Macha and Abney (Child support)

[2018] AATA 3984

Macha and Abney (Child support) [2018] AATA 3984 (17 August 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/BC014337

APPLICANT:  Mr Macha

OTHER PARTIES:  Child Support Registrar

Mrs Abney

TRIBUNAL:Member S Letch

DECISION DATE:  17 August 2018

DECISION:

The decision under review is set aside and the matter is remitted to the Child Support Registrar for reconsideration in accordance with the direction that Mr Macha’s application to exclude post-separation income of $30,685 from his 2016/17 adjusted taxable income is accepted for the period 11 February 2018 (and not an earlier date) to 7 March 2018.

CATCHWORDS

Child support - Post separation costs - Whether costs should be excluded and from an earlier date - Costs should only be excluded from the date of application - Decision under review set aside and remitted for reconsideration in accordance with directions

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. This review is about whether to exclude certain amounts of Mr Macha’s 2016/17 income from his adjusted taxable income used for child support purposes. On 11 February 2018, Mr Macha applied to the Child Support Agency (the CSA) to exclude from the income used to calculate his liability for child support certain post-separation income which he had earned from his business.

2. On 19 March 2018, the CSA accepted Mr Macha’s application and excluded $30,685 (the maximum 30% of his adjusted taxable income) which met the statutory criteria for exclusion from his 2016/17 taxable income of $102,286, treating it as post-separation income. The CSA accepted the application for the period 11 February 2018 (the date of Mr Macha’s application) to 7 March 2018 (three years after separation, the latest day an exclusion can apply). Mr Macha objected to that decision, arguing post-separation income should be excluded from 7 March 2015. An objections officer “allowed in part” the objection, concluding that there was no basis to exclude any post-separation income at all. The upshot was that Mr Macha’s application, which had originally been accepted, was refused.   

3. Mr Macha applied to the Tribunal for review of that decision. A hearing took place on 17 August 2018. Mr Macha attended the hearing in person; Mrs Abney participated by conference telephone. Both parties gave sworn evidence. In reaching its decision the tribunal has considered that sworn evidence together with the documents provided by the CSA (Exhibit 1), and documents provided by Mr Macha (exhibit A) and Mrs Abney (exhibit B).

ISSUES

1. The issues for this Tribunal to determine are as follows:

   ·Should any of Mr Macha’s 2016/17 income be excluded from his adjusted taxable income?

   ·If so, how much is to be excluded and from what date?

CONSIDERATION

1. The legislation relevant to this review is contained in the Child Support (Assessment) Act 1989 (the Act). Section 44 of the Act sets out the criteria applicable to the application to exclude certain post-separation income from the administrative assessment. The Tribunal is satisfied that Mr Macha and Mrs Abney separated on 7 March 2015 and that their separation therefore occurred within three years of Mr Macha’s application. They remained separated at the date of Mr Macha’s application to exclude some post-separation income. The contentious aspect of this application concerns subparagraphs 44(1)(d)(i) and (ii). The first question for determination is whether Mr Macha earned income in accordance with a pattern of earning established after he and Mrs Abney separated in March 2015.

2. Mr Macha told the Tribunal that he contacted the CSA in February 2017 to advise them that he met the criteria for post-separation income after becoming aware of it on an online forum. He was advised he would be a “good candidate” for post-separation income. He advised he was working “insanely long hours” and was struggling to see his children; however, he advised the CSA officer he “could not apply at that time”. The reason was that he was going through family law proceedings – he said if he had applied, it would “absolutely have compromised” his family law settlement negotiations with Mrs Abney at the time. He considers this to be an “other exceptional circumstance” as set out in the CSA policy guidelines.

3. Mr Macha said that Mrs Abney had threatened to deny him access to the children (which had occurred once in early 2016); he said he has “very genuine fear” of Mrs Abney. He said he delayed bringing his application to CSA as he was “waiting until he had money in the bank” – he estimated he needed $10,000 for legal proceedings if that became necessary. Accordingly, he said he decided he had to wait until he had the funds before he could apply for post-separation income.  

4. Mr Macha drew the Tribunal’s attention to a clinical psychologist report addressed to Mrs Abney’s lawyer in February 2016. He was diagnosed with [specified conditions]. The stressor at the time was dealing with Mrs Abney and his concerns about access to his children. It was indicated there was no risk of suicide or self-harm. Mr Macha said this shows he has great difficulty dealing with Mrs Abney; he said he finds it hard to “put things across” due to stress.

5. Mr Macha told the Tribunal that he works considerably harder that the “average person”. He has done all within his power to increase his income following separation. He considers this has improved the outlook for his children; he has “come a long way” since living in a unit with only a mattress. He considers the CSA has taken the approach that he “worked like a dog” prior to separation, and worked like a dog after separation, and so there had been no “change”.  He feels his application should be backdated; he does not believe that would put Mrs Abney in a “dramatic bind”. He considers there has been malfeasance on the part of the CSA.  He understands from advice from CSA his application can be backdated to October 2016 after a previous estimate had “ended”. [1] (Mr Macha did not dispute that the “end date” of any exclusion would be 7 March 2018 (three years after separation)).

   [1] The Tribunal observes the child support period for which Mr Macha’s 2016/17 income has been applied commenced from 1 October 2017.

6. Mr Macha told the Tribunal that employees had left the business at various stages, and he took on extra hours. He said he was very motivated to improve his position following separation. He said [his] industry has a high turnover. He used to be “one man band” with capacity to take on all roles within the business. He presently has [number] employees, turning over around $1,000,000 per annum. The business does not “make a profit”; he said one year in the last seven (2016) was “pretty good”. Otherwise, the profit and loss statements show a “pretty much nil income”.  Mr Macha said in 2013, things were not going well – he “worked like a dog”. He paid himself around $50,000 in order to keep the business going. The Tribunal asked Mr Macha whether ultimately he decides what to pay himself; he said “it depends on the profitability of the business”. He said “worked like a dog through 2016 and 2017”; however, this year (2018), sales have declined – even though he is doing “three jobs”, he will have to reduce his salary. Mr Macha said he did not know what things would be like if he and Mrs Abney had not separated; he observed that when they were together, he worked like a dog and hardly spent any time with the children. Now, he said he works very hard on weeks he does not have the children (60 plus hours), and reduces his hours to 35 hours on weeks he has the children.

7. Mr Macha told the Tribunal he has also been told by several CSA officers that under no circumstances would they “create a debt” for the receiving parent, Mrs Abney, which he considers displays a bias against the child support payer.

8. Mr Macha said, in reference to the guidelines concerning backdating, he was “not aware of the child support assessment” (the Tribunal understood the policy reference to refer to a lack of awareness of the assessment at all; Mr Macha was clearly aware of a child support case, and in any event was regularly advised by CSA in writing of the income being applied to his assessment).

9. Mr Macha took issue with a redaction made by the CSA in his written submissions to the agency (see folio 280 of the Exhibit 1). Following the hearing, he supplied the original submission in which he had recorded that “I was physically attacked by my (at the time) mother-in-law on [a date in] November 2014 but this is only relevant insofar that I take threats made against me by my ex-wife and her family”.

10. Mrs Abney told the Tribunal she agrees with the objections officer; there was no material change after separation. She considers that if post-separation income was to be excluded, there were no special circumstances which would justify backdating. Any backdating would put her in a position of having been overpaid child support.

11. Mrs Abney said she was working equally as hard as Mr Macha following separation. She continued working casually for Mr Macha for a few months following separation. She does not consider Mr Macha’s business “had changed at all”. She suggested Mr Macha had often taken on numerous roles in the business. In family law proceedings, she did not attempt to “value Mr Macha’s business” as she did not want to “stoop that low”.  

12. Mrs Abney said that she had kept the children in early 2016; it was the one and only time she had kept the children from Mr Macha. Her lawyer had spoken to Mr Macha and had expressed serious concern, observing Mr Macha seemed “highly irrational”. She said there was a lot of conflict going on at the time. Mrs Abney said she had suffered a lot of “emotional abuse” from Mr Macha.  Mrs Abney observed during the hearing that she was very concerned about Mr Macha’s mental health; she found these processes to be very distressing. She said she considers Mr Macha a very important part of their daughters’ lives, and said she “did not want to hear [Mr Macha] upset”.

Should post-separation income be excluded from Mr Macha’s 2016/17 income?

1. Section 44 of the Act provides for a parent to make application for post-separation income to be excluded from the adjusted taxable income. Section 44 states relevantly:

   44 Post-separation costs

   Application for post-separation income to be excluded

   (1)    A parent (the applicant) of a child may apply to the Registrar to amend an administrative assessment of child support payable by or to the parent for the child for part of a child support period if:

   (a)the applicant and the other parent of the child lived together on a genuine domestic basis for at least 6 months; and

   (b)the separation, following that 6 month period, of the applicant from the other parent occurred:

   (i)within the last 3 years; and

   (ii)before the application for administrative assessment of child support for the child was made under section 25 or 25A; and

   (c)at the time of the application under this section, the applicant and the other parent remain separated; and

   (d)in the last relevant year of income, or in the application period for an income election (if such an election has been made by the parent), the applicant earns, derives or receives income:

   (i)in accordance with a pattern of earnings, derivation or receipt that is established after the applicant and the other parent first separate; and

   (ii)that is of a kind that it is reasonable to expect would not have been earned, derived or received in the ordinary course of events.

   (2)    If the applicant makes an application under this section, the Registrar may determine that the applicant’s adjusted taxable income for the child for a day in the child support period is a specified amount that excludes the income referred to in paragraph (1)(d).

   (3)    However, the Registrar may make a determination under subsection (2) only if the determination:

   (a)reduces the applicant’s adjusted taxable income for the child for a day in the child support period by 30% or less; and

   (b)applies in respect of a day in the child support period, being a day that is less than 3 years after the last separation referred to in paragraph (1)(b).

   …

The Tribunal has also considered section 2.5.2 of the Child Support Guide which contains the Department’s policy for dealing with these applications. The Tribunal is satisfied that these passages are an accurate statement both of the law and the appropriate approach to be taken to the application of the law.  In Drake and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 the Full Court of the Federal Court held that a Tribunal should take into account relevant government policy which is not inconsistent with the provisions or objects of the relevant legislation. The passages relevant to this case are:

What are the requirements for excluding additional income?

Parents of a child may apply to have additional income (earned, derived or received after separation) excluded from their adjusted taxable income (2.4.4) for the calculation of their child support assessment.

The Registrar may exclude the additional income from the parent's adjusted taxable income if the following requirements are met:

·     the parents must have lived together (2.1.1) on a genuine domestic basis for at least 6 months (section 44(1)(a)),

·     the last separation of the parents occurred before the application for administrative assessment was made (section 44(1)(b)(ii)),

·     the application is made within 3 years after the last separation of the parents (section 44(1)(b)(i)),

·     at the time of the application, the parents remain separated (section 44(1)(c)),

·     the income must have been earned, derived or received in accordance with a pattern of earnings that was established after separation with the other parent (section 44(1)(d)(i)), and

·     the income must be of a kind it is reasonable to expect would not have been earned, derived, or received by the parent in the ordinary course of events (section 44(1)(d)(ii)).

Additional income

Parents may earn additional income from a variety of sources, including for example, from overtime, a second job, a career change to a higher paying job, or from investment income. For a self-employed person, additional income may be earned, derived or received through extending the opening hours of their business, increasing production or developing new markets or new products (to a greater extent than before separation). The parent must be able to show that the change that resulted in the additional income being earned happened after separation (section 44(1)(d)(i)).

The ordinary course of events

Not all additional income that is earned, derived or received after separation will qualify for exclusion from a parent's adjusted taxable income. The new pattern of earnings must have been established after separation and would not have been reasonable to expect that income in the ordinary course of events (section 44(1)(d)(ii)).

Income that parents would have been reasonably expected to earn in the ordinary course of events cannot be excluded from their adjusted taxable income. For example, it is within the ordinary course of events that parents will earn additional income through regular pay rises, or seasonal variations in income.

However, income that parents earn outside the ordinary course of events is able to be excluded from their adjusted taxable income. This could include, for example, income from overtime or second jobs taken on after separation, a cashing out of leave entitlements, promotions or a shift to a higher paying job. However, moving from an unemployment benefit to employment is considered to be within the ordinary course of events. Any income to be excluded must have been earned in a pattern established after separation.

30% limit for reduction of adjusted taxable income

The exclusion of post-separation income cannot reduce a parent's adjusted taxable income by more than 30% (section 44(3)(a)). If excluding all the additional income earned post-separation would reduce the adjusted taxable income by more than 30%, the Registrar can only reduce the adjusted taxable income by 30%.

Example: F has an income of $30,000 at the date of separation from M. After separation F's income increases to $60,000 as F takes on a second job. F's child support liability is assessed on $60,000, as that was F's income for the last relevant year of income. F can apply to have the additional income of $30,000 earned post-separation excluded from their adjusted taxable income of $60,000, the extra $30,000 being additional income earned post-separation. If F's application is successful, F's current income used in the assessment, $60,000, can only be reduced by a maximum of 30%, or $18,000. Therefore, F's adjusted taxable income would be set at $42,000. F has $18,000 excluded from their income before the self-support component is deducted and F's children receive child support based on an adjusted taxable income for F of $42,000.

Three year limit on excluding additional income

Post-separation income cannot be excluded for more than 3 years from the date of separation (Section 44(3)(b)).

When does a determination to exclude additional income apply?

If the Registrar accepts an application to exclude additional income earned after separation this will ordinarily apply from the date the application was made. However, it can apply from the start of the child support period in which the application is lodged if there are special circumstances.

Special circumstances

Whether there are special circumstances to justify backdating the exclusion of additional income will depend on the facts in each particular case. Generally the Registrar will be satisfied special circumstances exist where the parent was prevented from applying earlier but did apply in a timely way once they were able to, generally within 28 days.

The following are the circumstances in which a parent will be considered to have been prevented from applying earlier:

·     The income was not yet used in the assessment,

·     The parent was not aware of the existence of the child support assessment,

·     The parent was not aware of the existence of the provision because it was not discussed in their initial contact with DHS (where child support essentials are communicated), because, for example, that contact occurred prior to 1 July 2008,

·     The parent was a victim of family violence,

·     The parent (or a family member) was ill or had an accident that stopped the parent from applying,

·     The parent suffered a personal trauma such as a death in the family or a natural disaster that caused damage to their property,

·     The parent had communication difficulties because of, or including, isolation, illiteracy or poor English-language skills,

·     The parents were involved in negotiations over child support and/or other matters and applying may have compromised those negotiations,

·     There are other exceptional circumstances.

The exclusion will remain in place until the end of the child support period. However, it will end sooner if the 3 year time limit (since separation) expires within the child support period.

A new application can be lodged for the next child support period if the other requirements are met and the 3 year time limit has not expired.

1. The Tribunal observes that the sum paid by Mr Macha’s business to him has materially increased over time. In 2013/14 (pre-separation), his taxable income amounted to $73,410; in 2014/15, it was $64,654; in 2015/16 it was the much higher sum of $93,259; and in 2016/17 it amounted to $102,286. There has been a clear pattern of increases, which Mr Macha attributes to undertaking tasks previously being undertaken by employees who had left the business. Put another way, it might be suggested Mr Macha was seeking to minimise the expenses of the business by not filling vacant positions, which provided an opportunity to increase the sum payable to him as a salary in recognition of his additional efforts. It seemed to the Tribunal that prior to, and since, separation, Mr Macha has “worked like a dog”; in that sense, there has been no change. What has apparently changed to some degree is his choice to take on some tasks which he would not have undertaken but for his desire to re-establish himself and minimise expenses in order to increase his wage by leaving positions vacant that otherwise would have been filled. 

1. The Tribunal found Mr Macha’s evidence credible. He has submitted a deal of information to the CSA which are consistent with his evidence concerning his business arrangements, and in particular, his increased salary. The Tribunal is reasonably satisfied there has been a change to the derivation or receipt of Mr Macha’s income which was established post-separation. It is reasonable to expect that extra income – which was significantly higher than prior to separation – would not have been derived or received in the ordinary course of events. 

2. The Tribunal therefore finds in respect of Mr Macha’s 2016/17 income that the provisions of section 44 of the Act have been satisfied. The Tribunal regards Mr Macha’s 2014/15 income ($64,654) as a fair representation of his “pre-separation income” for these purposes; however, his income for 2016/17 cannot effectively be reduced by more than 30%. Accordingly, the Tribunal finds it appropriate that the maximum permissible sum of $30,685 should be excluded from the date of his application on 11 February 2018.

Are there special circumstances to give effect to the exclusion prior to 11 February 2018?

1. The very strong starting position in these matters is that the exclusion can only apply from the date a person makes an application. This position is soundly based. Mrs Abney has been entitled to rely upon, and make her arrangements around, the child support assessment which had existed prior to 11 February 2018. It would be a very serious step to later revise the assessment. Mr Macha, to his credit, has been a “good payer”; undoubtedly Mrs Abney has applied the support she has already received for the benefit of the children. However, any revision would put Mrs Abney in a situation of having been overpaid child support in respect of a period prior to Mr Macha’s application; it seemed to the Tribunal this would have financial impacts not only on Mrs Abney, but the children.  

2. It is trite, but family law disputes are often very difficult for those embroiled in legal processes. As challenging as the situation has been for both Mr Macha and Mrs Abney, it is sadly not unusual for that to be the case. It is not uncommon for the mental health of those involved to suffer, at least in the short term. The Tribunal in no way minimises the toll the events have had on Mr Macha, including the particular impacts on his mental health; the Tribunal formed the impression that Mr Macha was a committed father who holds the interests of his children in high regard.  

3. The Tribunal does not consider Mr Macha’s explanation for delaying making an application with the CSA after he became aware of the post-separation income exclusion to be compelling. In reference to the guidelines, he was not “prevented” from applying; rather, it seems to the Tribunal he made a calculated decision not to make an application at the relevant time. It will often be the case in these sorts of matters that parties will take account of a variety of strategic factors – some legal, some non-legal - in their approach to dealing with family law and child support disputes. It appears there was only one occasion Mrs Abney had withheld the children in early 2016 for a relatively brief period of some four weeks; Mr Macha’s own medical evidence around that time reveals he was suffering [a specified condition]. There have been no other such instances; when Mr Macha eventually did make his application for post-separation income, there is no suggestion care had been withheld by Mrs Abney. While the Tribunal understood Mr Macha’s preference to accumulate funds in case there was future litigation, this did not “prevent” the making of an application to CSA earlier. 

4. Ultimately, the Tribunal does not consider there to any proper basis to find there are special circumstances to exclude post-separation income from a date earlier than Mr Macha’s application on 11 February 2018. 

5. As the Tribunal has reached a different conclusion to the objections officer, the decision under review will be set aside.

DECISION

The decision under review is set aside and the matter is remitted to the Child Support Registrar for reconsideration in accordance with the direction that Mr Macha’s application to exclude post-separation income of $30,685 from his 2016/17 adjusted taxable income is accepted for the period 11 February 2018 (and not an earlier date) to 7 March 2018.