Levett and Haycraft (Child support)

[2024] AATA 783

Levett and Haycraft (Child support) [2024] AATA 783 (29 February 2024)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2023/MC026649

APPLICANT:  Mr Levett

OTHER PARTIES:  Child Support Registrar

Ms Haycraft

TRIBUNAL:Member J Leonard

DECISION DATE:  29 February 2024

DECISION:

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

• Mr Levett’s adjusted taxable income is varied to $86,964 from 8 December 2022, and

• From 1 July 2025 and annually thereafter until a terminating event, Mr Levett’s adjusted taxable income is increased by the child support inflation factor applicable on 1 July of that year.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the parents – a ground for departure established – decision to depart - 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 omitted 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 Levett and Ms Haycraft are the separated parents of [Child 1]. According to records of Services Australia – Child Support (Child Support), the child support assessment was registered on 29 April 2015 and Child Support has been responsible for collection of child support from that date.

2. The child support liability was initially calculated in accordance with the administrative assessment, as provided in the Child Support (Assessment) Act 1989 (the Act). The calculation was based on the income recorded by each parent in their most recently completed income tax returns, as lodged with the Australian Taxation Office (the ATO).

3. It is open to either parent to lodge an application for a departure from the administrative assessment under Part 6A of the Act if they consider the administrative assessment results in an unfair amount of child support payable by one parent.

4. There have been numerous applications. The most recent was in May 2021 when Ms Haycraft lodged such an application on the basis that the administrative assessment produced an unfair outcome due to the income, property and financial resources of the parents (Reason 8). On 22 June 2021 Child Support made a decision to vary Mr Levett’s adjusted taxable income to $60,000 for the period 1 July 2021 to 31 October 2023. [Child 1] was recorded as being in the shared care of the parents. As a result of this decision, Ms Haycraft was assessed to pay an annual rate of child support of $5,230. Neither parent objected to that decision which then became the underlying administrative assessment.

5. On 3 November 2022 Child Support was notified of a change to the care of [Child 1]. From 25 September 2022, Mr Levett is recorded as having 100% care of [Child 1] and Ms Haycraft is recorded as having 0% care of [Child 1].

6. On 8 December 2022 Ms Haycraft submitted an application for a departure from the administrative assessment stating the increase in child support became unaffordable and unrealistic and that the assessment did not accurately reflect Mr Levett’s income, property or financial resources.

7. On 11 May 2023, a delegate of the Child Support Registrar found that a ground was not established in relation to Reason 8 and Ms Haycraft’s application was refused. On 8 June 2023 Ms Haycraft lodged an objection to that decision.

8. On 1 August 2023, an objections officer decided to end the previous change of assessment decision on 7 December 2022, and to vary the adjusted taxable income of Mr Levett to $74,188 for the period 8 December 2022 to 31 December 2024.

9. Mr Levett then lodged an application to this Tribunal on 23 August 2023, requesting an independent review of Child Support’s decision. The directions hearing was conducted by telephone with Mr Levett and Ms Haycraft on 14 December 2023. Following this hearing, directions were made to both parties requiring them to provide further information and documents.

10. The hearing was held on 29 February 2024. Both parties participated by conference telephone.

11. The Tribunal considered information in the documents provided by Child Support in accordance with the Administrative Appeals Tribunal Act 1975 numbered 1 to 400, documents lodged by Mr Levett, numbered A1 to A95 and documents lodged by Ms Haycraft, numbered B1 to B97. All of the documents were provided to all parties prior to the hearing. Both parties confirmed the receipt of all documents to the Tribunal.

ISSUES

1. When calculation of the rate of child support is based on the usual administrative formula as discussed above, it also takes into account, relevantly, factors such as the number of children, the level of care provided, the costs of the children, the costs of self-support of each parent and the income of each parent. Section 98C of the Act allows for a decision maker to depart from the usual manner of calculating the rate of child support payable by one parent to the other parent for a child after considering the following issues:

   ·      whether a ground exists to depart from the administrative assessment; and if so

   ·      whether any proposed departure is fair to Mr Levett, Ms Haycraft and [Child 1]; and if so

   ·      whether any proposed departure is fair to the public.

CONSIDERATION

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

1. The grounds for departure are set out in subsection 117(2) of the Act. Each ground is prefaced by the words “in the special circumstances of the case”. The meaning of this expression is not defined in the Act. However, the Tribunal was guided by the courts, which have concluded that the expression relates to the facts peculiar to each case such that those facts are “out of the ordinary” and set the case apart from the usual case (Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) and Philippe and Philippe (1978) FLC 90-433).

Reasons 8A – the 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, use of the administrative assessment would result in an unfair level of child support payable because of the available income, property and financial resources available to the parents. The Act goes on to state in subsection 117(7A) that the decision maker must have regard to “the capacity of the parent to derive income, including any assets of, under the control of, or held for the benefit of the parent that do not produce, but are capable of producing, income” and disregard “the income, earning capacity, property and financial resources of any person who does not have a duty to maintain the child”.

Mr Levett

1. Mr Levett operates his own businesses, which will be discussed in more detail below. It is a well-established principle in the Family Court that the taxable income of a person who is involved in their own business may not be an accurate reflection of their earning capacity, income, benefits and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott and Scott (1994) FLC 92-457; Carey and Carey (1994) FLC 92-489). The Tribunal reiterates that the Court has observed on numerous occasions that the Tribunal is not required to undertake a “forensic audit” or major investigation of the financial circumstances of a party (Podmore & Pillai [2011] FMCAfam 952 and Frost and Frost [2011] FMCAfam 1311). Rather, the Tribunal must be satisfied on the balance of probabilities as to the income, property and financial resources available to the parties for child support purposes, such that a fair decision can be made in respect of the child support liability (Shearer & Benson (SSAT Appeal) [2011] FMCAfam 623).

2. Ms Haycraft was of the view that Mr Levett’s spending pattern, as evidenced by the bank transactions, suggest that his income exceeds the wage he pays himself which is currently $1,500 per fortnight net.

3. Mr Levett works full time in his business, [Business 1], through [Family Trust 1] (the Trust). Mr Levett has not completed a personal income tax return since his last return was lodged in September 2021 for the 2018–19 financial year. The Trust has not submitted a return since the 2018–19 return was filed on 16 September 2021.

4. In respect of the 2018–19 financial year, business income amounted to $83,884. A profit of $24,227 was declared in the return. The profit was reduced by $12,333 due to prior year losses. Mr Levett received a distribution of $11,894 which was reflected in his personal income tax return. The Tribunal considers that the reduction for prior year losses should be disregarded as it is not reflective of the figures for that financial year. The business income represented an increase of 1% over the previous financial year. Expenses (which included Mr Levett’s wage) totalled $59,657; this represents approximately 72% of the gross income. Other expenses included $9,300 – contractors, $1,800 – rent and $6,366 for motor vehicle expenses

5. In his 2018–19 personal return, Mr Levett declared income totalling $51,536 comprising of $390 interest, $33,200 received as wages, $6,052 from [Superannuation 1] and $11,894 distributed from the Trust.

6. The only documents provided by Mr Levett in relation to the current income of the business were bank statements and two documents which Mr Levett stated he had prepared for the purpose of the Tribunal’s directions. He has not submitted BAS statements, but provided for the Tribunal a summary of the details he intended to submit at some point which reflect the value of sales for the period July 2023 to December 2023 totalled $46,276.78.

7. Bank statements were provided covering the period 2 July 2023 to 31 December 2023. Mr Levett confirmed he provides services to only one entity. On the basis of the bank statements, the Tribunal calculated that in the six month period the business received income of $48,105.57.  In response to a question from the Tribunal, Mr Levett stated that as a result of legal proceedings in September/October 2023 his income may have reduced during those two months, but that he is again up to date with his work. Mr Levett stated that he anticipates that the business income for the current financial year will be approximately $96,000.

8. In considering the likely profit in the current year, the Tribunal considered the extent to which income would be reduced by expenses.  In doing so, it had regard to the bank statements, the expenses claimed in 2018–19 financial year as a proportion of income, and Mr Levett’s oral evidence.

9. In relation to the Tribunal’s questions regarding expenses claimed in the 2018–19 Trust return, Mr Levett stated that previously he rented a unit to store his equipment, but he is now able to store that as part of his contract at no expense. He did not incur a fee for a contractor in the period July 2023 to December 2023, and since then he has employed someone perhaps one day a week. He estimated the cost of a subcontractor in the current financial year may be $3,000 to $4,000. Mr Levett stated that the motor vehicle expenses in 2018–19 were for two vehicles that were used for work purposes only. Mr Levett stated that in 2023 the business bought a new van for cash. The business owns a [vehicle 1], but this is not used very often. Mr Levett rides a motorbike and he pays for all expenses associated with his bike including registration, insurance, petrol and maintenance from his personal finances.

10. As Mr Levett is no longer paying rent ($1,800 in 2018–19) and his subcontractor fees have reduced by approximately 50% the Tribunal anticipates expenses will also reduce as a proportion of the income.

11. In respect of some of the expenses, the Tribunal concluded that Mr Levett obtains a personal benefit from the business, meeting some of his personal expenses.

12. In 2018–19 the Trust claimed expenses of $6,366 in respect of motor vehicle expenses.

13. The Tribunal noted there were no expenses from his personal accounts that might be attributed to the costs of running a motorbike in the six-month period to January 2024. Mr Levett stated that he pays cash for fuel for his bike, the bike is not insured, and the registration would be in the latter half of the financial year. There were no apparent cash withdrawals from Mr Levett’s bank account, and no identifiable debits for fuel or maintenance. The Tribunal considers that it is more likely that at least some of the costs of running Mr Levett’s motorbike are borne by the company. Mr Levett stated the cost of petrol, maintenance, registration, fares and car parking total $80 per week, or $4,100 per annum.  The Tribunal considers that Mr Levett derives a personal benefit of approximately $2,000 per annum from the business paying for some expenses related to personal use of his vehicle. The Tribunal considers it is appropriate to add back one-third of the claimed expenses in the 2018–19 return.

14. In response to questions about the significant number of withdrawals for [a meal  provider] on the business credit card Mr Levett stated there was a period where he used ‘an app’ for business and personal expenses, and inadvertently the payments for personal expenses were paid for by the business credit card. He later realised, and transferred approximately $700 from his personal account to the business account to cover the personal expenses. This transfer is not included in the statements provided to the Tribunal. Mr Levett estimated the average weekly expense of food for himself and [Child 1] was $400 per week. The Tribunal considers this cost is likely to be overstated. While there are some debits for fast food outlets from Mr Levett’s personal account, the amount debited for [a supermarket] between 1 July 2023 and 31 December 2023 totalled $675.35, or $25.98 per week. The 2018–19 return claimed an amount of $1,022 for ‘consumables’. The Tribunal intends to disregard expenses for consumables in relation to the current year income.

15. In 2018–19 the Trust claimed an expense of $945 for phone and internet; $18.17 per week. Mr Levett stated the business pays for the home internet and his personal mobile phone which he uses for work purposes. He pays for his daughter’s mobile phone from his own account. The Tribunal considers that Mr Levett’s estimate that his phone costs are $30 per month is likely to be understated. On his Statement of Financial Circumstances he declared that the cost of his phone was $20 per week; $1,040 per annum. The Tribunal intends to disregard expenses for phone and internet in relation to the current year income.

16. In 2018–19 the Trust claimed an expense of $33,200 for wages. The bank transactions reflect that the business paid Mr Levett $1,700 on 1 June 2023, $500 on 15 June 2023 and 29 June 2023 and thereafter $1,500 per fortnight into his personal account. In response to the Tribunal’s questions, Mr Levett stated that from time to time, for example on 15 June 2023, he gave himself a $500 bonus. Despite Mr Levett recording on his Statement of Financial Circumstances that his salary or wage before tax is $1,000 per week on average, the bank statements show that in most fortnights Mr Levett draws wages of $1,500 net per fortnight. The business transfers $300 per fortnight to the ATO which Mr Levett stated is the income tax liability. The Tribunal concludes that Mr Levett receives a wage of $1,800 gross per fortnight; ($46,000 per annum).

17. In respect of the remaining expenses listed at page A70 of the documents, the Tribunal considers it is likely that they will be similar in the 2023–24 financial year in the absence of any evidence to the contrary.

18. As noted, expenses (including wages of $33,200) totalled $59,657 in 2018–19. In the current year, the Tribunal considers that the expenses (including wages) are likely to be around $61,568. This represents 64.1% of the business income. Mr Levett is entitled to the profit, approximately $34,464 ($96,000 x 35.9%).

19. Mr Levett’s income and financial resources derived from operating the business consist of wage plus profit; $80,464 per annum. Mr Levett also derives income from a capped defined benefit superannuation income stream. He did not provide an up-to-date statement, however an amount of $6,052 was declared on his 2018–19 return. The amount is indexed each year, and the Tribunal approximates is it is currently valued at around $6,500 per annum. The Tribunal finds that Mr Levett has access to income and financial resources of $86,964 per annum; ($80,464 plus $6,500).

20. In summary, the Tribunal considers apart from the wage Mr Levett receives, he derives benefits from the business meeting some of his personal expenses. If those expenses are claimed through the business when income tax returns are lodged, Mr Levett’s adjusted taxable income as determined by the ATO will not be reflective of the income and financial resources available to him.

Ms Haycraft

1. Ms Haycraft is employed on a full-time basis. Her 2021–22 taxable income was $130,373. Ms Haycraft’s 2022–23 taxable income was $161,083 and on 1 December 2023 she applied to Child Support for the assessment to be calculated on the basis of an estimate of her income annualised to $135,902. Ms Haycraft advised that her 2022–23 taxable income was higher as a result of a termination payment she received in that financial year.

2. As Ms Haycraft is a salaried employee, the Tribunal is satisfied that her taxable income as determined by the ATO reflects her income and financial resources. Her estimate of income for the current financial year will be reconciled once her income tax return is submitted, and if required, adjustments will be made at that time. 

3. If Mr Levett’s adjusted taxable income was varied to $86,964 from the date Ms Haycraft lodged her departure application, Ms Haycraft would be assessed to pay an annual rate of child support of approximately $17,548; a reduction of approximately $1,383 per annum.

4. The Tribunal finds that the adjusted taxable income used in the administrative assessment for Mr Levett results in an unjust and inequitable level of child support to be provided by Ms Haycraft in respect of [Child 1] and that special circumstances do exist in this case. As such, the Tribunal is satisfied that a ground for departure is established in relation to subparagraph 117(2)(c)(ia) of the Act.

Issue 2 – Is it fair or “just and equitable” in relation to Mr Levett, Ms Haycraft and [Child 1] to make a particular departure determination?

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 fair as regards the parents and the children to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act. This in turn requires the Tribunal to have regard to a range of factors, including but not limited to those set out in subsections 117(4) and (6) to (8) of the Act, such as the needs of the child, the parents’ assets, liabilities, income and commitments and any hardship that would be caused by departing or not departing from the formula. The Tribunal does not propose to explore every matter in detail but will discuss those it regards as pertinent to this application (Gyselman).

The needs of the child

1. Section 3 of the Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain (Ashcroft and Ashcroft (SSAT Appeal) [2008] FMCAfam 1250). In this case Mr Levett and Ms Haycraft have the primary duty to financially support [Child 1].

2. [Child 1] is educated at [School 1] and is currently in Year 9. Mr Levett estimated that the cost of educating [Child 1] has reduced from his previously advised $50 per week as her new school provides a lot of the books she needs. Excluding the cost of education, Mr Levett estimated the additional expenses for [Child 1] at $652.50 per week. This includes costs such as entertainment, hobbies, holidays, chemist and food. [Child 1] also attends a psychologist about every three weeks with an out-of-pocket expense of $200 per visit. Mr Levett stated he does not get a Medicare rebate for the consultations as he has not submitted his tax returns for so long. Similarly, he stated he is not qualified for family tax benefit for [Child 1]. He is in the process of submitting an application for funding under the NDIS as [Child 1] was diagnosed with autism in 2023 and it has been recommended that she engage with other intervention services.

1. Ms Haycraft stated she has offered to assist with the cost of [Child 1’s] psychologist but has not been provided with evidence of the cost. It may be that in the future, that Mr Levett incurs significant expenses associated with [Child 1’s] recent diagnosis, however at this stage, the Tribunal was not inclined to increase the amount of child support payable by Ms Haycraft due to [Child 1’s] recent diagnosis as the cost is not yet borne, and Mr Levett could mitigate the cost he bears by taking action to get his financial affairs in order.

2. Given the income, benefits and financial resources discussed above in respect of the parents the Tribunal is satisfied that when combined, the annual costs for [Child 1] in the child support assessment based on the Costs of the Children Table is $24,828.

3. The Costs of the Children Table assumes that the child attends a public school and includes the normal associated costs of items such as books and uniforms.

4. The Tribunal is satisfied that [Child 1] has no income, property or financial resources that she can utilise to support herself and finds accordingly.

The earning capacity, income, property and financial resources and commitments of each parent

1. As found earlier in these Reasons for Decision, Mr Levett has not submitted a recent income tax return, but for reasons stated above, the Tribunal is satisfied that Mr Levett has access to income and financial resources.

2. According to his Statement of Financial Circumstances, completed on 14 September 2023, the residential property is valued at $700,000. Mr Levett estimated his bank balances to total $14,100, a motor vehicle valued at $5,000 and household contents worth $4,000. He estimated his superannuation balance to be $200,000.

3. Mr Levett stated he anticipates that once his income tax returns are up to date, he will have a business liability of $53,000 to the ATO. In response to the Tribunal’s questions, Mr Levett stated he estimated this figure on the basis that there is unpaid GST, income tax and superannuation for a number of years. 

4. According to her Statement of Financial Circumstances, received on 13 February 2024, Ms Haycraft’s owns property which is valued at $1,100,000. She estimates her savings to be $17,054, and valued her motor vehicle at $15,000 and household contents at $84,000. She confirmed to the Tribunal that she has no liabilities other than a mortgage on her property. Since November 2023 Ms Haycraft has lived with her partner and she has listed her former home as a short-term rental. At this stage, she has spent approximately $25,000 to get the property ready for listing. She will re-evaluate after a few months to determine whether it is more advantageous to lease the property as a long-term rental. Ms Haycraft stated she is aware that adjusted taxable income includes net rental property loss and she believes the estimate is accurate. Ms Haycraft has superannuation of approximately $161,000. Ms Haycraft also receives a fortnightly [Superannuation 2] pension of $494.76 gross per fortnight.

5. Neither parent has a responsibility to support anyone else.

6. Both parents work full time and the Tribunal is satisfied that there is no unused earning capacity.

Conclusion

1. After consideration of the income, resources and benefits available to Mr Levett and Ms Haycraft to meet their respective commitments, and the necessary costs of [Child 1], the Tribunal considers it is just and equitable to make a departure determination from the current administrative assessment in accordance with section 98S of the Act. Section 98S sets out a range of determinations, including varying the adjusted taxable income of a parent.

2. While the administrative assessment calculated a significantly increased child support liability payable by Ms Haycraft commencing on 25 September 2022, Ms Haycraft did not lodge a change of assessment application until 8 December 2022. It is only at that time that both parties were put on notice of the possibility of a change to the child support assessment going forward. In this case, the Tribunal considers that an appropriate commencement date for this departure decision is 8 December 2022.

3. In respect of an end date the Tribunal is cognisant that [Child 1] turns 18 years of age in November 2027 and is likely to complete her secondary education in 2027 resulting in termination of the child support assessment. Both parents asked for a determination that would extend until the child support assessment ends to avoid the need for repeated applications for a departure determination.

4. As discussed at hearing, any change to Ms Haycraft’s income would be reflected in the assessment in the usual way once her income tax returns are submitted. The proposed determination would also enable any future changes to the care of [Child 1] to be reflected in the assessed liability.

5. Ms Haycraft is up to date with her child support payments. The proposed determination will result in an overpayment to Mr Levett. The Tribunal is satisfied that the proposed decision will not cause hardship to either party or to [Child 1].

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

1. The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act. Subsection 117(5) sets out the matters that must be considered when deciding whether it would be “otherwise proper” to make a departure determination.

2. Mr Levett has not been in receipt of family tax benefit throughout the relevant period. As such, the Tribunal’s decision will have no impact on the public purse. Therefore, the Tribunal considers that it is otherwise proper to make the particular proposed determination.

DECISION

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

• Mr Levett’s adjusted taxable income is varied to $86,964 from 8 December 2022, and

• From 1 July 2025 and annually thereafter until a terminating event, Mr Levett’s adjusted taxable income is increased by the child support inflation factor applicable on 1 July of that year.