Longrigg and Longrigg (Child support)

[2024] AATA 4133

Longrigg and Longrigg (Child support) [2024] AATA 4133 (2 August 2024)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2024/MC027294

APPLICANT:  Mr Longrigg

OTHER PARTIES:  Child Support Registrar

Ms Longrigg

TRIBUNAL:  Member P Jensen

DECISION DATE:  2 August 2024

DECISION:

The decision under review is set aside and, in substitution:

• from 4 April 2023 to 31 December 2024, Mr Longrigg’s adjusted taxable income is varied to $170,820 per annum;

• from 4 April 2023 to 30 June 2023, Ms Longrigg’s adjusted taxable income is varied to $107,812 per annum; and

• from 1 July 2023 to 31 December 2024, Ms Longrigg’s adjusted taxable income is varied to $152,245 per annum.

CATCHWORDS 
CHILD SUPPORT – change of assessment – a ground for departure – just and equitable – earning capacity – parent’s adjusted taxable income is varied – 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 theChild Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

Introduction

1. Mr Longrigg and Ms Longrigg are the parents of [Child 1], [Child 2] and [Child 3]. A child support case was registered with Services Australia – Child Support (Child Support) from 28 November 2022. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care for the children.

2. The parents’ care of the children can be summarised as follows:

   ·   Child Support recorded Mr Longrigg as providing 42% care and Ms Longrigg as providing 58% care for the children with effect from 28 November 2022.

   ·   Child Support concluded that a change in care occurred on 15 September 2023. It recorded Mr Longrigg as providing 0% care for the children with effect from 15 September 2023 and Ms Longrigg as providing 100% care for the children with effect from 18 October 2023.

   ·   Child Support is considering whether changes in care occurred on 1 January 2024, 30 April 2024 and 1 May 2024: page 645 of the hearing papers. Child Support will make decisions on those matters in due course.

3. As at 8 September 2023, the relevant administrative assessments of child support payable were as follows (per page 313 of the hearing papers):

   ·    From 28 November 2022 to 7 June 2023, Ms Longrigg was assessed to pay $7,770 per annum, based on her 2021–22 adjusted taxable income of $102,117 and Mr Longrigg’s estimate of income of $0.

   ·    From 8 June 2023 to 30 June 2023, Mr Longrigg was assessed to pay $10,083 per annum, based on his estimate of income of $142,826 per annum and Ms Longrigg’s 2021–22 adjusted taxable income of $102,117.

   ·    From 1 July 2023 to 19 July 2023, Mr Longrigg was assessed to pay $17,790 per annum, based on his 2021–22 adjusted taxable income of $258,615 and Ms Longrigg’s 2021–22 adjusted taxable income of $102,117.

   ·    From 20 July 2023, Mr Longrigg was assessed to pay $10,386 per annum, based on his estimate of income of $145,100 and Ms Longrigg’s 2021–22 adjusted taxable income of $102,117.

4. The Act also provides for a departure from the administrative assessment in certain circumstances. On 8 June 2023, Ms Longrigg lodged a valid departure application. (On 1 June 2023 she lodged an unsigned departure application.) An original decision-maker granted the application and varied Mr Longrigg’s adjusted taxable income to $258,615 per annum from 20 July 2023 to 31 December 2024. Mr Longrigg objected to that decision. An objections officer allowed the objection and varied Mr Longrigg’s adjusted taxable income to $193,000 per annum from 8 June 2023 to 31 January 2024. Mr Longrigg applied to the Tribunal for further review. I conducted a directions hearing on 5 June 2024. I directed the parents to provide certain documentation by 12 July 2024. Neither parent complied with the directions. Further correspondence was sent to both parents which prompted Mr Longrigg to partly comply with the directions and Ms Longrigg to fully complied with the directions. Mr Longrigg’s non-compliance is discussed below. I conducted a substantive hearing on 2 August 2024. Mr Longrigg and Ms Longrigg gave sworn evidence via MS Teams.

5. Paragraph 98C(1)(b) of the Act relevantly provides that a departure decision may be made in respect of a departure application if:

   (i)... one, or more than one, of the grounds for departure referred to in [subsection 117(2)] exists; and

   (ii)... 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; …

A ground for departure

1. There are 10 potential grounds for departure and they are contained in various subparagraphs of section 117 of the Act. For convenience, they are referred to as Reason 1, Reason 2, and so on. When Ms Longrigg lodged her departure application she relied on Reason 2 which concerns the costs relating to the special needs of a child, Reason 5 which concerns transfers of money, goods or property, and Reason 8. The original decision-maker and the objections officer concluded that Reason 2 and Reason 5 were not established. During the directions hearing, Ms Longrigg acknowledged that Reason 2 and Reason 5 were not established.

2. Subparagraph 117(2)(c)(ia) of the Act, commonly referred to as Reason 8, provides as a ground for departure:

   that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child:

   …

   (ia)because of the income, property and financial resources of either parent; …

3. Mr Longrigg is an [occupation]. His professional services are provided via [a company] (the Company). He is the sole director and shareholder of the Company. The Company is the sole trustee of the Longrigg Family Trust (the Trust). Mr Longrigg is the sole beneficiary of the Trust. During the directions hearing, Mr Longrigg acknowledged that he is effectively self-employed.

4. Mr Longrigg provided an estimate of income of $0 from 28 November 2022. Child Support accepted that estimate and Ms Longrigg’s rate of child support payable was calculated accordingly. Mr Longrigg was required to notify Child Support within 14 days of any change in circumstances that would affect the accuracy of his estimate: page 56 of the hearing papers.

5. The Company contracted with an unrelated third party for the provision of Mr Longrigg’s professional services from 4 April 2023 to 3 October 2023 (the Contract): page 396 of the hearing papers. Mr Longrigg did not update his estimate of income until 8 June 2023, at which point he provided an estimate of $142,826 per annum.

6. Child Support obtained the Company’s business activity statement for the fourth quarter of 2022–23. The Company had sales of $137,500 ex-GST.

7. I directed Mr Longrigg to provide the Company’s and Trust’s 2022–23 financial statements and tax returns. Mr Longrigg only provided the Trust’s tax return. According to that document, the Trust received revenue of $137,500, incurred tax-deductible expenses of $7,262 and made a profit of $130,238. A profit and loss statement would have itemised its expenses but Mr Longrigg did not provide that document. During the substantive hearing I asked Mr Longrigg to itemise the Trust’s expenses. He was unable to do so.

8. I directed Mr Longrigg to provide his 2022–23 individual tax return, including all schedules. He did not comply with that direction. He provided his 2022–23 Notice of Assessment: page A54 of the hearing papers. His 2022–23 taxable income was $118,662, as was his adjusted taxable income: page 637 of the hearing papers. It appears that Mr Longrigg claimed personal tax‑deductible expenses of $130,238 - $118,662 = $11,576 (in addition to the Trust claiming tax‑deductible expenses of $7,262). I asked Mr Longrigg to itemise his personal tax-deductible expenses. He was unable to do so.

9. I had directed Mr Longrigg to provide the Company’s and Trust’s profit and loss statements and his individual tax returns because that documentation would have provided information about various tax‑deductible expenses that had been claimed for taxation purposes. A person’s adjusted taxable income does not always fairly reflect their income and financial resources for child support purposes. For example, Child Support obtained Mr Longrigg’s 2021–22 tax return: pages 247 to 254 of the hearing papers. His tax‑deducible expenses included “gifts or donations” of $2,021. It is commendable that he made those donations but, in an appropriate case, it would be appropriate to disregard those donations for child support purposes. A decision-maker might conclude that Mr Longrigg’s financial obligations to his children should take priority over his donations to third parties.

10. I directed Mr Longrigg to provide the Company’s business activity statements for 2023–24. He failed to comply with that direction. I directed him to provide the Company’s and Trust’s 2023–24 financial statements, if they were available. He did not provide those documents.

11. Mr Longrigg said the Contract ended on 20 September 2023. The other party to the Contract terminated it prematurely. Bank account statements show that the Company received its final payment on 20 September 2023. When I noted that Mr Longrigg had failed to provide business activity statements, he said the Company’s bank account statements recorded all its revenue. Those statements show relevant deposits totalling $317,625. Assuming the deposits include GST, they represent gross revenue of $288,750 ex-GST. As noted earlier, Mr Longrigg was directed to provide documentation which would have allowed for a meaningful consideration of the expenses that the various legal entities claimed for taxation purposes, and which it may have been appropriate to exclude for child support purposes. Mr Longrigg did not provide that documentation. Mr Longrigg was unable to itemise any work-related expenses that he (rather than the Company or Trust) might have incurred. It was an unsatisfactory state of affairs that arose from Mr Longrigg’s failure to comply with the directions. I am not persuaded that it would be appropriate to recognise all the unspecified tax-deductible expenses that were claimed in the various legal entities’ tax returns. Doing the best I can in the circumstances, I will have regard to the Trust’s tax-deductible expenses and not Mr Longrigg’s personal tax-deductible expenses. The Trust claimed expenses of $7,262 in respect of the fourth quarter of 2022–23 and will claim an unknown amount in respect of the first quarter of 2023–24. Mr Longrigg said the expenses in each quarter were likely to be similar. The profit available to Mr Longrigg via the Contract was approximately $288,750 – ($7,262 x 2) = $274,226.

12. During the directions hearing and the substantive hearing, Mr Longrigg said he had been unemployed since the Contract ended. The Trust’s bank account statements support his oral evidence on that issue. Ms Longrigg did not dispute that evidence, and I accept it.

13. On 1 June 2023, Ms Longrigg effectively alerted Child Support to the fact that Mr Longrigg’s estimate of income of $0 was inaccurate. On 8 June 2023, Ms Longrigg lodged a departure application. On the same day, Mr Longrigg updated his estimate of income to $142,826 per annum, but only with effect from 8 June 2023. His failure to comply with his legal obligations and promptly update his original estimate of $0 when the Contract commenced constitutes special circumstances such that the application of the administrative assessment resulted in an unjust and inequitable determination of child support payable. Reason 8 is established.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. Ms Longrigg’s circumstances are relatively straightforward. She is a [manager]. She was employed on a part-time basis during 2022–23. She provided her 2022–23 tax return: pages B11 to B14 of the hearing papers. She earned $73,930. She incurred tax-deductible expenses of $1,240. Her tax return has some other minor entries. Her taxable income was $72,825. She also received reportable fringe benefits worth $34,987 which did not form part of her taxable income but did form part of her adjusted taxable income, which was $107,812.

3. Ms Longrigg started full-time employment with the same employer on 1 July 2023. She provided her 2023–24 payment summary: page B17 and B18 of the hearing papers. Her gross wages were $118,356. Her reportable fringe benefits were $34,994. She said her tax‑deductible expenses during 2023–24 were similar to those she incurred in 2022–23. In summary, she earned an extra $44,426 and received an extra $7 in reportable fringe benefits. Her 2023–24 adjusted taxable income is likely to be approximately $107,812 + $44,426 + $7 = $152,245.

4. Mr Longrigg effectively submitted that the otherwise appropriate rate of child support payable between the parents should be adjusted on the basis of Ms Longrigg’s partner’s income. As I explained during the hearing, parents are primarily responsible for the financial support of their children, and not the children’s step-parents. I did not consider it necessary to explore that issue further.

5. Ms Longrigg completed a Statement of Financial Circumstances in February 2024. Mr Longrigg did not take issue with its contents, which are unremarkable. Ms Longrigg’s income and financial resources during 2022–23 are fairly reflected in an adjusted taxable income of $107,812. Her income and financial resources since 1 July 2023 are fairly reflected in an adjusted taxable income of $152,245 per annum.

6. Returning to Mr Longrigg’s income and financial resources, he submitted that the Tribunal’s decision should reflect his income of $0 until 3 April 2023, his very high income from 4 April 2023 to 20 September 2023 and his income of $0 since 21 September 2023. Ms Longrigg submitted that Mr Longrigg’s self-employment via the Company and Trust is sporadic and he should budget accordingly, and his income should be averaged over a longer period. The Act does not prescribe a particular approach. Each case must be considered on its particular facts.

7. Mr Longrigg earned a very high income for the duration of the Contract. The period from 4 April 2023 to 20 September 2023 is a period of 170 days, and $274,226 / 170 x 365 = $588,779 per annum. Mr Longrigg was earning far more than he needed to meet his day-to-day expenses. He had the option of saving money in anticipation of future periods of unemployment. That fact was starkly reflected in his statement during the substantive hearing that he salary-sacrificed $70,733 into his superannuation fund during 2023–24.

8. Mr Longrigg has maintained the standard of living of a high income earner during his current period of unemployment. In January 2024 he completed a Statement of Financial Circumstances. He stated that he had savings of $255 and his investments totalled approximately $32,500. He stated that his home was worth approximately $1,300,000 and the associated home loan had a balance of $835,000. During the substantive hearing he said he had savings of $15 and the value of his investments had increased slightly to approximately $33,000. I referred him to the page in the Statement of Financial Circumstances that required him to list various household expenses. In January 2024 those expenses totalled $3,285 per week. He initially queried his own calculations, then confirmed that they were correct. He also confirmed that there had not been a significant change in those expenses since January 2024. That evidence suggests that while unemployed for the last ten and a half months he has been meeting personal expenses of approximately $3,285 x 52 = $170,820 per annum. One would normally have to earn significantly more than $170,820 per annum gross to meet expenses of $170,820 per annum net. I asked Mr Longrigg how he has been supporting himself. He said he has been borrowing money from family and friends. I asked Ms Longrigg whether she was able to comment on that evidence. She said she suspects that Mr Longrigg has been unemployed and has been receiving money from his family. She queried whether the funds were loans. I did not consider it necessary to investigate that matter further. I will proceed on the assumption that they were loans.

9. Section 4 of the Act lists the objects of the Act. They include “ensuring … that children share in changes in the standard of living of both their parents, whether or not they are living with both or either of them”: paragraph 4(2)(d) of the Act. Mr Longrigg’s rate of child support is currently based on his estimate of income of $0. However, he has been borrowing money on an ongoing basis to fund a standard of living that is reflected in his personal expenditure of approximately $170,820 per annum. If he were in financial hardship, it would usually not be appropriate to increase his rate of child support payable on the basis that he could borrow money to meet his child support liability. However, he is already borrowing money, and has been doing so for months, to fund his standard of living, i.e. to meet various day-to-day expenses. Those expenses should include a rate of child support that is based on more than his income of $0; it should reflect his ongoing standard of living.

10. The child support case commenced on 28 November 2022. The administrative assessment was based on Mr Longrigg’s estimate of income of $0. Ms Longrigg did not challenge that assessment at the time. It is appropriate to make a departure decision from the date the Contract commenced, which was 4 April 2023.

11. Mr Longrigg said he has been actively applying for employment. The current proceedings have been on foot for approximately 14 months. I consider it appropriate to make a decision with effect until 31 December 2024 to give both parents some certainty. Hopefully Mr Longrigg will obtain employment before 31 December 2024.

12. While it could be argued that Mr Longrigg’s adjusted taxable income should be varied to $588,779 per annum from 4 April 2023 to 20 September 2023 (to reflect his income during that period) and $170,820 per annum from 21 September 2023 (to reflect his ongoing standard of living while unemployed), I consider it more appropriate to vary his adjusted taxable income to $170,820 per annum from 4 April 2023. An adjusted taxable income of $170,820 per annum is still a relatively high income and, roughly speaking, the proposed decision “flattens” or averages Mr Longrigg’s earnings over a longer period, which also takes into account other financial resources that Mr Longrigg does not earn.  

13. Under the objections officer’s decision, Mr Longrigg has been required to pay approximately $24,300 in child support since 4 April 2023. The proposed decision would increase Mr Longrigg’s liability over that period by approximately $3,100. As at 22 July 2024, Mr Longrigg owed child support arrears of $22,673: page 672 of the hearing papers. To state the obvious, he owes those arrears because he has not been paying his assessed rate of child support. The proposed decision would require Mr Longrigg to currently pay approximately $26,000 per annum in child support. (That may change if Child Support records a change in care.) The evidence suggests that Mr Longrigg has a general capacity to obtain funds as required and complying with the proposed decision would not cause him financial hardship. However, if it were to cause him financial hardship, that would not make the proposed decision unjust and inequitable. Mr Longrigg was initially under-assessed because he failed to comply with his legal obligation to update his estimate of income when the Contract commenced. Further, he earned ample funds from which to make a sizable contribution towards the costs that Ms Longrigg incurred in respect of the children while they were in her care. As noted earlier, he salary-sacrificed approximately $70,000 into his superannuation fund during 2023–24. The proposed decision will be just and equitable.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. Ms Longrigg indicated in her Statement of Financial Circumstances that she does not receive family tax benefit. The proposed decision will be otherwise proper.

DECISION

The decision under review is set aside and, in substitution:

• from 4 April 2023 to 31 December 2024, Mr Longrigg’s adjusted taxable income is varied to $170,820 per annum;

• from 4 April 2023 to 30 June 2023, Ms Longrigg’s adjusted taxable income is varied to $107,812 per annum; and

• from 1 July 2023 to 31 December 2024, Ms Longrigg’s adjusted taxable income is varied to $152,245 per annum.