Jessop and Letchford (Child support)

Jessop and Letchford (Child support) [2022] AATA 1710 (4 April 2022)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2021/PC022559
APPLICANT:  Mr Jessop
OTHER PARTIES:  Child Support Registrar
Ms Letchford

TRIBUNAL:Member A Schiwy
DECISION DATE: 4 April 2022
DECISION:

The tribunal varies the decision under review and decides that:

· Mr Jessop’s adjusted taxable income is varied to $75,000 from 12 March 2021 to 31 December 2025; and
· Ms Letchford’s adjusted taxable income is varied to $37,000 from 1 March 2022 to 30 September 2023.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision to depart – decision under review varied

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

Mr Jessop and Ms Letchford are the separated parents of two children aged 10 and 12 years. This review is about the child support payable by Mr Jessop to Ms Letchford for the children.
The child support case commenced in 2018. Services Australia (formerly the Department of Human Services) (‘Child Support’) had determined that Ms Letchford has 100% care of the children. A new determination was made recently that Ms Letchford had 83% care of the children from 22 October 2021.
There was no child support assessment from 1 December 2020 to 12 March 2021 due to Ms Letchford receiving an exemption from having to register for maintenance.
The administrative assessments from 1 September 2020 were based on Mr Jessop’s 2019–20 adjusted taxable income of $26,725. The child support payable was $446 per annum, the minimum annual rate.
On 23 March 2021, Ms Letchford lodged a departure application with Child Support. The application was made on the basis that the rate of child support payable under the administrative assessment was unfair because of the costs of the children’s education and Mr Jessop’s income and financial resources, and his earning capacity.
On 24 May 2021, a Child Support case officer decided that a reason had been established to depart from the administrative assessment and the following departure determination was made:
·For the period 12 March 2021 to 31 December 2023 Mr Jessop’s adjusted taxable income is varied to $70,460 and the annual rate of child support payable is increased by $464.
On 7 July 2021 Mr Jessop objected to this decision and on 14 September 2021 a Child Support objections officer partly allowed the objection. The objections officer decided to make the following departure determination:
·For the period 12 March 2021 to 30 June 2023 Mr Jessop’s adjusted taxable income was varied to $64,584, apart for the period 20 June 2021 to 1 September 2021, when the minimum annual rate was applied. For the period 12 March 2021 to 31 March 2022 annual rate of child support payable is increased by $315.
On 10 October 2021, Mr Jessop lodged an application with this tribunal for an independent review of the objections officer’s decision.
A hearing was held on 4 April 2022. Both Mr Jessop and Ms Letchford gave evidence on affirmation at the hearing by conference telephone.
In considering this matter, the tribunal considered the oral evidence of Ms Letchford and Mr Jessop, and the relevant documentation provided by the Child Support Registrar (numbered 1 to 492); Mr Jessop (A1 to A409) and Ms Letchford (B1 to B91). Copies of the Child Support papers were provided to all parties prior to the hearing.

ISSUES

The statutory provisions relevant to this review are set out in the Child Support (Assessment) Act 1989 (the Assessment Act) and in the Child Support (Registration and Collection) Act 1988.
The Assessment Act provides for an administrative assessment of the child support payable. It uses a formula that contains variables including the parents’ adjusted taxable incomes; their percentages of care for the children; and the costs of the children. The Assessment Act also makes provision for the Registrar to amend administrative assessments and to make a departure from the administrative assessment in certain circumstances.
The issues which arise in this case are:
·     does a ground for departure from the administrative assessment for child support exist; and if so,
·     is it just and equitable to make a particular determination; and
·     is it otherwise proper to make a particular determination?

CONSIDERATION

Issue 1 – Does a ground for departure from the administrative assessment for child support exist?

Income and financial resources – Mr Jessop

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 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 Court of the 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.
There are a range of circumstances which may support the finding that the administrative assessment would result in an unjust and inequitable determination of the level of child support. The tribunal referred to case law and the Child Support Guide (the Guide) which sets out government policy in relation to child support (set out below). The tribunal notes that the calculation of income and benefits for the purposes of taxation law does not limit the tribunal’s consideration of the true resources available to a party to child support proceedings and is but one factor to be taken into account in the particular circumstances of the case.
It is a long-established principle of law when a person conducts their business through an intermediary such as a company or trust that it is proper to lift the corporate veil to determine the value of the company or trust to that person (see in particular Stein and Stein (1986) FLC 91-779 and Ashton and Ashton (1986) FLC 91-777). The tribunal took this case law into account in reaching its conclusions.
Child support legislation is interpreted by the Department with the aid of the Guide. The tribunal is not bound by law to apply the policy as set out in the Guide, but, provided the policy is consistent with the legislation, it is required to have regard to it and in the ordinary course follow it (see Re Drake and Minister for Immigration and Ethnic Affairs (No 2) [1979] AATA 179). In chapter 2.6.14 of the Guide, the following is included to which the tribunal has had regard:

Low income from a family business

A parent who receives a low taxable income from a family business may have access to additional financial resources, or alternatively he or she may have an additional earning capacity.
In determining the parent's financial resources, the Registrar may consider the following factors:
·     past or current ability to maintain a particular lifestyle and acquire assets,
·     identification of additional benefits obtained from the business,
·     whether or not the business has been structured to minimise a parent's income including: the degree of control which the parent has over the business or the person who is entitled to the profits of the business, or whether income splitting is occurring, and
·     the person who actually does the work of the business.
The Registrar may determine that a parent's income is greater or lower than the amount upon which they have been assessed. Alternatively, the Registrar may decide that the parent's financial resources give the parent a greater capacity to contribute to the financial support of the child than is indicated by the assessment.
Alienation of income and a ‘corporate veil'
A reduction of a parent's taxable income by alienation of personal services income or other income will result in an artificially reduced or increased child support liability.
Generally, income is alienated when the income generated or derived by a person is attributed to others and, consequently, reduces the first person's taxable income. Personal services income, or income derived through personal exertion, can be defined as income that an individual earns predominantly as a direct reward for their personal efforts. Personal services income paid to a company, trust or partnership is also alienation of income.
If a parent is involved in alienation of his or her personal services income, this may indicate that he or she has additional income or financial resources that make the current child support assessment unjust and inequitable (section 117(2)(c)(ia)).

Credibility and reliability of Mr Jessop’s evidence

The tribunal did not find Mr Jessop to be a credible or reliable witness:
·His response to questions were often vague and difficult to believe.
·Some of his evidence has been conflicting; for example:
oWhen Child Support spoke to Mr Jessop on 13 April 2021, they made a file note stating that Mr Jessop said he was not the director of the business. He said that the director is a friend who does the ‘admin side of the business’. When asked who does the bulk of the manual work for the business Mr Jessop said he (Mr Jessop) did. In his written response to the change of assessment application (on or around 24 May 2021) Mr Jessop stated he worked sporadically for the company during the period 2 November 2020 ‘to date’. He said there were periods he had been unable to work due to stress and mental health reasons. Mr Jessop is now stating that [Mr A] had started taking over the manual labour in late 2018 and that he now barely does any work for the company (as little as five hours per week).
oIn his written response to the change of assessment application (on or around 24 May 2021) Mr Jessop stated that he expected to receive income support payments of $620 per fortnight (this was said in the context of explaining how he was living financially as he was not working very much). On 8 June 2021, when he was speaking to a Child Support officer about payment of his liability, Mr Jessop stated that he was waiting to hear from Centrelink to see when his benefits would start. On 14 July 2021 he told a Child Support officer that he will go onto benefits soon. At the hearing Mr Jessop confirmed that he never applied for income support payments.
oOn 8 June 2021 Mr Jessop told Child Support that he was only able to survive financially due to the financial assistance given by friends. He told Child Support on 14 July 2021 that [Mr B] helps with bills (in the context of how he had been surviving financially) and at the hearing Mr Jessop confirmed that the only financial assistance received from [Mr B] was payment of legal fees. He was directed to provide full details of the assistance he has received from others since 1 January 2019 and he stated that apart from [Mr B] paying his legal bills, he has received two cash payments from a friend totalling $2,500.
oOn 24 May 2021 Mr Jessop was advised by a Child Support officer that he was the sole signatory for the company bank accounts. The file note states, “[Mr Jessop] blatantly advised this is incorrect”. On 14 July 2021 he told a Child Support officer that he is no longer the signatory to the company accounts, and he thought he had changed it a long time ago “but he has now done it”. In a written submission to the tribunal, he stated that Mr Jessop had remained a signatory to the accounts ‘as an oversight’ and that [Mr A] used Mr Jessop’ log on details to operate the accounts. The tribunal noted that if Mr Jessop had changed the signatory to the accounts to [Mr A] when he said he did, the bank would have provided separate log on access to [Mr A] and cancelled Mr Jessop’ access.
oWhen asked why the bank statements were addressed to his residence (it is assumed if he had changed the signatory, he would have also changed the address), Mr Jessop said he didn’t notice; he went for a period of three months without opening his mail. The tribunal noted that the bank statements are still being sent to his residence.
oMs Letchford provided a list of vehicles she alleged were owned by Mr Jessop to Child Support. He stated to Child Support that a [vehicle of specified make and model] and quad bike were purchased for his daughter by a friend. At the hearing he stated that he paid $3,000 for the [vehicle] in around 2018. He paid $1,500 himself and the rest was provided ‘in kind’ by the motorbike shop for work he had undertaken for them. He purchased the quad bike in 2018 or 2019 for $1,000. He sold an old bike for around $500, and the rest was paid for in cash.
oIn his Statement of Financial Circumstances, Mr Jessop stated that he rented parking, storage and office space to [Mr A] and received $250 per week. At the hearing he said payments received as ‘rent’ were for work undertaken by Mr Jessop for [Mr A]. He later said [Mr A] travelled every other week to [City 1] and would pay for various house expenses.
·His own evidence is that he has evaded tax for many years by failing to report cash income, being paid ‘in kind’ (barter), and claiming private expenses as business expenses. Mr Jessop justified the tax evasion on the basis that ‘everyone does it’.
·Mr Jessop reported ‘rental income’ in his 2020–21 income tax return. He stated at one point that he rented out his home office and storage space to [Mr A]. He stated at the hearing that he would be paid ‘rent’, but it was actually for work undertaken for the company. Mr Jessop offset some of the ‘rental income’ with his residential expenses including rates and interest. In effect, he reduced his personal exertion income, by claiming private residence expenses against it.
·His own evidence is that he made a statement to [Bank 1] that he had been an employee of [Employer 1] for seven years when he had in fact only been working for them for less than three months. At the hearing when asked about this he first stated that it was an untrue statement to the bank and then he said he had been working on and off for [Employer 1] on a contract basis (implying there was some truth to the statement).
·Mr Jessop said he is [working] for [Employer 2] on a voluntary basis. The tribunal did not think this was credible; particularly given his evidence that he is struggling financially.
·Mr Jessop had a lot of difficulty answering some questions due to memory issues and this impacted on the reliability of his evidence. His memory issues may be due to mental health issues that he has been experiencing.

Compliance with directions

A telephone directions hearing was held on 2 February 2022 and Mr Jessop was directed to provide various documents. He was advised during the hearing that failure to provide the documents may result in the tribunal making an adverse inference against Mr Jessop. Written directions were issued on 2 February 2022 and these contained a similar warning.
The directed documents included the following:
·Bank statements for all accounts (including loans and credit cards) held in the party's name and/or joint names; for the period 1 July 2020 to 31 January 2022.
·Bank statements for all accounts (including loans and credit cards) held by [Company 1]; for the period 1 July 2020 to the date the party ceased to be a signatory to the accounts.
·A copy of all invoices received for legal services since 1 January 2019 and evidence of payment.
Mr Jessop failed to provide some of the documents:
·Bank statements for account ending X9911 were missing for the period 11 June 2021 to 12 September 2021. This resulted in an incomplete record of transactions for the 2020–21 financial year and also included a period when Mr Jessop had changed his spending pattern (discussed below).
·Bank statements for account ending X3543 for the period 29 October 2021 to 31 January 2021.
·Credit card statements.
·Bank statements for account ending X6100 (into which his employment income had been paid in 2020).
Mr Jessop stated at the hearing that he thought he had fully complied with the directions. He said that he asked [Mr A] for the company bank statements and that if there are any missing it was [Mr A]’s omission. The tribunal noted that the bank statements were addressed to Mr Jessop’s residence.
The tribunal was hampered by Mr Jessop’s failure to provide documents that would assist to determine his financial position and income. It is possible that he has attempted to hide his true financial position and the amount of income earned by his business.
In Humphries & Berry (SSAT Appeal) [2008] FMCAfam 409 Federal Magistrate Slack dealt with the issue of the disclosure of financial information in matters before the tribunal. His Honour stated that the principle of full and frank disclosure applicable to proceedings in the Family Court was also applicable to proceedings before the Social Security Appeals Tribunal (now the Social Services and Child Support Division of the tribunal). He stated at paragraph 31:
In financial proceedings under the Family Law Act, the authorities make it clear that a Court should not be unduly cautious about making findings in favour of the other party if it is not satisfied that proper disclosure has been made (see Chang & Su (2002) FLC93-117).
Also, in Agrippa & Horton (SSAT Appeal) [2010] FMCAfam 1144 Federal Magistrate Halligan stated at paragraph 25:
If the SSAT is satisfied that a parent has made a deliberate non-disclosure of his or her financial circumstances, it should be reasonably robust in assessing the non-disclosing parent’s financial circumstances adversely to that parent and in favour of the other parent. That is not to say that it may arrive at an entirely arbitrary result, but rather that it may draw generous inferences adverse to the non-disclosing party about that parties’ financial circumstances.

Health issues

Mr Jessop said the court proceedings in November 2020 were the final nail in the coffin and he had a mental breakdown.
In July 2021 Mr Jessop, as part of his objection, provided a letter dated 25 February 2021 from a psychiatrist, [Dr C]. [Dr C] states that Mr Jessop was on medication for moderate to severe anxiety. He said that Mr Jessop was compliant with medication and his prognosis was good. He provided medical certificates dated 17 May 2021 and 2 July 2021 from [Dr D]. [Dr D] states that Mr Jessop was diagnosed with depression and the date of onset was 1 November 2020. He said the condition caused low mood and poor concentration. [Dr D] stated that Mr Jessop was unfit for work from 17 May 2021 to 20 June 2021 and from 20 June 2021 to 1 September 2021.
Mr Jessop stated that he was on a mental health plan in 2018–19 due to issues related to his separation from Ms Letchford. He received 10 subsidised psychological counselling sessions through the plan. He had difficulty coping with the custody issues in late 2020 and he was referred to a psychiatrist. He was prescribed a ‘chill pill’ and dexamphetamine and advised to see a psychologist if he was not coping. When asked what happened after February 2021 (when his psychiatrist said his prognosis was good), Mr Jessop said he went down hill again and his medication dosage was increased. Mr Jessop said he ceased taking the chill pill some time ago but still takes the dexamphetamine.

Given the psychiatrist’s letter, the tribunal accepts that Mr Jessop has been suffering from anxiety since November 202. However, he has been on medication and is no longer taking the ‘chill pill’. The tribunal took into account the medical certificates issued by [Dr D] but noted that just because [Dr D] has stated that Mr Jessop is not fit for work, it does not mean that Mr Jessop is not working.

Mr Jessop’s reported income

Mr Jessop was (or is) running a business trading as ‘[business name]’ through a company, [Company 1] (‘the company’).
Mr Jessop’s adjusted taxable incomes in recent years were:
·2016–17   $19,850
·2017–18   $19,850
·2018–19   $20,000
·2019–20   $26,725. (Salary from [Employer 1] of $28,175 less deductions)
·2020–21   $12,360 (salary from the company $8,185 and net rent $4,175).
When asked how he and Ms Letchford (prior to their separation) survived financially on such a low income given that Ms Letchford was not working; Mr Jessop stated that he was able to run some private expenses ‘through’ the business. Mr Jessop stated that the only financial assistance he has received since 1 January 2019 is payment of legal fees (discussed later) and two cash payments totalling $2,500 from [Mr E] (a friend).
Ms Letchford has submitted that Mr Jessop earns $200,000 per annum and uses his company to hide this income. She said he has also diverted his income by signing over his company to a friend ([Mr A]). Mr Jessop has stated that he has been unable to work very much due to mental health issues related to the court cases for custody and property settlement. He said [Mr A] has taken over a lot of the work.
Mr Jessop has not applied for income support, despite his apparent low income.

Mr Jessop’s work experience

Mr Jessop said he is a ‘registered [Occupation 1]’ and [undertakes specified work]. He has been doing this for around 15 years and prior to this he was a [Occupation 2]. He is currently [doing work] for [Employer 2]. Mr Jessop said he also receives cash for labour work, ‘helping out, and [other] work. He also stated that he received goods in exchange for firewood and other work undertaken.
When asked about his employment with [Employer 1] in 2020, Mr Jessop said he needed to refinance the mortgage on his residence (the property settlement resulted in Mr Jessop maintaining the family home – and associated mortgage - and having to pay Ms Letchford $9,000) and as his taxable incomes had been so low, he needed to show a higher income. He therefore obtained full-time work with [Employer 1] but he found he could not cope with full-time work. He earned around $28,000 according to his tax return, which equates to around four months work.
He said he also obtained work with [Employer 1] in 2015 when he initially took out a mortgage. He said that [Employer 1] didn’t really employ him at that time; he did some work for them for a couple of months. He said he had done some contract work with the company on and off.
The tribunal found the evidence about employment with [Employer 1] peculiar. Mr Jessop stated that he worked on a contract basis on and off but declared he was a full-time employee when he applied for a mortgage in 2015. He apparently found it easy to obtain full-time work in 2020 when he needed to refinance, but only stayed for a short period. It appeared that the employment was solely to show the bank that he was on a higher income ($80,000 per annum) as his tax returns would indicate his income was only around $20,000 per annum. The tribunal does not have access to Mr Jessop’s bank accounts for the 2019–20 year to see how Mr Jessop was paid.

Mr Jessop’s history with [Mr A]

Mr Jessop stated that he and [Mr A] worked together when they lived in Perth. They obtained [Company 2] work through ‘BSA’ and split the work between them. They went their separate ways when Mr Jessop moved to [City 1] around 12 to 15 years ago. Mr Jessop then worked for himself in [City 1].
[Mr A] moved to [Town 1] which is around 400 km from [City 1] (a four- and a half-hour drive) and slightly closer to Perth. He thinks [Mr A] may have worked as a [Occupation 3] for a while but then commenced [specified] work for [Company 2]. Mr Jessop said [Mr A] did a bit of work in [City 1], but not much. In the past three years [Mr A] has increased his work in [City 1] to help out Mr Jessop.
He said that [Mr A] still does contract work for [Company 3] in [Town 1].

History and nature of the business

Mr Jessop said the business was set up when he started [Occupation 1] work for [Company 2] (in around 2004). Mr Jessop said that to work for [Company 2] you had to be a company.
He was initially doing this work in Perth but then moved to [City 1]. He was working from his home but for a short period tried to set up a ‘shop front’; however, this did not work out and he ended up with a tax bill. At one stage, prior to having children, he had around five employees and was working 100 hours a week. He scaled down the business when he had children and since then he has operated the business from home and has not employed anyone.
His clients are mostly ‘mums and dads’, nothing big, apart from around four to five larger jobs in recent years.
He has a home office, which is also used privately, and he also stores some equipment ([specified]) in a 12m by 4m shed in his back yard. This shed is also used to store his old car, motorbikes, and other private items.
Mr Jessop said he charged out at $40 to $50 per hour, and then amended this to $40 per hour and he would add 20% to the cost of materials.
Apart from materials the main cost of the business is for motor vehicles as he needs to travel significant distances to quote and perform work. He also needs to be able to transport materials and equipment to the jobs.

Ownership of the business

The company was registered in 2004 and Mr Jessop was the sole director and shareholder of the company. [Mr A] became the director from 9 October 2013 to 5 February 2015 and then Mr Jessop recommenced as director until 2 August 2018 when [Mr A] became the director again. On 3 July 2020 there was a change in shareholder such that [Mr A] became the sole shareholder.
[Mr A] wanted to do [Occupation 1] work for [Company 2] and at the time Mr Jessop had stopped doing [Company 2] work. As he needed to have a company to do [Company 2] work, [Mr A] became the director of the company in 2013. When asked why [Mr A] ceased to be a director in 2015, Mr Jessop said that [Mr A] had started travelling to [Country 1] a lot to see his mother who was ill. [Mr A] then became ill himself and was on income support. He did not work for about three to four years.
In about August 2018 [Mr A] wanted to start working again and he approached Mr Jessop. This was at the time that Mr Jessop and Ms Letchford separated. Mr Jessop said his work capacity had dropped due to the stress and he could barely work as Ms Letchford was making his life difficult by taking the children and he was burnt out by the constant barrage of accusations made against him. He said when he and Ms Letchford separated, they shared the children’s expenses 50/50 but he was being treated like an ATM and there was a lot of stress related to custody issues.
Mr Jessop told the tribunal that [Mr A] started to do the ‘grunt work’ in 2018 and they sometimes did the work together. [Mr A] started to do more of the work and would travel back and forth from [Town 1].
On 7 July 2020, in his written objection, Mr Jessop stated that he gave his share of the company to [Mr A] as payment for a lot of unpaid work done by [Mr A] and [Mr A] also took on the company debt. Mr Jessop told the tribunal that [Mr A] was ‘pretty much’ doing all of the work and he took on responsibility for the company overdraft ($10,000 limit) and he took the company cars and trailer.
At the hearing Mr Jessop said that [Mr A] worked for three months without taking any payment from the company. When it was pointed out that [Mr A] appeared to have taken no payment from the company in two years, Mr Jessop could not explain why that was the case.
The company appears to continue to pay for a number of Mr Jessop’s personal expenses including his vehicle expenses (see further details below). In addition to the vehicle expenses, in 2020–21 payments from the two company bank accounts were made to Mr Jessop’s private account and for obvious personal expenses (such as water, hardware, furniture, health, and lawyers), totalling $22,872. The accountant appears to have treated $8,185 as salary paid to Mr Jessop but it is not known how the balance was treated as there are no ‘loans to Mr Jessop’ in the balance sheet.
From 1 July 2020 to 30 April 2021 a total of $50,153 was deposited to Mr Jessop’s [Bank 1] account (X4310); most of them were referenced as ‘rent’. Some of the deposits could be traced back to transfers from the company but the source of most of them were unknown. The deposits stopped after 30 April 2021 and from then on, the majority of the private expenditure that was being paid for from that account (restaurants, cafes, pubs, etc) started being paid for by the company. Mr Jessop was asked about the rent payments. He said if he did work for [Mr A], he didn’t take income; he would call it rent. He charged [Mr A] an hourly rate of $40. In his tax return, Mr Jessop states that he rented out his residence for 34 weeks and received rent of $7,450. He offset this income with rates, interest, and water expenses of $3,276. He has therefore reduced income from work by personal residence costs.
The evidence in favour of a finding that [Mr A] had taken over the business is that he became a director in August 2018, the shareholder in July 2020; and Mr Jessop was suffering from an illness from November 2020.
The evidence against such a finding is:
·[Mr A] did not become a shareholder until two years after he purportedly took over the business.
·The same accountant who undertook work for Mr Jessop is also preparing the accounts for [Mr A].
·The signatory to the bank accounts was not changed until Child Support raised this as an issue with Mr Jessop. Mr Jessop’ evidence about this was not considered credible.
·The bank statements were still being sent to Mr Jessop’s residence in January 2022. Mr Jessop’s evidence that he did not notice this as he had not opened his mail was not considered credible.
·The company pays for a range of private expenses of [Mr A]’s and appears to be claiming them as tax deductions. This includes vehicles, jet ski, water, phone, furniture, legal fees, hardware, and health.
·[Mr A] has to travel 400 km to work in [City 1], but he also has his own contracting business in his home town.
·Mr Jessop lack of clarity around the reason for sharing of the vehicles between himself and [Mr A].
·The fact that [Mr A] had drawn no income from the company in two years (as evidenced by two years of financial accounts). There was no salary paid to him and no loan from the company to him was recorded in the accounts. This is despite the fact that he is supposedly doing the majority of the work. Mr Jessop said that [Mr A] he worked for free, for three months only.
·The fact that [Mr A] ‘signed off’ on a tax return that included a claim for $53,000 in assets being written off and these included the two [vehicles] driven by Mr Jessop; one of which was purchased three years earlier.
After considering all of the evidence the tribunal found that the [Occupation 1] business has always belonged to Mr Jessop. The directorship of the company may have changed in 2018 to allow [Mr A] to contract out his services for [Company 2] (or [Company 3]) but the change in shareholding was most likely done to try and prove the business had been divested. It is clear that Mr Jessop is receiving considerable financial benefits from the company and [Mr A] is receiving none.

Reported income of the business

Mr Jessop provided the profit and loss statement for the company for the year ended 30 June 2018 (the last year that he was director of the company) and for the year ended 30 June 2021 (which he stated he obtained from [Mr A]).
Mr Jessop stated that prior to separation he was working around 8 to 10 hours per day, five days per week and he did the administration on the weekends. Some of this time was spent driving to jobs and the tribunal noted that some of the work would have been for quoting (where no income is received).
In 2018 the company reported gross income of $112,378 and there were materials of $64,015. If Mr Jessop marked up materials by 20% and charged out for six hours per day (leaving two to four hours per day for travel and quoting), for 48 weeks per year; the expected gross income would be $134,418; a difference of around $22,000.
There was evidence that Mr Jessop had access to cash, he made cash deposits to his home loan account and private account and $1,000 to his children’s school. Bank withdrawals for private expenses also appear very limited, for example there only appeared to be two supermarket purchases from his accounts in a financial year; and it is likely that Mr Jessop is using cash income for some private purchases. Mr Jessop stated that he did receive cash payments ‘here and there’ to help him pay for things.
Mr Jessop also received significant deposits to his private account, ‘rent’, that are not transfers from the business. It is not clear if Mr Jessop has another bank account or whether the amounts were transferred to him from [Mr A] or some other third party.
It is difficult to assess how much cash income Mr Jessop earns however it appears to be around $22,000 in 2017-18 for [Occupation 1] work. He also appears to earn further cash for the odd jobs Mr Jessop stated he did. It is more likely than not that he is working for [Employer 2] on a cash basis.

Business expenses

The profit and loss accounts for 2017–18 show a reported loss of $14,201 after paying Mr Jessop’s director fees of $20,000. The deprecation schedule included several computers and a $2,000 laptop, the latter being a laptop purchased for his daughter. It also includes three televisions; one of which was used privately and the others apparently for the business. It also included a $900 vacuum cleaner. The cars included a [Vehicle 1] which was actually Ms Letchford’s car, a [Vehicle 2] which had been sold some years before, and a [Vehicle 3] (initial cost of $29,090) with 100% busines usage claimed.
It is clear from the evidence provided by Mr Jessop and the depreciation schedule, that Mr Jessop claims a large amount of personal expenses as business expenses.
The 2020–21 accounts provide the following information:

2019–20	2020–21
Revenue	$72,022	$134,248
Net loss	($5,066)	($22,000)
Expenses include:
Materials	$37,003	$59,060
Salary Mr Jessop	$8,185	Nil
Interest overdraft	$1,314	$1,423
Car	$10,238	$13,720
Hire purchase (car)	$3,799	$4,489
Fines police	409	200
Immediate Asset Write-off	0	$53,000
Insurance	$3,072	$5,637
Travel and entertainment	$91	$743

It was difficult to obtain any information from Mr Jessop about the expenses he has claimed as he stated it was no longer his company or business.

Motor vehicles, motorbikes and jet ski

After reviewing the bank accounts provided, it would appear that all vehicles owned by Mr Jessop are paid for by the company, including insurance, financing, and other running costs.
Mr Jessop provided evidence of insurance taken out by [Mr A] for the company on 17 May 2021 for a business located in [Town 1]. It included $20m for liability, $25,000 for stock and tools, a [Vehicle 4], and a [Vehicle 5]. Mr Jessop confirmed that the two cars were registered to [Mr A]. There is no mention of these vehicles in the company’s accounts. It would appear that this insurance policy is for [Mr A]’s business, operating in [Town 1].
Mr Jessop provided evidence of another insurance premium for insurance taken out on 29 January 2022 by [Mr A] for the company. The policy was for two [vehicles] registered “[Vehicle 6]’ and ‘[Vehicle 7]’. Mr Jessop confirmed that both vehicles are ‘primarily’ garaged at his house.
Mr Jessop was using [Vehicle 3] for the business. It was purchased during 2017–18 and ‘primarily’ garaged at Mr Jessop’s residence. Mr Jessop said the car was sold privately for $30,000 in around July 2020 and the money deposited to the company account. Around two days later the company purchased a [Vehicle 6] for $20,000. The company bank account shows $28,000 being deposited to the account on 25 June 2021 and a payment to Ms Gillette for $20,000 on 29 June 2021 (not July 2020). The [Vehicle 7] cost $30,000 in around 2018 and is being financed at a cost of $872 per month.
Mr Jessop said that the [Vehicle 6] that was purchased in 2021 had done about 30,000 km in a year and that 24,000 km was business usage. The other [Vehicle 7] is used by both he and [Mr A] for business purposes. Mr Jessop said he would sometimes use the cars owned by [Mr A], and [Mr A] would use his cars, including taking them back and forth to [Town 1]. The tribunal did not think this evidence was credible.
In addition to [Vehicles 6 and 7], Mr Jessop has the following:
·[Specified] Ute. Ms Letchford alleged that Mr Jessop owned this car, but it is registered in his friend’s name ([Mr F]). Mr Jessop said he sometimes borrowed the ute from [Mr F] as he didn’t own a ute.
·[Specified make and model] V8. Mr Jessop said he had the car registered a couple of years ago, but the motor has blown up and he has not driven if for three years.
·[Vehicle 8]. He purchased this in around 2019 for $2,000; spent $3,500 on parts to do it up and sold it for $8,000. A payment of $8,000 was paid to his private account on 1 March 2021.
·[Specified] bike – this is being financed with payments of $254 per month. [Mr A] said he used to use the bike for quoting. The finance costs are being met by the company. He said it is now worth around $3,000 and ‘just sits in the shed’. When asked why he didn’t sell it, he said it belonged to the company and it was not up to him to sell it.
·[Two bikes] – used by his daughter.
·Jet ski purchased several years ago and valued at around $5,000.
The tribunal accepts that Mr Jessop would have significant motor vehicle expenses to run his business, particularly if he is in fact working full time. However, he has claimed 100% of all his registered vehicles. Of the $18,209 claimed for the motor vehicle expenses, the tribunal decided that only about half of this would be a legitimate business expense.

Asset write off - $53,000

Mr Jessop did not know what this was for during the hearing (he pointed out that it was not his business). After the hearing he provided an email saying he had been told it was $20,000 for [Vehicle 6], $30,000 for [Vehicle 7] and $3,000 for a trailer. There was no evidence of a trailer purchase in the company bank accounts. The tribunal noted that the company has written off the $30,000 [Vehicle 7] in 2020–21 even though it was purchased in 2018; it would have to been first used for business in that year for the write off to apply but the financial accounts indicate it was used for business in the previous year (2019–20) as the financing costs were claimed as an expense. Regardless of whether the expenses can be legitimately written off for tax purposes; the tribunal noted that $33,000 appears to be for assets purchased in earlier years and the $20,000 purchase is partly for private use and is a capital expense.

Other expenses

As discussed earlier, the company pays for several private expenses for Mr Jessop, but it is not known how they have been treated in the accounts.

Home loan

During the period 10 June 2020 to 18 February 2022 Mr Jessop reduced his loan balance from $329,667 to $314,584; a total of $15,083; and paid interest of $15,179. He therefore paid a total of $30,262 in approximately 20 months. He stated that a friend paid him two lots of cash, $1,500 and $1,000 which was used to pay off the loan. The friend is employed as a miner. When asked why his friend paid in cash rather than a bank transfer, Mr Jessop said he did not know why. When asked why he borrowed the cash given he appeared to be ahead with the payments, Mr Jessop could not provide a clear response. The tribunal decided it was more likely than not, that the cash was from income earned by Mr Jessop.

Summary

Mr Jessop’s actual income is very difficult to determine. He takes cash that is not reported, his company claims private expenses and he is receiving deposits into his private bank account from an unknown source.
The tribunal noted that in a period of 20 months Mr Jessop was able to afford to pay off around $30,000 on his home loan which annualises to around $18,000. In addition, he has afforded a comfortable lifestyle as evidenced by his bank accounts (expenditure for two [vehicles], jet ski, motorbike, motorbike and quad bike for his children, $500 jewellery purchase, significant expenditure at motorcycle shops and camping shops etc). He banked ‘rent’ of around $50,000 in a 10-month period.
The tribunal also noted that Mr Jessop did not apply for income support despite stating he was unable to work for health reasons and he needed to borrow from his friend to pay his mortgage. During the period in question the job search allowance was increased by the COVID-19 supplement and provided an income far in excess of his reported earnings over the last five years.
The tribunal concluded that Mr Jessop is earning at least $75,000 net per annum in cash, business profits and benefits from the business. He has reduced his income for tax purposes through tax evasion (failing to declare cash income, claiming private expenses, and claiming accelerated depreciation on his two [vehicles]). The tribunal does not accept that Mr Jessop ceased working due to illness (his company accounts show that income increased substantially in 2020–21 and during the period 1 July 2021 to 31 December 2021 he received income of $63,442). There is no evidence to suggest that his earnings will decrease in the foreseeable future.
The tribunal noted that if Mr Jessop was working 40 hours per week for 48 weeks at $40 per hour; he would gross around $73,000 in addition to mark ups on parts.
After considering all the evidence the tribunal decided that Mr Jessop has income from his business of at least $75,000 and will do so going forward.
The amount of child support payable on an adjusted taxable income of $75,000 for Mr Jessop, all else being equal, is approximately $12,630. The administrative assessment based on Mr Jessop’s adjusted taxable incomes is the minimum annual rate, $446.
As there is a significant difference in liability the tribunal was satisfied that there are special circumstances in this case and finds that a ground for departure does exist in relation to Mr Jessop’s income.

Issue 2 – Is it just and equitable to make a particular determination?

As the tribunal is satisfied that a ground to depart from the administrative assessment exists, the tribunal must consider whether it is just and equitable as regards the children, the liable parent and the carer entitled to child support to make a particular determination (subparagraph 98C(1)(b)(ii) of the Assessment Act). Subsection 117(4) of the Assessment Act sets out a variety of factors that must be considered in deciding whether it would be ‘just and equitable’ to make a particular determination. These factors include the proper needs and costs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.
Section 3 of the Assessment Act makes it clear that the parents have the primary duty to maintain their children and that this duty has priority over all commitments of the parents, other than commitments necessary for self-support or for the support of another person they have a duty to maintain. In this case Mr Jessop and Ms Letchford have the primary duty to support their children.

Mr Jessop’s income, property, and financial resources

Mr Jessop’s income and financial resources have been discussed. The tribunal decided that he earns $75,000 per annum.
Mr Jessop owns his residence which he values at $410,000 and he owes around $315,000 on the mortgage, giving him a net asset of around $95,000. His other assets include his two [vehicles], a jet ski, and motorbike.
Mr Jessop incurred legal fees of $30,931 between 14 May 2021 to 10 January 2022. He stated that an old friend, [Mr B], paid these fees. Initially Mr Jessop stated that [Mr B] paid the fees for him, it was not a loan. He said [Mr B] had been a friend for 18 years and was a retired billionaire. At the hearing he said that it was probably a loan, that he would have to pay it back someday. The tribunal decided that there was no current obligation for Mr Jessop to repay the legal fees.
The company has an overdraft of $10,000. Mr Jessop keeps the overdraft balance at around this level and claims the interest as a business expense.
Mr Jessop owed around $4,900 in outstanding child support payments as of 7 March 2022. The tribunal noted that Mr Jessop could sell his motorbike for around $3,000 and one of his [vehicles] (leaving him one for the business and private use) for at least $20,000. This would enable him to clear the debt and any increase as a result of this decision. Mr Jessop could also redraw on his mortgage given his equity and income.
Mr Jessop listed his weekly expenses to be $23 for life insurance and household costs of $602 (including his mortgage). There was nothing remarkable listed in his expenses. The tribunal noted that he would therefore have capacity of around $42,000 to fund his child support liability.
Mr Jessop has significant capacity to pay child support. He has very low expenses and an income of $75,000. He would therefore suffer no financial hardship if he was assessed to pay around $12,600 per annum in child support. He would also suffer no financial hardship repaying his child support arrears.

Ms Letchford’s income, property, and financial resources

Ms Letchford did not work when she was with Mr Jessop
Her taxable incomes in recent years have been
2015–16   $12,291
2016–17   $11,239
2017–18   $5,453
2018–19   $20,670
2019–20   $25,245
2020–21   $28,592
After separation she commenced obtaining her qualifications as a qualified [Occupation 4]. She commenced working for a friend, [Ms G], but [Ms G] sold the business. She then worked casually from home. She reported gross income to Centrelink of $14,000 which she stated included cash income; her net income after expenses was $6,786. The tribunal noted that, given it was a cash business, there was scope for Ms Letchford to underreport her income. However, she was only working casually from home and the tribunal did not think it likely that her income would be such that her total income put her above the ‘self-support’ amount allowed for in the formula.
Ms Letchford ceased working as a [Occupation 4] in February 2022 and obtained employment in a [workplace]. She works around 20 to 25 hours per week for $31 per hour. Ms Letchford provided four recent payslips which indicated she commenced working in February 2022 and over four weeks grossed an average of $782 per week. Over 48 weeks this would total $37,536. This increase in income will not be reflected in her tax return until she lodges her 2022–23 return.
Ms Letchford’s income is supplemented by jobseeker payment, family tax benefits and payments from her mother (which ceased when she commenced employment).
Ms Letchford has no significant assets apart from around $27,000 in superannuation. She owes around $16,000 on her credit card and $2,000 to [credit provider].
Ms Letchford stated she paid $50 per week for life and health insurance and $1,114 in household costs (including rent of $395). She would also pay around $90 per week in tax. Her household expenses were unremarkable and included discretionary costs of $70 per week for entertainment, gifts, books, and holidays. She therefore has necessary costs of around $1,184 per week.
Ms Letchford is clearly in some financial difficulty given her low income and necessary expenses. She has no significant assets she can sell to assist. Mr Jessop alleged that she purchased a $1,000 dog and motorbike. Ms Letchford denied buying a bike and said the dog was a gift from a friend.
The tribunal concluded that Ms Letchford is currently suffering significant financial hardship.

The children – income, resources, and expenses

There is no evidence that the children have income or financial resources of their own.
The children both attend a Catholic school and commenced there prior to the parents separating. Mr Jessop stated that he didn’t want the children to attend the school but nevertheless they did.
Mr Jessop paid half of the school fees after the parents separated but when custody issues arose in November 2020, he stopped paying the fees.
Ms Letchford stated that as of 31 December 2020 she owed $2,500. Mr Jessop paid $1,000 in cash and the school waived the balance. In 2022 she got the school to charge Mr Jessop half of the fees. Her share is $71 per month. Mr Jessop obtained a low-income card from Centrelink so that he could receive a discount on his share of the fees.
Given Ms Letchford’s explanation at the hearing the tribunal was satisfied that during 2021 some of the fees were paid by Mr Jessop and Ms Letchford’s liability was waived. The parents are now paying 50/50.
The tribunal was satisfied that, apart from the private school fees, the children did not have any abnormal expenses that would not be covered in the child support formula. Where the incomes of the parents are as found by the tribunal, these costs are assessed to be around $12,630 per annum. As Ms Letchford has the children in her care for 83% of the time (100% up until October 2021) the tribunal was satisfied that she would incur most of these costs.

Summary

In summary the tribunal noted that:
·Both parents have a responsibility to maintain their children.
·Mr Jessop has an income of $75,000 and Ms Letchford is currently earning around $38,000 with a limited capacity (given her employment history) to earn significantly more.
·Mr Jessop has equity of around $90,000 in his home and assets that he could sell (motorbike, jet ski, [vehicles]). Ms Letchford does not have any significant realisable assets and has a credit card debt and personal loans.
·Neither parent has any significant personal expenses.
·The children do not have any abnormal expenses other than the private school tuition fees incurred in 2021 and amounts owing by Ms Letchford have been waived. The school fees going forward are relatively low; around $840 per parent.
·Mr Jessop has significant capacity to pay child support; he is on a relatively high income with very low household costs. He would not suffer any financial hardship if he was required to pay child support of around $12,600 per annum. Ms Letchford is on a low income and suffering financial hardship.
After considering the above, the tribunal decided that it would be just and equitable to make a departure determination to vary Mr Jessop’s adjusted taxable income to $75,000 and Ms Letchford’s to $37,000 from 1 March 2022.

Issue 3 – Is it otherwise proper to make a particular determination?
114.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).
115.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.
116.Ms Letchford receives family tax benefit, and this will reduce if her child support payments are increased.

Conclusion

The tribunal decided that it was just and equitable, and otherwise proper, to make the proposed departure determination.
The tribunal then considered what an appropriate start and end date for the departure determination would be.
Ms Letchford applied for a departure determination on 23 March 2021, less than two weeks after the case was reinstated on 12 March 2021. The tribunal decided it would be reasonable to commence the departure determination from the date the case recommenced..
In considering an end date the tribunal noted that:
·Mr Jessop’s adjusted taxable income is unlikely to ever reflect his actual income and a long departure determination should apply to provide Ms Letchford with some certainty of payment. The tribunal therefore decided to end the departure determination on 31 December 2025.
·Ms Letchford’s adjusted taxable income is likely to reflect her actual income when she lodges her 2022–23 tax return; around 30 September 2023.

DECISION

The tribunal varies the decision under review and decides that:

· Mr Jessop’s adjusted taxable income is varied to $75,000 from 12 March 2021 to 31 December 2025; and
· Ms Letchford’s adjusted taxable income is varied to $37,000 from 1 March 2022 to 30 September 2023.

[2022] AATA 1710

4 April 2022

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Jurisdiction

Statutory Construction

Remedies

Judicial Review