Kareem and Kareem (Child support)

[2019] AATA 573

Kareem and Kareem (Child support) [2019] AATA 573 (8 January 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/SC014913

APPLICANT:  Mr Kareem

OTHER PARTIES:  Child Support Registrar

Ms Kareem

TRIBUNAL:Deputy President J Walsh

DECISION DATE:  8 January 2019

CATCHWORDS

CHILD SUPPORT – dismissal of application for review - particulars of the administrative assessment – refusal to reduce the fixed annual rate - no reasonable prospect of success - application for review dismissed

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.

DISMISSAL OF APPLICATION FOR REVIEW:

1. In this matter, the applicant father seeks review of a decision which refused his application not to have to pay the fixed annual rate of child support. His objection was disallowed on 6 August 2018. The basis of both the original decision and the objection decision was a finding that the father’s current income exceeded $19,568 per annum. The result was that he continued to be assessed as liable to pay child support at the rate of $4,248 per annum from 23 April 2018, despite his 2017 adjusted taxable income having been assessed at $16,101.

2. In order to clarify the basis of his case, I convened a telephone directions hearing on 29 October 2018. The father explained that his net rental income was less than $19,568 per annum. His gross rental income was $530 per week but the CSA had failed to take account of the full extent of his necessary expenses in this respect. In particular, he referred to rates, insurance and interest expenses.

3. It seemed to me doubtful that the relevant legislative provisions in this matter permitted the father’s expenses to be taken into account. Accordingly, I gave him time to provide any written submission or evidence he might wish to rely upon before I considered the matter further. His written submissions contend, in effect, that his net rental income is the proper criterion to be considered and refer to the Child Support Guide in support. He also relies on sections 40E and 41 of the Child Support (Assessment) Act 1989.

4. I then sought written submissions from the Child Support Registrar as to the basis upon which it was considered net income was properly to be considered. The essence of the Registrar’s submissions is that rental income applied to legitimate rental expenses is not income for the parent’s own use or benefit. Accordingly, it was appropriate to take account of necessary expenses (but not mere “paper expenses”) in assessing the proper amount of income to be assessed.

5. After considering the father’s and the Registrar’s submissions and the other material before the Tribunal, I have decided to dismiss this application on the basis it had no reasonable prospect of success.  My reasons follow.

The legislative context

1. In this case, the CSA accepted the mother’s child support application for the parents’ four children, with effect from 23 April 2018. In the ordinary course, the father’s child support liability was assessed by reference to his most recently assessed adjusted taxable income. Accordingly, he was assessed to pay child support based on his 2017 adjusted taxable income of $16,101.

2. Generally, a parent’s child support liability is assessed under a formula in Part 5 of the Assessment Act. Section 41 provides that the parent’s child support income (to be applied in the formula) is calculated by deducting a self-support amount ($24,535 in April 2018) from their adjusted taxable income. Since the father’s 2017 adjusted taxable income was less than the self-support amount, his child support income was $0. Ordinarily, this would result in him being liable to pay the minimum annual rate of child support ($420 per annum in April 2018).

3. However, section 65A of the Assessment Act required the CSA to assess the father’s liability on a different basis. Since his 2017 adjusted taxable income was less than the pension PP (single) maximum basic amount of $19,568, he was required to pay what is referred to as the fixed annual rate of child support: $1,416 per annum per child, capped at three times this amount by subsection 65A(4). The policy rationale is that a liable parent with a low income, but not in receipt of a Centrelink payment, who has little or no overnight care, should be expected to make at least a modest child support contribution (presently about $27 per week per child).

4. The Assessment Act then provides for application to be made for relief from having to pay the fixed annual rate. Section 65B provides:

65B Application for section 65A not to apply

(1)  If the Registrar makes an assessment of an annual rate of child support payable by a parent for a day in a child support period under section 65A:

(a)  the parent may apply to the Registrar for the section not to apply; or

(b)  the parent is taken to have applied to the Registrar for the section not to apply if, immediately before the end of the previous child support period, the section did not apply because of a determination under this section.

(2)  The parent making the application must provide evidence to the Registrar concerning the parent’s income (within the meaning of subsection 66A(4)) to demonstrate that his or her current income is:

(a)  less than the pension PP (single) maximum basic amount; and

(b)  that it would be unjust and inequitable to expect him or her to pay the amount assessed under this section.

(3)  An assessment issued by the Commissioner of Taxation for the last relevant year of income shall not be sufficient evidence of the income of the parent for the purposes of this section.

(4)  If the parent makes an application, the Registrar may determine in writing that the section not apply to the parent if the parent’s current income (within the meaning of subsection 66A(4)) is less than the pension PP (single) maximum basic amount and it would be unjust and inequitable to expect him or her to pay the amount assessed under this section.

Note:  If the Registrar refuses to grant an application under this section, the Registrar must serve a notice on the applicant under section 66C.

(5)  The Registrar must specify the day in the child support period on which the section ceases to apply to the parent. The day may be any day from the first day of the child support period on which an annual rate of child support under section 65A became payable by the parent.

The income definition in subsection 66A(4) is as follows:

(4)  In this section:

income, in relation to a person, means:

(a)  any money earned, derived or received by the parent for his or her own use or benefit, other than money earned, derived or received in a manner, or from a source, prescribed by the regulations for the purposes of this paragraph; or

(b)  a periodical payment by way of a gift or allowance, other than a payment of a kind prescribed by the regulations for the purposes of this paragraph.

The prescribed money or payments in this context do not include rental income.   

Consideration

10. Given this case turns on section 65B of the Assessment Act, the father’s reliance on section 40E and 41 do not assist him. These provisions are concerned with the ordinary Part 5 formula assessment, whereas the father’s liability is governed here by an “exception” provision, section 65A of the Assessment Act.

11.  The father’s more substantial submission, largely supported by the Child Support Registrar in terms of principle, is that his necessary and tangible rental expenses should be taken into account, rather than simply his gross rental income.

12.  Whilst a contention that net rental income should be the criterion within a section 65B application is hardly surprising, I do not consider the relevant provisions operate this way. Ordinarily, child support liabilities are determined by reference to adjusted taxable income, which in most cases has taxable income as its major component: see section 43 of the Assessment Act. Taxable income equals assessable income less allowable deductions. There is no question that the father’s outgoings for costs such as interest, rates and insurance are allowable deductions. It follows that, if either taxable income or adjusted taxable income was the criterion within section 65B, his position would succeed.

13.  However, “income” in this context is specifically defined, in a broad way more akin to the equivalent Social Security Act concept. Section 65B does not permit prior year assessed taxable income to be sufficient evidence in this context: subsection 65B(3). Rather, the father here must provide evidence to demonstrate his current income as defined in subsection 66A(4) is less than $19,568 per annum and that it would be unjust and inequitable to expect him to pay child support at the rate of $4,248 per annum.

14.  Turning then to the income definition in subsection 66A(4), it is clear that the gross rent received by the father is money received by him. The Child Support Registrar submits, however, that not all of these funds are received for the father’s own use or benefit, since he has to meet necessary and reasonable expenses in order to derive the rental income. The Registrar refers to Chamberlain & Slade (SSAT Appeal) [2012] FMCAfam 658 in support.

15.  In Chamberlain & Slade, the Social Security Appeals Tribunal had found that a carer allowance paid to the applicant could be used in any way he saw fit. It was therefore income within subsection 66A(4). Brown FM found no error in this approach. However, in my view, that decision says little of relevance to the circumstances here.

16.  In Secretary, Department of Social Security v McLaughlin [1997] FCA 1456, French J (as His Honour then was) considered the income definitions in the Social Security Act1991. The relevant background was that the applicant had applied for adjustment assistance to exit the dairy industry in Western Australia. He was entitled to two payments and, upon receiving the first payment of some $60,000, he advised the DSS of this receipt. The Department decided the industry adjustment payments were income and stopped Mr and Mrs McLaughlin’s payments of disability support pension and partner allowance respectively. On review, the AAT (differently constituted) found the payments constituted assets but not income. On appeal, French J held the Tribunal had erred and the amounts were income. The relevant definition of “income” was found in subsection 8(1) of the Social Security Act 1991. It provided “income”, in relation to a person, means:

(a)       an income amount earned, derived or received by the person for the person’s own use or benefit; or

(b)       a periodical payment by way of gift or allowance; or

(c)        a periodical benefit by way of gift or allowance;

but does not include an amount that is excluded under subsection (4), (5) or (8);

The term “income amount” was defined to mean:

(a)       valuable consideration; or

(b)       personal earnings; or

(c)        moneys; or

(d)       profits;

(whether of a capital nature or not);

17.   The Tribunal had held that the industry assistance payments did not constitute consideration for the disposal of any property. Nor were they valuable consideration or profits to the McLaughlins. Rather, the payments were compensation for the extinguishment of their business, and so not income.

18.  In upholding the appeal, French J noted that the definition of “income” and “income amount” were of wide application. His Honour also stated:

What the Tribunal has sought to do and the Court is invited now to do is to read down the definition of “income” and “income amount”.  That reading down involves not just a choice of meanings to be attributed to the existing words of the definitions but the introduction into the definitions of words of limitation which the legislature has not seen fit to enact.

The definition of “income” extends to income amounts “received” by a person.  There is no requirement in the Act that such amounts are received in exchange for anything.  They may therefore extend to gifts.  This is reinforced by the extension of the definition of “income” to “a periodical payment by way of gift or allowance”. 

There is no requirement in the definition for the payment received to constitute a net gain.  Absent such a requirement a payment of money received by a person for that person’s own use or benefit is a payment of an income amount.  No doubt examples may be generated and multiplied of apparently startling or unfair results of this construction.  The receipt of the proceeds of the sale of a house or a lottery win may constitute “income” for the purposes of the Act.  Such debates, however, are best reserved for the legislature.  There is, in my opinion, no room in the language of the definitions of “income” and “income amount” for the kind of construction adopted by the Tribunal.

The amounts paid were income and should be treated as such.

In my view, there is also no warrant for reading into the income definition in subsection 66A(4) of the Assessment Act any requirement that the father’s relevant income is to be assessed as the net gain to him in relation to the rental monies he receives. 

19.  In Kear & Secretary, Department of Social Security [1997] AATA 562, the applicant was found to owe a social security debt based on his failure to declare rental income. Having found that he was the owner of the subject property and had received rental payments, the AAT (differently constituted) found the rental monies were received for the applicant’s own use or benefit. The applicant had argued he was obliged to make mortgage payments on the subject Echuca property as well as other payments in respect of a property at Gisborne for which he was a guarantor; he contended there was no social security overpayment as a result. The Tribunal found a debt was owed and said, at paragraph 27:

No restrictions were placed on the funds derived from rents collected and deposited in Mr Kear's bank account by the real estate agent. They were available to be disposed of entirely at his discretion. The fact that he used them to pay the mortgage and rates on the Echuca property to the extent that he did and to discharge his legal obligations as guarantor in relation to the Gisborne property, does not mean, in the Tribunal's view, that he did not receive the income "for his own use or benefit".

20.  Mr Kear then appealed to the Federal Court: see Kear v Secretary, Department of Social Security [1998] FCA 1087. His appeal was dismissed as disclosing no reasonable cause of action. Heerey J stated:

The facts of this matter are set out in the decision of the Administrative Appeals Tribunal dated 11 December 1997 and I shall not repeat them. The applicant's amended notice of appeal was filed on 10 March 1998. Essentially he claims that he had a "claim of right" in relation to the Echuca property, that he did not receive any income for his own personal use, and that there was a breach of natural justice by the Tribunal.

I am quite satisfied that this appeal is without substance. The Tribunal in my view correctly dealt with the matter on the basis that whatever arrangements the appellant might have had with Mrs Shields, the money he received from the agent for the Echuca property was his own money to deal with as he saw fit. If he had some other commitments or arrangements for which that money was earmarked, it was nonetheless money for his own use and/or benefit within the meaning of s 8(1) of the Social Security Act 1991 (Cth). The criminal law concept of claim of right is not relevant.

21.  In my view, as the Court held in Kear, the weekly rental amounts of $530 the father receives constitute his own money to deal with as he sees fit. They constitute money for his own use or benefit, even if earmarked to meet relevant expenses. It follows I reject the Child Support Registrar’s submission on this issue.

22.  In the result, I consider there is no proper basis upon which to read down the income definition in subsection 66A(4) of the Assessment Act. The father’s gross rental income was properly to be assessed in the context of his section 65B application. Since it is clear that his current gross rental income exceeded the relevant threshold in subsection 65B(4), his application cannot succeed. The CSA’s decision to refuse his application not to have to pay the fixed annual rate was correctly made.

Conclusion

23.  Amendments to the AAT Act made by the Tribunals Amalgamation Act 2015 broadened the scope of the Tribunal’s dismissal powers. Subsection 42B(1) relevantly provides:

(1) The Tribunal may dismiss an application for the review of a decision, at any stage of the proceeding, if the Tribunal is satisfied that the application:

(a) is frivolous, vexatious, misconceived or lacking in substance; or

(b) has no reasonable prospect of success; or

(c) is otherwise an abuse of the process of the Tribunal.

The Revised Explanatory Memorandum to the Tribunals Amalgamation Bill 2014 explained that these powers “would provide the Tribunal with greater power to dismiss unmeritorious matters early where appropriate.”

24.  The Tribunal’s statutory objective is, inter alia, to provide a mechanism of review that is fair, just, economical, informal and quick: see section 2A of the AAT Act.

25.  It is trite that the power to dismiss an application on the basis it has no reasonable prospect of success ought be sparingly invoked. In this case, after careful consideration, I came to the view that the father’s application could not succeed.

26.  In the circumstances, and guided by the Tribunal’s statutory objective under section 2A of the AAT Act, I decided that it was appropriate to exercise the power available under paragraph 42B(1)(b). Permitting proceedings that simply could not succeed to continue would be inconsistent with notions of justice, fairness, economy and proportionality that the Tribunal must take into account. Accordingly, I dismissed the father’s application.