise proper to make a particular determination, Child Support (or the Tribunal on review) may make one of the range of determinations, prescribed in section 98S of the Assessment Act, including varying the rate of child support payable, the adjusted taxable income, the self-support amount or the cost percentage for a child.
The Tribunal also had regard to the Child Support Guide (the Guide) where relevant. The Guide contains governmental guidelines and policy as to how the legislation is to be applied. The Tribunal acknowledges that, whilst it may be guided by policy, it is not bound to follow it: Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634. In the recent case of G v MIBP [2018] FCA 1229, the Federal Court observed that it is clear from earlier authorities, that in the absence of any statutory indication to the contrary, any lawful executive policy enacted to guide the exercise of a statutory power is a relevant factor for the Tribunal to take into account in performing its review task. A lawful approach allows the adoption of appropriate policy as a guide but not so as to control the making of the decision and the Tribunal adopts that approach.
It follows that the issues to be determined by the Tribunal in this matter are as follows:
(a)Does a ground exist to depart from the administrative assessment?
(b)Would it be just and equitable as regards the children and each parent to depart from the administrative assessment of child support?
(c)Would it be otherwise proper to make a particular departure determination?
CONSIDERATION
From Mr Jenson’s submissions and evidence, he challenges Child Support’s objection decision principally on two issues; that he was not afforded procedural fairness and that his income has been set at amounts that are grossly inaccurate and unfair going forward to 2026.
It is convenient for the Tribunal to first address Mr Jenson’s point concerning Child Support’s conduct and procedural fairness. The Tribunal acknowledges Mr Jenson’s concerns regarding his interactions with Child Support and as canvassed at the telephone directions hearing, the Tribunal is required to consider the issue before it based on the facts and application of the law. It is not the role of the Tribunal to adjudicate on how Child Support has conducted itself or what processes it has undertaken as the Tribunal does not have jurisdiction to consider procedural fairness. Notwithstanding, the issue raised by Mr Jenson is essentially addressed in any event by the fact the Tribunal conducts a full merits review of the objection decision and he has now been given the opportunity to provide his evidence for this review process.
The substantive submission made by Mr Jenson related to Child Support’s variation of his income from 10 February 2022 to 30 June 2022 at $248,937 and then for the period 1 July 2022 to 31 May 2026 at $183,000, which Mr Jenson asserted was plainly wrong. Mr Jenson has provided to the Tribunal further financial information to support his position that his taxable income for the 2021−22 and 2022−23 financial years are significantly less than that as assessed by the objections officer and, ought to be amended to reflect that as assessed in his individual tax returns at about $90,000.
In response, Ms Jenson effectively told the Tribunal that she does not have any basis to disagree with the adjusted calculations made by Child Support and although the variation made to the assessment by the objections officer reduced the amount of child support payable, she was prepared to accept the objection decision. Notwithstanding, Ms Jenson added that she was only made aware of Mr Jenson’s financial circumstances through their Family Court proceedings which revealed that he has access to more financial resources through his self-employment company structures and this had not been properly declared for a number of years. Ms Jenson stated that Mr Jenson’s reluctance in providing financial information with tactics such as changing accountants has unfairly prolonged their property settlement in the Family Court and she is hopeful that at the next directions hearing an order will be made to direct an independent auditor review of Mr Jenson’s business structure and anticipates another six to 12 months until settlement or final orders are made and that for child support purposes, she considers Mr Jenson’s income should be set for at least another 12 months at an amount that reflects the financial resources he has available to him through the business in addition to the wages he receives from the business.
Issue 1 – Does a ground exist to depart from the administrative assessment?
21. The legislative ground corresponding to Mr Jenson’s application for review is subparagraph 117(2)(c)(ia) of the Assessment Act, commonly referred to as Reason 8A, which provides:
(c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to 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 child:
… (ia) because of the income, property and financial resources of either parent; or …
Simply put, to establish Reason 8A it must be shown that a parent’s income, property and financial resources makes the child support assessment unfair.
It is important to note that while the Tribunal is required to consider the financial circumstances to determine each parent’s level of income, property and financial resources, the Tribunal is not placed in this application to undertake a “forensic audit” or detailed accounting exercise but is to make the correct or preferrable determination based on the available evidence, bearing in mind the objectives of the child support law.[1]
[1] Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623.
At the time of Ms Jenson’s departure application in May 2023, the assessment in place for that period was based upon Mr Jenson 2021−22 adjusted taxable income of $88,576. It would have been replaced by a provisional adjusted taxable income of $91,765 from 1 October 2023 as his 2022−23 tax return had not been lodged with the ATO.
In his individual 2021−22 tax return, Mr Jenson declares he derives income as wages from
[Company name] (the Company) of which he is the sole director, secretary and shareholder. Mr Jenson is also trustee of the Jenson Family Trust and the Company is trustee of the [Company] Holdings Trust.The Tribunal notes that there was a large volume of financial information before it, provided by Mr Jenson in response to the Tribunal’s directions. In Exhibit A Mr Jenson provided financial statements prepared for the Company for the 2021−22 and 2022−23 years as well as financial statements for the first half of the 2023−24 year, trust deeds, trust financial statements for 2021−22 and 2022−23 as well as 2021−22 tax returns for the Jenson Family Trust and the Company. Mr Jenson advised that the [Company] Trust has not been used and not generated any income in the 2022 year going forward and so no tax returns lodged. He told the Tribunal that he is wanting the [Company] Trust to be dissolved as it is not used and he only uses the Jenson Family Trust which owns the equipment for the business and he understands the Company leases those assets from this trust and that is how the Jenson Family Trust generates a rental income each year.
It was raised as a preliminary issue with Mr Jenson that tax returns had not been provided for the trusts, the Company and his own individual return for the 2022−23 financial year. Mr Jenson’s testimony was that he has not lodged tax returns for the trusts, the Company or his personal tax return for the 2022−23 financial year and explained that he had been experiencing some dramas with his then accountants – [Accountants 1] – and about 18 months ago he changed to [Accountants 2] to sort his books out for the Family Court proceedings. Furthermore, Mr Jenson informed the Tribunal that on 26 September 2023 the Commissioner for Taxation commenced legal proceedings against him as sole director of the Company concerning superannuation guarantee penalty charge. Reference was also made to the ATO debt of $877,524.96 that included $172,556.53 as superannuation guarantee charge and $704,968 as activity statement payments outstanding. Mr Jenson stated that the total amount outstanding in debts to the ATO is presently about $936,000 and that the business had amassed bad debts which has severely impacted cashflow and profitability.
At the hearing Mr Jenson said the ATO’s proceedings are stayed pending a report from its Small Business Restructure division. He and his accountant at [Accountants] have been liaising with the Small Business Restructure division and he expects a report to be delivered to the ATO in about a month or two. Mr Jenson asserted he doesn’t understand the loan structures set up by his old accountant at [Accountants 1] between the trusts and the Company, and he is hopeful that with his new accountants and the investigator from the ATO’s Small Business Restructure division that the loans and assets structures will be sorted out however, amended financial statements and tax returns may need to be lodged for the 2020−21 and 2021−22 financial years.
Mr Jenson confirmed that the financial information concerning his business that he provided to the Tribunal and collated in Exhibit A was all the financial information that he has available to date. The Tribunal accepted the documents in Exhibit A and information as correct at that point in time and noted Child Support did not have the benefit of all of these documents when undertaking the objection process. From these documents, Mr Jenson’s income is made available to him for the relevant period under review through the [Company] business structures, namely the Company and the Jenson Family Trust.
As canvassed at the hearing, the usual administrative provisions in calculating child support allows for the application of a parent’s income based on their adjusted taxable income which is taken from their most recently lodged tax returns. The use of a parent’s most recent adjusted taxable income in the child support formula is usually the best evidence of the likely projection of income for that parent going forward into the next child support period (usually 12 months). Each parent is entitled to rely on the administrative assessment of child support to roll on and be updated automatically upon lodgement of tax returns, particularly when their only source of income is from their employment as a PAYG employee. However, it is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes.[2] When summarised, these cases establish that a ground for departure may be established where a self-employed person is able to derive additional benefits from their business, and the current accounting on their individual taxable income may not be an accurate reflection of their earning capacity and financial resources for child support purposes.[3] The Courts have held that, in such circumstances, it is appropriate to lift the “corporate veil” in determining the parent’s level of income for child support purposes.[4] In the case of Costa & Fairbank (SSAT Appeal) [2010] FMCAfam 39, the then Federal Magistrates’ Court recognised that a financial resource:
refers to something which is not property but from which financial benefit is or may be gained. In light of the objects of the Act, the term should be broadly defined and would refer to any financial benefit that would enhance the capacity of parents to provide a proper level of financial support for their children.
[2] DJM v JLM [1988] FamCA 97; Scott and Scott (1994) FLC 92-457; Carey and Carey (1994) FLC 92-489
[3] Voss & Child Support Registrar & Anor (SSAT Appeal) [2009] FMCAfam 1296
[4] Shearer & Benson & Anor (SSAT Appeal) [2011] FMCAfam 623
2021−22 financial year
31. The starting point is Mr Jenson’s wages paid by the Company. In 2021−22 Mr Jenson’s wages were $78,846 (gross) and this amount is reflected in Mr Jenson’s individual tax return for 2021-22.[5] As the Company made a net trading loss in that year, there was no allocation of profit as a financial resource to him from the Company; however, an additional amount of $9,729 was paid to him as beneficiary under the Jenson Family Trust. This rendered his taxable income in the 2021−22 year as $88,576.
[5] Folio A143
32. As better financial information was provided to the Tribunal concerning the trusts and Company structure Mr Jenson had in place for his business, regard to those documents in Exhibit A were discussed in detail with Mr Jenson at the hearing to determine whether he had access to additional financial resources in the 2021-22 year notwithstanding the net trading loss.
33. With respect to the two trusts: [Company] Holdings Trust and Jenson Family Trust, financial statements for the [Company] Holding Trust for the year ended 30 June 2022 show no income and a balancing out of a loan leaving total equity sum of $10, the same value as in the previous income year.[6] As noted above, Mr Jenson stated his understanding is that the [Company] Holding Trust isn’t used, this trust has no assets or liabilities and has not generated any income in the last several years. Mr Jenson confirmed he has no financial statements available for the 2022-23 or 2023-24 years for the [Company] Holding Trust.
[6] Folios A79 to A
34. The financial statements for the Jenson Family Trust for 2021−22 and the 2021-22 trust tax return[7] confirm rental income of $18,545 (the same amount of income generated in 2021) with total expenses of $27,040, rendering a net loss for the 2021-22 year of $8,495. A distribution to Mr Jenson was $9,729. Mr Jenson informed the Tribunal that the Jenson Family Trust owns the plant and equipment for the business and the trust receives rental income from the Company. Although some plant and equipment is noted in the trust’s assets, the trust’s significant asset is detailed as a non-current loan to Mr Jenson of $440,803 (this amount being less than the loan amount in 2021 of $531,011); however, the statements also show the trust had borrowed money detailed as 2019, 2021, 2020 loans totalling $483,258 as unsecured liabilities.
[7] Folio A64 Exhibit A
35. At the hearing a question was put to Mr Jenson in relation to loans to and from associated parties (Jenson) recorded in the Family Trust as well as in the Company’s 2022 balance sheet[8] that show significant assets of non-commercial loans and deemed dividends $335,225.10 and a liability long-term loan of $357,546.93. Although these loans were not adequately explained by Mr Jenson, he referred to investigations with the ATO and that a review of his financial structures with his accountant are presently on foot.
[8] Folios A114 and 115 Exhibit A
36. The Company’s financial statements indicate that total trading income for the business in the 2021−22 financial year was $2,131,741.57. The job costs claimed in 2021−22 (including discounts) totalled $1,274,193.56, leaving a gross profit from trading of $857,548.01. Total expenses were recorded as $867,244.58 leaving an operating loss of $9,696.57. Other income was recorded in the profit and loss statement for 2021-22 as being interest income, employee FBT and sale of asset totalling $26,714.97, with interest expense recorded as $57,171.98, thereby increasing the company loss for the 2022 year to a total of $40,153.58. Notwithstanding the year’s loss, the Company’s retained earnings of $64,844.64 were attributed, thereby rendering total equity for the Company in 2021−22 as $24,692.06.[9]
[9] Folio A115 Exhibit A
37. Regard was also had to the company vehicles − when vehicle use was discussed, Mr Jenson stated that he commutes from his residence to the business address and warehouse during the week and also visits customers and retailers. He charges all petrol and vehicle costs to the Company. Personal benefit from use of these items was discussed with Mr Jenson but he contended that he viewed his proportion as nominal as it was largely business-related expenses. Based on the indication by Mr Jenson in his Statement of Financial Circumstances that he has no other motor vehicle and is not incurring any motor vehicle-related expenses but has attested to having the benefit of using company owned motor vehicles. It is clear that Mr Jenson enjoys considerable personal benefit from the use of the business’s motor vehicles and associated fuel costs as he is not required to meet any such expenses from his personal income. The Tribunal notes that Mr Jenson gave evidence that he undertakes significant travel for work. Travel from residence to work is not a deductable expense available to the ordinary employed taxpayer; however, other work-related travel is. In looking at other reported business expenses, such as telephone and accounting. Mr Jenson confirmed a personal benefit to those expenses and to others. Although the overall financial benefit to Mr Jenson in many reported business expenses is, by its nature, difficult to quantify, the Tribunal considers that it is reasonable to allocate a conservative percentage of 15% as his personal component to the motor vehicle expenses, accounting expenses and telephone expenses. At the hearing Mr Jenson conceded that half of the laundry expenses ought to be apportioned as a personal expense and that subscription fees and fines/penalty fees were entirely personal expenses. In discussing the Company’s bank statements ([Bank] account ending #4388), Mr Jenson confirmed certain personal expenses were paid using the Company account such as rent ($405 weekly to [Real estate agency]) and electricity charges (some of the Energy Australia charges - $89 weekly) for his residence (about $21,060 + $4,628). On the basis of such testimony, the Tribunal considers Mr Jenson’s personal component of certain expenses[10] paid through the business is about $45,467.30 for the 2021-22 year.
[10]Motor vehicle $3,515.50 (15% of $23,436.72), accounting $3,205.39 (15% of 21,369.30), telephone $1,032.78 (15% of $174.88 and $6,710.33), laundry $843.76 (50% of $1,687.52), subscription $1,228.34, fines and penalties $9,953.53, rent $21,060 and electricity $4,628
38. Therefore, when looking at the 2021-22, not only did Mr Jenson receive wages of $78,846 and trust distribution of $9,729 but, he also had the benefit of financial resources available to him through his business structure and when adding back in the personal component of certain expenses of about $45,467.30 in addition to the Company’s retained earnings of $64,844.64, this brings Mr Jenson’s total taxable income for the 2021−22 year to about $198,886.94.
2022−23 financial year
39. As stated above, Mr Jenson’s personal, trust and company tax returns for the 2022−23 year have not yet been prepared and lodged; however, the Company’s financial statements for 2023 and some of his payslips were provided to the Tribunal. Mr Jenson stated that his wages from the Company for 2022−23 remained the same as previous year, being $1,064.15 net per week. On the evidence of pay slips provided the Tribunal accepts this and considers an allocation of $78,846 being the wages from the previous year is a fair reflection for his wages in the 2022-23 year.[11]
[11] Gross earnings $1,346.15 per week – net earnings $1,064.15 per week folios A118-A119 Exhibit A
40. From the 2022-23 profit and loss statement[12] the Company made a net profit of $202,414.41 and, as sole director and shareholder, this amount is considered a financial resource available to Mr Jenson. In addition to this, is the likelihood of a distribution to Mr Jenson in the 2022-23 year from the Jenson Family Trust. Despite no financial statements for that trust in evidence, Mr Jenson informed the Tribunal the Jenson Family Trust would have generated a similar rental income from the plant and equipment rental arrangement with the Company in the 2022-23 as it did in the previous two financial years and he accepted that a fair estimate of the trust distribution to him for 2022-23 would be $9,729. The Tribunal considers it reasonable in the circumstances to utilise that amount as the best estimate of Mr Jenson’s distribution from the Jenson Family Trust for 2022-23 and also accepts Mr Jenson’s oral evidence that there was no income activity and therefore no distributions came from the [Company] Holding Trust for 2022-23. This brings Mr Jenson’s taxable income in the 2022-23 year to a starting point of $291,016.41.[13]
[12] Folios A112 and A113 Exhibit A
[13] $202,414.41 +$78,876 +$9,729
41. Again, the Tribunal had particular regard to the Company’s financial statements for the 2022−23 financial year to determine whether Mr Jenson had available to him other financial resources.[14] Regard was had to the significant variations in some expenses claimed when compared to the previous financial year, for example, bad debts, telephone, rent and occupancy costs, employee training, and workshop repairs. In explanation, Mr Jenson’s evidence at the hearing to each of those categories is accepted due to the nature of his business arrangements and changes in business activity post pandemic.
[14] Folios A112 to 113
42. As addressed above, for the previous year a personal component of 15% for motor vehicle expenses and fuel ($3,815.41 + $5,094.02), accounting and booking expenses ($35,184.31) and telephone expenses ($2,146.66 + $1,377.87) was considered an appropriate amount for reallocation. Mr Jenson also confirmed that the full amount for subscriptions ($561.13), legal fees ($5,931.55) and child support liability ($2,323) should be added back in as his personal expenses. Other personal expenses paid through the Company bank account ([Bank] account ending #4388) such as rental payments ($440 per week) and electricity charges ($89 per week) are added back in as an annual component of $22,880 for rent and $4,628 for electricity. On the Tribunal’s calculations, this renders an amount of about $43,466.40[15] as financial resources available to Mr Jenson through his business for personal expenses and added to his wages, company profit and trust distributions, rendering his taxable income for 2023 to about $334,485.81.[16]
[15] Child support $2,323, legal $5,931.55, subscriptions $561.13, accounting $5,277.64, motor vehicle and fuel $1,336.41, telephone $528.67, rent $22,880 and electricity $4,628
[16] Profit $202,414.41, trust distribution estimate $9,729, wages $78,876 and business financial resources for personal expenses $43,466.40
43. Loans to and from associated parties (Jenson) are recorded in the Company’s 2022-23 financial statement[17] as assets of non-commercial loans and deemed dividends of $335,225.10 and a liability long-term loan of $416,623.23. It was noted that the amount of the loaned asset has not changed from the previous year; however, the liability loan had increased from $357,546.93 in 2021-22 to $416,623.23 in 2022-23 which suggests an associated entity capital transfer of about $59,000. As noted earlier, these loans have not been adequately explained by Mr Jenson; however, the Tribunal accepts his testimony that his financial structures and associated loans between the trust and Company are under investigation through current Court proceedings such that it will be adequately addressed or at least information will be adequately explained in due course through those proceedings.
[17] Folios A116 and A117
44. In relation to the [Company] Trust, the Tribunal accepts Mr Jenson’s evidence that the trust has not been in use and no further financial resources are allocated to him from it in 2022-23.
45. The Tribunal is satisfied that on the available information before it, Mr Jenson’s level of income, property and financial resources available to him for child support purposes is more accurately reflected as being about $334,485.81 in the 2022-23 financial year.
2023-24 financial year
46. Turning to the 2023−24 year, from the financial statements provided by Mr Jenson to the Tribunal that relate to the 2023−24 year,[18] the outlook for the business going forward appears to be on a reduced profitability trajectory than the 2022−23 year. The trading income for the Company from 1 July 2023 to 31 December 2023 was $754,628.46. The job costs claimed totalled $419,224.01, leaving a gross profit from trading of $335,404.45. Total operating expenses were recorded as $287,280.39, leaving operating profit of $48,124.06 after the first two quarters of the year. The Tribunal’s assessment based on the better evidence is that Mr Jenson’s financial capacity in the 2023−24 year will be less than that assessed for the 2022−23 and considers a fair estimation of overall annual profit to be about $96,000 for 2023−24. However, the distribution Mr Jenson receives from the Jenson Family Trust and financial resources accessed for his personal expenses are expected to remain about the same as in previous financial years of $9,729 and $44,000[19] respectively which with his wages of $81,772.65[20] renders his overall taxable income for the 2023−24 financial year at about $231,500.[21]
[18] A170 and A171
[19] Average between personal expenditure assessed for 2021–22 as $45,467.30 and for 2022–23 as $43,466.40
[20] Using payslips showing gross earnings of $1,346.15 per week and additional income of $11,772.85, see folios A118 and A119 Exhibit A
[21] Wages of $81,772, trust distribution estimate $9,729, business financial resources for personal expenses $44,000, and estimated Company profit of $96,000
Conclusion
47. Under the administrative assessment the annual rate of child support payable by Mr Jenson, at the time of the application for change of assessment in May 2023, was approximately $5,020 per annum based on $88,576 from his individual tax return. Given the above considerations, the Tribunal considers Mr Jenson’ss 2021−22 adjusted taxable income of $198,886 and 2022−23 adjusted taxable income of $334,485 would render significantly higher child support payments of approximately $11,291 and then approximately $12,585. Such a difference in the child support payable constitutes special circumstances as the application of the assessment existing at the time of the review would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Jenson in support of [their child]. As a result, a ground for departure in subparagraph 117(2)(c)(ia) of the Assessment Act exists.
48. Mr Jenson raised a number of other grounds of concern, namely the outstanding activity payments and director penalty debt he has outstanding with the ATO. This will be considered as part of the consideration of whether a particular departure determination would be just and equitable.
Issue 2 – Is it just and equitable in relation to Mr Jenson, Ms Jenson and the child to make a particular departure determination?
49. 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 as regards the parents and the children to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Assessment Act. This requires the Tribunal to have regard to a range of factors, including but not limited to those set out in subsection 117(4) of the Assessment Act.
Subsection 117(4) of the Assessment Act sets out a list of factors that must be considered in determining whether a particular departure determination would be just and equitable:
(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.
Although the Tribunal has considered all of the matters set out in subsection 117(4) of the Assessment Act, not every matter will be analysed in these Reasons, only those the Tribunal regards as pertinent to this application.
Earning capacity, income, property, financial resources and commitments of each parent
Subsection 117(7B) of the Assessment Act requires the Tribunal to consider the following matters in determining that a parent’s earning capacity is greater than is reflected in their income used in the administrative assessment:
Whether the parent:
oIs not working despite ample opportunity to do so (subparagraph 117(7B)(a)(i)); and/or
oHas reduced their weekly hours of work to below full-time work (subparagraph 117(7B)(a)(ii)); and/or
oHas changed their occupation, industry or working pattern (subparagraph 117(7B)(a)(iii)); and
· If the parent’s decision about his/her work arrangements is not justified by either his/her caring responsibilities (subparagraph 117(7B)(b)(i)) or his/her state of health (subparagraph 117(7B)(b)(ii)); and
· If the parent has not demonstrated that it was not a major purpose of their decision not to work despite ample opportunity to do so or to stop working, reduce their hours of work or change their occupation, industry or working pattern to affect the administrative assessment of child support (paragraph 117(7B)(c)).
Mr Jenson – income, financial resources, earning capacity and necessary commitments
In addition to the income, property and financial resources already considered above in some detail, the Tribunal accepts that Mr Jenson has been self-employed under the [Company] structure for some time. The Tribunal is satisfied that Mr Jenson is working, he has not reduced his weekly hours of work to below full-time work or has changed his occupation, industry or working pattern. As the first limb of the earning capacity criteria is not satisfied, the Tribunal finds that it is not open to the Tribunal to make an earning capacity determination in respect of Mr Jenson’s circumstances.
Mr Jenson’s position is that his income for child support purposes ought to be about $90,000 for 2022 and 2023 which equates to his wages from the business and trust distribution. For reasons provided in preceding paragraphs, the Tribunal considers this position does not take into account the personal component of business expenses Mr Jenson benefits from and considers it reasonable to conclude that his income and financial resources more appropriately reflect $198,886 in the 2021-22 financial year and $334,485 in the 2022-23 financial year.
The Tribunal then turned to consider the assets and liabilities of Mr Jenson. According to his Statement of Financial Circumstances, he has modest personal assets household contents valued at around $2,500. Mr Jenson rents his residence presently at $530 per week and other assets such as motor vehicles, plant and equipment are owned by the business. Mr Jenson submitted that his outstanding personal credit card debt is currently around $7,000. Based on the average weekly expenses page of his completed Statement of Financial Circumstances, Mr Jenson estimates the weekly household expenses to be $837.55 which exclude the usual expenses for motor vehicle and telephone use, which as noted above are covered by the business.
It was submitted by Mr Jenson that he has a considerable debt owed to the ATO of about $936,000 (increased from the amount shown in evidence of $877,524 as at March 2024)[22] which includes a superannuation guarantee charge of $172,556 and the balance being GST activity statement amounts outstanding. Mr Jenson advised that the legal proceedings and ATO debt have paused pending the report from the ATO’s Small Business Restructure division and he expects this to be provided and/or finalised in the next month or two. On this evidence, the debt is not being repaid under a current repayment arrangement and notwithstanding the current proceedings, an outcome concerning his position with the ATO will be reached after considerable review, the Tribunal is satisfied that Mr Jenson’s level of income and access to financial resources is in excess of what is required for him to meet his necessary financial commitments.
[22] Folios A121 Exhibit A
Ms Jenson – income, financial resources, earning capacity and necessary commitments
The Tribunal accepted Ms Jenson’s evidence at the hearing that she is a stay-at-home mother and receives income support from Centrelink (the parenting payment − single). The income used in the assessment for Ms Jenson is $14,412 from the 2021−22 year and $23,828 for the 2022−23 year. Under the assessment at the time of her application in May 2023 she is to receive the $5,020 annual rate of child support for her care of [the child]. The child support assessment assumes that she meets any further needs for [the child] from her income support payment. She must meet those additional needs, together with her own costs of self-support.
Ms Jenson provided a Statement of Financial Circumstances to the Tribunal which identified her regular expenses and liabilities for various household bills including rent. Her average weekly expenses totalled $2,120 and this included rent of $725 per week. These figures provide for a household deficit which Ms Jenson asserted has been bridged by family and friends’ provisions of financial assistance. It is clear from the evidence that Ms Jenson’s current level of net income is insufficient to meet her regular household expenses and that she is reliant on child support and family tax benefit payments to meet the gap between her income and her household expenses, and where that still falls short, she relies on the generosity of family members and friends. It would not be just and equitable to include any additional amount of financial assistance Ms Jenson may receive as a financial resources for child support purposes and the Tribunal so finds. As such, the Tribunal is satisfied that Ms Jenson’s taxable income for child support purposes will follow the statutory formula.
Proper needs of the child
It was presented by both parents that [the child] is in good health and no further consideration to this issue was raised at the hearing or required to be undertaken by the Tribunal in this review.
Date of effect
In this matter the application for change of assessment was made on 10 May 2023. At the hearing Ms Jenson stated that she brought the change of assessment application when she became aware of the possible financial resources available to Mr Jenson through his business structures when he provided evidence through their Family Court proceedings.
Under subsection 98S(3B) of the Assessment Act, a departure determination cannot be made for a period more than 18 months earlier than the day on which the application was made, and where a departure determination will be made retrospectively within that prior 18-month period, the Tribunal must consider whether it would be just and equitable to make a determination in respect of the past period.[23] The Tribunal considers that as Mr Jenson has had access to significantly higher financial resources through his business than that amount as assessed from his individual tax returns, and in accepting Ms Jenson’s reasons for bringing the application at the time she did, that there are special circumstances in this case making it appropriate to find that the departure determination will apply retrospectively from the date of the most recent registration of the case − 10 February 2022.
[23] Tyagi & Meares (SSAT Appeal) [2008] FMCAfam 886 at [30]
In terms of going forward, the change of assessment varied by the objections officer ends on 31 May 2026. There are competing advantages and disadvantages in setting an amount as income for parents for an extended period of time into the future. In this case, the child is relatively young and Mr Jenson’s business was profitable in 2022-23 and the 2023-24 projections from the financial statements indicate an overall profit. However, in light of current legal proceedings and the business structure review explained by Mr Jenson, the Tribunal favours having the proposed assessment set to 30 June 2025, as from that date better financial information will likely be available concerning Mr Jenson’s business’s tax returns for the 2022-23 and 2023-24 years and Ms Jenson will be at liberty to approach Child Support on those matters at that time if so necessary.
Comparison of proposed departure and hardship
In considering the proposed departure from the administrative assessment, Mr Jenson’s adjusted taxable income will be varied to $198,886 from 10 May 2022 to 30 June 2022; $334,485 from 1 July 2022 to 30 June 2023; and, $231,500 from 1 July 2023 to 30 June 2025. Ms Jenson will continue to be assessed on the statutory formula. This will render the rate of child support payable by Mr Jenson to Ms Jenson as approximately $11,291 from 10 May 2022 to 30 June 2022; approximately $12,381 from 1 July 2022 to 30 June 2023; and then approximately $12,504 from 1 July 2023.
The Tribunal notes the proposed departure will create arrears for Mr Jenson; however, the Tribunal considers that with careful budgeting, Mr Jenson will be able to meet the changed liability and continue to meet his self-support costs. Further, as Ms Jenson’s current level of income is insufficient to meet her regular household expenses, the Tribunal finds that Ms Jenson and the child would face a level of hardship if the Tribunal were to refuse to make a departure determination in this matter. Therefore, having had regard to the relevant subsection 117(4) matters, the Tribunal is satisfied that this proposed departure is just and equitable.
Issue 3 – Is it otherwise proper to make a departure determination?
The third step for the Tribunal to consider is whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Assessment Act.
Subsection 117(5) sets out the matters that must be considered when deciding whether it would be “otherwise proper” to make a departure determination requiring attention directed to what is fair to the community. The rate of child support should reflect the obligation of both parents to take financial responsibility for their children. Parents, rather than the community, have the primary duty to maintain their children.
Ms Jenson is receiving family tax benefit in respect of [the child]. The proposed departure from the administrative assessment of child support will result in an increase in the child support payable in respect of [the child]. Such an increase in child support will reduce the amount of family tax benefit payments and thereby reduce the burden on the public purse, consistent with subsection 117(5), which focuses on the balance of support between parents on the one hand and the taxpayer on the other, as it is considered appropriate for children to be primarily supported by their parents rather than by government assistance. Such a result is otherwise proper.
It follows that as the Tribunal’s outcome is different than that determined by Child Support, the decision under review is set aside and a new decision is substituted that reflects the Tribunal’s findings.
DECISION
The Tribunal sets aside the decision under review and, in substitution, decides that:
For the period 10 May 2022 to 30 June 2022 Mr Jenson’s adjusted taxable income will be varied to $198,886;
For the period 1 July 2022 to 30 June 2023 Mr Jenson’s adjusted taxable income will be varied to $334,485;
For the period 1 July 2023 to 30 June 2025 Mr Jenson’s adjusted taxable income will be varied to $231,500.
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