Knowles and Cash (Child support)

Knowles and Cash (Child support) [2019] AATA 4302 (26 August 2019)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2018/BC014597
APPLICANT:  Mr Knowles
OTHER PARTIES:  Child Support Registrar
Ms Cash

TRIBUNAL:Member J Thomson
DECISION DATE: 26 August 2019
DECISION:

The decision under review is set aside and, in substitution, the tribunal decides that, for the period 2 October 2017 to 31 October 2020 Mr Knowles’s adjusted taxable income is varied to $95,000 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business - 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 Knowles and Ms Cash are the parents of [Child 1], born 2010, and [Child 2], born 2012 (the children). This review concerns the amount of child support assessed by the Department of Human Services – Child Support (the Department) as payable by Mr Knowles to Ms Cash for the children.
The administrative assessment in place for the period 26 September 2017 to 29 October 2017 required Mr Knowles to pay child support to Ms Cash at the annual rate of $816. This assessment was based on a 2017/18 adjusted taxable income (ATI) for Mr Knowles of $28,626, and an ATI for Ms Cash of $19,251. For the period 30 October 2017 to 6 December 2017 the administrative assessment required Mr Knowles to pay child support on an annual rate of $1,074, based on the same ATIs referred to above, consequent upon a change in care reflecting the children being in the above primary care of Ms Cash. From 7 December 2017 to 30 June 2018, Mr Knowles was required to pay an annual rate of child support of $784, based on the same ATIs referred to above, but reflective of a further change in care for the children from above primary care to Ms Cash, to shared, 50% equal care for both parents.
On 2 October 2017, Ms Cash applied to the Department for a change of assessment on the basis of the grounds commonly referred to as Reasons 2 and 8A.
On 24 January 2018, a Department [decision maker], found that a departure ground was established, and decided that for the periods 2 October 2017 to 31 December 2020, Mr Knowles’s ATI should be set at $135,807, and for the period January 2018 to 31 December 2018, his annual rate of child support should be increased by $1,080, representing his contribution the cost of medicated cream for the child, [Child 2]’s medical condition.
On 24 April 2018, Mr Knowles lodged an objection to [Department’s] decision of 24 January 2018. Although his objection was lodged outside the 28 day timeframe in which he was required to do so, he sought, and was granted, an extension of time in which to lodge his objection, and on 13 July 2018, a Department objections officer partially allowed his objection, setting aside [Department’s] decision, and in substitution, deciding that for the period 1 September 2017 to 29 February 2020, Mr Knowles’s ATI should be set at $135,807 (but with no increase in the rate of child support otherwise).
On 18 July 2018, Mr Knowles sought review of the objections officer’s decision of 13 July 2018. The Tribunal heard the matter in two hearings which took place on 8 January 2019 and 21 March 2019. Mr Knowles attended the hearing via conference telephone on 8 January 2018 and gave affirmed evidence. His representative, [Mr A], also attended the hearing via conference telephone and made submissions on behalf of Mr Knowles regarding certain documents he had provided to the Tribunal prior to hearing, but which appeared not to have been received and consequently, not included in the papers for the hearing. Ms Cash was not contacted for that hearing because of a misunderstanding as to whether she wished to participate in the hearing process. The Tribunal issued further directions for the provision of further submissions and documents, including the missing documents referred to by Mr Knowles’s representative, [Mr A], and further financial documents relating to Mr Knowles’s corporate and trust entities.
A rescheduled hearing of the matter took place on 21 March 2019. Both parents attended that hearing via conference telephone, and gave affirmed evidence. Mr Knowles’s representative, [Mr A], also attended the hearing via conference telephone and made submissions on behalf Mr Knowles. The Tribunal had before it documentation provided by the Department, Mr Knowles, and Ms Cash. Both parents and [Mr A] had copies of these documents with them at hearing. The Department’s documents were admitted into evidence and marked Exhibit 1, Mr Knowles’s documents (including the additional documents he was directed to provide at the earlier hearing on 8 January 2019) were admitted into evidence and marked Exhibit A, and Ms Cash’s documents were admitted into evidence and marked Exhibit B.
At the conclusion of the hearing, Mr Knowles was directed to provide further medical and psychologist’s reports in relation to his depression and anxiety conditions, and additional financial documents in relation to his corporate and trust entities, together with a copy of a Federal Circuit Court orders dated 13 March 2019. With the exception of the Federal circuit Court orders, Mr Knowles has otherwise complied with the Tribunal’s directions and the additional documents he has provided have been added to Exhibit A.
Copies of these additional documents have been provided to Ms Cash for her consideration and comment. Her written submissions in response have been added to Exhibit B.

CONSIDERATION

The legislative framework

The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act). The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. A formula is used which takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children in the level of care provided by each parent. A parent may apply for a departure from the assessment, under Part 6A of the Act, in certain circumstances. However, the legislative intent is that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. Under section 98C(1), a change of assessment can be made only if:
a. a ground (or more than one ground) for departure exists; and
b. Departure from the administrative assessment would be:
i.Just and equitable as regards the children and each parent; and
ii.otherwise proper.
If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the Tribunal may make one of the range of determinations prescribed in section 98S of the Act, which include varying the rate of child support payable, the adjusted taxable income or the cost percentage of a child.

Ground for departure

Income, property and financial resources and earning capacity

The Act provides, as grounds for departure from the administrative assessment of child support (in subparagraph117(2)(c)(ia)):
(c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child: …
(ia) because of the income, property and financial resources of either parent …
The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. In Gyselman the Gyselman (1992) FLC 92 – 279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The Tribunal will consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence relevant to the parents’ financial positions.

Ms Cash’s income and financial resources

Ms Cash produced to the Tribunal a statement of financial circumstances in which she disclosed that her sources of income are [payments] from Centrelink and a modest scholarship to assist with her studies. Ms Cash is also in receipt of family tax benefit to assist in meeting the needs of the children, and which is not regarded as income for child support purposes. The tribunal notes that Ms Cash’s income is reflected in her income tax returns and, therefore, in the administrative assessments of child support.

Mr Knowles’s income and financial resources

Mr Knowles’s case at hearing was that his capacity to earn income has been severely limited as a consequence of his depressive and anxiety medical treatment for which he has been certified unfit for work from May 2018 until mid-May 2019. In support of this evidence, he provided copies of Centrelink a medical certificate from his treating general practitioner, [Dr B], dated 7 November 2018, covering the period 7 November 2018 to 6 February 2019, and one dated 31 January 2019 covering 7 February 2019 to 6 May 2019, describing Mr Knowles’s disabilities as depression and anxiety, and his symptoms as insomnia and tiredness, for which he was being prescribed [Medication 1] and [Medication 2].
Mr Knowles provided a flow chart prepared by his accountant, [Mr C] of [Accountant Firm 1], detailing Mr Knowles’s business entity structure and copies of relevant company searches together with financial reports and corresponding income tax returns reflecting the income he derived from his business entities, relevantly, from the 2015/16 financial year onward. Mr Knowles conducts his income earning through a discretionary trust called [Trust 1] (the Trust), the Corporate Trustee of which is a company called [Company 1]. According to the Australian Companies and Securities Commission (ASIC) search provided by [Mr C], Mr Knowles is the sole director and shareholder of [Company 1], and accordingly, he controls the Trust. The Trust operates two business trading entities, [Business 1] and [Business 2]. ASIC searches provided by [Mr C] reflect Mr Knowles as the sole director of those companies, the shares in which are held by [Company 1] as trustee of the Trust.
There was no evidence before the Tribunal to suggest that Mr Knowles had any other business entities from which he derived income, and Ms Cash acknowledged in evidence that, although she asserted he had an interest in a [Country 1] based IT company from which he derived income, she acknowledged she had no evidence to support that assertion, and accepted that his only sources of income were derived from the Trust and the two corporate entities it controlled. Any dividends declared from either of the trading companies flow to [Company 1] as trustee of the Trust, and would be available for distribution to the Trust’s beneficiaries, of whom Mr Knowles is recorded as the primary beneficiary. [Mr C]’s letter accompanying the financial information he provided to the Tribunal dated 14 January 2019 indicated that the Trust’s income distribution pattern would have been to distribute profits to either Mr Knowles, as primary beneficiary of the Trust, or one of the trading entities, as tertiary beneficiaries.
According to [Mr C], both trading companies have been in loss situations for several years and have not declared any dividends.
The business operations of the trust and its trading entities are conducted from rented premises at [Suburb 1], on the western outskirts of [City 1]. Mr Knowles gave evidence that he is currently residing on the business premises since moving from his mother’s residence at [Suburb 2]. Although Ms Cash asserted the Trust’s the business premises were leased from a trust entity controlled by Mr Knowles’s mother and a friend, Mr Knowles denied that assertion and Ms Cash was unable to provide any evidence to support her assertion.
Mr Knowles gave evidence that, as well is acting as corporate trustee of the Trust, [Company 1] trades under the business name, “[Business 3]”, operating from the [Suburb 1] premises, on the western outskirts of [City 1], specialising in the provision of [specified services and goods]. Mr Knowles also provides coaching advisory and consultancy services in [specialised area], advertised through a website he conducts from [Business 3]’s [Suburb 1] premises. Because of his depression/anxiety condition, he said he has not been able to conduct any [coaching] since April 2018. However, Mr Knowles accepted during the hearing that has continued to work in the other aspects of his business despite those conditions.
[Business 2] is a business entity through which Mr Knowles provides [certain goods and services]. The business is operated from [Business 3]’s [Suburb 1] premises in conjunction with his other business entity, [Business 1], which provides the [administrative] facilities for this business, the income for which is returned through [Business 1].
[Business 1] is a business entity through which Mr Knowles supplies and maintains specialised [goods] for [specific clientele]. The business is also operated from [Business 3]’s [Suburb 1] premises, employing Mr Knowles in his capacity as a trained [Occupation 1]. The business also employs two additional [Occupation 1], and two part-time administrative staff members. The business also owns and operates three motor vehicles – including [Vehicle 1], [Vehicle 2], both of which Mr Knowles said are used as pool vehicles by the technical and administrative staff to collect and deliver [goods] to clients, transport technical staff to clients’ premises to [provide service] and/or provide technical support advice. The third vehicle, [Vehicle 3], is used by Mr Knowles to service the clients of his [other] businesses. He gave evidence that his driver’s licence was suspended due to a minor traffic offence for six months in July 2018 as a consequence of which, he relied on his technical staff transport him to appointments [with] clients throughout south east Queensland. His licence has only recently been restored. He also acknowledged in his evidence that he has some private use of one of this motor vehicles.
Mr Knowles was keen to point out in his evidence that he is essentially a trained [Occupation 1], and has never been qualified, employed or remunerated as an [Occupation 2].
He provided a detailed written submission instancing a litany of events since the parents separated in July 2013 including the hospitalisation of the youngest child for treatment of [Condition 1] as a consequence of a domestic accident at Mr Knowles’s house during his care period, adverse changes to his care arrangements resulting in disruptions to his work pattern in having increased travel commitments to transport the children to and from child care and pre-school during his care periods, the sale of his house to provide capital for his business entities, the onset of depression and anxiety occasioning a period of hospitalisation and subsequent treatment by his psychologist, [Dr D], all of which he said has adversely affected his work capacity and the profitability of his business enterprises.
The medical evidence Mr Knowles provided comprised largely of Centrelink medical certificates from his treating general practitioner, [Dr B], his depression and anxiety diagnosis, and his prescribed treatment of courses of [Medication 1] and [Medication 2]. His treating psychologist, [Dr D], provided a report dated 24 October 2017 recording his treatment of Mr Knowles for depression and anxiety over a course from December 2016 to March 2017. By October 2017, [Dr D] was able to report that Mr Knowles was not suffering from a stress, anxiety or depressive condition, and could be expected to function normally in all relevant domains.
Although Mr Knowles provided a medical certificate from [Dr B] dated 7 November 2018, certifying him unfit for work from 7 November 18 to 6 February 2019, and a further certificate dated 30 January 2019, extending that period of unfitness for work to 6 May 2019, due to anxiety and depression, citing insomnia and tiredness as the cause of the anxiety and depressive conditions, the only course of treatment prescribed was a course of medication of [Medication 1] and [Medication 2]. There was no evidence provided that Mr Knowles was receiving further treatment from his psychologist, [Dr D], or any other psychologist or psychiatrist or that there had been a change in his medical condition since the determination by [Dr D] in October 2017, concluding that he was not suffering from a stress, anxiety or depressive condition at that time and could be expected to function normally in all relevant domains.
The Tribunal accepts [Dr D]’s report, but finds that, despite any conditions from which he may have been suffering, he was, in fact, continuing to work in his businesses. He gave evidence that, although [Dr B] certified him unfit for work from 7 February 2019 to 6 May 2019, he is still managing [Company 1] selling [specified goods]. He said he is also providing coaching services for [specific] clients via telephone and text messages to clients in Victoria and New South Wales, deriving most of his income from this source, but he has not been able to attend [on-site] coaching sessions since April 2018.
The financial reports for the Trust and its trading entities provided by [Mr C] on behalf of Mr Knowles disclose the following.
The Trust recorded income of $89,376 for the 2016 financial year against expenses of $90,134, resulting in a loss of $758. For the 2017 and 2018 years respectively, net profits after cost of sales plus other income amounted to $94,489 and $77,716, against expenses totalling $78,496 and $233,688 respectively, resulting in a profit for the 2017 financial year of $15,993, and a loss in the 2018 financial year of $155,972. Included in the expense items were [specified] expenses of $10,998 for the 2016 year, $20,828 for the 2017 year, and $8,826 for the 2018 year which, the Tribunal concludes, relate, at least in part, to Mr Knowles’s personal [hobby], and are a financial resource of personal benefit to him.
For the financial years 2016, 2017 and 2018, [Company 1] recorded gross incomes, net of cost of sales, of $88,980, $33,586, and $13,632 respectively. After cost of sales, net profits were $74,674, $33,586 and $11,535 for each of those years, against expenses of $118,380, $35,764 and $24,440 respectively, resulting in operating losses of $29,401, $2178, and $12,905 for those financial years.
For the 2016, 2017 and 2018 financial years, [Business 1] recorded gross income, including sales net of the cost of $562,732, $589,721 and $520,125 respectively, against expenses of $583,201, $596,563 and $756,796 respectively, resulting in operating losses of $20,469, $20,657, and $67,794 respectively.
[Mr C] confirmed that the sponsorship contribution of $25,000 on 30 June 2017 reflected in [Company 1]’s [bank statement] was recorded as part of the gross income for the company in the company’s 2016/17 profit and loss statement and is correspondingly reflected in the company’s income tax return for that financial year. The Tribunal accepts [Mr C]’s evidence in that respect.
The financial data set out above reflects that, with the exception of a modest profit in the Trust for the 2017 financial year of $15,993, Mr Knowles’s business enterprises have recorded losses since 2016. He submitted in evidence that he sold his [Suburb 3] home in April 2017, and applied all but $55,000 of the settlement proceeds of $228,000 by way of loans to host business entities to reduce business debt, and fund the relocation and fit out of his [Suburb 1] business premises, He applied the $55,000 retained from the sale proceeds to purchase a caravan which he installed on site at his [Suburb 1] business promises as his living quarters while he supervised the relocation and fit out of his business enterprises at [Suburb 1]. Between May 2017 and December 2017, he lived partly with his mother at her [Suburb 2] address, and partly in his caravan at [Suburb 1], commuting between the two addresses by train. His evidence was that by the end of 2017, his [Business 3] business was showing positive signs of recovery. However, Family Court proceedings distracted his focus on his business activities and adversely affected his health.

Since July 2018, he said in his written submissions to the Tribunal that he has repaid his traffic fine by performing voluntary work and served out his licence suspension period, applied for newstart allowance, sold his caravan and applied the sale proceeds to fund his business debt reduction programme, streamlined aspects of the businesses in an unpaid director’s capacity to reduce costs and improve prospects for future revenue, renegotiated several revenue contracts with existing clients to shore-up his businesses, and entered into a debt repayment arrangement with various creditors including [energy company] and the Australian Taxation Office.
Mr Knowles gave evidence that over the past seven years, he estimated his average income would have been just under $70,000 per annum. The tribunal notes that this income differs significantly from that reported in his income tax returns and used in the administrative assessment of child support.
The financial reports referred to above also contain items of management fees charged between the businesses, travel expenses, motor vehicle expenses and telephone, all of which are being funded through his business operations, and some of which would be of personal resource benefit to him. The quantum of these amounts differs from year to year. These items are in addition to personal motor vehicle, accommodation and [hobby] costs dealt with separately in these reasons. However, having regard to the evidence as to the cashflow, profits and expenses reported in the various entities across the past few financial years, and Mr Knowles’s concession in this regard, the Tribunal finds that it is reasonable to conclude that $70,000 per annum represents the level of income available to Mr Knowles from his involvement in the businesses and trusts.
Mr Knowles is currently residing in a flat attached to his business premises at [Suburb 1]. Prior to that he was living with his mother at [Suburb 2], and commuting via Qld Rail to [Suburb 1]. He claims rail fares in his weekly household expenses schedule – these were reduced when he began to receive Centrelink benefits and a concessional rail pass. He also gave evidence that, when he held a driver’s license, he used one of the company vehicles to collect the children from school and he had some personal use of [Vehicle 3].
Some further adjustment to the assessment Mr Knowles’s available financial resources is also appropriate to reflect the financial benefit to Mr Knowles from his rent-free residential accommodation at the [Suburb 1] business premises of his corporate entities, and also the private use of [Vehicle 3]. The Tribunal considers it appropriate to allocate $200 per week for the use of the accommodation from December 2017 and $100 per week for the vehicle, which annualises to about $15,000 per year, and annual expenses for his [hobby] of at least $10,000 per annum. When added to Mr Knowles’s average annual income of $70,000, the tribunal finds that Mr Knowles has in the order of $95,000 available to him annually in income and financial resources as described above.

Needs of the children

Regarding the child, [Child 2]’s special [medicated] cream Mr Knowles provided evidence from [Hospital 1] that [Child 2]’s treatment plan from April 2018 indicated that her [medical] intervention was reduced as her [condition] had matured, that she was ceasing to use [Cream 1] and was now using [Cream 2] once or twice a day. He also provided evidence that all [medical] intervention from 10 November 2017 was to be provided by [specified health service provider] at no cost to the parents.
Ms Cash did not challenge the objections officer’s finding that the child, [Child 2], had no special needs arising from her [condition]. In any event the Tribunal is not satisfied the child, [Child 2] has special needs relating to the treatment of her [condition] as the Tribunal is not satisfied that the parents are incurring significant costs as a result of her needs.

Conclusions in relation to the departure ground

The administrative assessment of child support does not take account of the income and financial resources available to Mr Knowles through the operation of the businesses. The administratively assessed rate of child support payable by Mr Knowles, required Mr Knowles to pay child support to Ms Cash at the annual rate of $816. This assessment was based on a 2017/18 ATI for Mr Knowles of $28,626, and an ATI for Ms Cash of $19,251.The Tribunal has found that Mr Knowles had access to income and financial resources of about $95,000 at that time. If child support was calculated using an income of $95,000 per annum for Mr Knowles, the annual rate of child support payable by Mr Knowles for the children would increase to about $11,842 per annum. The administrative assessment of child support does not fairly reflect incomes and financial resources available to the parents and, in particular, available to Mr Knowles from the businesses and Trust. The existence of those factors together set this case apart from others, making it special.

42. The Tribunal is satisfied that the administrative assessment of child support produces a result which is unjust and inequitable having regard to the parents’ respective incomes and financial resources, particularly having regard to the disparity between the annual rate of child support calculated in the administrative assessment and that arrived at with regard to the actual income and financial resources available to Mr Knowles from the businesses. The Tribunal therefore finds that there is a ground to depart from the administrative assessment.

Just and equitable

43. The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

Mr Knowles

44. Mr Knowles lives in a home the expenses for which are met by the business. There is nothing in the evidence to suggest that the self-support amount allowed for in the formula (of approximately $24,000 per annum) is not an appropriate measure of Mr Knowles’s proper needs.

45. The Tribunal has found that Mr Knowles has had income and financial resources from his business of about $95,000 per annum available to him since 2017 when the departure application was lodged. As he was assessed on income up to that date which did not capture all of the income and financial resources from the businesses, the Tribunal is satisfied that it is just and equitable to depart from the underlying assessment and to vary Mr Knowles’s adjusted taxable income to $95,000 per annum from 2 October 2017

Ms Cash

46. Ms Cash lives with the children in rented accommodation. There is nothing in the evidence to suggest that the self-support amount allowed for by the child support formula (of approximately $24,000 per annum) is not an appropriate measure of Ms Cash’s proper needs. The Tribunal has found that the children do not have special needs, and that therefore there is no basis to depart from the costs provided for in the child support assessment.

Conclusions as to what is just and equitable

47. The Tribunal proposes to vary the adjusted taxable income for Mr Knowles to $95,000 per annum to reflect the income and financial resources available to him from the businesses from lodgement of the departure application on 2 October 2017 onwards, and to do so for a reasonable period of time in order to allow for some certainty of the parents, because the adjusted taxable income used for Mr Knowles in the child support assessment was not reflective of his actual income and financial resources and led to an unfair assessment of child support from that date, having regard to the interests of each parent and the children.

48. The proposed departure will create arrears for Mr Knowles. The Tribunal is not satisfied that any hardship is created as a result of that creation of arrears having regard to the nature and quantum of financial resources available to Mr Knowles and the prospect of meeting those arrears over time. It is proper that he is assessed on his actual income and financial resources. The Tribunal is satisfied that the proposed departure will not cause hardship to either parent or to the children.

Otherwise proper

49. The requirement to consider whether a departure would be otherwise proper 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 and benefits. Parents rather than the community have the primary duty to maintain a child. Varying the income for Mr Knowles on which child support is calculated from that used in the administrative assessment, based on his income and financial resources which are not reflected in the administrative assessment, will result in an appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

Conclusion

50. Ms Cash sought a departure from the administrative assessment of child support in October 2017 at a time when Mr Knowles was assessed to pay child support calculated using an adjusted taxable income for which did not take into account his actual income and financial resources from his businesses. The Tribunal has found a ground to depart from the administrative assessment and has determined that Mr Knowles’s adjusted taxable income should be varied to $95,000 per annum from 2 October 2017 to 31 October 2020. The Tribunal has found that a departure in those terms is just and equitable and otherwise proper.

51. As the Tribunal has reached a different conclusion to that reached in the decision under review, the decision under review is set aside and a decision substituted to reflect the Tribunal’s findings.

DECISION

[2019] AATA 4302

26 August 2019

Key Legal Topics

Areas of Law

Family Law

Legal Concepts

Jurisdiction

Statutory Construction

Remedies