Loggins and Loggins (Child support)

[2020] AATA 4297

Loggins and Loggins (Child support) [2020] AATA 4297 (10 August 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/SC018348

APPLICANT:  Mr Loggins

OTHER PARTIES:  Child Support Registrar

Ms Loggins

TRIBUNAL:Member M Kennedy

DECISION DATE:  10 August 2020

DECISION:

The decision under review is set aside, and substituted with a decision to allow the objection so as to determine to:

1. Vary Mr Loggins’ adjusted taxable income component of the formula to $500,000pa from 2 May 2019 until the end of the case in respect of [Child 1].

This substituted decision does not substantially change the annual child support liability imposed by the objections officer, but provides for the child support formula to take into account future changes of circumstances in relation to care and Ms Loggins’ income, and therefore allows for a longer departure duration.  The parties are referred to my reasons at paragraphs 12-15 and 43 and onwards.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from business – 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

1. Mr Loggins and Ms Loggins are the parents of [Child 1] and [Child 2], in respect of whom a child support assessment is in place.  On 2 July 2019, Ms Loggins applied for a departure from the administrative assessment of child support, also known as a ‘change of assessment’ application.

2. At that time, child support for [Child 1] and [Child 2] was calculated on the basis of an adjusted taxable income of $83,472 for Mr Loggins and $47,908 for Ms Loggins, based on their respective 2017/2018 taxable income.  This produced a rate of $7720pa. 

3. Ms Loggins lodged an estimate of nil which took effect from 15 July 2019.  This produced an annual rate of $9534. A provisional income was used for Mr Loggins from 1 November 2019, producing an annual rate of $9904pa.

4. Ms Loggins’ application for a departure relied on Mr Loggins’ financial resources rendering the administrative assessment of child support unjust and inequitable.  The Department decided that the grounds to depart were established, and Mr Loggins’ annual rate of child support should be set at $24,000pa from 2 May 2019 to 1 May 2022, reflecting the cap on the ‘costs of the children’ component of the administrative formula.

5. Mr Loggins objected to this decision on 27 November 2019.  An objections officer decided to disallow the objection on 28 January 2020.  The objections officer essentially observed that Mr Loggins controlled a company that generated profit well in excess of the amount that would take his child support liability to the cap of the ‘costs of the children’ component, and he had in any event paid $2000 per month in child support until a dispute arose in relation to access to the children.  In response to Mr Loggins’ concerns about Ms Loggins’ estimate of nil, the objections officer observed that even if different amounts were substituted into the formula for Ms Loggins’ income, it would make either no difference or trivial difference to the annual rate.

6. Mr Loggins applied to the Tribunal for review on 6 February 2020

7. In accordance with directions made at a telephone directions hearing, Mr Loggins provided further financial information about his company and supplemented this with further information after the hearing had concluded.  Ms Loggins also provided further information concerning the circumstances in which her employment ceased and the out of pocket expenses she faces in providing care to the children.  Both parents gave evidence to the Tribunal on 1 July 2020.

LEGISLATIVE FRAMEWORK

1. The legislation relevant to this review is contained in the Child Support (Assessment) Act 1989 (the Act) and in the Child Support (Registration and Collection) Act 1988 (the Registration and Collection Act). The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. This requires the application of a statutory formula which takes into account factors such as the number and age of children, the level of care provided and the income of each parent.

2. Under section 98B of the Act, if special circumstances exist, a liable parent or a carer entitled to child support may apply to the Child Support Registrar (the Registrar) in writing, requesting a departure from the administrative assessment in relation to a child.

3. Under section 98C of the Act, before making a departure determination on an application made under section 98B of the Act, the Registrar must be satisfied that in the special circumstances of the case, one or more grounds under subsection 117(2) of the Act exist, and that it would be just, equitable and otherwise proper to make a particular determination.

4. The issues for me to determine in this case are therefore:

   · Whether one or more of the grounds for departure referred to in subsection 117(2) of the Act exists; and, if so

   ·      Whether it would be just and equitable as regards the child, the liable parent, and the carer entitled to child support; and otherwise proper; to make a particular determination to depart from the administrative assessment of child support.

The ‘costs of the child’ component of the formula

1. In this matter, it is convenient for me to set out in further detail the way the child support formula operates in relation to the ‘costs of the child’ under the ordinary administrative formula.

2. The statutory formula incorporates a variable known as the ‘costs of the child’ component.  Generally speaking, it is a statistical measure used to identify the anticipated cost of raising a child in Australia.  It is based on the ‘Male Total Average Weekly Earnings’ figure calculated by the Australian Bureau of Statistics.

3. The ‘costs of a child’ are determined by the parents' incomes, the number of children and the age of the children. The costs are calculated using the ‘Costs of the Children Table’ which has a legislative basis at Schedule 1, clause 1 of the Act. The Costs of the Children Table is updated annually. The child support formula then determines how these costs will be apportioned by reference to care and income.

4. At a certain point, a maximum ‘cost of the child’ will be reached.  For example, in 2020, the respective costs of the children will not increase where parents’ combined ‘child support income’ exceeds $191,815.  Where parents’ combined child support income exceeds this amount, and there are two children aged above and below the age of 13, the costs of the children is $40,282 in 2020.

CONSIDERATION

1. As to Reason 8, subparagraph 117(2)(c)(ia) of the Act provides that, in the special circumstances of the case, a ground for a departure determination may be established if application of the legislative provisions relating to administrative assessment ‘result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent’ due to the income, property and financial resources of either parent.

2. As identified above, prior to the Department making a departure determination based on Ms Loggins’ application, the child support calculation had been based on Mr Loggins’ adjusted taxable income for 2017/2018 of $83,472.

A ground is established in relation to Mr Loggins’ financial resources

1. Mr Loggins confirmed at hearing that he is the sole director and shareholder of a private company: [Business 1].  I understand from Mr Loggins’ description of the services offered by the company that the company operates internationally providing [specified] services, including arranging provision of [associated] personnel outside Australia for clients, and making the necessary payments to parties overseas for the provision of those [specified] services with a commission retained by the company.  I note from various references made by Mr Loggins in the course of his evidence that the company attracts business from well-known companies, including airlines and broadcasters.

2. Mr Loggins confirmed that he controls the company.  The salary he is paid as the CEO is calculated in conjunction with his accountant to cover his expenditure.  In this way, the company retains substantial profits and has large cash reserves.

3. This is demonstrated by the profit and loss statement Mr Loggins provided within the company tax return at A22 showing profit of $517,311 in 2018/2019 and $232,748 / $233,671 on a provisional basis for April and May of 2020 at A32 and A35 (and A45 provided after the hearing – noting that this appears to be an exceptional period brought about by late payments being made that had been due in December.

4. Mr Loggins has also provided his 2019/2020 ‘summary of payments’ sheet demonstrating that his salary from the company in 2019/2020 was $250,000.

5. Mr Loggins’ undoubted capacity to tailor his income from employment with the company in light of the company’s capacity to generate very substantial profits after all expenses raises a real issue as to whether his adjusted taxable income accurately quantifies the financial resources available to him through the company for child support purposes.  It is sufficient, in my view, to examine the example of the child support liability that applied during the financial year 2018/2019 that was calculated on the basis of Mr Loggins’ adjusted taxable income of $83,472pa.  During that financial year, it is now demonstrated that Mr Loggins’ company generated profits of $517,311 during this time which were retained within the company.

6. In my view, given the financial resource available to Mr Loggins through his company, using the administrative provisions of the Act to calculate child support may, and has, significantly undervalued his financial capacity to contribute to the maintenance of the children. The resulting assessments are unjust and inequitable having regard to Mr Loggins’ financial resources. In this regard, it is sufficient to compare the annual rate applicable prior to the change of assessment decision of $7720pa and then $9904pa with the product of the formula if, by way of example, all the retained profit within the company was viewed as a financial resource available to Mr Loggins. Applying that profit as if it were ‘adjusted taxable income’ produces a rate of child support reflecting the cap on the costs of the children (once adjusted for care levels). As found by the objections officer, this is in the order of $24,000pa.

7. In the course of the hearing, Mr Loggins addressed challenges facing his company to demonstrate the need for the company to retain profits and cash reserves.  I have no doubt that Mr Loggins’ judgement in relation to such matters is superior to mine and the company does indeed need to retain reserves given the nature of the services it provides and the effect of the global pandemic on its clients.  My findings in this regard should not be misunderstood to suggest that all profit should be withdrawn from the company each year, or it is otherwise inappropriate to retain them.  To the contrary, I consider Mr Loggins has been open and forthcoming about his control of the company and its financial performance.  My findings are by way of quantifying the extent of financial resources available to Mr Loggins through the business for the purpose of comparing the application of the administrative provisions of the Act based on the use of adjusted taxable income.

8. Furthermore, and as I will elaborate upon below, the nature of the duty of a parent to maintain a child is such that the identification of a just and equitable assessment of child support in light of Mr Loggins’ financial resources takes precedence over the need for the company to make strategic preparation for the future.  Given the financial information made available to the Tribunal by Mr Loggins, I am satisfied in any event that Mr Loggins is in a position to attend to both the need to maintain his children in accordance with his financial resources measured by reference to the profitability and reserves within the company under his control, and the future strategic needs of his business. 

9. Given the profitability of the business, I have found it unnecessary to scrutinise further the expenses of the business in these reasons, although I record that Mr Loggins assisted me in understanding the nature and legitimacy of his business expenditure in the course of his evidence.

10. A further observation I make arises out of the information provided by Mr Loggins after the hearing as to the salary he will have drawn from the company in 2019/2020.  A40 demonstrates that his salary will be $250,000 for 2019/2020, but this is not reflected in the profit and loss statement at A44 which goes to May 2020.  This is however consistent with Mr Loggins’ evidence as to how is salary is identified with his accountant, and it appears that in 2019/2020 Mr Loggins has accounted for the majority of profit as at May 2020 by drawing it as salary.

11. For my purposes, I observe that the ordinary formula will produce essentially the same result as the departure put in place by the objections officer upon Mr Loggins’ adjusted taxable income in the order of $250,000 is provided to the Registrar by the ATO. As the amount of salary paid from year to year remains within Mr Loggins’ control, I consider it nonetheless established that the use of the administrative provisions of the Act will produce an assessment of child support that is unjust and inequitable having regard to Mr Loggins’ financial circumstances.

12. The extent of the difference in annual child support liability is sufficiently great that I consider this to be a special circumstance.  The ground is therefore established to my satisfaction.

A just, equitable and otherwise proper departure

1. As I am satisfied that there is at least one ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to depart from the assessment. 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 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.

2. As I explained to the parents at the hearing, I am to approach this task on the basis that a duty that a parent has to maintain their children has a priority over all other commitments of the parent other than commitments necessary to support other children and themselves: section 3 of the Act. I raised this matter in response to Mr Loggins’ legitimate concerns over the need to retain capital within his business to meet future challenges.

3. Further to this point as raised by Mr Loggins, I am satisfied on the financial information available to me that even if the financial performance of [Business 1] is significantly adversely affected by the circumstances of the COVID-19 pandemic in the present financial year, the company retains ample financial reserves under the control of Mr Loggins for him to meet a child support liability reflective of the maximum ‘costs of the child’ component of the formula.  In his statement of financial circumstances dated 19 February 2020 (A1), Mr Loggins disclosed that the company holds cash reserves in excess of $1.4 million.

4. As to the proper needs of the children, neither parent raised any unusual needs in respect of either child.  As to this factor and also the direct and indirect costs incurred by the carer entitled to child support in providing care for the child, Ms Loggins has provided evidence of out of pocket expenses for extra-curricular activities and schooling costs.  I have considered the nature of items identified by Ms Loggins and have identified nothing out of the ordinary that would warrant additional provision in the child support assessment, particularly where the assessment the subject of this review is in the order of $24,000pa.

5. Neither parent raised any relevant contention as to the income, earning capacity, property and financial resources of the children.  I proceed on the basis that the children are dependent on their parents for their maintenance.

Ms Loggins’ income, property financial resources and earning capacity.

1. I am to take into account the income, property, financial resources and earning capacity of each parent who is a party to the proceeding.  I have considered Mr Loggins’ financial resources comprehensively above, and no issue arises in respect of his earning capacity.

2. Mr Loggins has raised as a concern Ms Loggins’ lodgement of nil estimates.  Although I share the observation of the objections officer  that increasing Ms Loggins’ ‘adjusted taxable income’ component of the formula would have limited consequence on the annual rate of child support if the liability is calculated on the basis of Mr Loggins’ financial resources as determined by the objections officer, it is nonetheless appropriate to examine the evidence Ms Loggins has provided regarding her employment and income.

3. Ms Loggins has demonstrated to my satisfaction by way of documentary evidence that she was made redundant from her employment on 14 June 2019 (B4). I furthermore accept her oral evidence to the Tribunal that her attempts to resume employment in a role involving [her previous occupation] have failed due to interruptions caused by the COVID-19 pandemic. It is not open to me to make an ‘earning capacity’ decision in respect of Ms Loggins, because Ms Loggins’ evidence of her redundancy and the circumstances of the COVID-19 pandemic satisfy me that it was not a major purpose of any change to her working arrangements to affect the administrative assessment of child support: subsection 117(7B) of the Act.

4. In considering Ms Loggins’ financial circumstances, Mr Loggins drew attention to a financial arrangement described by Ms Loggins in her statement of financial circumstances as a ‘home mortgage’.  Ms Loggins described the nature of the arrangement and I have formed the view that the arrangement is more akin to an informal private loan than a typical home mortgage.  On reflection however, I think little turns on Mr Loggins’ concerns regarding this arrangement.  The existence of the private loan does not rationally represent a financial resource to be taken into account for child support.  To the contrary, it appears to be a liability Ms Loggins would typically need to meet, although Ms Loggins has explained that her rate of repayment has changed in light of her changed employment arrangements.

1. Mr Loggins further raised as an issue his perception that a third party was contributing to the running of Ms Loggins’ household, and requested that I look further into that matter. In this regard, Mr Loggins’ concerns as to wealth introduced into the other parent’s new household is a concern shared by many parents who carry a liability under the child support scheme. However, as I explained to Mr Loggins on more than one occasion throughout the proceedings, the financial resources of persons who have no legal duty to maintain the children is essentially irrelevant, to the extent that it is unlawful for me to take into account the income, property and financial resources of such persons in arriving at a just and equitable assessment unless there are special circumstances: subsection 117(7A)(b) of the Act. As I remarked in the course of the hearing, there is nothing special about circumstances in which a parent commences a new domestic relationship. I make all these observations in the abstract without reaching any findings as to Ms Loggins’ personal circumstances in this regard.

2. As to respective hardship, I am of the view that the balance of hardship falls on Ms Loggins in light of Mr Loggins’ demonstrated capacity to generate very substantial financial resources through the operation of his business. This observation however takes me no further than to ensure that the child support liability reflects those financial resources.

3. Finally, any departure determination that I make must be ‘otherwise proper’ in the sense that it reflects the nature of the duty of a parent to maintain a child and the effect of making an order on the entitlement of a child or the carer entitled to child support to an income tested pension, allowance or benefit.  In this regard, I consider that an otherwise proper departure determination should ensure that there is no entitlement to family assistance for either parent in light of the substantial financial resources at Mr Loggins’ control.

1. I consider that in general terms the objection officer’s approach is sound and I agree with it.  I consider Mr Loggins comfortably has access to sufficient financial resources to meet a child support liability calculated by reference to the cap on the costs of the child component of the formula.

2. One consequence however of fixing a rate of child support is that the components of the formula designed to adapt to changes of circumstances in care or the other parents’ income will no longer affect the rate.  In relation to Ms Loggins’ future resumption of employment, I agree that it is unlikely to have any significant effect on the annual child support liability if Mr Loggins’ financial resources are taken into account, for example, as an adjusted taxable income figure.  The effect is limited to variations in the proportion of combined child support income, but it is at the extremes.

3. One component of the formula that may have a more significant affect however is in relation to the care percentage.  Even where the bulk of the parents combined child support income is with Mr Loggins, changes to the care percentage do have a more substantial consequence on the annual rate.  By way of example to demonstrate this point, on the basis that Mr Loggins has 38% care of the children, the annual rate with the costs of the children at the cap and Ms Loggins with nil income is just in excess of $24,000.  If Mr Loggins’ care percentage were to increase to 50% (for example), the rate reduces to $17,840.

4. I see no good reason not to make a determination that will preserve the flexibility of the formula to adapt in relation to changes in care, and indeed engineering a departure determination to preserve that capacity allows me to make the determination last for longer, which was a particular request made by Ms Loggins.

5. The downside of this approach is however that I must make a determination of a largely nominal adjusted taxable income amount that runs the risk of being misunderstood.  I will however take that risk but emphasise that the nominal adjusted taxable income figure I identify is intended merely to achieve the same outcome as the objections officer achieved by fixing the annual rate, but to preserve the capacity of the formula to adapt to any future changes in care, and to a lesser extent any changes to Ms Loggins’ income.

6. I identify the figure of $500,000pa in light of the profit made by the company on the financial information before me for 2018/2019 and the provisional profit and loss for the months of April and May of 2020.  This comfortably places the ‘costs of the children’ at the cap.  It will not change the ongoing liability for child support imposed by the objections officer unless there is a substantial change to the care arrangements.  As mentioned above, financial resources also takes into account cash reserves within Mr Loggins’ control, and a rate calculated on this basis can be serviced by Mr Loggins even if his business is adversely affected by the pandemic in the short to medium term.

7. I will maintain the same commencement date as identified the objections officer, but extend the duration of the departure until the end of the case for the eldest child. I am comfortable to do so in circumstances where the other components of the formula may now adapt to changing circumstances. I also draw the parties’ attention to the provisions of section 98J of the Act, which allows for subsequent change of assessment applications to be made if there are changes to circumstances.

DECISION

The decision under review is set aside, and substituted with a decision to allow the objection so as to determine to:

1. Vary Mr Loggins’ adjusted taxable income component of the formula to $500,000pa from 2 May 2019 until the end of the case in respect of [Child 1].