Leckie and Burgess (Child support)

[2017] AATA 2906

Leckie and Burgess (Child support) [2017] AATA 2906 (27 November 2017)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/PC011569

APPLICANT:  Ms Leckie

OTHER PARTIES:  Child Support Registrar

Mr Burgess

REVIEW NUMBER:  2017/PC011712

APPLICANT:  Mr Burgess

OTHER PARTIES:  Child Support Registrar

Ms Leckie

TRIBUNAL:Member S Hoffman

DECISION DATE:  27 November 2017

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that there is no departure from the administrative assessment of child support.

CATCHWORDS

Child Support – Departure determination – Income and financial resources of parents – Business income – Education of child not in a manner expected by both parents – Refusal to make a departure determination as a ground for departure not established – 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. This review is about the child support assessment in respect of child S, who turned 16 years old in September 2017. The case started on 14 June 2005 when she was three years old. For the period relevant to this review, child S was recorded as being in the mother’s 73% care, and the father’s 27% care.

2. On 21 September 2016 the mother lodged an application for a change of assessment with the Department of Human Services – Child Support (the Department). The administrative assessment that applied on that date was that the father’s annual rate of child support was $1,918, based on a provisional income for him of $60,954 and the mother’s 2014/15 taxable income of $73,127.[1]

   [1] At the time the mother lodged her change of assessment application, the father’s child support liability was $87 a year, based on the mother providing 60% care and the father providing 40% care. A change of care was notified around that time, changing the percentages to 73% and 27% respectively. This change applied from 14 September 2016 and the father’s child support liability increased from $87 to $1,918 a year.

3. On 21 February 2017 a senior case officer from the Department decided that from 21 September 2016 until a terminating event, the mother’s adjusted taxable income was varied to $82,236 and the father’s to $97,492; and that the annual rate of child support was increased by $4,473 for calendar year 2017 and by $3,928 for calendar year 2018 (original decision). The father’s liability increased to $5,209 a year from 21 September 2016.

4. On 1 March 2017 the father lodged an objection to the original decision. On 27 April 2017 an objections officer from the Department decided to vary the mother’s adjusted taxable income to $82,236 (unchanged from the original decision) and the father’s adjusted taxable income to $101,204 from 1 July  2016 until a terminating event (the objection decision). As a result of this decision the father’s liability was $3,035 a year from 1 July 2016, increasing to $5,361 a year from 14 September 2016.

5. On 28 April 2017 the mother lodged an application for review by this tribunal. The father lodged his application on 17 May 2017. A directions hearing was held on 11 September 2017, following which directions were issued.

6. The matter was heard on 9 November 2017. The tribunal had before it documents provided by the Department (numbered 1 to 730), the mother (numbered A1 to A39) and the father (numbered B1 to B21). Copies of the documents were provided to the parties prior to the hearing.[2] The mother and the father attended the hearing via conference telephone. Both gave sworn evidence. After the hearing the father contacted the AAT registry about documents he said he had submitted in accordance with directions. It appears that he had emailed these to the correct central email address used by the Administrative Appeals Tribunal but they were not forwarded on and linked up with this review as they should have been.

   [2] The mother said that she had not received all the documents submitted by the father. According to the AAT’s registry they had been sent to the correct address. During the hearing, the tribunal read out relevant sections of the documents the mother said she had not received to ensure she was made familiar with relevant evidence.

7. The tribunal sent these documents, numbered B22 to B40, to the mother after the hearing to give her opportunity to comment on them. For this reason it deferred making its decision until 27 November 2017.[3] 

ISSUES

[3] The tribunal also sent the mother copies of the other submissions by the father which she said she had not received, to assist her.

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act1989 (the Act). The Act provides for an administrative assessment of child support to be paid. Pursuant to section 98C of the Act, a decision to depart from the administrative assessment may be made if the following three requirements are met:

   i.A ground is established; and

   ii.It would be just and equitable as regards the child, the liable parent and the carer entitled to child support to make a particular determination; and

   iii.It would be otherwise proper to make a particular determination.

2. The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Act.

3. If the tribunal is satisfied that the three requirements are met, it may make one of the determinations prescribed in section 98S of the Act, which include variations to the annual rate of child support payable, or to the adjusted taxable incomes of the parents and/or carer, or to other components of the statutory formula used to calculate child support.

CONSIDERATION

Issue 1 – Does a ground exist to depart from the administrative assessment?

Income, property and financial resources of each parent

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, the administrative assessment of child support would result in an unjust and inequitable determination of the rate of child support because of the income, property and financial resources of either parent.

2. The mother is [an occupation]. She said that her salary has varied over recent years as her substantive position is Level [number] but she has been acting in positions at Levels [number] and [number]. She said that she understands there will not be any more acting positions after 31 December 2017 and she will go back to her Level [number] position, and her pay will drop accordingly.

3. The mother also controls a trust, The Leckie Unit Trust. She said that its only purpose was to reduce her tax liability and to protect her investment property. Her 2017 tax return shows that her income from employment was $83,687 and the rental loss including interest was $12,110. The mother’s taxable income was $68,103 after deductions totalling $3,474. Rental losses are added back to when ascertaining a parent’s income for child support purposes. The tribunal is satisfied that for child support purposes, the mother’s income from 1 July 2016 is $83,687 less $3,474 which is $80,213.

4. The father is self-employed. He receives a wage from a company he controls. When asked what his main business did, the father said that he did whatever he could to generate an income, and he has tried different things. He [provides services], mainly to small business. Asked if he works with anyone, the father said that he contracts in help if needed such as for [certain work]. He has a website which advertises a related business (different trading name but the same company) which states that the father has been the managing director since 2015. He said that he had not generated any income from that webpage. The father also operates another business which sells [goods] and other products.

5. The mother said that the father had been overseas three times recently. The father said that two of those trips were for business purposes, and were paid for by his business associates overseas.

6. The father said that he went to country B in June or July 2017 for five days to meet with a particular business, with a view to his company importing [goods] but nothing was finalised as the father is not in a position to guarantee what volume of goods he could purchase without him having a customer for the goods organised.

7. The father said that he went to country P in September 2017, also for about five days, and this was looking at purchasing and selling on [items] from a [location]. He said this did not progress as hoped. The tribunal understood the reason to be that the father’s business contact did not have the necessary authorisation to dismantle the [location] and turn it into [items].

8. In his Statement of Financial Circumstances (SFC) dated 16 May 2017, the father stated that his company had operated at a loss for 2014/15 and 2015/16 and expected to make a loss in 2016/17. The father did not submit completed financial statements for 2016/17. He said that they would not be done in time for the hearing although he did submit a profit and loss statement for the part of the company that sells [goods] and other products.

9. The profit and loss statements for two years for the company show total income of $98,676 (2014/15) and $94,512 (2015/16), with total expenses of $113,529 (2014/15) and $112,096 (2015/16). The losses were $14,853 (2014/15) and $17,583 ($2015/16).

10. The father’s gross pay for each year was $76,125 (2014/15) and $71,560 (2015/16) according to the profit and loss statements. The 2015/16 statement shows accountancy charges of $19,545 which seems very high for a business of this size. In 2014/15 the accountancy charge was $3,272 which seems more reasonable. Even if say $16,000 of the accountancy charge of $19,545 was not a legitimate business expense (rather than a misallocation of expenses, which is a possibility), the business would still have made a loss that year.[4]

    [4] Apart from the accountancy expense as recorded, and the father’s pay and superannuation, the total expenses recorded in the profit and loss statement totalled $14,199 which is not, in the tribunal’s view, excessive against the 2015/16 income of $94,512.

11. The objections officer relied on a 2015/16 tax return for the father which showed that he received gross pay of $72,814 and allowances of $45,000. According to this, his taxable income was $69,083 as follows:

    Gross pay                     $72,814

    Allowance/bonus             $45,000

    Gross interest   $     73

    Net rental loss          - $28,409

    $89,478

    Work related car expenses                 - $7,720

    Other work related expenses                - $4,625

    Gifts or donations   - $    50

    Cost of managing tax affairs                - $8,000

    - $20,935

    $69,083

12. The father told the Department that he was never paid the allowance and the funds were not there for him to be paid it; it was something done by his accountant to reduce the tax liability. A further explanation was provided such that it had been anticipated that the business would generate good profits in the future and recording bonus payments in 2014/15, 2015/16 and 2016/17 that were not actually paid was a way to smooth out the father’s income. The father’s 2015/16 tax return was redone excluding the bonus as follows:

    Gross pay                     $72,814

    Gross interest   $     73

    Net rental loss          - $28,409

    $44,478

    Work related car expenses                 - $7,720

    Other work related expenses                - $4,625

    Gifts or donations   - $    50

    Cost of managing tax affairs                - $8,000

    - $20,935

    $24,083

13. As was the case with the mother, the tribunal will add back the rental loss claimed through the father’s tax return to arrive at an income for him for child support purposes.

14. Through his tax return the father claimed $7,720 in work related car expenses which include $2,000 in depreciation. He also claimed other work related expenses of $4,625 including depreciation on capital items of $1,602. As depreciation is a book entry, and not an out of pocket expense, the tribunal will add back $3,602 to the father’s income.[5]

    [5] The profit and loss statement recorded depreciation expense of only $159 for 2015/16.

15. Work related car expenses of $7,720 also included $2,245 claimed for fuel. The company recorded fuel and oil costs of $3,176. These total $5,421 a year ($104.25 a week). The father said that he was the only employee and his vehicle was a ute that was used 100% for the business; he used it to carry water. In his SFC the father listed a second vehicle that he owned. He said this second vehicle was driven by his wife and was the family car. Although the father’s work does include delivering [goods], he mainly generates an income through [providing a service]. The tribunal considers that claiming $5,421 for fuel and oil for business purposes is excessive, and will add back 50% of this amount, being $2,710, to the father’s income.[6]  

16. The tribunal notes that the father claimed $8,000 as the cost of managing his tax affairs and the 2015/16 profit and loss statement shows that accountancy charges were $19,545. Both figures are, in the tribunal’s view, unreasonably high given the business turnover and that the father’s main source of income is a wage through the PAYG system. Given the father’s income and that he is paid on a PAYG basis, the tribunal considers $1,000 to be a more reasonable figure for the cost of managing his tax affairs, and therefore decides that $7,000 is to be added back to his taxable income.

17. The tribunal concludes that the father’s income for child support purposes is as follows:

    Taxable income 2015/16            $24,083

    Add back rental losses                        $28,409

    Add back depreciation   $  3,602

    Add back fuel & oil   $  2,710

    Add back part of deduction                   $  7,000

    $65,804

18. The tribunal also considered the property owned by the parties. The father has a number of investment properties which are rented out. He said that he has interest only loans. He said that his [first] property is worth about $320,000 and he owes $300,000 in relation to it. He valued the [second] property at $500,000 with a mortgage of the same value over it. He valued the [third] property at $550,000 and said that the mortgage was in the range $400,000 to $450,000. This means that his equity on his rental properties is in the range of $120,000 to $170,000. The father said that there had been more equity in the [third] property but he borrowed against the property to build a second storey. He said that the purpose of having these properties was to reduce his tax and to have something he can give to his children.

19. About his home, the father said that he and wife jointly own a transportable home worth about $60,000. It is located on land owned by his in-laws. In his SFC, he wrote that he and his wife owe $40,000 on their home.

20. In her SFC, which was dated 17 June 2017, the mother valued her home at $550,000 and recorded a mortgage of $56,000. Both parents therefore have relatively low mortgages to repay. As noted above the mother also owns an investment property via a unit trust.

21. Each party has losses due to their investment properties which have been added back to their incomes for child support purposes. The only other high value assets recorded by each parent was superannuation of $195,000 for the mother and $250,000 for the father. There was no evidence of either parent accessing or being able to access their superannuation. The tribunal determines that there is no need to further amend the incomes of the parents for child support purposes because of their assets.  

22. The tribunal compared the effect of using its figures in the child support assessment with the administrative assessment that would apply if not for the change of assessment process. The tribunal’s figures are estimates only due to the complexity of the child support formula. In addition to child S, the father has three dependent children under 10 years old and this is factored into the child support calculation.

23. The administrative assessment that was in place when the mother lodged her change of assessment application (after allowing for the change in care) was that the father’s child support liability was $1,918 based on his income of $60,954 and the mother’s income of $73,127.

24. Using the tribunal’s income figures of $65,804 for the father and $80,213 for the mother, the annual rate of child support would be $2,025. As there is only a difference of $107 a year ($2.06 a week) between this figure and that of the administrative assessment, the tribunal is not satisfied that a ground for departure from the administrative assessment has been established pursuant to subparagraph 117(2)(c)(ia) of the Act.

Costs of private school education

1. Subparagraph 117(2)(b)(ii) of the Act provides that there is a ground for departure where, in the special circumstances of the case, the costs of maintaining the child are significantly affected because the child is being cared for, educated or trained in the manner that was expected by his or her parents.

2. Child S has attended a private school since 2014. The mother has paid the school fees since then, without any contribution from the father.

3. The parents separated when child S was three years old. The mother said that she and the father discussed child S’s likely future soon after their child was born and they decided then that she would be privately educated.

4. The parents signed a child support deed in July 2007. Clause 1 reads “[The father] and [the mother] agree that their child should complete her primary education in the private system (Catholic or Anglican)”. The mother said that she wanted the deed to cover child S’s high school years as well but her lawyers told her that should be negotiated later.

5. The mother submitted copies of emails from 2013 which show that she asked the father to contribute to the school fees from 2014. In an email dated 18 October 2013, soon after child S turned 12 years old, the mother wrote:

   I understand from what [child S] has mentioned to me during discussions with her, that you have agreed to support her education and attendance at this school. As you may recall it was agreed that we would educate [child S] within the [xxx] school system.

6. The father responded on 22 October 2013 as follows (in part):

   For me to commit to a further 6 years of funds for [child S’s] education is something that I will consider once I have all or even some details.

7. There was a further exchange of emails but nothing was agreed between the parents. The mother emphasised at the hearing that the father agreed to consider child S’s school costs and never said he would not contribute to them. 

8. The mother said that it was her decision that child S attend the particular school she was currently attending but that since she was born, child S was always going to attend a school of a particular denomination. She said that the father was happy to involve himself in their daughter’s schooling and was never unhappy with it.

9. The father said that because he was desperate to see child S, he would agree to whatever the mother asked. He said that he never specifically agreed for child S to go to that school; it was not something he sought. He said that he did not have the money to pay for her private education, and if he did have the money, he would not care which school she went to as long as she was happy and did well.

10. The objections officer recorded that the mother told her that in year 5 parents had to nominate a preferred high school and fill in a form but the father did not sign the form or participate in the process.

11. The tribunal is satisfied that child S’s attendance at her current school reflects the mother’s wishes and expectations with regards to child S’s schooling. The mother filled in the relevant forms for her to attend that school. She paid the school fees for 2014, 2015 and was paying them by instalment for 2016 when she lodged her change of assessment application in September 2016. While it seems clear that the father does not object to child S attending the school she attends and was broadly supportive of that choice of school, it does not follow that means he had an expectation that child S would be privately educated as a high school student.

1. The parents’ agreement that the child attend a private primary school tends to indicate that the child would continue to be educated in the private school system as she grew older. However as Judge Riethmuller noted in Dobbins,[7] “Throughout life people change their expectations both with respect to their own lives and their children as a result of the resources available to them”.

   [7] Dobbins & Devlin (SSAT Appeal) [2014] FCCA 1274.

2. The child support deed concerning primary education was signed in 2007. By the time the mother emailed the father in 2013 about child S’s high school fees for 2014, the father had re-partnered and had two other children. (Their third child was born in 2015.) The tribunal considers it credible and reasonable that any expectations he may have had in the past with regards to child S’s private education had changed in the intervening period.

3. The tribunal is not satisfied that child S is being educated in a manner expected by both her parents with regard to her current school.

4. The tribunal determines therefore that a ground for departure from the administrative assessment has not been established (pursuant to subparagraphs 117(2)(b)(ii) and 117(2)(c)(ia) of the Act).

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that there be no departure from the administrative assessment of child support.