Leavitt and Leavitt (Child support)
[2022] AATA 3973
•21 September 2022
Leavitt and Leavitt (Child support) [2022] AATA 3973 (21 September 2022)
DIVISION:Social Services & Child Support Division
REVIEW NUMBERS: 2022/SC024040 & 2022/SC024218 & 2022/SC24219
APPLICANT: Mr Leavitt
OTHER PARTIES: Child Support Registrar
Ms Leavitt
TRIBUNAL:Member M Baulch
DECISION DATE: 21 September 2022
DECISION:
The tribunal set aside the decisions under review and, in substitution, decided that the adjusted taxable incomes applying in the child support assessment for Mr Leavitt are as follows:
$51,151 for the period 1 January 2020 to 31 March 2021;
$52,638 for the period 1 April 2021 to 31 August 2021; and
$52,638 for the period 1 September 2021 to 7 September 2021.
CATCHWORDS
CHILD SUPPORT – particulars of the administrative assessment – whether the adjusted taxable income of the liable parent was correctly applied – 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
The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable by one separated parent to the other. It uses a statutory formula which contains variables such as the parents’ adjusted taxable incomes, the number and ages of their children and the percentages of care.
Mr Leavitt and Ms Leavitt are the separated parents of [Child 1], in respect of whom Services Australia – Child Support (Child Support) has made child support assessments. That assessment ended [in] September 2021, when [Child 1] turned 18 years of age.
On 11 August 2021, Child Support decided to update the incomes used to determined Mr Leavitt’s child support liability, such that:
· A 2018–19 provisional income of $228,826 was applied to the child support assessment from 1 January 2020 to 31 March 2021;
· A 2019–20 provisional income of $234,613 was applied to the child support assessment from 1 April 2021 to 31 August 2021; and
· A 2020–21 provisional income of $241,290 was applied to the child support assessment from 1 September 2021 to 7 September 2021
(the decisions under review).
Mr Leavitt objected to those decisions and, on 19 May 2022, those objections were disallowed. Mr Leavitt has now applied to this tribunal seeking an independent review of Child Support’s decisions.
A hearing into the applications for review was held by the tribunal on 21 September 2022. Mr Leavitt and Ms Leavitt both participated in the hearing by conference telephone, and both gave evidence under affirmation during the hearing. A representative of the Child Support Registrar (the Registrar) did not participate in the hearing.
The tribunal had before it three bundles of relevant documents provided to it, and the parties, by the Registrar pursuant to section 37 of the Administrative Appeals Tribunal Act 1975; 81, 78 and 76 pages. The tribunal also had regard to additional material lodged by Mr Leavitt (folios A1 to A4).
ISSUES
The statutory provisions relevant to this review application are found within the Act.
The issue which arises in this case is what should be the adjusted taxable income for Mr Leavitt applying in the child support assessment from 1 January 2020.
CONSIDERATION
Part 5 of the Act provides that the Registrar must make an administrative assessment of child support in accordance with the statutory formula set out in that Part. One of the factors used in the making of an administrative assessment is the adjusted taxable income of each parent.
Section 43 of the Act defines a parent’s adjusted taxable income to be the sum of several amounts, including the parent’s taxable income for the last relevant year of income in relation to the child support period. A parent’s taxable income is the amount determined by the Australian Taxation Office (the ATO) (see section 56 of the Act).
Subsection 5(1) defines the last relevant year of income, in relation to a child support period, to mean the income of the last year of income that ended before the start of the child support period. Subsection 5(1) of the Act further provides that a year of income is that which is defined in the taxation legislation; essentially a period that starts on 1 July and ends on 30 June the following year.
Therefore, the last relevant year of income for a child support period that:
· Commenced on 1 January 2020 is the 2018–19 financial year;
· Commenced on 1 April 2021 is the 2019–20 financial year; and
· Commenced on 1 September 2021 it is the 2020–21 financial.
Where a parent’s taxable income for a last relevant year of income has not been assessed by the ATO, for example, when a parent has not lodged an income tax return, section 58 of the Act allows the Registrar to make their own determination of that parent’s adjusted taxable income for that year and provides various methods for doing so. Those methods include:
· Using information or documents in the possession of the Registrar to determine a parent’s adjusted taxable income (subsection 58(2) of the Act);
· Applying an indexation factor to the parent’s adjusted taxable income for the previous relevant year of income (subsection 58(3) of the Act);
· If the parent’s adjusted taxable income for the previous relevant year of income is not known, setting a parent’s adjusted taxable income as any of the following:
- The adjusted taxable income for the next previous income year, to which an indexation factor has been applied; or
- An amount equal to two-thirds of the annualised MTAWE figure (subsection 58(4) of the Act); or
· If none of these apply, setting a parent’s adjusted taxable income at two-thirds of the annualised MTAWE figure (subsection 58(5) of the Act).
Section 5A of the Act defines the annualised MTAWE figure, and it is essentially the annualised amount of the average weekly earnings for all male employees determined by the Australian Bureau of Statistics.
Mr Leavitt has not lodged his income tax returns for the 2018–19, 2019–20 and 2020–21 financial years. As a consequence, until 11 August 2021 Child Support had used the two-thirds of the annualised MTAWE figures for Mr Leavitt’s provisional adjusted taxable income as follows:
· In the 2018–19 financial year it was $51,151 for the period 1 January 2020 to 31 March 2021;
· In the 2019–20 financial year it was $52,638 for the period 1 April 2021 to 31 August 2021; and
· In the 2020–21 financial year it was $52,638 for the period 1 September 2021 to 7 September 2021.
On 11 August 2021, the ATO advised Child Support it had assessed Mr Leavitt’s taxable income for the 2017–18 financial year as $222,593. Using this information, Child Support amended the provisional adjusted taxable incomes applied in the child support assessment for subsequent years, such that an indexed adjusted taxable income replaced the two-thirds annualised MTAWE figures that had previously been used, as follows:
· $228,826 for the 2018–19 financial year for the period 1 January 2020 to 31 March 2021;
· $234,613 for the 2019–20 financial year for the period 1 April 2021 to 31 August 2021; and
· $241,290 for the 2020–21 financial year for the period 1 September 2021 to 7 September 2021.
While the discretion to replace the two-thirds annualised MTAWE figure with indexed amounts derived from Mr Leavitt’s 2017–18 adjusted taxable income was available to Child Support, it does not necessarily mean that the discretion should have been exercised in such a manner where other outcomes were available to the decision maker. I considered what would be the preferable manner to exercise the discretion permitted by section 58 of the Act in Mr Leavitt’s particular circumstances.
Mr Leavitt’s evidence was that his taxable income for 2017–18 had been inflated by a lump sum payment from taken superannuation of $198,166. This evidence is confirmed by a letter written by Mr Leavitt’s accountant dated 27 September 2021. Mr Leavitt’s evidence was that he now has only about $5,000 remaining in his superannuation investments.
Mr Leavitt advised me that the sum of $198,166 was withdrawn because he had been unwell, unable to work, and it was a one-off event. I noted that Mr Leavitt’s taxable income for the 2018–19 income year, which is the next financial year, has been assessed by the ATO to be $35,686, a significantly lower amount.
When I asked Mr Leavitt why he was not up to date with lodging his tax returns, he stated that he had had a difficult time with ill health and circumstances necessitated him finding a new tax accountant. Those accountants are currently working through his outstanding income tax returns.
Where a parent has their adjusted taxable income assessed pursuant to section 58 of the Act, and information about a component of their adjusted taxable income later becomes available, such as when they lodge their income tax return, subsection 58A(2) of the Act provides a limitation on a retrospective amendment to the assessment of child support having regard to that later information. The circumstances where the assessment of child support can be retrospectively amended to give regard to the new information are:
· The income tax return was lodged by the date required;
· If the above does not apply, the person’s revised adjusted taxable income is higher than the amount determined pursuant to section 58 of the Act; or
· If neither of the above apply, circumstances prescribed by regulations apply in respect of the parent.
Mr Leavitt did not lodge his 2018–19 income tax return by the date required. It is also likely that his returns for the 2019–20 and 2020–21 income years will be lodged after the date required. If Mr Leavitt’s taxable incomes for those years are less than the indexed 2017–18 amounts – as it was for 2018–19 – there will be only the limited circumstances prescribed within the regulations under which any lower actual adjusted taxable incomes could retrospectively replace the higher indexed 2017–18 amounts.
The decisions I am now reviewing increased Mr Leavitt’s child support arrears by a considerable amount. I also noted that since the child support case has ended, it is now not possible for Mr Leavitt to make an application under section 98B of the Act for a departure determination (see Balshaw & Balshaw & Anor [2016] FCCA 1176 at [28] to [30]). In circumstances where it appears more likely than not that Mr Leavitt’s actual taxable incomes will be significantly less than the provisional amounts applied by Child Support, a likely inability to retrospectively apply lower adjusted taxable incomes to the periods in question would appear to be unreasonably punitive where an exercise of discretion could potentially result in a different outcome.
Ms Leavitt’s submissions were that she considered that Mr Leavitt’s child support liability should be assessed on the two-thirds annualised MTAWE figures and not amounts derived by indexing Mr Leavitt’s 2017–18 taxable income. Mr Leavitt submitted that amounts derived from his 2018–19 taxable income of $35,686 should be used in the child support assessment.
Having considered all the circumstances, I decided that the discretion in section 58 of the Act should be exercised in such a way that Mr Leavitt’s adjusted taxable income remains the two-thirds annualised MTAWE figures.
Therefore, and for these reasons, I decided to set aside the decisions under review and substituted my own decisions below.
DECISION
The tribunal set aside the decisions under review and, in substitution, decided that the adjusted taxable incomes applying in the child support assessment for Mr Leavitt are as follows:
$51,151 for the period 1 January 2020 to 31 March 2021;
$52,638 for the period 1 April 2021 to 31 August 2021; and
$52,638 for the period 1 September 2021 to 7 September 2021.
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