Knott and Knott (Child support) - [2022] AATA 1709

Knott and Knott (Child support) [2022] AATA 1709 (19 April 2022)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2021/SC022092
APPLICANT:  Mr Knott
OTHER PARTIES:  Child Support Registrar
Ms Knott

TRIBUNAL:Member R Anderson
DECISION DATE: 19 April 2022
DECISION:

The tribunal sets aside the decision and, in substitution decides that:

The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $15,500 for the period 10 March 2020 to 19 May 2021;
The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $13,000 for the period 20 May 2021 to 14 September 2021;
The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $14,886 for the period 15 September 2021 to 31 March 2022;
The adjusted taxable income of Mr Knott is varied to $80,000 for the period 1 April 2022 to 31 December 2023; and
The annual self-support amount used in the administrative formula in respect of Mr Knott is to be reduced to $12,220 for the period 1 April 2022 to 31 December 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 set aside and substituted

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 Knott and Ms Knott are the separated parents of [Child 2] and [Child 1]. According to the records of Services Australia – Child Support (the Agency), the child support assessment was registered on 4 February 2019. The Agency has been responsible for the collection of child support from Mr Knott since that time.
The child support liability is generally calculated in accordance with the administrative assessment, as provided in the Child Support (Assessment) Act 1989 (the Act). The administrative assessment is generally based on the income recorded by each parent in their most recently completed tax returns, as lodged with the Australian Taxation Office (ATO), or the most recent estimate accepted by the Agency. This was the case from the outset in respect of the calculation of Mr Knott’s child support liability.
Following Mr Knott’s application for personal bankruptcy and liquidation of [Company 1], as the corporate trustee for [Trust 1] in late February 2020, the Agency accepted a first estimate of Mr Knott’s adjusted taxable income (ATI) in respect of the period 10 March 2020 to 30 June 2020 in the amount of $0. The assessment had previously been calculated using ATIs of Mr Knott and Ms Knott in respect of 2018/19 in the amounts of $75,961 and $5,885 respectively.
On the same day, the Agency agreed not to apply the fixed annual rate of child support and to therefore assess Mr Knott to pay the minimum annual rate of child support of $435 until 30 June 2020. The administrative assessment then reverted to using an ATI based on the income recorded on Mr Knott’s 2018/19 tax return of $75,961, resulting an increase in the annual rate of child support payable by Mr Knott to $12,088.
On 13 August 2020, the Agency accepted a first estimate of Mr Knott’s adjusted taxable income in respect of the period 13 August 2020 to 30 June 2021 in the amount of $27,375, reducing his annual child support lability to $562. On 14 September 2020, the Agency accepted a second estimate of Mr Knott’s adjusted taxable income in respect of the period 14 September 2020 to 30 June 2021 in the amount of $34,538, increasing his annual child support liability to $2,280. Upon commencement of the new child support period on 1 January 2021, the annual child support liability reduced to $1,974.
The bankruptcy was subsequently annulled in November 2020. Following lodgement of Mr Knott’s 2019/20 tax return, his estimate of 10 March 2020 was reconciled to an ATI of $846,847. This resulted in a considerable increase in his child support arrears due to the sale of machinery creating a significant profit on his 2019/20 individual tax return. The annual child support liability increased to $37,506. Consequently, Mr Knott lodged a change of assessment (departure) application on 28 January 2021.
Ms Knott’s departure application of 28 January 2021 was lodged on the basis that the administrative assessment produced an unfair outcome because in the special circumstances of the case, the costs of maintaining [Child 2] and [Child 1] were significantly affected because of the special speech therapy needs of the boys (Reason 2), because the costs incurred in educating [Child 2] and [Child 1] in the manner expected by both parents significantly impacted on their overall costs (Reason 3), because of payments, and any transfer or settlement of property, made or to be made (whether under the R&C Act, the Family Law Act 1975 or otherwise) by the liable parent to the child, to the carer entitled to child support or to any other person for the benefit of the child (Reason 5) and because of the income, property and financial resources available to Mr Knott and his earning capacity (Reason 8A and 8B).
On 3 April 2021, a delegate of the Child Support Registrar decided to depart from the administrative assessment such that the adjusted taxable income of Mr Knott was varied to $104,572 in respect of the period 10 March 2020 to 31 March 2022. In addition, the annual rate of child support payable by Mr Knott was to be reduced by $5,000 per annum in respect of the period 1 January 2021 to 31 March 2022 to reflect him meeting 100% of the medical and educational costs of the children. This decision resulted in the annual rate of child support payable by Mr Knott increasing from the minimum annual rate of $435 to $18,536 from 10 March 2020 to 31 December 2020 and reducing to $13,394 from 1 January 2021.
On 7 May 2021, Mr Knott lodged an objection to the decision of 3 April 2021. Subsequently, on 6 July 2021, an objections officer decided to disallow the objection.
Mr Knott lodged an application to this tribunal on 13 August 2021, requesting an independent review of the Agency’s decision. The directions hearing was conducted by conference telephone with Mr Knott and Ms Knott on 21 December 2021. Following this hearing, directions were made to both parties requiring them to provide further information and documents.
The hearing was held on 1 March 2022. Both parties participated by conference telephone and gave oral evidence on affirmation. Mr Knott was represented by Ms [A] and [Ms B] of [a firm]. The tribunal considered information in the documents provided by the Agency in accordance with the Administrative Appeals Tribunal Act 1975 numbered 1 to 699, documents lodged by Mr Knott numbered A1 to A532, documents lodged by Ms Knott numbered B1 to B96 and information received from Centrelink numbered C1 to C17. All of the documents were provided to all parties prior to the hearing. However, Ms Knott was not in receipt of her documents until the day prior to the hearing.
On 1 March 2022, the tribunal decided to defer making a decision in this matter to allow time for Ms Knott to peruse the material and provide any comment in writing within 14 days. Mr Knott and Ms Knott were also granted 14 days to provide additional evidence, as discussed at hearing. Further evidence was received from both parties, numbered A533 to A606 and B97 to B101. Additional information was also received from Centrelink, numbered C18 to C21. All documents were exchanged with all parties for comment.
Further submissions were received from both parties on 6 April 2022, numbered A607 to A610 and B 102 to B103. These documents were also exchanged with all parties for comment. On 14 April 2022, the tribunal received a further submission from Ms Knott, numbered B104 to B106. The information was exchanged with all parties. As the tribunal was satisfied that no new information was included, it did not require a response from Mr Knott. The tribunal’s requests for the Agency to access information from [a] Bank in respect of Mr Knott’s account statements were unsuccessful. However, the tribunal was satisfied that sufficient information was available to proceed to make a decision.

ISSUES

When calculation of the rate of child support is based on the usual administrative formula it also takes into account, relevantly, factors such as the number of children, the level of care provided, the costs of the children, the costs of self-support of each parent and the income of each parent. Section 98C of the Act allows for a decision maker to depart from the usual manner of calculating the rate of child support payable by one parent to the other parent for a child after considering the following issues:
·         whether a ground exists to depart from the administrative assessment; and if so
·         whether any proposed departure is fair to Mr Knott, Ms Knott and the children; and if so
·         whether any proposed departure is fair to the public.

CONSIDERATION

[Ms B] submitted that Mr Knott has no issue with paying child support, it is simply that he cannot afford to pay the current assessed rate.
Ms Knott maintains that Mr Knott has had access to income and financial resources from his sole trader business, [Trust 1], [Company 2] ([Company 2]), operated by his partner and ([Trust 2]), operated by his mother, which are not accurately reflected in his adjusted taxable income.
The grounds for departure are set out in subsection 117(2) of the Act. Each ground is prefaced by the words “in the special circumstances of the case”. The meaning of this expression is not defined in the Act. However, the tribunal was guided by the courts, which have concluded that the expression relates to the facts peculiar to each case such that those facts are “out of the ordinary” and set the case apart from the usual case (Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) and Philippe and Philippe (1978) FLC 90-433).

Reasons 8A and 8B – the income, property and financial resources and earning capacity of each parent

Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, use of the administrative assessment would result in an unfair level of child support payable by Mr Knott because of the available income, property and financial resources available to either parent. The Act goes on to state in subsection 117(7A) that the decision-maker must have regard to “the capacity of the parent to derive income, including any assets of, under the control of, or held for the benefit of the parent that do not produce, but are capable of producing, income” and disregard “the income, earning capacity, property and financial resources of any person who does not have a duty to maintain the child”. Clearly, Mr Knott’s partner, [Ms C], has no legal duty to provide for [Child 1] and [Child 2].
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, income, benefits and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott v Scott (1994) FLC 92-457; Carey v Carey (1994) FLC 92-489). As discussed with the parties, the role of the tribunal is not to conduct a forensic audit (Podmore & Pillai [2011] FMCAfam 952 and Frost and Frost [2011] FMCAfam 1311). Rather, it is to determine from the available evidence before it the financial resources available to the parties for child support purposes, such that a fair decision can be made in respect of the child support liability (Shearer & Benson (SSAT Appeal) [2011] FMCAfam 623).
“Financial resource” was considered in the case of Costa & Fairbank (SSAT Appeal) [2010] FMCAfam 39 where the court referred to something which is not property but from which financial benefit is or may be gained. It was also noted that “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”.
The tribunal considered the circumstances of Mr Knott. He gave oral evidence that he commenced his own [business] in February 1996. While he originally operated as a sole trader, the [business] commenced being operated through [Trust 1] in mid-2008, with [Company 1] (the company) acting as the trustee. The arrangement was that the vehicles were owned by Mr Knott as a sole trader, who hired them out to [Trust 1] for the purposes of asset protection. He applied for bankruptcy at the same time that the company was placed into liquidation in late February 2020. ASIC records indicate that the company has since been deregistered.
A letter from [director] of [a company], dated 4 February 2021 confirmed that Mr Knott’s personal bankruptcy application was annulled on 17 November 2020. This occurred as a result of Mr Knott entering into the composition with his creditors in accordance with the Bankruptcy Act 1966 (Cth). Consequently, [equipment] owned by Mr Knott was sold. The letter also noted the significant capital gain recorded in Mr Knott’s 2019/20 tax return in the amount of $742,275. Furthermore, the letter also confirmed that Mr Knott received no benefit from the sale of the vehicles after meeting professional fees and payments to creditors.
In response to a question from the tribunal, Mr Knott stated that he found it difficult losing his business. In addition he has not seen the children for more than two years and together it has caused his mental health to deteriorate. As such, he has not been in the right mental state to [work] for many hours. He gave oral evidence that prior to March 2020 he was [working] five to six days per week with every second weekend off. However, in April 2020 he applied for and was granted jobseeker payment, which continued until 26 September 2020 when he voluntarily cancelled it when he commenced [working] on a casual basis as an employee for [Company 2] and [Trust 2].
The tribunal examined the tax returns of Mr Knott in respect of the 2018/19, 2019/20 and 2020/21 years. It was evident that in 2018/19 his income consisted of wages and allowances from [Trust 1] ($67,040), interest ($3,949) and sole trader income ($838). After deductions, including a net investment property loss of $5,885, Mr Knott’s taxable income was $59,953. In addition, reportable superannuation contributions were recorded as $10,123. Therefore, for the purposes of the child support administrative assessment, his adjusted taxable income was $75,961 ($59,953 + $5,885 + $10,123).
Based on the 2018/19 sole trader financial statements, Mr Knott accessed drawings of more than $44,000. Based on the 2018/19 financial statements of [Trust 1], the physical distribution to Mr Knott was $173,184, loans to the Trust recorded as $101,425. The tribunal is also cognisant of the tax-saving benefit afforded Mr Knott when he accesses drawings and/or loans from entities that are not required to be declared on his tax return. The tribunal is satisfied that the actual income, benefits and financial resources available to Mr Knott in the vicinity of $200,000 ($67,040 + $3,949 + $5,885 + $10,123 + $173,184 - $101,425 + $44,258), well exceeds the amount reflected in his 2018/19 tax return.
It was evident that in 2019/20 his income consisted of wages and allowances from [Trust 1] ($43,750) and sole trader income ($787,412), jobseeker payment ($4,786) and interest ($901) were recorded as income. After deductions, including a net investment property loss of $3,486, Mr Knott’s taxable income was $833,198. In addition, reportable superannuation contributions from [Trust 1] and [Company 2] were recorded as $10,163. Therefore, for the purposes of the child support administrative assessment, his adjusted taxable income was $846,847 ($833,198 + $3,486 + $10,163).
As discussed above, the tribunal accepts the information provided by [the director] that $742,275 represented the profit on sale of vehicles. According to the depreciation schedule, actual sales income was $1,085,579. The tribunal accepts that the profit on sale was treated on revenue account in the sole trader business and was not available as income or a financial resource to Mr Knott. Rather it was exhausted through payments for professional fees, government realisation charges and dividends to creditors through Mr Knott’s initial bankruptcy process, ultimately resulting in annulment of the bankruptcy on 17 November 2020.
However, according to the financial statements in respect of the sole trader, Mr Knott’s actual drawings from his sole trader business in 2019/20 amounted to $79,656. Financial statements in respect of the period 1 July 2019 to February 2020 are not before the tribunal. Furthermore, according to the 2019/20 financial statements and general ledger of [Company 2], Mr Knott received loan funds in the amount of $11,366. In addition, while distribution of profit from the [Trust 2] is to his mother, [it] is undisputed that Mr Knott received significant financial assistance from his mother, including for legal fees. Similarly to 2018/19, Mr Knott received the benefit of a tax-saving when he accessed drawings and/or loans from entities that are not required to be declared on his tax return. The tribunal estimates the income, benefits and financial resources available to Mr Knott in 2019/20 to be at least $150,000, significantly less than the amount reflected in his 2019/20 tax return.
It is noteworthy that the sole trader business and [Trust 1] had ceased operations by March 2020, with Mr Knott claiming jobseeker payment from 17 April 2020. The tribunal accepts that his income and financial resources reduced from March 2020. However, the tribunal is also satisfied that Mr Knott has continued to have access to financial resources both directly and also indirectly through [Company 2] and [Trust 2], in the form of loans and financial assistance from his mother and [Ms C], in meeting his own costs of self-support and those of the children. This is in addition to jobseeker payment at the annual rate of $29,237.
It was evident that in 2020/21 Mr Knott’s income consisted of wages and allowances from [Company 2] ($13,480) and [Trust 2] ($13,480) , jobseeker payment ($7,809) and interest ($2). After deductions, Mr Knott’s taxable income was $34,304. In addition, reportable superannuation contributions from [Company 2] were recorded as $5,173. The sole trader business was not in operation in 2020/21. Therefore, for the purposes of the child support administrative assessment, his adjusted taxable income was $39,477 ($34,304 + $5,173). However, Mr Knott lodged an estimate of his adjusted taxable income on 13 August 2020 in the amount of $27,375 and a revised estimate on 14 September 2020 in the amount of $34,538.
According to the 2020/21 financial statements and general ledger of [Company 2], Mr Knott received further loan funds in the amount of $30,968. Mr Knott continued to receive the benefit of a tax-saving when he accessed a loan that was not required to be declared on his tax return. It appears that this is largely due to [life] insurance premiums being paid from [Company 2] on behalf of Mr Knott in the amount of $691 per month, in addition to legal fees and payment for the motor bike. The [policy] document also indicates that income protection premiums were paid on behalf of Mr Knott, and presumably expensed by [Company 2], in the amount of $223 per month ($2,676 per annum). Contrary to Ms Knott’s submission that the income protection benefit represents 70% of the wage, the tribunal notes that the website states the option of covering up to 70% of one’s wage. Regardless, use of funds to meet life insurance and income protection premiums are discretionary and in the tribunal’s view represent the availability of a financial resource to Mr Knott. It is apparent that Mr Knott’s mental health issues were not sufficient to warrant a claim on his income protection insurance.

Furthermore, while distribution of profit from [Trust 2] continued to go to Mr Knott’s mother, it is undisputed that Mr Knott continued to receive significant financial assistance from her.
According to the payslips provided to the tribunal, Mr Knott is currently in receipt of weekly wages of $337 from [Company 2], representing 13.48 working hours. The year to date income at 3 February 2022 is recorded as $10,784, which extrapolates to approximately $18,000 by 30 June 2022. The arrangements are similar with [Trust 2]. Mr Knott conceded that while his working hours varied from week to week, he retained a set wage from both entities regardless of the hours he worked. [Ms A] reiterated that Mr Knott works between 15 and 30 hours per week. As such, it is difficult to accept that the wages recorded are an accurate reflection of his actual income earned.
In response to a question from the tribunal, Mr Knott stated that [Ms C] works approximately 15 hours per week in the [industry] for [Company 2] in an administrative role. Mr Knott also stated that a bookkeeper is employed by [Company 2] two days a week to do bookwork. [Ms C] also works a 40-hour average week in her own business in [an] [industry]. Her wages in 2020/21 from [Company 2] were $52,448, representing 79.5% of total wages to associated persons ([Ms C] and Mr Knott). Given that Mr Knott’s estimate of his average annual income is $35,048 ($674 per week), shared equally between [Company 2] and [Trust 2], it is difficult to accept that it is appropriate for him to earn less than [Ms C] for similar working hours.
Therefore, the tribunal calculates the income, benefits and financial resources available to Mr Knott to be at least $80,000 in 2020/21. This is significantly more than the amount reflected on his 2020/21 tax return or in his estimates as accepted by the Agency.
Given that [Ms C] meets the rental and utilities costs for the place of residence, owned by [Ms C]’s parents, the tribunal concludes that it is likely Mr Knott’s contribution is coming from profits that have been redirected as wages to [Ms C]. The tribunal also notes the inflated net loss of [Company 2] in 2020/21 and the under-stated assets on account of the fully expensed general pool in the amount of $366,124, negating the recorded net loss of [Company 2], thus enabling availability of additional funds to Mr Knott and [Ms C].
In respect of the period 1 July 2021 to 31 December 2021, Mr Knott has had access to loan funds from [Company 2] in the amount of $5,789, which annualises to $11,578. The tribunal acknowledges that it is not necessarily appropriate to assume the same level of drawings will occur throughout the remainder of the 2021/22 year. However, based on the annualised sales figures of [Company 2], the business appears to be generating similar levels of income to 2020/21 and [Trust 2] is clearly generating increased levels of income in comparison to 2020/21.
As discussed at hearing, given the historical pattern of availability of loans, benefits and financial resources provided to Mr Knott from [Company 2] and [Trust 2], the tribunal does not accept that Mr Knott is a typical employee of [Company 2] or [Trust 2]. Mr Knott accepted that this was so. The tribunal sees no reason why Mr Knott will not continue to have the same level of income, benefits and financial resources available to him going forward from [Company 2] and [Trust 2].
As the administrative assessment continues to base Mr Knott’s annual child support liability from 1 July 2021 on his most recently lodged tax return, he has continued to be assessed on an ATI of $846,847 and will continue to be so until lodgement of his 2020/21 tax return enables the estimate reconciliation to be completed. Clearly he has been over-assessed from 1 July 2021. However, once his 2020/21 ATI of $39,477 is recorded with the Agency, he will again be well under-assessed.
The tribunal accepts the written evidence of Mr Knott that at 7 February 2022, he held a balance in his [Super] account of $24,884. The contributions consisted of employer contributions at the required rate of 9.5% and a government co-contribution. There is no evidence that Mr Knott has made additional personal contributions in recent times.
The tribunal considered the assets and liabilities of Mr Knott. His assets consist of funds in the bank ($3,500), a motorbike, household contents and other personal property which total $21,500. He does not own a motor vehicle and borrows that of [Ms C] when required. He has no personal liabilities other than loans recorded on the balance sheets of [Company 2] and [Trust 2] and funds borrowed from his mother for legal fees of around $37,480. There is no evidence to persuade the tribunal that Mr Knott would be called upon to repay these loans in the short-term. There are no legally enforceable agreements before the tribunal in respect of terms of repayment.
Mr Knott resides in rental accommodation which is owned by [Ms C]’s parents and shares the residence with [Ms C] and their daughter [Child 3], born on [date] 2021. It is noteworthy that an allowance for Mr Knott providing for [Child 3] has not been processed in the administrative assessment until 1 August 2021. Mr Knott acknowledged that he does not contribute to rental or household utility costs, which as noted above are met by [Ms C] and estimated [to] approximate $500 per week. Mr Knott estimated his average weekly expenses to be $235, annualising to $12,220, significantly less than the self-support amount allowed for in the administrative assessment. In addition he pays private health insurance premiums of $144 per week in respect of Mr Knott, [Ms C], [Child 1], [Child 2] and [Child 3]. Weekly payments for private school fees and speech therapy for [Child 1] and [Child 2] are estimated by Mr Knott at $118 and $70 respectively. As discussed later in these reasons for decision, Mr Knott conceded that his mother has met the outstanding expenses in respect of the children’s education and speech therapy.
The tribunal considered the financial circumstances of Ms Knott. According to Agency records, Ms Knott’s ATI has remained below $10,000 per annum since 2015/16. While her 2019/20 tax return was before the tribunal , she was yet to lodge her 2020/21 tax return. It is evident that with the exception of the rental property owned jointly with Mr Knott that was sold in the 2019/20 year, Ms Knott has been reliant on Centrelink benefits such as parenting payment (single) (PPS), later transferring to jobseeker payment. She told the tribunal that she commenced in the NEIS programme through Centrelink in April 2021, at which time her entitlement to jobseeker payment ceased. She further stated that she was in receipt of weekly payments in the amount of $310 until around November 2021 to assist in the setting up of her sole trader cleaning business.
Ms Knott gave oral evidence that her [business] is slowly progressing. She currently operates for approximately 15 to 20 hours per week. The quarterly profit and loss statements from July 2021 to September 2021 were before the tribunal. Overall, the tribunal is satisfied that Ms Knott’s ATI in 2020/21, 2021/22 and the short-term future is unlikely to exceed the self-support amount allowed for in the administrative assessment, which in 2022 is $27,063. Consequently, there is unlikely to be any impact on the child support assessment.
In addition, Ms Knott is in receipt of family tax benefit (FTB) in the amount of $372.08 per fortnight. Pursuant to subparagraph 117(7)(b)(ii) of the Act, for child support purposes FTB would not be considered to be a part of Ms Knott’s ATI. FTB is an income-tested benefit. FTB is not defined as a tax-free benefit under section 5 of the Act to be included in ATI (paragraph 43(1)(e) of the Act). Therefore, as FTB is not required to be included in ATI, it is to be disregarded, as clarified at 2.6.17 of the Child Support Guide.
The tribunal considered the assets and liabilities of Ms Knott. Her assets consisted largely of her home, valued at $825,000, which has a corresponding mortgage in the amount of $313,919. In addition, further assets consisting of a [vehicle], household contents and a horse float total $43,000. Ms Knott’s only other liability is an outstanding rates bill of around $2,000. The tribunal calculates her net assets to approximate $552,000.
Ms Knott resides in her home with [Child 1] and [Child 2]. Based on the average weekly expenses page of the Statement of Financial Circumstances, Ms Knott estimates the weekly household expenses to be $1,451, of which $1,006 is related to her. While this is significantly higher than the self-support amount, it is evident that mortgage and household utilities have not been apportioned to the children, resulting in inflated costs for Ms Knott. In response to a question from the tribunal, Ms Knott stated that she is “robbing Peter to pay Paul” and is struggling to meet the household expenses from week to week, constantly dealing with arrears notices.
Based on the findings above, it is clear that there is a significant discrepancy between the income, benefits and financial resources available to Mr Knott and the ATIs used to calculate the child support liability payable by Mr Knott under the administrative assessment. In respect of the 2019/20 year, use of the 2018/19 ATI of Mr Knott (in the amount of $75,961) in the administrative assessment until 9 March 2020 resulted in Mr Knott’s annual child support liability being under-assessed at $12,088. Furthermore, use of his 2019/20 ATI (in the amount of $846,857) from 10 March 2020 resulted in Mr Knott’s child support liability being significantly over-assessed at the maximum costs of children of $35,680. Use in the administrative assessment of the tribunal’s estimate of Mr Knott’s 2019/20 ATI of more than $150,000 results in an annual child support liability of more than $27,000. Upon closure of his sole trader business and [Trust 1] in March 2020, the tribunal’s estimate of Mr Knott’s ATI is more in the vicinity of $80,000, resulting in a child support liability of just under $13,000.
In respect of the 2020/21 year, Mr Knott’s ATI (in the reconciled amount of $39,477) clearly results in his annual child support liability being well under-stated at around $3,000, including an allowance for [Child 3] from birth at 20 May 2021, whereby the annual child support liability reduces to approximately $2,600. Use in the administrative assessment of the tribunal’s estimate of Mr Knott’s 2020/21 ATI of closer to $80,000 results in an annual child support liability of approximately $12,700, reducing to around $10,700 from [Child 3]’s birth. This is without further consideration of Mr Knott’s reduced costs of self-support.
From 1 July 2021, the tribunal is well satisfied that Mr Knott’s income and financial resources are well below the ATI used in the administrative assessment of $846,847, when the administrative assessment reverted to being based on his most recently lodged tax return, being the 2019/20 year. He has clearly been over-assessed.
A parent’s earning capacity can only be taken into account in limited circumstances, as set out in subsection 117(7B) of the Act. This section requires the tribunal to consider three matters in determining that the parent’s earning capacity is greater than is reflected in his or her income used in the administrative assessment:
·Whether the parent is:
o   not working despite ample opportunity to do so (subparagraph 117(7B)(a)(i)); and/or
o   has reduced their weekly hours of work to below full-time work (subparagraph 117(7B)(a)(ii)); and/or
o   has changed their occupation, industry or working pattern (subparagraph117(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)).
By his own evidence, as discussed in paragraph 23, Mr Knott has reduced his working hours since March 2020 on account of his mental health. According to Centrelink records, Mr Knott received jobseeker payment from 17 April 2020 until 26 September 2020. Centrelink confirmed that due to COVID-19, Mr Knott was not required to meet the activity test. Mr Knott gave oral evidence that he continued to find it difficult to focus on driving and following the birth of [Child 3] in [2021], he has provided additional care that was necessary as a result of numerous operations since birth. Given Mr Knott’s health issues, the choice was made that he would provide the majority of care for [Child 3] while she was recovering as [Ms C] had her own business to operate. Mr Knott told the tribunal that since January 2022, [Child 3]’s health has been good. However, he maintains that he has not yet returned to full-time working hours, despite continuing to receive a set wage from [Company 2] and [Trust 2]. Clearly, the first criterion is met in accordance with paragraph 117(7B)(a) of the Act.
In respect of the second criterion, the medical evidence before the tribunal falls short of stating that Mr Knott’s state of mental health has impacted on his ability to work. However, it is clear that he requires medical intervention. In any event, it appears that he continued to have access to a level of financial resources from [Company 2] and [Trust 2], in addition to [Ms C] meeting the majority of his costs of self-support. The tribunal accepts that Mr Knott had caring responsibilities for [Child 3] in the second half of 2021 which has impacted on his ability to work full-time hours.
It is evident that Mr Knott’s reduced hours in 2020 were a direct result of his bankruptcy. Since then his mental health and care requirements for [Child 3] have resulted in his working hours not returning to full-time. Overall, the tribunal is not satisfied that the decision made by Mr Knott to reduce his working hours in March 2020 and apply for jobseeker payment, later returning to only casual and part-time hours, was done with the major purpose being to affect the administrative assessment of child support (paragraph 117(7B)(c)). As the third criterion under subsection 117(7B) of the Act is not met, it follows that all three criteria cannot be satisfied. Therefore, it is not open to the tribunal to consider the earning capacity of Mr Knott.
Ms Knott told the tribunal that while she has some health issues in relation to her neck, she does not incur significant costs. However, it does impact on the number of hours she is able to work each week. As the tribunal is satisfied that the ATI of Ms Knott has remained below the self-support amount used in the administrative assessment and is unlikely to exceed it in the near future, any changes in her working hours will have no impact on the overall child support assessment and consequently it is not necessary to consider an earning capacity determination in respect of Ms Knott.
Accordingly the tribunal is satisfied that the administrative assessment has not produced a fair outcome and finds that special circumstances do exist in this case. As such, the tribunal is satisfied that a ground for departure is established in relation to subparagraph 117(2)(c)(ia) of the Act.
As the tribunal is satisfied that one of the grounds before it is established, it has not gone on to consider whether Reasons 2, 3, or 5 are also established as a separate ground. The relevant issues will be dealt with in detail below under the next heading regarding what is just and equitable.

Issue 2 – Is it fair or “just and equitable” in relation to Mr Knott, Ms Knott, [Child 1] and [Child 2] to make a particular departure determination?

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 fair as regards the parents and the children to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act. This in turn requires the tribunal to have regard to a range of factors, including but not limited to those set out in subsections 117(4) and (6) to (8) of the Act, such as the needs of the children, the parents’ assets, liabilities, income and commitments and any hardship that would be caused by departing or not departing from the formula. The tribunal does not propose to explore every matter in detail but will discuss those it regards as pertinent to this application (Gyselman).

The needs of the children

Section 3 of the Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain (Ashcroft and Ashcroft (SSAT Appeal) [2008] FMCAfam 1250). In this case Mr Knott and Ms Knott have the primary duty to financially support [Child 1] and [Child 2] and contributing to those costs should take priority over all other costs other than their “necessary” costs of self-support and Mr Knott’s legal obligation to also provide for [Child 3] from 20 May 2021.
The tribunal is satisfied that the relevant dependant allowance used in the administrative formula of almost $11,000 per annum is reasonable in respect of Mr Knott’s estimated costs of [Child 3].
In determining the proper needs of the child, subsection 117(6) of the Act also requires the tribunal to have regard to the manner in which the parents expected the child to be cared for, educated and trained as well as a consideration of any special needs of the child.
[Child 1] and [Child 2] currently attend a private school and are in Year 5 and Year 8 respectively. While the parents appear to have agreed that the children be privately educated, it is undisputed that it is Mr Knott’s mother who is paying the school fees. As the private tuition costs are not being met by Mr Knott or Ms Knott, the tribunal is unable to conclude that the costs significantly impact on the overall costs of the children that are being met by the parents. Despite Ms Knott’s submission otherwise, the tribunal does not accept that other private education costs such as uniforms, books and the like create “special circumstances”, as they are costs ordinarily incurred at public schools also.
In respect of the speech therapy costs incurred for [Child 1] and [Child 2], there was no dispute that they were necessary “special needs” of the children which were “out of the ordinary”. After the hearing, Mr Knott provided detailed private health insurance statements to enable the correct out-of-pocket costs to be calculated. However, Mr Knott also conceded that his mother had met all of these costs. As such, the tribunal is unable to conclude that the costs to date have significantly impacted on the overall costs of the children that are being met by the parents.
It was undisputed that [Child 1] and [Child 2] are in good physical health. However, [Child 2] has developed anxiety and requires assistance with his mental health. At this stage he sees a counsellor at school and a mental health plan also exists which enables the upfront costs to be reimbursed. [Child 1] has been experiencing learning difficulties. It became apparent at hearing that it is also unclear whether speech therapy costs will continue. Ms Knott indicated that it may be more beneficial to consider tutoring costs, which Mr Knott seemed open to. As discussed at hearing, if and when such costs are incurred by either parent, it is open to them to lodge a further change of assessment application.

Ms Knott is registered as having 90% care of [Child 1] and [Child 2], although Mr Knott asserts that he has had no access to the children. Ms Knott estimated their average weekly costs to be $445, including discretionary costs of $30 to $45. Therefore, the tribunal calculates the necessary costs of the children to annualise to around $21,000. This level of costs is more in line with the costs of children in earlier times when Mr Knott’s ATI was in the vicinity of $150,000.

The earning capacity, income, property and financial resources and commitments of each parent

The tribunal found earlier that Mr Knott likely had access to income, benefits and financial resources of at least $150,000 in 2019/20 and closer to $80,000 from March 2020. In addition his costs of self-support are significantly less than that allowed for in the administrative formula. Mr Knott estimated the annual costs met by himself to approximate $12,220.
[Ms A] submitted that it was appropriate to consider the loans from the various entities to Mr Knott as a financial resource. She further submitted that in doing so it was not expected that his income and financial resources would approach $104,000, as found by the Agency.
[Ms A] also submitted that the tribunal consider the arrears amount imposed on Mr Knott by child support in increasing his ATI from March 2020. This was in light of Mr Knott paying spousal maintenance to Ms Knott from September 2019 to February 2020 in the amount of $575 per week and the Court ordering a further payment to Ms Knott’s superannuation in the amount of $62,760 in July 2020.
Paragraph 11 of the consent orders of 31 July 2020 states that the payment of $62,760 to Ms Knott’s superannuation account discharges Order 1 of the 16 April 2020 Order, in addition to all outstanding spousal maintenance owing. As such, it was asserted that the increased rate of child support from March 2020 to July 2020 as a result of backdating of the departure decision, was essentially “double dipping” on account of the spousal maintenance being determined on the basis of a reduced rate of child support liability between March 2020 and July 2020.
While the tribunal does not accept that spousal maintenance is necessarily a payment made to Ms Knott for the benefit of the child, a requirement under Reason 5, the tribunal is satisfied that it is reasonable to consider the impact of any back dated child support assessment in respect of the spousal maintenance orders under just and equitable.
The tribunal notes that the ATI of Mr Knott used in the administrative formula from February 2019 was $74,100, from September 2020 was $75,961 and from March 2020 was initially based on an estimated ATI of nil, as advised to the Agency by Mr Knott. While the basis for the Court’s decision in regard to spousal maintenance is unclear, the tribunal accepts that the decisions made were in the knowledge of the ATIs used by the Agency as set out in the previous sentence.
Spousal maintenance paid by Mr Knott from September 2019 to February 2020 was at the rate of $575 per week, or $29,900 per annum. Based on the income, benefits and financial resources available to Mr Knott, as estimated by the tribunal in 2018/19 and from 1 July 2019 to 9 March 2020, of approximately $200,0000 and $150,000 respectively, the tribunal is satisfied that Mr Knott was significantly under-assessed from commencement of the child support assessment in February 2019 to 9 March 2020. The tribunal acknowledges that Mr Knott was over-assessed from 10 March 2020 when his 2019/20 reconciled ATI was assessed at $846,647. However, this will be rectified in accordance with the tribunal’s findings in respect of Mr Knott’s ATI in the 2019/20 year.
Given the under-assessed ATIs of Mr Knott in 2018/19 and 2019/20, the tribunal is not persuaded that the additional spousal maintenance payments ordered by the Court from September 2019 resulted in the child support assessment being unjust or inequitable in the period to 9 March 2020 and finds accordingly. The arrears from 10 March 2020 referenced by [Ms A] are based on the decision under review whereby the ATI of Mr Knott was varied to $104,572. In contrast, the Court was aware of a child support assessment from 10 March 2020 to 31 July 2020 at the minimum annual rate of $435, based on Mr Knott’s advice of a nil income.
Given the change in the business operations of Mr Knott and the birth of [Child 3] and her extra care requirements in the latter part of 2021, the tribunal accepts that the income, benefits and financial resources available to Mr Knott have reduced since March 2020, albeit not to the level reflected on his tax returns. In addition, his costs of self-support have also reduced significantly.
The tribunal is satisfied that neither parent has significant liquid assets from which to draw upon to support the children going forward, while Mr Knott also has minimal enforceable liabilities.
Mr Knott has the benefit of his costs of self-support being met by others, while Ms Knott is struggling to make ends meet on a weekly basis.

Conclusion

After consideration of the income, resources, benefits and assets together with the commitments and liabilities of Mr Knott and Ms Knott, the reduced costs of self-support of Mr Knott, the needs of [Child 1] and [Child 2], the birth of [Child 3] and Mr Knott’s legal duty to contribute to her support equally with [Ms C] and [Child 2] turning 13 years of age [in] 2021, the tribunal considers it is just and equitable to make a departure determination from the current administrative assessment in accordance with section 98S of the Act. There is no question that Ms Knott requires the assistance of Mr Knott to meet the weekly needs of [Child 1] and [Child 2].
The tribunal may make one of the determinations set out in section 98S of the Act. Section 98S sets out a range of determinations, including varying the annual rate of child support payable, the ATI of a parent, or the costs of self-support.
The tribunal may not make a determination in respect of any period more than 18 months earlier than the date on which the application for a change in the way the child support liability is calculated was made (subsection 98S(3B)). In this case, the tribunal is limited to considering any backdating to July 2019.
As discussed at hearing, the tribunal must also be cognisant of whether either party has rested on their rights in not pursuing an objection or appeal process and also whether backdating would cause prejudice to either party in the form of overpayment or additional arrears. There is also the generally accepted principle that the parties should be able to rely on the child support assessment in making financial decisions until such time as they are put on notice of a possibility of a change.
As noted above, given the spousal maintenance paid by Mr Knott, the tribunal does not consider the administrative assessment to be unfair prior to 10 March 2020, when his 2019/20 ATI in the amount of $846,847 was imposed on the administrative assessment following reconciliation of a nil estimate. In such circumstances, the tribunal decided that it was not appropriate to commence a departure decision until 10 March 2020. The tribunal is also cognisant of the fact that Mr Knott lodged a timely change of assessment application when it became evident in December 2020 that the 2019/20 reconciliation impacted significantly on the overall assessment from 10 March 2020 and has not rested on his rights. Nor did Ms Knott have any expectation or reliance on a higher rate of child support prior to December 2020. Accordingly, the tribunal finds that it is appropriate to apply the above findings of the tribunal in respect of the period commencing 10 March 2020. This results in a reduction in arears of around $1,200 to 31 July 2020, the date of the consent orders in regard to cessation of spousal maintenance.
In relation to an end period, the tribunal is cognisant of the preference of the parties for a degree of certainty going forward. The tribunal is also aware that in the short -term Ms Knott’s ATI is unlikely to exceed the self-support amount, while the income and financial resources of Mr Knott will likely increase, in particular given the increased age and improved health of [Child 3] and effective mental health care. However, any increased wages paid to Mr Knott from [Company 2] will likely correspond to a similar decline in loans and the contribution to his costs of self-support by [Ms C]. As such, the tribunal does not expect Mr Knott’s overall income, benefits and financial resources to vary significantly in the short term. Accordingly, the tribunal proposes to end the departure decision on 31 December 2023. At this time the 2021/22 and 2022/23 financial circumstances of the parties should be available for scrutiny.
Given the possibility of a change in the registered care of [Child 1] and [Child 2] in the near future, the tribunal does not propose to make a decision going forward that does not enable future changes in care to be accounted for through the administrative formula.
The tribunal proposes the following departure determination:
·The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $15,500 for the period 10 March 2020 to 19 May 2021;
·The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $13,000 for the period 20 May 2021 to 14 September 2021;
·The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $14,886 for the period 15 September 2021 to 31 March 2022;
·The adjusted taxable income of Mr Knott is varied to $80,000 for the period 1 April 2022 to 31 December 2023; and
·The annual self-support amount used in the administrative formula in respect of Mr Knott is to be reduced to $12,220 for the period 1 April 2022 to 31 December 2023.
Subsection 117(4) of the Act requires the tribunal to consider whether any departure determination or failure to make a departure will cause any hardship to the children, the carer, the liable parent or any other person the liable parent has a duty to support. The proposed decision results in an overall increase in the arrears of Mr Knott at 31 March 2022 of approximately $25.
It was common ground that use of the administrative assessment at an annual rate of child support in the vicinity of $2,622 would result in hardship to Ms Knott, [Child 1] and [Child 2]. Mr Knott stated that he was hopeful that things would change in the future. Ms Knott does not consider that an increase in the child support liability would cause hardship to Mr Knott, due to the availability of financial resources from other sources. She reiterated her need for continued assistance from Mr Knott going forward so as to maintain some sort of financial stability for the children.
Based on Mr Knott’s estimated average weekly expenses ($235), his estimated costs to support [Child 3] ($100) and his weekly available income, benefits and financial resources ($1,538), the tribunal is satisfied that he has the capacity to meet the ongoing weekly child support liability of just under $290, in addition to the remaining arrears. It is also open to Ms Knott to prioritise the “necessary” costs of the children, in line with the available income and financial resources of the parents.

Issue 3 – Is it otherwise proper to make a particular departure determination?

The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the 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.
Based on Centrelink records, Ms Knott is in receipt of FTB. However, it appears that she is not in receipt at the maximum rate, despite her low taxable income. As a sole parent, a change in the child support payable by Mr Knott will have no impact on her entitlement to FTB part B. In respect of FTB part A, given her taxable income is well below the threshold, the increase in child support payable by Mr Knott is unlikely to impact on Ms Knott’s entitlement to FTB part A. In the circumstances, the tribunal considers that it is otherwise proper to make the particular proposed determination. Furthermore, it is also open to Ms Knott to access her FTB entitlements throughout the year.
It is open to either party to lodge a further change of assessment application should the future circumstances of either party change significantly from the circumstances upon which this decision is based.

DECISION

The tribunal sets aside the decision and, in substitution decides that:

The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $15,500 for the period 10 March 2020 to 19 May 2021;
The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $13,000 for the period 20 May 2021 to 14 September 2021;
The annual rate of child support payable by Mr Knott to Ms Knott in respect of [Child 1] and [Child 2] is varied to $14,886 for the period 15 September 2021 to 31 March 2022;
The adjusted taxable income of Mr Knott is varied to $80,000 for the period 1 April 2022 to 31 December 2023; and
The annual self-support amount used in the administrative formula in respect of Mr Knott is to be reduced to $12,220 for the period 1 April 2022 to 31 December 2023.