Johamsen and Rowalski (Child support)
[2022] AATA 3515
•16 June 2022
Johamsen and Rowalski (Child support) [2022] AATA 3515 (16 June 2022)
DIVISION:Social Services & Child Support Division
REVIEW NUMBERS: 2022/HC023316, 2022/HC023375, 2022/HC023376, 2022/HC023378, 2022/HC023381, 2022/HC023382, 2022/HC023383 and 2022/HC023384.
APPLICANT: Mr Johamsen
OTHER PARTIES: Child Support Registrar
Mrs Rowalski
TRIBUNAL:Senior Member S De Bono
DECISION DATE: 16 June 2022
DECISION:
The decisions of the objections officer under review are affirmed. (This means the application for reviews are unsuccessful.)
CATCHWORDS
CHILD SUPPORT – particulars of the administrative assessment – whether the adjusted taxable incomes for past periods for the liable parent should be changed – should not be changed – decisions under review affirmed
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
These applications for review are about whether Mr Johamsen’s amended taxable income assessments by the Australian Tax Office (ATO) from the 2012/2013 financial year through to the 2019/2020 financial years can be retrospectively applied to his administrative assessment for child support.
Mr Johamsen and Mrs Rowalski are the separated parents of [Child 1]. A child support case has been registered with Services Australia – Child Support (Child Support) from 14 April 2009. Mr Johamsen has had less than regular care of [Child 1] and he is the parent liable to pay child support to Mrs Rowalski.
Mr Johamsen applied to Child Support for his amended tax assessments to be applied to the administrative assessment of his child support payments for the relevant years. Child Support made the decisions to refuse to accept any of the amended assessments with the exception of the decision of 4 September 2021 which amended Mr Johamsen’s assessment for the period 1 August 2019 to 31 July 2020 from using his 2018/2019 adjusted taxable income (ATI) of $188,686 to his amended ATI of $137,764.
Mr Johamsen objected to the decisions in relation to the 2012/2013 financial year through to the 2019/2020 financial years, except for the 2018/2019 financial year. Mrs Rowalski objected to the decision to amend Mr Johamsen’s initial 2018/2019 taxable income of $188,686 with his amended taxable income of $137,764, used in the assessment for the period of 1 August 2019 to 31 July 2020. Mrs Rowalski’s objection was allowed while Mr Johamsen’s objections were not allowed. The outcome of the objection decisions was that none of the amended income assessments were accepted by the objections officer and, there was no change to Mr Johamsen’s administrative assessments of child support for the relevant child support periods.
On 18 February 2022 and on 28 February 2022 Mr Johamsen applied to the Administrative Appeals Tribunal (the tribunal) for an independent review of these decisions. On 16 June 2022 Mr Johamsen and Mrs Rowalski participated in a hearing via conference telephone and gave evidence under affirmation. The tribunal had before it a bundle of documents (referred to as the hearing papers which covered all 8 matters). Both parties confirmed they had received the hearing papers. Mrs Rowalski said she had not received additional information provided by Mr Johamsen (A1–A26) and this information was provided to Mrs Rowalski after the hearing. Mrs Rowalski said she wanted to respond to this information and on 23 June 2022 a submission was received from Mrs Rowalski, this information was exchanged with Mr Johamsen for information purposes only. Relevant aspects of the material and evidence before the tribunal will be referred to in the tribunal’s consideration of the issues to be decided.
ISSUES
The issue which arises in this case is:
· Whether the decision by Child Support not to accept Mr Johamsen’s amended taxable incomes for the relevant financial years is correct.
LAW AND CONSIDERATION
The law relevant to this review is found in the Child Support Assessment Act 1989 (the Act). Also relevant is the Child Support Guide (the Guide) which provides policy and guidelines for the application of the relevant legislation in order to promote consistency and transparency in decision-making. While the tribunal is not bound by these guidelines it will follow them unless there is a cogent reason to do otherwise as found in Re Drake and Minister for Immigration and Ethnic Affairs.[1]
[1] (No 2) [1979] AATA 179.
On 4 December 2020 the full court of the Australian Federal Court in Commissioner of Taxation v Douglas[2] decided that invalidity pensions (Military Super Benefits Scheme (MSBS) payments also known as ‘Military Super’ and the Defence Force Retirement and Death Benefits (DFRDB) Scheme) were to be treated as superannuation lump sums for taxation purposes and not as an income stream. The outcome of the Douglas decision for Mr Johamsen is that he would receive an increased net income because his gross income was reduced by the tax-free component[3] (as it was now taxed differently due to the impact on Mr Johamsen’s adjusted taxable income because of the decision of Douglas). The decision of Douglas applied to defined benefits paid from MSBS and DFRDB Scheme paid on or after 1 July 2007.
[2] [2020] FCAFC 220 (4 December 2020).
[3] The tax free component was increased to 15%.
Mr Johamsen was medically discharged on 1 October 2012 and received payments from the MSBS. As such these payments were affected by the decision in Douglas and Mr Johamsen’s ATIs for the relevant financial years were amended by the ATO as follows:
Case number Financial year ATO ATI Amended ATO ATI HC023316 2012/2013 $117,714 $83,918 HC023382 2013/2014 $54,327 $7,811 HC023383 2014/2015 $63,660 $15,952 HC023381 2015/2016 $71,598 $23,218 HC023376 2016/2017 $123,684 $74,676 HC023375 2017/2018 $186,192 $136,224 HC023384 2018/2019 $188,686 $137,764 HC023378 2019/2020 $225,888 $174,225
The objections officer did not refer to the change of assessment decision made on 17 March 2015 by the SSAT.[4] In relation to refusing to amend the assessment the objections officer writes:
Based on the information provided by the ATO we have not applied the amended 2012/2013 income to the assessment from 1 October 2013.
Therefore on review the objection is disallowed.
Parents can apply to have their assessment changed if their special circumstances are not adequately reflected in their child support assessment. An application to change your assessment (special circumstances) must be lodged on the approved Application to Change Your Assessment in Special Circumstances form, signed and lodged by either mail, fax or electronically. This form can be accessed at servicesaustralia.gov.au.
In relation to this written statement (which was duplicated on the objections officer’s decisions for all the relevant financial years) the objections officer was referring to a Change of Assessment Application. The objections officer failed to consider whether an amended ATI can be applied to Mr Johamsen’s administrative assessment for child support in accordance with section 56 of the Act.
[4] 2014/SC005753 by Member J Cuthbert.
Mr Johamsen’s main concern about the objections officer’s decisions was there seemed to be no reason given as to why his application to amend his assessment was refused, only that the objections officer had made the decision not to apply the amended income assessments.
Issue 1 – Should Mr Johamsen’s amended taxation assessments vary his administrative assessment for child support for the relevant years?
Mr Johamsen said he did not contact the ATO about the amended tax assessments for the relevant years. This was automatically done by the ATO in response to the decision in Douglas.
As a result of the decision in Douglas there was a large number of ex-military personnel in receipt of invalidity pensions that the Douglas decision affects. Due to the number of people affected Mr Johamsen said it took a number of months for his adjusted taxable income assessments for those years to be amended by the ATO. As soon as Mr Johamsen became aware that the ATO had amended his taxable income for the 2012/2013 through to 2019/2020 financial years he notified Child Support. He said he was allowed an extension of time to lodge his objections by Child Support. Mr Johamsen said he had nothing to do with the amended tax returns and he had no control over the “time frame” in receiving this information.
Mr Johamsen said initially he was told that all of the amended ATIs would be accepted by Child Support and credits applied to his child support liability. He said this was later changed to accept the amended ATI for at least the 2018/2019 financial year. A credit was applied to his Child Support account for this period which he said was then “frozen”. He was then told that the amended ATIs would not be applied to any of the relevant financial years, following discussions he had with his designated case manager from Child Support, [Ms A]. Mr Johamsen said it seems to him that a “blanket policy” decision has been by made by Child Support not to accept any of the amended ATI assessments. He said this was essentially explained in the letter dated 3 February 2022 when [Ms A] wrote to Mr Johamsen explaining that the Federal Government at the time was looking to introduce legislation to:
… “ensure military invalidity benefits are again treated as income streams for taxation purposes rather than lump sums for tax purposes”.
….It is expected that the legislation will reverse the changes to the tax-free and taxable components of a veteran’s income caused by the Douglas decision. We will review any changes to your incomes after the introduction of the new legislation, however we expect your incomes for these years will return to an amount which is the same or similar to the original amount.
What this means for you:
As we have not applied your amended incomes to your child support assessment, there will be no changes to your assessments. Your assessments will continue to be based on the original taxable incomes.[5]
[5] A11.
In May 2022 an election was held and the Australian Labor Government elected. To date it is unclear whether this current government will introduce new legislation to modify or change the effect of the decision of Douglas.
The tribunal considered whether section 56 of the Act should be applied. Section 56 of the Act states:
Taxable income is as assessed under Income Tax Assessment Act
Meaning of taxable income
(1)For the purposes of assessing a parent in respect of the costs of a child in relation to a child support period, if the parent's taxable income has been assessed under an Income Tax Assessment Act for the last relevant year of income in relation to the child support period, the parent's taxable income for that year is the amount as so assessed.
Note: Sections 34A and 57 are also relevant to a person's taxable income.
When amended tax assessment may be taken into account
(2)If, after an administrative assessment of child support is made, the assessment (the tax assessment) of a parent's taxable income is amended (whether or not because of an objection, appeal or review), the Registrar may amend the administrative assessment to take account of the amendment to the tax assessment.
Retrospective determinations
(2A) An amendment of the administrative assessment under subsection (2) must be on the basis that the parent's adjusted taxable income for that year of income is, and has always been, the amount worked out as a result of the amended tax assessment if:
(a)the parent's adjusted taxable income worked out as a result of the amended tax assessment is higher than the parent's previous adjusted taxable income; or
(b) the parent applied for the amendment of the tax assessment on or before:
(i)the day by which the parent was required to lodge his or her income tax return for that year of income with the Commissioner of Taxation (taking into account any deferral under section 388‑55 in Schedule 1 to the Taxation Administration Act 1953); or
(ii)the end of 28 days after the parent was given the tax assessment (including an amended tax assessment) by the Commissioner of Taxation; or
(iii)the end of 28 days after the parent becomes aware that the tax assessment is not correct if the parent did not apply for the amendment on or before a day referred to in subparagraph (i) or (ii) because of circumstances beyond the knowledge or control of the parent; or
(c)the parent did not apply for the amendment of the tax assessment on or before any of the days referred to in paragraph (b), but the Registrar is satisfied that special circumstances exist.
Subsection (2A) of this section of the Act applies to retrospective determinations of ATI. As Mr Johamsen’s amended taxable income is lower than his previous adjusted taxable income for the relevant periods, paragraph (2A)(a) does not apply and, Mr Johamsen’s ATIs cannot be amended on this basis.
Mr Johamsen’s evidence was that that he did not apply for an amendment to his taxable income so paragraph (2A)(b) doesn’t apply to Mr Johamsen’s circumstances.
The only provision which can apply to Mr Johamsen’s circumstances to amend his ATIs is paragraph (2A)(c):
the parent did not apply for the amendment of the tax assessment on or before any of the days referred to in paragraph (b), but the Registrar is satisfied that special circumstances exist.
The tribunal considered whether special circumstances exist and if so, whether to exercise the discretion to use the amended adjusted taxable incomes for the 2012/2013–2019/2020 financial years for the purpose of reassessing the administrative assessment of child support for those years.
The Guide at 2.4.4.30 states:
The phrase 'special circumstances' is not defined in the CSA Act, however, it is generally taken to mean that the facts of the case must establish something special or out of the ordinary. In the context of amended tax assessments, special circumstances may include serious ill health, natural disaster, incarceration or some other exceptional circumstance that prevented the parent from applying for the amendment to their tax assessment in a timely manner.
The tribunal accepts that the decision of Douglas constitutes special circumstances which take this case out of the ordinary. The question then becomes whether the discretion to amend the ATIs of Mr Johamsen should be exercised.
The administrative assessment of child support is calculated on the basis of 6 formulas. These formulas are variations of one basic formula. The formulas utilise the parent’s adjusted taxable incomes, the percentage of care of the child, and the percentage of the cost met by this level of care, as well as the costs of the child.[6] The formula is based on the average or ordinary costs of maintaining the child. If that assumption is incorrect and the administrative assessment of child support produces an unfair outcome, the person can apply for a departure from the administrative assessment; known as a change of assessment in accordance with Part 6A of the Act. It is important to note that the formula assumes that each parent’s income is ordinary taxable income subject to the ordinary rates of income tax.
[6] Section 35B of the Act. As explained in 2.4.1 of the Guide.
The decision of Douglas effectively created a 15% tax offset of the taxable component of Mr Johamsen’s invalidity pension.[7] If the tribunal made a decision to exercise the discretion to amend Mr Johamsen’s ATIs for the relevant financial years (on the basis of the amounts shown in the table at paragraph 9 of these Reasons) this would result in retrospectively reducing Mr Johamsen’s financial contribution towards the cost of [Child 1], even though Mr Johamsen’s capacity to contribute to these costs has increased because his net income has increased. As a result of the decision in Douglas Mr Johamsen also confirmed he had received tax refunds for those years.[8]
[7] Pages 55–56 (HC023384).
[8] There was no information in the hearing papers in relation to the amounts Mr Johamsen received but he acknowledged that he did receive tax refunds for those relevant years.
Additionally, Mrs Rowalski submitted that any amendment to Mr Johamsen’s ATIs would create a situation where child support paid by Mr Johamsen has already been spent on providing for the costs of [Child 1]. It would be unfair to her given the time that has passed and, the number of years that the Douglas decision has amended Mr Johamsen’s ATIs and this would create a level of financial hardship for her. Mr Johamsen disagreed with this submission because he said Mrs Rowalski has recently purchased a new house which means she has access to financial resources.
The tribunal carefully considered the evidence and submissions given by both Mr Johamsen and Mrs Rowalski and finds that the preferable decision in this matter is not to amend the administrative assessment for the 2012/2013 to 2019/2020 financial years. To use the lower amended incomes retrospectively in the assessment would be an unfair outcome for Mrs Rowalski given the number of years affected, and the time that has passed. The tribunal also finds that the decision in Douglas has been beneficial to Mr Johamsen.
Mr Johamsen has the option of applying for a departure from the administrative assessment (a change of assessment) for his child support for the periods his assessment was based on his 2012/2013 to 2019/2020 original taxable incomes if the administrative assessment resulted in an unjust or inequitable determination for those years due to the income, property or finances of Mr Johamsen. Child Support could vary the administrative assessment to ensure that the assessment was just and equitable.[9]
[9] Section 98B and subparagraph 117(2)(c)(ia) of the Act.
There is no evidence in the hearing papers that Mr Johamsen has applied for a change of assessment since the last change of assessment decision ended on 30 June 2016.
However, given how much time has now passed, the option for Mr Johamsen to obtain a change of assessment decision about the relevant past periods would no longer automatically be available to him. In the absence of a court order, the earliest date in which Child Support can made a departure decision is 18 months prior to the date on which the departure application is lodged.[10] This remedy may be available to Mr Johamsen for the most recent assessment without a court order, but the tribunal has not turned its mind to the actual dates to determine what incomes have been used in the past 18 months. Mr Johamsen has the option of making an application for a court order to allow Child Support to make a departure decision that is backdated further than 18 months.
[10] section 98B of the Act.
For the reasons outlined above the tribunal has declined to exercise the discretion to amend Mr Johamsen’s ATIs for the 2012/2013 to 2019/2020 financial years.
DECISION
The decisions of the objections officer under review are affirmed. (This means the applications for review are unsuccessful.)
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