Lark and Lam (Child support)

[2018] AATA 4424

Lark and Lam (Child support) [2018] AATA 4424 (23 August 2018)

DIVISION:       Social Services & Child Support Division

REVIEW NUMBER:  2017/SC013082

APPLICANT:  Mr Lark

OTHER PARTIES:    Child Support Registrar

Ms Lam

TRIBUNAL:    Member J Cuthbert

DECISION DATE:     23 August 2018

DECISION:

The tribunal sets aside the decision under review and substitutes a decision to depart from the child support assessment by:

• varying Mr Lark’s adjusted taxable income to $140,000 from 2 March 2017 to 31 December 2020; and

• increasing the annual rate of child support payable by Mr Lark by $10,750 from 2 March to 31 December 2017 and by $12,000 from 1 January 2018 to 31 January 2019.

CATCHWORDS
CHILD SUPPORT  – Departure determination – Income, property and financial resources of a parent from a company and trust – High costs of child care – 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

HISTORY

1. This review concerns an application for a change to a child support assessment made by Ms Lam on 31 March 2017.

2. Ms Lam and Mr Lark are the parents of [Child 1] (born 2014). There has been a child support assessment in place, made by the Department of Human Services – Child Support (the Department) for [Child 1], since 2 March 2017. The child support assessment is based on Ms Lam having a care percentage of 100% for [Child 1] and Mr Lark having a care percentage of 0%.

3. For the child support period 2 March 2017 to 1 June 2018 Mr Lark was assessed to pay child support of $7,019 a year based on a provisional income of $75,000 for Mr Lark and Ms Lam’s 2015/16 adjusted taxable income of $106,647.

4. On 31 March 2017 Ms Lam applied to the Department for a departure from the assessment on the grounds that Mr Lark’s income, property, financial resources and earning capacity were not properly reflected in the assessment and also on the ground that she had high costs of child care for [Child 1].

5. On 10 July 2017 a decision was made to depart from the child support assessment by:

   ·       varying Mr Lark’s adjusted taxable income to $109,200 from 2 March 2017 to 31 December 2018; and

   ·       increasing the annual rate of child support payable by Mr Lark by $9,063 from 2 March to 30 June 2017 and $11,168 from 1 July 2017 to 31 December 2018.

6. Mr Lark’s objection to that decision was partly allowed on 10 November 2017. The objections officer decided to set aside the earlier decision and to depart from the assessment by:

   ·       varying Mr Lark’s adjusted taxable income to $140,000 from 2 March 2017 to 31 December 2019; and

   ·       increasing the annual rate of child support payable by Mr Lark by $9,063 from 2 March to 30 June 2017 and $11,784 from 1 July 2017 to 31 December 2019.

7. On 10 December 2017 Mr Lark lodged an application for a review of the objection decision with the tribunal.

8. The matter was to be heard on 31 May 2018. Mr Lark and Ms Lam both attended the hearing in person. The tribunal had documents provided by the Department (folios 1 to 390 and 391 to 416), documents provided by Mr Lark (folios A1 to A142 and A143 to A186) and documents provided by Mr Lark (B1 to B120). The hearing was adjourned until 8 August 2018 to allow Mr Lark a further opportunity to provide documents that he had been directed to provide. He provided the tribunal with documents (folios A187 to A223, A224 to A232 and A233 to A241). Both Mr Lark and Ms Lam attended the hearing on 8 August 2018 in person.

9. At the end of the hearing Mr Lark was directed by the tribunal to provide a copy of the takings ledger for [Business 1] for the 2016/17 year by close of business on 13 August 2018. Mr Lark provided documents (folios A242 to A270) which were provided to Ms Lam in order to give her an opportunity to comment.

CONSIDERATION

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 Assessment Act). This requires the application of a statutory formula which takes into account factors such as the number of children, the level of care provided and the income of each parent.

2. A liable parent or a carer may apply to the Child Support Registrar for a determination to depart from the child support assessment under Part 6A of the Assessment Act (section 98B). Section 98C provides that the Registrar may make a determination to depart from the formula assessment and establishes a three step process. The Registrar, and the tribunal standing in place of the Registrar, must be satisfied:

   (i) that one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and

   (ii) that it would be:

   (A)      just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)      otherwise proper;

   to make a particular determination under this Part; …

3. The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Assessment Act. If satisfied that a ground exists and that it would be just and equitable and otherwise proper to make a particular determination, the tribunal may make one of the determinations in section 98S of the Assessment Act. That section permits a range of determinations, including varying the annual rate of child support payable or a parent’s adjusted taxable income.

4. In Humphries & Berry (SSAT Appeal) [2008] FMCAfam 409, Federal Magistrate Slack dealt with the issue of the disclosure of financial information in child support matters before the former Social Security Appeals Tribunal. His Honour stated that the principle of full and frank disclosure applicable to proceedings in the Family Court was also applicable to proceedings before the tribunal. He stated at [31]:

   In financial proceedings under the Family Law Act, the authorities make it clear that a Court should not be unduly cautious about making findings in favour of the other party if it is not satisfied that proper disclosure has been made (see Chang & Su (2002) FLC93-117).

5. Also, in Agrippa & Horton (SSAT Appeal) [2010] FMCAfam 1144, Federal Magistrate Halligan stated at [25]:

   If the SSAT is satisfied that a parent has made a deliberate non-disclosure of his or her financial circumstances, it should be reasonably robust in assessing the non-disclosing parent’s financial circumstances adversely to that parent and in favour of the other parent. That is not to say that it may arrive at an entirely arbitrary result, but rather that it may draw generous inferences adverse to the non-disclosing party about that party’s financial circumstances.

Issue one – Does a ground exist to depart from the administrative assessment?

1. Ms Lam sought a departure from the administrative assessment on the grounds that Mr Lark’s income, financial resources, property and earning capacity were greater than reflected in the provisional income used for him in the assessment.

2. The grounds for departure are set out in subsection 117(2) of the Assessment Act. Subparagraphs 117(2)(c)(ia) and (ib) provide as grounds 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;…

3. The term “special circumstances” is not defined in the Assessment Act. In Gyselman and Gyselman [1991] FamCA 93, the Full Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.

Mr Lark’s income, property and financial resources

1. For more than 14 years Mr Lark has operated [Business 1], via the Lark Family Trust. The trustee of the trust is [Company 1] . Mr Lark owns all of the shares in [Company 1] and is a director of the company. He told the tribunal that he is the sole beneficiary of the Lark Family Trust. He said that [Business 1] was initially purchased for about $600,000 using funds loaned from [Bank 1] to Mr Lark and his parents.

2. Mr Lark also receives investment income via the Lark Investment Trust. The trustee of that trust is [a] company owned by Mr Lark who is also the director. Mr Lark told the tribunal that he is the sole beneficiary of the Lark Investment Trust.

3. Mr Lark said that he also set up [another] Trust in order to use it as a vehicle to develop [a] unit with the co-owners in the block. He is the director and sole shareholder of the trustee [company]. He told the tribunal that he is the sole beneficiary of that trust but that there has been no development.

4. Mr Lark’s 2016/17 adjusted taxable income is $68,726; made up of a distribution from the Lark Investment Trust of $11,413 and a distribution of $43,651 from the Lark Family Trust, assessable foreign source income of $5,518, interest of $41 and net rent of $8,303, less a deduction of $200 for the cost of managing his tax affairs.

5. The Lark Investment Trust has significant shareholdings and operates a margin loan account. The balance sheet for 2016/17 shows a reduction in the trust’s liability to Mr Lark of $613,089 and an increase in the amount borrowed from the Lark Family Trust of $603,390. Mr Lark was unable to explain those transactions. At 30 June 2017 there were unpaid distributions of $48,346 available to Mr Lark, but the balance sheet indicates that he drew more than $600,000 from trust funds from money obtained from the Lark Family Trust.

6. The Lark Family Trust claims interest on a loan with [Bank 1] in the name of Mr Lark and his parents which was originally obtained to purchase [Business 1] by mortgaging the home of Mr Lark’s [parents].  Mr Lark told the tribunal that the loan had been repaid but that they refinanced to purchase a unit in his name. He purchased the unit for $750,000 in mid-2016 and has been renting it out since early 2017. The tribunal notes that the interest on the loan was not claimed against rental income. Curiously, the loan is shown on the balance sheet for the Lark Family Trust even though the loan is in the name of Mr Lark and his parents and was obtained to purchase a unit owned by Mr Lark.

7. In 2016/17 [Business 1] operated by the Lark Family Trust recorded total income of $290,473. Bank statements show eftpos receipts but no cash deposits. Mr Lark told the tribunal that not all of the cash received is banked. He told the tribunal that expenses, both business and personal, are met from the cash takings. 

8. Mr Lark told the tribunal that he records all of the takings including all cash received on a daily basis. Following the hearing he provided the tribunal with a copy of a daily takings record for [Business 1] for 2016/17 which shows total takings of $290,473. However, the record provided by Mr Lark only records total daily takings and a weekly summary of eftpos receipts. To the Larkman’s eye, the document provided also does not have the characteristics expected of a document prepared on a daily basis, but is suggestive of a document prepared at one time.

9. Mr Lark said that he does not have a personal bank account apart from his credit card account. He said that any personal expenses “come under drawings” and that his accountant asks him about the nature of the expenses. He said that the payments from the Lark Family Trust to his credit card are drawings as he rarely uses the credit card for business purposes.

10. Mr Lark owns a [vehicle] which he purchased in 2014 for $60,000. He said that he drew funds from the loan to purchase the vehicle. In 2016/17 the Lark Family Trust claimed expenses of $3,346 for the vehicle, of which $1,004 was stated to be for private use. Mr Lark described the business use as travel to and from work and also to collect provisions on occasion. He keeps no record of business or private use. The tribunal finds that the motor vehicle expense is overstated. The trust also claimed a deduction of $9,757 for depreciation. Mr Lark said that there were no capital items purchased by the trust in the 2016/17 year. The tribunal finds that the available income of the trust in 2016/17 was greater than shown in the profit and loss statement.

11. Mr Lark lives with his parents in their home. They are dependent on a part-payment of aged pension which is paid into the [Bank 1] loan account. Mr Lark told the tribunal that he supports his parents financially including the running of their two vehicles. He did not give the tribunal any satisfactory evidence about the total household expenses. The tribunal notes that in a document filed with the Federal Circuit Court in March 2017 Mr Lark stated that he had personal expenditure of $2,107 a week. However, in a statement of financial circumstances he provided to the tribunal, dated 10 December 2017, he recorded weekly expenses of $548. The tribunal finds that the evidence provided in the later document is self-serving and concludes that Mr Lark meets expenses for himself and his parents of more than $2,000 a week.

12. Mr Lark refused to provide details of his legal expenses as directed. He told the tribunal that he has paid about $50,000 since 2016 and said that he had paid the fees using his bank loan or the margin lending facility of the Lark Investment Trust. Ms Lam asserts that Mr Lark would have spent more than he states. She gave evidence of an SMS received on 6 April 2016 in which Mr Lark stated he had spent $25,000 in legal fees in the last two weeks and would spend another $100,000. She gave evidence of observing Mr Lark giving each of his parents cash payments of $600 a week and said that he gave more money to his father who used the funds for gambling.

13. Mr Lark was unable to explain the discrepancies in the balance sheets of the trusts. He told the tribunal that the various trusts were set up to maximise tax benefits and that they were “paper transfers”. He stated that the Lark Family Trust is his and indicated that it was not necessary to keep records. He stressed that he has three sources of income; [Business 1], rent and shares.

14. Mr Lark did not dispute Ms Lam’s evidence that from March to December 2015 he made cash payments of $350 a week for child support directly to her. Ms Lam said that although they did not live together they had a three year relationship from early 2012 until the end of 2014. She said that she witnessed Mr Lark giving his parents $600 a week each in cash. She said that Mr Lark told her that he sometimes gave his father $1,000 a week as he had a gambling habit. Mr Lark did not refute that evidence but said that he supports his parents.

15. The tribunal notes that the entire income that Mr Lark’s parents receive from Centrelink (about $320 a week) is deposited into the [Bank 1] loan account. The tribunal infers that Mr Lark meets all of his parents’ expenses including the costs associated with their home and the running of their two motor vehicles and that he also provides them with spending money.

16. The tribunal is satisfied that Mr Lark has income and financial resources greater than his adjusted taxable incomes.

Mr Lark’s earning capacity

1. The tribunal also considered Mr Lark’s earning capacity and the three criteria in subsection 117(7B) of the Assessment Act. The tribunal finds that the first criterion of subsection 117(7B) of the Assessment Act is not satisfied as Mr Lark has been operating [Business 1] since 2003 on a full-time basis. He has not altered his work pattern. As the three criteria of subsection 117(7B) of the Assessment Act are not satisfied the tribunal is unable to determine that Mr Lark‘s earning capacity is greater than his actual income.

Do the existing assessments provide a result which is unjust and inequitable?

Ms Lam’s income, property, financial resources and earning capacity

1. In order to determine whether Mr Lark’s income and financial resources result in child support assessments which are an unjust and inequitable determination of the financial support he should provide for [Child 1], the tribunal considered whether Ms Lam’s adjusted taxable income is indicative of her income, property, financial resources and earning capacity.

2. Ms Lam is [an occupation] who has worked on a part-time basis (30 hours a week, 9.30am to 4pm on five days) since returning from maternity leave in early 2015. Her 2016/17 adjusted taxable income is $106,246, made up of income from the employment of $95,152, interest of $8,020, dividends of $8,095 and a capital gain of $8,435; less deductions of $13,456 including work related expenses totalling $5,002 and self-education expenses of $6,338.

3. A payslip dated 14 April 2018 shows an annual base salary of $95,152 and year to date income of $79,293 supporting Ms Lam’s evidence that her salary has not increased. She said that she expects her income for 2017/18 to be about the same as in 2016/17 as her income tax deductions are also likely to be about the same.

4. The tribunal finds no evidence to support Mr Lark’s assertion that Ms Lam has undisclosed income. Ms Lam holds significant amounts in shares, from which she returns income. She owns a car as well as household contents. She and [Child 1] live with Ms Lam’s mother and brother, [Mr A], in a house that is owned by Ms Lam and the [Mr A] Lam Trust. The tribunal accepts that Ms Lam holds her share in trust for her brother who received compensation [and] is not the beneficial owner as Mr Lark suggests. In any event, the tribunal is satisfied that Ms Lam lives in the property and that is not a source of income for her.

5. The tribunal is satisfied that Ms Lam’s current income and financial resources are adequately reflected in her adjusted taxable incomes.

6. The tribunal also considered Ms Lam’s earning capacity. The tribunal finds that she made a decision to work part-time when she returned to work after 12 months’ maternity leave, prior to the start of the child support assessment. She told the tribunal that she works from 9.30am to 4pm for five days a week in order to be available to care for [Child 1]. The tribunal accepts Ms Lam’s evidence that her decision to work part-time was not motivated by a desire to affect a child support assessment as there was no assessment in place until March 2017. The tribunal finds that the three criteria of subsection 117(7B) of the Assessment Act are not satisfied and therefore the tribunal is unable to determine that Ms Lam’s earning capacity is greater than her actual income.

Are there special circumstances for which to depart from the assessment?

1. Taking into account the objects of the Assessment Act (section 4), including that children should share in the standard of living of both their parents, the tribunal finds that the income and financial resources of Mr Lark provide special circumstances for which to depart from the assessment. Mr Lark would pay more child support if the assessment was based on his actual income and financial resources rather than his adjusted taxable income. The tribunal finds that the assessment is unfair to Ms Lam and to [Child 1] for that reason and that a ground is established to depart from the assessment under subparagraph 117(2)(c)(ia) of the Assessment Act.

Issue two – Would a departure from the administrative assessment be just and equitable?

1. 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 just and equitable to depart from the assessment having regard to the matters set out in subsection 117(4) of the Assessment Act.

2. Section 3 of the Assessment Act states that it is the duty of both parents to financially support their children. In accordance with the objects set out in section 4 of the Assessment Act, [Child 1] should receive a proper amount of financial support from her parents in accordance with their capacity to contribute.

[Child 1]’s needs

1. [Child 1] is four years old. She attends childcare for five days a week. Prior to 1 July 2018 the cost was $625 a week less an annual rebate of $7,500, making the out of pocket cost $25,000 a year. In 2017 the cost was $559 a week, and out of pocket costs of about $21,500 a year. Ms Lam told the tribunal that since 1 July 2018 she has had out of pocket expenses of about $400 a week but that she expects the costs to average $450 to $500 a week over 12 months.

2. The tribunal finds that Ms Lam is likely to continue to incur costs for childcare until at least late January 2019, after which time [Child 1] is expected to start school. Ms Lam told the tribunal that she hopes to be able to take [Child 1] to school and that her mother may be able to collect her. It is therefore not clear whether Ms Lam will continue to incur child care costs from February 2019. Issues concerning the school [Child 1] is to attend are the subject of parenting proceedings which are due to be heard in September 2018.

3. The tribunal finds that the costs of child care are high (subsection 117(3B) of the Assessment Act). They allow Ms Lam to work and earn income. They therefore reduce the amount of child support that Mr Lark would otherwise be assessed to pay. The tribunal finds that it would be just and equitable for Mr Lark to contribute to the costs.

4. Apart from the costs of child care, the tribunal finds that the costs related to the care of [Child 1] are not out of the ordinary range of expenses for a child of her age. Ms Lam gave evidence that the costs associated with [Child 1]’s surgery in March 2018 were bulk billed.

[Child 1]’s income, property, financial resources and earning capacity

1. The tribunal has no evidence that [Child 1] has any income, property or financial resources or any unused earning capacity that needs to be taken into account in the child support assessment.

The parents’ duty to support others  

1. Both Mr Lark and Ms Lam provide financial support to their parents with whom they reside, Mr Lark to both his parents and Ms Lam to her mother. Due to their assets Mr Lark’s parents have a combined income of about $320 a week income from age pension and Ms Lam’s mother receives age pension of about $300 a week.

2. The tribunal finds that Mr Lark and Ms Lam do not have a duty to support their parents and that any financial support they each provide cannot take priority over their duty to support [Child 1].

The income, property, financial resources and earning capacity of Ms Lam

1. The income, property, financial resources and earning capacity of Ms Lam have been discussed above.

Ms Lam’s necessary commitments

1. Ms Lam lives with her mother and her brother, [Mr A], as well as [Child 1]. After reviewing the bank statements she provided, the tribunal is satisfied that she is able to meet the reasonable and necessary expenses she has for herself and [Child 1].

The income, property, financial resources and earning capacity of Mr Lark

1. The income, property, financial resources and earning capacity of Mr Lark have been discussed above.

Mr Lark’s necessary commitments

1. Mr Lark lives with his parents in a house which is owned by them. He doesn’t pay rent but meets all of the household costs. On the basis of the findings made above and the evidence he provided about his household expenses, the tribunal is satisfied that he is able to meet his reasonable and necessary expenses and to pay child support for [Child 1].

Terms and period of departure

1. Ms Lam made her departure application on 31 March 2017, shortly after her child support application was accepted on 20 March 2017. For that reason, the tribunal finds that it is just and equitable to depart from the assessment from 2 March 2017, the date of Ms Lam’s application for a child support assessment.

2. In light of the findings made about Mr Lark’s income and financial resources, the intermingling of his funds with those of the business and the manner in which he maintains business records, the tribunal finds that it would not be just and equitable to vary his adjusted taxable income to a figure that is less than that determined by the objections officer. The tribunal finds it more likely than not that the figure determined by the objections officer fairly represents Mr Lark’s likely income and financial resources. However, the tribunal proposes to continue that variation until 31 December 2020 in order to provide some certainty to the parties. The tribunal found Mr Lark’s evidence that his income fluctuates and that the business is performing poorly to be self-serving. The tribunal finds that it is likely that he will continue to have significant income and financial resources, particularly from the operation of [Business 1].

3. The tribunal finds that Mr Lark has the capacity to contribute to the cost of [Child 1]’s child care and that it is just and equitable that he should meet 50% of those costs, about $10,750 a year in 2017 and currently about $12,000 a year.

4. The tribunal finds that the proposed variations result in a child support liability (currently about $475 a week payable by Mr Lark which reflects a reasonable level of support for [Child 1] given the differences between her parents’ incomes, property and financial resources.

Hardship

1. The child support payable on the basis of the decision proposed should assist Ms Lam to meet [Child 1]’s proper needs. It will result in an increase to the arrears of child support owed by Mr Lark, of about $20,000 arrears in August 2018. In light of the findings about the income and financial resources of Mr Lark the tribunal considers that the proposed decision will not result in hardship to him or to [Child 1].

Issue three – Is it otherwise proper to depart from the administrative assessment?

1. The final step for the tribunal to undertake is to determine whether it is “otherwise proper” to depart from the administrative assessment. Subsection 117(5) of the Assessment Act requires the tribunal take into consideration the following matters:

   (a) the nature of the duty of a parent to maintain a child (as stated in section 3) and, in particular, the fact that it is the parents of a child themselves who have the primary duty to maintain the child; and

   (b) the effect that the making of the order would have on:

   (i)  any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or

   (ii) the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.

2. The child support law recognises that each parent has a primary duty to maintain their children. Ms Lam does not receive family tax benefit for [Child 1]. However, the tribunal is satisfied that it is otherwise proper to depart from the administrative assessment in this matter and to properly reflect Mr Lark’s income, property and financial resources and the costs borne by Ms Lam for childcare.

DECISION

The tribunal sets aside the decision under review and substitutes a decision to depart from the child support assessment by:

·       varying Mr Lark’s adjusted taxable income to $140,000 from 2 March 2017 to 31 December 2020; and

·       increasing the annual rate of child support payable by Mr Lark by $10,750 from 2 March to 31 December 2017 and by $12,000 from 1 January 2018 to 31 January 2019.