Logan and Logan (Child support)

Logan and Logan (Child support) [2020] AATA 4284 (28 July 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2020/BC018763
APPLICANT:  Mr Logan
OTHER PARTIES:  Child Support Registrar
Mrs Logan

TRIBUNAL:Member T Bubutievski
DECISION DATE: 28 July 2020
DECISION:

The decision under review is set aside and substituted with a new decision that:

a)Mr Logan's adjusted taxable income is set at $91,506 for the period 16 October 2019 to 30 June 2020;
b)Mr Logan's adjusted taxable income is set at $70,500 for the period 1 July 2020 to 31 December 2021;
c)For the period 1 January 2019 to 31 December 2019 the annual rate of child support payable by Mr Logan is increased by $6,125;
d)For the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Logan is increased $3,700; and
e)For the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Logan is increased by $2,750.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – benefits derived from business – costs of the children include private education – 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

Mr Logan and Mrs Logan are the parents of two children. The case was registered with the Department of Human Services – Child Support (now known as Services Australia) (the Department) on 28 August 2018 with collection being requested from 9 January 2019. On 24 December 2018 Mrs Logan made an application to the Department for a change to the child support assessment. On 11 September 2019 a Departmental delegate decided to depart from the administrative assessment due to additional expenses incurred because the children are being educated in the manner expected by the parents; and Mr Logan's income and financial resources not being correctly reflected in the child support assessment. The delegate increased the annual rate of child support payable by Mr Logan by $8,870 for the period 1 January 2019 to 31 December 2019, and by $9,315 for the period 1 January 2020 to 31 December 2020. At the time the decision was made the annual rate of child support payable by Mr Logan was $8,509, so this more than doubled the annual rate of child support payable.
Mr Logan objected to this decision, and on 13 February 2020 a Departmental delegate of the Child Support Registrar partly allowed the objection and made a number of changes to the assessment as follows:

For the period 1 January 2019 to 31 December 2019 the annual rate of child support payable by Mr Logan was increased by $8,870 to reflect his share of the children`s school fees;
For the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Logan was increased by $8,474 to reflect his share of the children`s school fees;
For the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Logan was increased by $4,847 to reflect his share of the children`s school fees; and
For the period 16 October 2019 to 31 December 2021 Mr Logan`s adjusted taxable income amount was set at $91,506.

This decision had the effect of increasing the annual rate of child support payable by Mr Logan to $26,666.
On 31 March 2020 Mr Logan made an application for review by the Social Services and Child Support Division of this tribunal. The tribunal held a telephone directions hearing on 9 June 2020 and issued Directions, with which the parties complied.
The matter was heard by the tribunal on 28 July 2020. Mr Logan and Mrs Logan both attended the hearing by telephone and gave sworn evidence. Mr Logan was assisted by Mr [A], accountant. The Child Support Registrar did not seek leave to appear. Both parties and the tribunal had access to documents numbered 1 to 652 from the Department, and after all submissions, documents A1 to A192 from Mr Logan and B1 to B46 from Mrs Logan.

ISSUES

The rate of child support payable by the 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, the income of each parent and the costs of the children.
The liable parent or a carer may apply to the Child Support Registrar for a determination to depart from the administrative assessment under Part 6A of the Assessment Act. The application for departure is authorised by section 98B of the Assessment Act. Section 98C of the Assessment Act provides that the Registrar may make a determination to depart from the formula assessment and establishes a three step process. In order to depart from the administrative assessment 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;
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 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 Assessment Act. Section 98S permits a range of determinations, including varying the annual rate of child support payable or the adjusted taxable income of the parties.

Issue 1 – Does a ground exist to depart from the administrative assessment?
Does a ground exist to depart from the administrative assessment under Reason 3?

Mrs Logan sought a departure from the administrative assessment on two grounds - that the cost of educating the children is significantly increased because they are being educated in the manner expected by her and Mr Logan; and that the administrative assessment of child support does not reflect Mr Logan’s income, property and financial resources. These are the grounds reflected in subparagraphs 117(2)(b)(ii) and 117(2)(c)(ia) of the Assessment Act.
Both of the children attend [independent] high schools. Their son attends [College 1] and their daughter attends [College 2]. The parties have been separated for nine years, and at the time of the separation both children were attending [a] primary school at [Suburb 1]. The parents agreed that it had been their intention that the children be educated in the [independent] school system. Mr Logan said that at the time of separation this was still affordable as although he was on compensation after leaving [Employer 1] the payments being made were equivalent to his usual wage. Prior to the case being registered with the Department the parties had a private agreement in relation to child support. As part of that agreement Mr Logan was to pay their son’s school fees and Mrs Logan was to pay the fees for their daughter. Mrs Logan said that she paid their daughter’s school fees, but then in 2018 Mr Logan stopped paying the fees for their son. She has had to take over these payments. Their daughter is in Year 12 this year and their son is in Year 9.
The parties are still in the process of negotiating their property settlement. It has been complicated by loans secured against the former marital home for the benefit of business entities. Mr Logan said that he had no capacity to pay school fees until the property settlement was completed, and he did not think that Mrs Logan had a capacity until such time either. He said that as part of the property settlement negotiations he had offered to put aside $50,000 from his part of the settlement to cover his share of the school fees. This offer has not been accepted.
At the time the decision was made in 2019, their daughter was in Year 11 and their son was in Year 8. Year 11 tuition fees for [College 2] were $[amount]. Year 8 tuition fees for [College 1] were $[amount]. Mr Logan said that he essentially ran out of money and could no longer afford to pay the school fees. He said that at that time he did contact his son’s school and sought fee relief. He said he was directed to the school website to complete some documents, but that he did not do so because he has a medical condition which impacts on his ability to deal with paperwork. Mr Logan said that it was his opinion that Mrs Logan would have applied for and received fee relief, so would not have been liable to pay the full amount of the school fees. He said that he had sought this information from his son’s school, but that it had not been provided to him as he was no longer the parent responsible for the account.
Before private school fees can be considered over and above the administrative assessment of child support, the tribunal must be satisfied that the children are being educated in the manner expected by their parents. In deciding whether the reason is established the tribunal needs to consider the type of education intended by both parents, rather than any particular school intended by the parents (Wild v Ballard (1997) FLC 92-771). A joint expectation is usually established if a child was attending a particular type of private school at the time of separation, although if the parents had an expectation that the child should attend a particular type of primary school it cannot be presumed that the same expectation automatically applies to a similar type of secondary school (Daher v O’Meara (2004) FMCAfam34). In this case, the children were being educated at a [independent] primary school at the time of separation with the agreement of both the parents. They have subsequently moved onto [independent] high schools, with a private arrangement between the parents to share the cost of school fees. The tribunal is satisfied that Mr Logan and Mrs Logan intended for the children to be educated in the [independent] education system.
Mrs Logan said that there were still $6,325 in school fees outstanding for 2018 because Mr Logan did not pay them. She confirmed that she did apply for and was granted a $5,000 hardship scholarship in respect of their son at the end of 2019, and that he may receive the same scholarship in 2020, but it had not yet been decided. She said that she did apply for and receive some minor hardship relief in respect of their daughter in late 2019, and that she has also received some fee relief from [College 2] for 2020.
A fee statement from [College 1] dated 1 July 2020 shows a balance brought forward of $11,352 as at 9 April 2020, with further tuition fees of $2,411 being added on 12 June 2020. There were also $322 in miscellaneous other fees relating to electives and sport; and a building fund donation of $230. The outstanding balance was $13,025. This statement shows that Mrs Logan is paying off the school fees at the rate of $260 per fortnight.
For Year 9 at [College 1], tuition and resource fees in 2020 total $[amount]. Allowing for a $5,000 scholarship in 2019 would mean that Mrs Logan paid no more than $5,331 in fees for 2019; and she will pay no more than $5,019 in school fees for 2020 if the same relief is granted this year.
A fee statement from [College 2], dated 31 May 2020, shows a balance brought forward on 1 March 2020 of $7,688. On 30 April 2020 a fee reduction of $5,666 was applied leaving an outstanding balance of $1,502. This statement shows that Mrs Logan is paying off the school fees for their daughter at the rate of $80 per fortnight.
[College 2]’s website says that its fees for Year 12 for 2020 are [a] total of $[amount]. An examination of the fee statement shows that some of the fee relief received by Mrs Logan is in relation to expenses which do not form part of the core tuition fees. Fee relief in relation to tuition fees amounts to $4,702, meaning that Mrs Logan will pay $1,711 in school fees for their daughter for 2020.
The total tuition fees payable by Mrs Logan for 2020 are therefore around $6,730. For 2019 they appear to have been in the region of $10,000 ($5,331 for their son and fees for their daughter for three terms of around $4,800). In considering the additional costs being incurred by Mrs Logan in the education of the children, the tribunal can only consider tuition fees. This does not include any expenses for uniforms, camps, electives, sports, digital education fees and schoolbooks. These expenses are common to both public and private education. The administrative assessment of child support factors in those expenses which are required to educate a child, regardless of whether or not they are in the public or private school system. It does not, however, factor in private school fees. These are often significant.
In this case, the administrative child support assessment for meeting the needs of both children was $5,014 at the time Mrs Logan made her application for a change to the child support assessment, and somewhat over $8,000 at the time the Department considered the matter. If the private school fees were not considered separately, they would cost more than the total child support payable, or take up most of the amount payable, and leave little to no provision for the day-to-day support of the children. The tribunal is satisfied that the cost of private schooling does significantly affect the cost of maintaining the children.
The term “special circumstances” is not defined in the Assessment Act. In Gyselman and Gyselman [1991] FamCA 93 (Gyselman) 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. The tribunal is satisfied that the private school fees incurred with the consent of both parents amount to a special circumstance. The tribunal finds this ground established. As a ground is established, the tribunal must also consider whether it is just and equitable, and otherwise proper, to change the assessment. This involves a consideration of all the circumstances of the parents, including a fairly detailed assessment of both parents' income, financial resources and financial obligations. This will take in the matters raised by Mrs Logan in her application under reason 8A.

Issue 2 – Would departure from the administrative assessment be just and equitable?

As the tribunal is satisfied that a ground has been established 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. In deciding whether it is just and equitable, the tribunal must have regard to the following matters set out in subsection 117(4) of the Assessment Act:
(a)the nature of the duty of a parent to maintain a child (as stated in section 3); and
(b)the proper needs of the child; and
(c)the income, earning capacity, property and financial resources of the   child; and
(d)the income, property and financial resources of each parent who is a   party to the proceeding; and
(da)the earning capacity of each parent who is a party to the proceeding;   and
(e)the commitments of each parent who is a party to the proceeding that   are necessary to enable the parent to support:
(i)himself or herself; or
(ii)any other child or another person that the person has a duty to   maintain; and
(f)the direct and indirect costs incurred by the carer entitled to child   support in providing care for the child; and
(g)any hardship that would be caused:
(i)to:
(A)the child; or
(B)the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii)to:
(A)the liable parent; or
(B)any other child or another person that the liable parent   has a duty to support;
by the making of, or the refusal to make, the order; and
(iii) to any resident child of the parent (see subsection (10)) by the making of, or the refusal to make, the order.
Section 3 of the Assessment Act states that it is the duty of both parents to financially support their children. All children should receive a proper amount of financial support from their parents in accordance with their capacity to contribute. The tribunal only has to consider the factors set out in subsection 117(4) of the Assessment Act to the extent they are relevant in any particular case (see Gyselman).
In his Statement of Financial Circumstances, Mr Logan declares his average weekly income to be $763.50. This is made up entirely of compensation (EML) payments from [Employer 1]. The tribunal noted the deposits to his bank account are $770.06 per week. Mr Logan also indicated that he has significant medical expenses in relation to his conditions but confirmed that these are covered by his insurer in addition to payments for lost wages. The tribunal does not intend to take account of additional medical expenses as they are not met from Mr Logan’s income. Mrs Logan suggested that Mr Logan may be attempting to settle his workers’ compensation entitlements for a lump sum. Mr Logan confirmed that some negotiations have been undertaken, but his preference is to remain on the payments because of the extent of his medical coverage. He noted that he requires two surgeries in the next 12 months or so, one relating to his injuries and one relating to a []. The evidence before the tribunal does not indicate that Mr Logan is about to come into a lump sum, or should be assessed in a manner other than on the basis of his present level of income and financial resources. Mr Logan provided a PAYG summary from his insurer for the period 10 August 2019 to 30 June 2020 for total payments of $40,860. He was unsure why the payment summary was not for the entire financial year, and the tribunal noted a number of bank deposits from his insurer between 1 July 2019 and 9 August 2019. It appears that Mr Logan would have received at least $45,500 in insurance payments in the 2019/20 financial year.
Determining the present level of Mr Logan’s income and financial resources is complicated, however, because he is involved in a number of business ventures. The benefits potentially available to him from these ventures also need to be considered looking at his capacity to pay child support. It is easiest to consider each business entity in turn.
The Family Court has established the principle that in the case of self-employed parents, their taxable income may not be an accurate reflection of their earning capacity and financial resources. Several cases in particular have examined this issue closely, including Scott and Scott (1994) FLC 92 - 457, and Carey and Carey (1994) FLC 92 - 489. The Courts consider that self-employed people are able to derive additional benefits from their business in addition to wages. They also have greater control over the structure of their finances than an employee receiving salary or wages, and so may be able to use the income of the business in ways other than paying wages. Expenses and deductions which may be legitimate for tax purposes may not be considered to take precedence over child support obligations. Under child support law, other than the basic expenses necessary for self-support there are very few expenses which take precedence over the support of children. There is considerable divergence between the taxation system, which is intended to provide general support for many, and the child support system, which is intended to provide specific support for the children of relationships.

[Business 1] Pty Ltd (“[Business 1]”)

[Business 1] was originally [a] business operated by Mr and Mrs Logan. Mr Logan said that [it] supplemented their income. He said that at about the time that [Machine 1] began it became apparent that he could no longer continue with the [business] due to his medical conditions. An investor put $1 million into the company and they bought [Machine 1] through a slightly renamed entity. Through the medium of a company called CS Logan, Mr and Mrs Logan own 40% of the shares in [Business 1]. The [Machine 1] are rented out, primarily to amusement facilities. Mr Logan said that he has no active role in the operation of this business, but there were loans secured over the former marital home for the purpose of purchasing and funding [Business 1]. As a consequence, this business and the extent to which Mr and Mrs Logan hold assets in it is part of their property settlement. This is scheduled for interim hearing in November 2020.
Mr Logan provided financial statements for [Business 1] for the period July 2019 to May 2020. These show gross income of $851,853.10 and net profit of $145,292.13. There were also a number of expenses which may have a personal use component, including legal fees and domestic and international travel. The tribunal asked Mr Logan how the operating profit from [Business 1] is distributed. Mr Logan said that the profit is not distributed and there has never been a dividend paid. He said that he takes no income or non-cash benefits from the business. The person who manages the business pays himself $5,500 per month. Mr Logan said that the last time he travelled with this business would have been in 2017. The balance sheet for [Business 1] shows that it owes Mr Logan approximately $592,000. The profitability of the business has been affected by COVID-19.
Mr and Mrs Logan appear to have an equal share in [Business 1] and consequently equal rights to the income and assets generated by the business. This particular business is involved in the parents’ property settlement negotiations, and as it has not distributed profits, but used them to pay down debt and affect the asset position of the company, the tribunal decided that it should correctly disregard the income generated by [Business 1] in the child support assessment at this time. Depending upon the distribution of assets in [Business 1] in the settlement, this may not be the correct approach after the settlement is finalised.

[Business 2] Pty Ltd (“[Business 2]”)

This is a company which imports [goods] and on sells them to retailers. Mr Logan is the sole shareholder. Mr Logan described his role in this company and in [Business 3] Pty Ltd (“[Business 3]”) as organising the import of the product. He said that his partner deals with orders and invoicing, and is paid for doing so. Like [Business 1], [Business 2] and [Business 3] provide their product to the recreation and leisure sector. As a consequence, these businesses have also been affected by COVID-19.
The financial statements for [Business 2] for 2019 show gross income of $197,586. Cost of sales was $102,424.25. Expenses included corporate meals and gifts of $750, depreciation of $12,021, electricity of $604, legal fees of $3,559, motor vehicle expenses of $1,902, petrol of $1,599, phone of $378, domestic travel and the associated meals and accommodation of $5,351 and rent of $11,039. The business operated at a loss of $35,654 and has significant carried forward tax losses. Mr Logan had a director’s loan to the company of $140,431.
Corporate meals and gifts would not take priority over child support. Depreciation is an amount which is frequently added back to the profit of the business before child support is calculated, in recognition of the fact that although it is meant to be money put aside for the replacement of assets, most business owners instead use it as a form of income. Mr Logan explained that the legal fees related to a contractual dispute between [Business 2] and the US supplier of the [goods], [Company 1]. Mr Logan said that [Company 1] changed the[way they make the goods], which resulted in an inferior product and the spoilage of an entire consignment of [goods] (the tribunal notes that this is shown in the 2019 financial reports of [Business 3] as wastage of just over $41,000). Mr Logan said that consequently he sourced a different supplier and commenced the same operation under the trading name [Business 3] Pty Ltd.
Mr Logan acknowledged that the motor vehicle expenses claimed relate to his vehicle, the phone expenses relate to his phone and the rental and electricity expenses relate to his home. The tribunal notes that even if all the above expenses and depreciation were added back [Business 2] would still not have made a profit, even though it is clear that Mr Logan does derive a personal benefit from payments made by [Business 2].
[Business 2]’s Business Activity Statements for the 2019/20 financial year show sales of $97,521 for July to September 2019; $58,332 for October to December 2019; $46,473 for January to March 2020; and $10,217 for March to June 2020, a total turnover of $212,543. While income has clearly been affected by the pandemic in the last quarter, the total income is still higher than 2019.
[Business 2] is significantly burdened by debt to Mr Logan and other investors, but Mr Logan confirmed that the other investors are not presently seeking a return on their investment. It also has a business loan with [Bank 1], and an overdraft facility which is overdrawn by over $30,000. Mr Logan’s director’s loan reduced to $128,595 in 2020, meaning that in addition to the personal benefits Mr Logan received from payments made by [Business 2], he was able to draw almost $12,000 from the business. [Business 2] owes over $500,000 more than it has.
Mr Logan said that he had made a business plan with Mr [A] to try and trade out of the financial problems rather than go into liquidation. Mr [A] said that [Business 2] did not go into the pandemic in a good financial position and then sales dropped by 100%. He said that the fact that many of the parties involved are not chasing the debts they are owed gives [Business 2] some leeway to trade out of trouble. It did not qualify for the COVID cash boost, as it has no employees, but Mr Logan did qualify for Jobkeeper as a business participant. Mr [A] said that this money is not being passed on to Mr Logan as income. It is being used by the business to meet fixed expenses and debt repayments as the income of the business is so reduced. Mr [A] confirmed that the product is good and with limited competition the business should be able to trade out of this position in the next few years, pending COVID-19.
Allowing for Mr Logan to receive a modest 50% personal benefit from the motor vehicle, phone, electricity, rental and depreciation expenses amounts to additional benefits of $13,906 per annum. Added to this is the return of capital of $11,836. The business bank statements show significant personal expenses being paid by the business. For accounting purposes, such payments are reflected as wages, director’s fees or a return of capital by a reduction in a director’s loan balance. If it is reflected as a return of capital it is not taxable income, but it is still child support income. The tribunal is satisfied that the additional personal expenses paid by the business for Mr Logan’s benefit are reflected as a reduction in his director’s loan balance and to count them again from the bank statements may lead to double counting.
The tribunal finds that Mr Logan derives additional benefits equivalent to at least $25,742 per annum from the operation of [Business 2] even though he does not take wages and the business makes a loss. Even if the benefits Mr Logan receives from [Business 2] are removed from the business expenses, it still made a loss of around $10,000 in 2019. No doubt its losses will mount during the course of the pandemic. Mr Logan cannot be attributed with any profits from this business in the foreseeable future, although it appears he will be able to continue to receive non-cash benefits.

[Business 3] Pty Ltd

Mr Logan is the sole director of [Business 3]. The units are held in a family trust. Mr Logan said that no returns have been paid to the family trust. The 2019 financial statements for [Business 3] show gross income of $210,740 (round numbers used). Cost of sales was $44,030. Operating profit was $19,045. Like [Business 2], Mr Logan claims corporate gifts and expenses totalling $899, entertainment expenses of $157, electricity of $1,457, vehicle expenses of $433, petrol of $1,520, rent of $11,039 and telephone of $5,544. Adding back the corporate gifts and expenses would give profit of $20,101. Again, adding a modest 50% for personal use of the other expenses totals $9,268. The tribunal is satisfied that in 2019 Mr Logan derived profits and additional benefits from [Business 3] totalling at least $29,369.
The 2020 financial statements for [Business 3] show a gross income of $210,896 (round numbers used). Cost of sales was $66,168. Operating profit was $54,981. Like 2019, Mr Logan claims corporate gifts and expenses totalling $454, entertainment expenses of $111, electricity of $766, motor vehicle expenses of $1,415, petrol of $1,184, rent of $14,102 and telephone of $3,033. Adding back the corporate gifts and expenses and entertainment would give a profit of $55,546. Again, adding a modest 50% for personal use of the other expenses totals $10,250. The tribunal is satisfied that in 2020 Mr Logan derived profits and additional benefits from [Business 3] totalling at least $65,796.
The tribunal is mindful, however, of the relationship between [Business 2] and [Business 3]. While Mr Logan receives the financial benefits of [Business 3] making a profit, he is also ultimately responsible for [Business 2]’s losses. Both these entities are essentially him. It would be wrong in law to take account of [Business 3]’s profits without also offsetting [Business 2]’s losses against this, as otherwise it is not a true reflection of Mr Logan’s financial position.
Given the current pandemic and the extremely difficult trading conditions affecting both [Business 2] and [Business 3], the tribunal accepts that the full extent of the profits from [Business 3] should not be considered as Mr Logan’s income in the 2020 financial year. They will be needed to keep the businesses afloat. Nonetheless, Mr Logan also derives significant personal benefits from expenses paid by [Business 3], and should be considered to have had access to a portion of the business profits. Consequently, the tribunal determined that $20,000 of income and benefits from [Business 3] should be taken into account in the assessment in the 2020 financial year.
Like [Business 2], in the current financial year [Business 3] is likely to make no income, or even to accrue losses. The tribunal could not find that any income should be taken into account for Mr Logan from [Business 3] for the current financial year, although the non-cash benefits appear to continue.

[Business 4] Pty Ltd

Mr Logan said that this company is dormant. It was formed from [two companies] for the purpose of buying [machines]. This venture was not a success and the machines are sitting at the [Business 1] property at [Suburb 2]. This entity returns $0 Business Activity Statements and has not had any income or done financial statements since 2015. The tribunal finds that it does not add to Mr Logan’s capacity to pay child support.
The objection decision set Mr Logan’s adjusted taxable income at $91,506 for the period 16 October 2019 to 31 December 2021. This was calculated on the basis of Mr Logan’s income from compensation ($50,544 at that time), plus profits and personal use benefits from [Business 2] and [Business 3]. Mr Logan said that his rate of compensation has now reduced as his eldest son is no longer a dependent, and this appears to be the case from his 2020 PAYG Summary.
The tribunal has found that for 2018/19 Mr Logan had compensation income ($50,544 at that time), personal use benefits from [Business 2] of $25,742 and personal use benefits and profits from [Business 3] of $29,369 – a total of $105,655. This is a period prior to the commencement of this decision.
For 2019/20 Mr Logan had compensation income of at least $45,500, personal use benefits from [Business 2] of $25,742 and personal use benefits and profits from [Business 3] of $20,000 – a total of $91,242. While this has been calculated in a slightly different method from the calculation made by the objections officer, the overall result is so similar that the tribunal can see no need to change the decision of that officer at all until 1 July 2020. The tribunal acknowledges that Mr Logan does not think that the benefits he derives from the businesses are that significant, but the financial statements and bank statements show that they are. Mr Logan may be relatively cash poor, but he receives significant non-cash benefits which relieve him of the expenses of his own self support.
Due to COVID-19, his business income has completely collapsed. From 1 July 2020 Mr Logan will have his compensation income, and his non-cash benefits and capital returns from the two businesses. They are unlikely to make any profit and it is also probable that they will not be able to provide Mr Logan with the same level of non-cash benefits and capital returns as they have done in the past. On balance, the tribunal was satisfied that even with the current level of uncertainty Mr Logan will have income of $45,500 from compensation and around $25,000 in non-cash benefits towards fixed expenses such as rent, phone and electricity. Accordingly, the tribunal was satisfied that from 1 July 2020 it would be correct for the assessment to proceed on the basis of an adjusted taxable income amount for Mr Logan of $70,500. The current decision ends on 31 December 2021. Given the debt burden of [Business 2], the tribunal decided that it would be appropriate to continue this reduced income assessment until that time.
In cases such as this the tribunal only needs to be satisfied that a person has a capacity to pay child support of a certain amount or income at a particular level. It does not need to be forensically accurate down to the last dollar. Payments of child support must take priority over most other spending. The tribunal's role is not to tell Mr Logan how to spend his money or to be overly critical of the way he does so, but it does have a role in impressing upon Mr Logan the importance of meeting his child support liability, even at the expense of some of his lifestyle and business decisions. As at 9 January 2020 Mr Logan was in arrears of child support of $8,221.37. The tribunal acknowledges that in his current financial situation Mr Logan will have difficulty repaying this.
Mrs Logan has all the usual expenses to be expected in the support of herself and the children, including private school fees. Mrs Logan said that she wanted an increase in the child support assessment backdated to 14 September 2018, as this is when Mr Logan stopped paying school fees and other expenses. She said that prior to this they had an agreement that he would pay their son’s school fees, the children’s phones, private health insurance and half of one-off costs. She estimated that he paid child support of between $1,300 and $1,515 per month. In her original application she requested child support of $18,000 per annum. Mrs Logan also provided documents in relation to surgery their daughter had [on] 22 February 2019 and requested that Mr Logan pay half of the out of pocket expense. This totalled $1,249. She said that she had advised Mr Logan of the surgery at the time and made a request that he share the cost but got no response. Mr Logan said that he had been unable to contribute to the cost as he could not afford it.
Mrs Logan is employed full-time, and her payslips show a gross income of $2,661.52 per fortnight. Her year to date income on 14 June 2020 was $72,839. Her adjusted taxable income appears to be correctly reflected in the child support assessment and needs no amendment.
Mrs Logan said that the application was in part prompted by the fact that she moved from interest only to interest and principal repayments on the former marital home, in which she is residing with the children. While the tribunal appreciates that this would have significantly increased her expenses, this is a matter for consideration in the parents’ settlement of property, not the child support assessment.
As calculated above, the tribunal has established that the total tuition fees payable by Mrs Logan for 2019 were in the region of $10,000. For 2020 they are $6,730. For 2021 fees will only be payable in respect of their son. It is likely that fee relief will be granted again, and the tribunal is satisfied that even allowing for an increase in the school fees Mrs Logan will not pay more than $5,500 in tuition fees.
The objection decision increases the annual rate of child support payable by Mr Logan by $8,870 for 2019 to reflect his share of the children`s school fees. For the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Logan was increased by $8,474 to reflect school fees. For the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Logan was increased by $4,847 to reflect his share of his son’s school fees. On the evidence before it, the tribunal is satisfied that these amounts are too high.
Mrs Logan’s 2019/20 taxable income is likely to be in the vicinity of $72,000. The tribunal has found that Mr Logan’s total benefits are correctly reflected at an income of $91,506 until 30 June 2020. This means that Mrs Logan has about 45% of the available child support income and Mr Logan has about 55%. The tribunal finds that it would be just and equitable to apportion the school fees for 2019 and 2020 between the parents in this manner, meaning that for 2019 Mr Logan would pay $5,500 and for 2020 he would pay $3,700. For 2021 both the parents will have broadly similar access to resources and the fees should be shared between them at $2,750 each.
This leaves the issue of their daughter’s surgery and the out of pocket costs. This appears to have been a necessary medical expense and should rightly be shared by both parents. The annual rate of child support payable by Mr Logan for 2019 should be increased by $625 in recognition of this.
The tribunal considered Mrs Logan’s request for significant backdating of the change to the assessment, but was of the view that at the present time Mr Logan does not have the financial resources available to him to pay an increased amount of arrears. He is facing a difficult time with his business operations and does not have cash, assets or credit with which to meet such an assessment.
The various components of this decision are complicated. In summary, the tribunal has found that no change needs to be made to Mr Logan’s income until 1 July 2020, when it should be reduced to $70,500 until 31 December 2021. The tribunal has also found that the annual rate of child support payable by Mr Logan should be increased due to private school fees and his daughter’s medical needs, but not by as much as the objections officer determined. For 2019 the annual rate should be increased by $6,125; for 2020 it should be increased by $3,700 and for 2021 it should be increased by $2,750.
The tribunal is satisfied that it would be correct to depart from the administrative assessment in this manner as long as it is otherwise proper to do so.

Issue 3 – Is it otherwise proper to depart from the administrative assessment?

The final step for the tribunal is to determine whether it is “otherwise proper” to depart from the administrative assessment. Subsection 117(5) of the Assessment Act requires the tribunal to take into consideration the nature of the duty of a parent to maintain a child, and the effect that any change to the assessment would have on the rate of any Centrelink benefits being received by the parties or the children.

The child support law recognises that each parent has a primary duty to maintain their children. In the case that they cannot, the government may assist in the form of family assistance payments. This decision will increase the amount of family assistance Mrs Logan receives in respect of the children. The tribunal is satisfied that a departure from the assessment will better reflect the financial resources that have been available to both parents and ensure that the level of financial support provided by the parties for the children is determined according to their capacity to provide that support. It is therefore otherwise proper to depart from the administrative assessment in this matter.

DECISION

The decision under review is set aside and substituted with a new decision that:

a)Mr Logan's adjusted taxable income is set at $91,506 for the period 16 October 2019 to 30 June 2020;
b)Mr Logan's adjusted taxable income is set at $70,500 for the period 1 July 2020 to 31 December 2021;
c)For the period 1 January 2019 to 31 December 2019 the annual rate of child support payable by Mr Logan is increased by $6,125;
d)For the period 1 January 2020 to 31 December 2020 the annual rate of child support payable by Mr Logan is increased $3,700; and
e)For the period 1 January 2021 to 31 December 2021 the annual rate of child support payable by Mr Logan is increased by $2,750.

[2020] AATA 4284

28 July 2020

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Statutory Construction

Judicial Review

Jurisdiction

Remedies