Koenig and Koenig (Child support)

[2019] AATA 5516

Koenig and Koenig (Child support) [2019] AATA 5516 (7 November 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/SC017188

APPLICANT:  Mr Koenig

OTHER PARTIES:  Child Support Registrar

Ms Koenig

TRIBUNAL:Member Y Webb

DECISION DATE:  07 November 2019

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – particulars of the administrative assessment – whether the adjusted taxable income declared by the liable parent was accurate – the income declared does not reflect the actual income – decision under review affirmed

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. This review is about whether Mr Koenig’s income tax declaration for the 2017/2018 year of $37,502 should be accepted or refused.

2. The child support case for Mr Koenig commenced on 1 May 2019 and has been registered for collection since that date.

3. Mr Koenig and Ms Koenig have two children who are the subject of the child support assessment.  The children are aged nine and eight.  According to the Department of Human Services (Child Support Agency) records the children are in the shared care of the parents.

4. On 14 May 2019 the Child Support Agency made a decision to accept an income tax declaration from Mr Koenig of $37,502 applicable to the 2017/2018 year (comprising employment income of $27,000 and net property losses of $10,502).

5. On 27 May 2019 Ms Koenig objected to that decision asserting that Mr Koenig had falsely estimated his true income.

6. On 26 July 2019 an objections officer allowed Ms Koenig’s objection and decided to refuse Mr Koenig’s income tax declaration of $37,502 on the basis that historically he had under-declared his income; the income was below any previous taxable incomes; and Mr Koenig had not provided evidence to support his income tax declaration for the 2017/2018 year.

7. On 19 August 2019 Mr Koenig requested a review by the Administrative Appeals Tribunal (the Tribunal).

8. Mr Koenig and Ms Koenig both attended the hearing on 7 November 2019 by way of a telephone conference and both gave sworn evidence.

9. The Child Support Agency provided two bundles of documents.  The larger bundle was marked exhibit C1 and the smaller bundle exhibit C2.  Mr Koenig advised that he had not received the C1 documents but he was prepared to proceed with the hearing. A document was also provided by Ms Koenig and this was marked exhibit B1.

ISSUES

1. The issue which arises in this case is:

   ·      Should the income tax declaration provided by Mr Koenig of $37,502 be accepted or refused?

CONSIDERATION

1. The legislation relevant to this review is contained in the Child Support (Assessment) Act 1989 (Assessment Act) and the Child Support (Registration and Collection) Act1988.

2. Ordinarily, a parent’s rate of child support payable is calculated pursuant to a formula which is based, in part, on the parent’s adjusted taxable income for the preceding financial year.  Mr Koenig had not lodged an income tax return for the 2017/2018 year (nor for the 2016/2017 year).  In addition, he had not lodged a company tax return for the 2017/2018 year.

3. Subsection 58(1) of the Assessment Act provides that in some circumstances the Registrar may determine a parent’s adjusted taxable income.  One of the circumstances is where a parent’s taxable income for the last relevant year of income in relation to a period has not yet been assessed.  Relevant to Mr Koenig is subsection 58(4) of the Assessment Act which provides:

   4)  If:

   (a)the parent's taxable income for the previous year has not been assessed under an Income Tax Assessment Act; but

   (b)the parent's taxable income for an earlier year of income has been so assessed;

   the Registrar may determine that the parent's adjusted taxable income for the last relevant year of income is the greater of the following amounts:

   (c)the amount worked out by multiplying the parent's adjusted taxable income for the earlier year of income (or, if the parent's taxable income has been so assessed for more than one earlier year of income, the most recent of those years) by the ATI indexation factor;

(d)the amount that is equal to two-thirds of the annualised MTAWE figure for the relevant June quarter in relation to the child support period.

1. Mr Koenig made a declaration that his income for the 2017/2018 year was $37,502 (being $27,000 from employment and $10,502 as rental net losses).  Initially this was accepted by the Child Support Agency, but on objection the Child Support Agency refused to accept that Mr Koenig had an adjusted taxable income of $37,502 for the 2017/2018 year.

Mr Koenig’s evidence and contentions

1. Mr Koenig told the Tribunal that he had lodged an income tax return for the 2015/2016 year but that he had not lodged any income tax returns since.  He had also not lodged a company tax return.  Mr Koenig stated that the reason he had not lodged income tax returns was that he no longer had access to the family home.  He stated that he had a home office and that because Ms Koenig had changed the locks on the family home he could not access the documentation he needed to complete his tax returns.  He stated that some of the necessary information was with his accountant, but not all of it.

2. In relation to his income Mr Koenig advised that he is a painter.  He said that he stopped working in 2017 because Ms Koenig lost her licence and he took her to and from work, drove the children to and from school and undertook home duties for six and a half or seven months of that financial year.  He stated that he only was working for five months of the 2017/2018 year.

3. He stated that he was self-employed through a company structure and because he was supporting the family and was not available to work a full day he could not make any contractual arrangements to undertake [jobs].  He stated that he did undertake some small jobs but these were irregular and only for an hour or two.

4. The Tribunal then queried with Mr Koenig the payment summary for him for the 2017/2018 year which was included within the C1 papers[1] and which was for the payment period 1/7/2017 to 19/9/2017 and confirmed that he received gross salary payments of $27,230; tax withheld of $10,638; lump sum payments of $6,873 (lump sum A) and $2,307 (lump sum D).

   [1] C1, page 49

5. Mr Koenig told the Tribunal that he was working as a full-time employee of [Company 1] in the 2017 year for a period of time but his employment was terminated.  He said that after his employment concluded he started operating his own business through a company structure and became self-employed. He stated that the company had been registered for some time but that it only started actively trading in 2017.  He said that the company did not pay him any wages or any income because he was concentrating on setting up the business and all of the money which the company made was reinvested in the business. He agreed that the business bought a new vehicle and trailer and that there were other costs in establishing and growing the business.  

6. Mr Koenig stated that throughout 2017/2018 when he was not working (which he stated was for about seven months of that year) he was living off an inheritance of [amount] which he received from his late father and an insurance payout when his car was written off.  He said that in addition he borrowed [amount] from his brother.

7. In relation to Ms Koenig’s claim that he was receiving rental income of around $500 per week, Mr Koenig stated that the property is negatively geared and the Child Support Agency had already taken the net property losses into account in the income of $37,502 which it was originally using.

8. In response to the Child Support Agency’s statement that he had a history of under-reporting his income Mr Koenig stated that there was only one time that he under-estimated his income and that was due to a misunderstanding.

9. In relation to the Child Support Agency’s statement that his income had never been below $107,000 Mr Koenig stated that in the past he had worked as an employee but since the 2017/2018 year he had been self-employed through the company and his income had decreased.

Ms Koenig’s evidence and contentions

1. Ms Koenig disputed that Mr Koenig did not have access to documentation required to complete his tax returns.  She stated that she personally took all of the documentation to Mr Koenig’s accountant and that there is no reason why his income tax returns can’t be finalised.

2. Ms Koenig denied that Mr Koenig was driving her to and from work every day during most of 2017/2018.  She stated that she only needed transport one day a week because on all of the other days of the week she worked from home. 

3. She denied that Mr Koenig was undertaking home duties during most of that year to the extent that he could not work.  She said that she employed a cleaner in that year and that Mr Koenig did not undertake domestic tasks to any significant extent. She stated that her mother lives nearby and is always available to assist with the children or anything else.  Ms Koenig stated that her recollection was that Mr Koenig was working throughout the 2017/2018 year.  She stated that he was working for [Company 1] and that he also bought items such as a [vehicle] and trailer. 

4. Ms Koenig stated that she does not know how much Mr Koenig received as an inheritance.  He did not share that information with her and whatever funds there were, he put into a separate account.  She has no knowledge at all of the [amount] which Mr Koenig said he borrowed from his brother.

The Tribunal’s consideration

1. The Tribunal is satisfied, from the payment summary which was included in the C1 papers, that Mr Koenig received gross income of $27,230 in the period 1 July 2017 to 19 September 2017.  The employer has been redacted but the Tribunal accepts that this was income from [Company 1].

2. Essentially Mr Koenig claims that this is the only income he received in the 2017/2018 year (plus the net property losses of $10,502).  However, this employment income was earned over a period of only approximately 11 weeks (1 July 2017 to 19 September 2017) whereas Mr Koenig initially told the Tribunal that he did not work for approximately seven months in the 2017/2018 year but that he worked for the rest of the year (five months).  This inconsistency was not explained.

3. In relation to any other income Mr Koenig’s evidence was quite contradictory.  He stated that he started establishing his own business through a company structure and that he bought a new motor vehicle and trailer and various other items for the business.  He stated that the income he was earning from the business was being reinvested in the business to get the business off to a good start.  On the other hand Mr Koenig denied that he was working for most of the 2017/2018 year stating that he was undertaking home duties.  Unless he was working it is difficult to understand how he could generate income so that the company could afford to purchase a new motor vehicle and trailer and meet the costs of running a business.  Mr Koenig did not provide any financial statements for the business or any other evidence about his work in the 2017/2018 year. 

4. Ms Koenig denied that Mr Koenig spent most of the year transporting her and the children and undertaking home duties.  She also denied that Mr Koenig does not have access to all financial information which he needs to complete his tax returns. Mr Koenig’s claim that he could not access the financial information needed to complete his tax returns does not explain why he had not lodged his tax return for the 2017/2018 and 2016/2017 year as he and Ms Koenig did not separate until January 2019.  In any event, the Tribunal found Ms Koenig’s evidence more plausible than Mr Koenig’s and it accepts her statements that all of the financial information required to complete Mr Koenig’s tax returns and the company tax return has been already provided to his accountant.

5. Mr Koenig claimed that during the time that he was self-employed in the 2017/2018 he was living off an inheritance from his father, an insurance payout and a loan from his brother.  He stated that he was meeting a share of the mortgage payments on the family home and an investment property from these moneys.  He stated that the mortgage payments were $5,200 per month.  No evidence of any of those financial resources was provided to the Tribunal.

6. The Tribunal accepts the statement of the Child Support Agency that Mr Koenig has provided estimates in the past which, when compared with information provided by employers to the Australian Taxation Office, have been found to be inaccurate.

7. In the absence of income tax returns and personal and company bank statements as well as financial statements for the company in the 2017/2018 year - in addition to an absence of verification of the inheritance, the insurance payout and the loan - the Tribunal is not satisfied that Mr Koenig’s income tax declaration of $37,502 accurately reflects his true income for the 2017/2018 year.  Therefore the Tribunal agrees with the objections officer that the income tax declaration should be refused.

DECISION

The decision under review is affirmed.