Kovacs and Parks (Child support)

[2024] AATA 3580

Kovacs and Parks (Child support) [2024] AATA 3580 (29 August 2024)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2024/AC027598

APPLICANT:  Mr Kovacs

OTHER PARTIES:  Child Support Registrar

Ms Parks

TRIBUNAL:Member S Letch

DECISION DATE:  29 August 2024

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that:

(a)for the period 1 April 2023 to 31 October 2023, Mr Kovacs’ adjusted taxable income is varied to $70,000;

(b)for the period 1 November 2023 to 30 November 2025, Mr Kovacs’ adjusted taxable income is varied to $120,000.

CATCHWORDS
CHILD SUPPORT – departure determination – ground for departure – income, property and financial resources – self-employment – just and equitable – otherwise proper – 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

1. Mr Kovacs and Ms Parks are the parents of [Child 1] (born November 2012). Mr Kovacs has been assessed by Child Support as liable to pay child support to Ms Parks from 7 October 2023. Mr Kovacs seeks a review of an objection decision which “part allowed” Mr Kovacs’ objection to a “change of assessment” decision of 18 October 2023.

2. By way of background, it is convenient to set out some extracts from the objections officer’s decision letter dated 22 February 2024:

   The assessment

   The child support assessment commenced 9 December 2014 and is currently registered for collection by Services Australia Child Support (the agency).

   There has been one previous Change of Assessment (CoA) application to have proceeded for this case, apart from the decision under review. However, a decision was made on that application in April 2017, which I consider is too far back to have relevance to the application under review.

   The most recent assessments are as follows:

   In Case 807434265:

   For the period 1 October 2023 to 31 December 2024, Miss Parks is assessed to pay child support of $2,705 per annum based on her 2022-23 ATI of $76,987 and Mr Kovacs 2022-23 ATI of $48,834.

   As at the date of this decision, Miss Parks has overpaid child support, and has a credit on her account.

   Mr Kovacs currently owes child support of $259.02.

   DECISION UNDER REVIEW

   On 31 January 2023, Miss Parks applied for change to the assessment on the basis of Reasons 8A.

   On 18 October 2023, a DM found Reason 8A established and changed the assessment as follows:

   For the period 1 April 2023 to 31 October 2026, Mr Kovacs ATI is set to $89,000.

   …

   Mr Kovacs is self-employed and is director to a number of companies, with most having at least two directors.

   Therefore, to simplify matters, given that there are several companies involved, each with at least two directors, I shall just consider the financial resources received by Mr Kovacs shown in his bank transaction statements. I note that the earlier bank statements, examined in the CoA process, show him receiving a net income for child support purposes of $16,962.24 over a period of three months.

   However, as a self-employed person, I am aware that Mr Kovacs will not receive paid holiday leave, nor will receive the same level of income when too ill to work. Therefore, I shall annualise this net income on the basis of Mr Kovacs receiving this level of personal income over 11 months of the years. This means that my determination of his net income for child support purposes over this period is $62,194.88 [($16,962.24/3) x 11]. This will gross up to $80,399.

   I have calculated using an income of $80,399 for Mr Kovacs will alter the annual assessment as follows:

   For the period 13 October 2022 to 30 September 2023, from $2,559 to $1. The difference of $2,558 is equivalent to a weekly amount of $49.19. I consider this is sufficient to make the assessment unfair.

   For the period 1 October 2022 to 6 October 2023, from $2,705 to $718. The difference of $1,987 is equivalent to a weekly amount of $38.21. I consider this is sufficient to make the assessment unfair.

   However, I am also mindful that the more recent transaction statements provided by Mr Kovacs show that he is personally receiving net income of $23,244.07 over the period 7 October 2023 to 31 December 2023 (86 days). After taking the same annualising approach as shown above to take into account unpaid leave, this equates to an annualised net income of $90,430. This then grosses up to $123,765.

   I have calculated using an income of $123,765 for Mr Kovacs will alter the annual assessment as follows:

   For the period 7 October 2022 to 31 December 2024, the roles of the parents will change and Mr Kovacs will become the paying parent, liable to pay an annual rate of $1,808. I consider this is sufficient to make the assessment unfair.

   …

   I have found Reason 8A was established, in relation to Mr Kovacs income and financial resources.

   As at the date of this decision, no listing or self-support expenses nor evidence of out-of-the-ordinary expenses has been received from Mr Kovacs as at the date of this decision.

   Therefore, I am not satisfied Mr Kovacs has out-of-the-ordinary self-support expenses which make the assessment unfair.

   As to Mr Kovacs income, I find it fair to set his ATI at $80,399 for the period under review prior to 7 October 2023, and at $123,765 for the period commencing 7 October 2023.

   …

   As to the date to end this decision, as Mr Kovacs is self-employed I am not satisfied, due to his ability to legitimately claim business expenses not available to PAYG employees, that his future taxable incomes will fully reflect his capacity to contribute to [Child 1] s costs. Therefore, I shall extend this decision until 30 June 2025 to create a decision period of a little over two years. By that date it is likely that new financial information will be available from the companies Mr Kovacs is associated with running, as well as on Mr Kovacs personal and business bank statements. As Mr Kovacs did not supply full details of his expenses, I cannot be satisfied the reduction in payment by Miss Parks and the subsequent assessment of child support payable by him will create significant hardship for him.

   As Miss Parks ongoing child support liability subsequently decreases, I cannot be satisfied the new assessment will create significant hardship for her. After comparing my decision to the CoA DM s decision, I observe we have both established Reason 8A but have reached different outcomes. However, I note that I had access to more recent bank statements for Mr Kovacs than the CoA DM.

   …

   DECISION

   Outcome: The objection is allowed in part.

   The previous Decision Maker s (DM s) decision, made on 18 October 2023, will be replaced as from 1 April 2023 with the following:

   In Case 807434265 and Case 807434261:

   -For the period 1 April 2023 until 6 October 2023, Mr Kovacs Adjusted Taxable Income (ATI ) shall be set at $80,399.

   -For the period 7 October 2023 until 30 June 2025, Mr Kovacs ATI shall be set at $123,765.

   In Case 807434265 Miss Parks overpayment is expected to reduce by approximately $61.19.

   In Case 807434261 additional arrears will be created for Mr Kovacs, of approximately $316.74.

   This is a contrary decision for Mr Kovacs who would have been anticipating an increase in the assessment of child support payable by Miss Parks. However, I consider the decision is fair one for both parents and [Child 1].

   …

3. Mr Kovacs participated in the hearing by conference telephone. Ms Parks did not participate in the hearing; she did not supply her Statement of Financial Circumstances, as directed. In making its decision, the Tribunal took into account the Child Support materials, and the additional materials submitted by Mr Kovacs.

CONSIDERATION

The legislative framework

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Act). A formula is used. It takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent.

2. Part 6A of the Act allows for a departure from an administrative assessment (a process commonly known as a “change of assessment”). Under subsection 98C(1), the Registrar may make such a departure determination if three matters are established:

   ·     one, or more than one, of the grounds for departure referred to in subsection 98C(2) exists (subparagraph 98C(1)(b)(i));

   ·     a departure is just and equitable as regards the children and each parent (sub-subparagraph 98C(1)(b)(ii)(A)); and

   ·     it is otherwise proper to make a departure decision (sub-subparagraph 98C(1)(b)(ii)(B)).

3. Subsection 98C(2) provides that the grounds for departure are the same as the grounds set out in subsection 117(2) of the Act.

4. 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 determinations prescribed in section 98S of the Act. It permits a range of determinations, including varying the rate of child support payable, the adjusted taxable income or the cost percentage for a child.

Issue 1 – Is there a ground to depart?

1. Subparagraph 117(2)(c)(ia) of the Act, commonly referred to by Child Support as Reason 8A, provides as a ground for departure:

   (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; or

   (ib)because of the earning capacity of either parent; …

2. The starting proposition is that the child support formula should apply. Only in special circumstances should a departure be made. The words “in the special circumstances of the case” are not defined in the legislation. While 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. That is, the intention of the legislature is that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. In Gyselman and 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 hearing

10.Mr Kovacs told the Tribunal he considers his income from October 2023 to be reflected by his salary from [Company 1] which he estimated to be in the range of $80,000 to $90,000 (during the hearing, he confirmed that in 2023/24, he was paid some $94,000, before deductions). Mr Kovacs said his contract with [Company 1] expires in October 2024; he is hopeful of renewal but is uncertain, and is uncertain about the value of any such contract. He is hoping to “push up” his income to the $100,000 range. Prior to that, he said he was “really struggling” earning only around $50,000, including part-time work as a [Occupation 1].

11.Mr Kovacs said that the gross profit of [Company 1] in 2023/24 (based on preliminary figures) is some $52,000. He said no profit is “paid”; no dividend will be received. Those funds are “rolled back in” to the business. [Company 2] is the holding company and derives no income as such. [Company 3] and [Company 4] are “startups” and presently earn no, or negligible, income. Mr Kovacs said that consideration is being given to closing [Company 4] as it earns no income. Mr Kovacs said money is owed to the ATO which he cannot afford to repay. Mr Kovacs said a previous business partner “did a number on them”, leaving them with debts.

12.Mr Kovacs said that because of his medical issues, he spends about $400 to $500 per fortnight. He has been through a long process with NDIS, which he is hoping will soon be approved and which will hopefully substantially ameliorate those costs. Mr Kovacs said he was recently out-of-pocket about $5,000 for surgery in Adelaide.

13.Mr Kovacs said he pays for [Child 1]’s private school fees; she is in Year 6. Previously, under a private arrangement, the school fees were intended by him to be in lieu of child support; however, Ms Parks “reneged”. Mr Kovacs said he cannot afford to keep going back to the Family Court.

14.Mr Kovacs said he understands Ms Parks started a new job earlier this year. He does not know how much she earns; he heard through [Child 1] that Ms Parks is earning more now.

15.Mr Kovacs said he had been receiving financial counselling; whilst things have improved, it is still “very difficult”. He considers he has paid more for [Child 1]’s expenses; for example, for glasses, extracurricular activities, and for her bus fares ($300 per term). He cited a further example of Ms Parks asking for a pair of [Child 1]’s school shorts which he said will not be returned and will cause him to have to buy new shorts.

16.In terms of any assessment going forward, Mr Kovacs told the Tribunal that when roles were reversed, Ms Parks owed a considerable amount to him; he was asked by Child Support to waive recovery. He is concerned about being put into debt.

Consideration

17.From 1 October 2023, Mr Kovacs’ adjusted taxable income was recorded as $48,834 (his 2022/23 adjusted taxable income). Mr Kovacs began a contract earning around $90,000 per annum from October 2023. I am satisfied his financial capacity is not properly reflected in the assessment. In the special circumstances of the case, the child support assessment is rendered unfair; there is a ground to depart from the child support formula.

Issue 2 – Is it just and equitable to depart from the administrative assessment?

18.The next relevant consideration for the Tribunal is whether a departure from the administrative assessment is just and equitable. This enquiry 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. The Tribunal is obliged to conduct reviews in a way that is informal, quick and proportionate: section 2A of the Administrative Appeals Tribunal Act 1975.

19.I generally accept Mr Kovacs’ evidence that his income position improved when he entered a contract in October 2023 to be paid a salary from [Company 1]. According to Mr Kovacs, on his preliminary figures, he was paid a salary totalling some $94,000 in 2023/24. This appears to have been paid for a period of about three quarters of the year. However, in his statement of financial circumstances, Mr Kovacs records his gross income from salary or wages as $1,647 per week (or around $85,000 per annum). Allowing for some deductions and applying a figure of $90,000 for three quarters of a year, in broad terms, this might translate to a rate of around $120,000 per annum.

20.I note that Mr Kovacs’ evidence was that [Company 1] derived a gross profit of some $52,000 in 2023/24. He is a 50% shareholder with his brother. Whilst I accept Mr Kovacs’ evidence that there will be no dividend and that any profits will be retained in the business, the starting position is that 50% of the profit would be treated as a financial resource available to Mr Kovacs.

21.Extending the benefit of the doubt to Mr Kovacs, if I take his annual salary as some $95,000, and attribute $25,000 (around 50% of the profit from [Company 1] for 2023/24), Mr Kovacs’ adjusted taxable income could be estimated as some $120,000. This is broadly consistent with the analysis by Child Support of his bank statements for the last three months or thereabouts in 2023. Doing the best I can with the evidence available to me, I consider recording Mr Kovacs’ adjusted taxable income as $120,000 from 1 November 2023 to be a fair reflection of his financial capacity.

22.I note that I generally accept Mr Kovacs’ evidence that [Company 2] is an inactive holding company, and that [Company 3] and [Company 4] are “startups” that at this point in time derive very little, or no, income. I do not consider any adjustment is required as a result of Mr Kovacs’ association with those entities.

23.As to the period prior to the time Mr Kovacs commenced his contract with [Company 1], in broad terms, Mr Kovacs suggests his true financial capacity is reflected by a figure of some $50,000. His primary concern in this application is the past period; he wishes to avoid incurring debts. Child Support adopted a method of applying bank receipts over a period of time to strike a figure of $80,399 applied to the assessment from 1 April 2023 (after Ms Parks’ application for a change of assessment made on 31 January 2023, and when Mr Kovacs became aware of the application in April 2023). Whilst Child Support did its best to extract income attributable to Mr Kovacs’ wife, the account is a joint account and Mr Kovacs suggests financial resources attributable to his wife have been taken into account. I note that the original decision-maker applied a figure of $89,000 by reference to some $16,962 attributable as income to Mr Kovacs by reference to deposits to his joint bank account for the period 14 May 2023 to 14 August 2023.

24.Whilst I consider the best evidence of Mr Kovacs’ financial capacity from around October 2023 to be the value of his salary and profits from [Company 1], I consider the best evidence of Mr Kovacs’ financial capacity prior to that time to be receipts in his bank account. Allowing for a net income of $62,194 and one month of leave, a gross annualised figure of some $80,000 results. Allowing for the inexact nature of applying that method, and if anything, a likely over-attribution to Mr Kovacs, I consider adopting a figure of $70,000 to be a conservative but broadly representative figure for Mr Kovacs’ financial capacity. As Mr Kovacs had not been made aware of the application for a change of assessment until April 2023, I consider making a departure from 1 April 2023 just and equitable. I will vary Mr Kovacs’ adjusted taxable income to $70,000 from 1 April 2023 to 31 October 2023.

25.There is no evidence which suggests Ms Parks’ financial capacity (she is a wage or salary earner) is not adequately reflected in her adjusted taxable income under the rolling formula arrangements. I do not consider any adjustment for her is necessary.

26.I accept Mr Kovacs’ evidence he meets the costs of school fees for [Child 1]. However, there is some suggestion there are Court orders requiring Mr Kovacs to meet those costs. Ms Parks was invited by Child Support to supply evidence; she is recorded as failing to do so. Mr Kovacs observed that there have been costly family law proceedings in the past which he has no desire to revisit. In the circumstances, I do not consider it just and equitable to make any adjustment for school fees; I consider Mr Kovacs has the financial capacity to meet those costs in addition to his child support liability. I note that [Child 1]’s interests take the highest priority in these considerations.

27.Neither party has, in my assessment, identified any other particularly unusual expenses for themselves, or for [Child 1], which would warrant any further adjustment. The cost for [Child 1]’s glasses, bus fares and extracurricular activities are normal and expected costs, even if Mr Kovacs pays for more than half of [Child 1]’s total costs. Whilst I accept Mr Kovacs’ medical expenses are high (perhaps to be ameliorated to a significant extent through NDIS), I am satisfied that, with appropriate budgeting, Mr Kovacs will be placed to meet his modest annual child support liability.

28.Going forward, there is a balance to be struck. It is desirable to give certainty; at the same time, it may be that there will be material changes to one or both parties. In the interests of certainty and reducing transactional fatigue with Child Support, I consider varying Mr Kovacs’ income until 30 November 2025 to be a fair balance of competing interests. In the event there is a material change (such as, for example, Mr Kovacs’ contract coming to an end in October 2024), he will be at liberty to make a fresh change of assessment application.

29.I consider it just and equitable to make a departure in the same terms set out above in relation to both case numbers.

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

30.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.

31.The rate of child support should reflect the obligation of both parents to take financial responsibility for the children and, where increased, may decrease any income-tested benefits payable. A departure is therefore proper.

32.As I have reached a different conclusion to the objections officer, the decision under review will be set aside.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that:

(a)for the period 1 April 2023 to 31 October 2023, Mr Kovacs’ adjusted taxable income is varied to $70,000;

(b)for the period 1 November 2023 to 30 November 2025, Mr Kovacs’ adjusted taxable income is varied to $120,000.