Maddox and Sala (Child support)

[2019] AATA 3843

Maddox and Sala (Child support) [2019] AATA 3843 (30 May 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/BC015295

APPLICANT:  Mr Maddox

OTHER PARTIES:  Child Support Registrar

Ms Sala

TRIBUNAL:Senior Member A Freeman

DECISION DATE:  30 May 2019

DECISION:

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

·         For the period from 12 June 2018 to 31 December 2020, Mr Maddox’s adjusted taxable income is varied to $89,000 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – 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

BACKGROUND

1. Mr Maddox and Ms Sala are the parents of two children. According to the most recent assessment provided by the Department of Human Services (the Department), Ms Sala’s care percentage in relation to both children is recorded for the purposes of assessing child support as 100%.[1]

   [1] The parties advised the Tribunal that this had changed but this change was not reflected in the material that the Department provided for the purposes of this review.

2. Ms Sala lodged an application with the Department on 12 June 2018 seeking a departure from the administrative assessment. At the time of the application, Mr Maddox was liable to pay an annual rate of child support of $1,622 for both children. This was based upon an adjusted taxable income (ATI) of $30,908 for Mr Maddox and $14,496 for Ms Sala.

3. On 30 July 2018, the Department made a decision to depart from the administrative assessment in place and varied Mr Maddox’s ATI to $70,000 for the period from 19 June 2018 to 30 November 2019.

4. Both parties objected to that decision and on 9 October 2018 an objections officer allowed the objection, set aside the previous decision and made a new decision as follows:

   ·     For the period from 12 June 2018 to 30 June 2021, Mr Maddox’s ATI was set at $91,615 per annum;

   ·     For the period from 12 June 2018 to 30 June 2021, Ms Sala’s ATI was set at $83,200 per annum.

5. This had the effect of increasing the annual rate payable by Mr Maddox from $10,906 to $14,628 for both children.

6. Mr Maddox has sought a further review of this decision.

7. Mr Maddox submits that he should be assessed upon his personal taxable income which is less than the ATI currently used in the assessment.

8. The Tribunal hearing was conducted on 30 May 2019. Mr Maddox appeared before the Tribunal in person. Ms Sala appeared by conference telephone and was represented by [Ms A] of [a family law practice] who appeared before the Tribunal in person. In reaching its decision, the Tribunal has considered the sworn evidence given by both parties at the hearing, together with the documentation provided by the Department (exhibit 1), the documentation provided by Mr Maddox (exhibit 2) and the documentation provided by Ms Sala (exhibit 3).

CONSIDERATION

1. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of child support payable by the liable parent. The Act also provides for a departure from the administrative assessment in certain circumstances.

2. A departure from an administrative assessment may be made pursuant to section 98C of the Act if the following matters are established:

   ·         One or more than one of the grounds for departure referred to in subsection 98C(2) exists;[2]

   ·         A departure is just and equitable as regards the children and each parent;[3] and

   ·         It is otherwise proper to make a departure decision.[4]

Issue 1 – Grounds for departure

Assessment unfair because of the income, property or financial resources of either parent

[2] See subparagraph 98C(1)(b)(i).

[3] See sub-subparagraph 98C(1)(b)(ii)(A).

[4] See sub-subparagraph 98C(1)(b)(ii)(B).

1. Ms Sala in her initial change of assessment application sought a departure from the administrative assessment on the ground that in the special circumstances of the case the administrative assessment would result in an unjust and inequitable level of child support because of Mr Maddox’s income, property and financial resources given he is self-employed and operates his business via a trust structure such that his taxable income may not be reflective of his income and financial resources.

2. The term “special circumstances” is not defined in the Act. In Gyselman and Gyselman (1992) FLC 92-279, the Full Court of the Family Court determined that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.

3. There are a range of circumstances that may support the finding that the administrative assessment would result in an unjust or inequitable determination of the level of child support. The calculation of income and financial resources for the purposes of taxation law does not limit the Tribunal’s consideration of the true resources available to a party to child support proceedings and is but one factor to be taken into account in the particular circumstances of the case.

4. In Ashcroft & Ashcroft (SSAT Appeal) [2008] FMCAfam 1250, the Federal Magistrates Court stated:

   Whilst it may be legitimate for citizens to organise their financial affairs to minimise the taxation liability, it has long been recognised that the obligation to provide proper financial support for children is both a moral and legal obligation that all parents must bear to the best of their ability. It is appropriate to examine the financial affairs of parents to ensure their obligation to pay child support is not accorded less priority than obligations other than those reasonably necessary to support the payer.

5. For the purposes of the Act, a financial resource is something which is not property but from which a financial benefit can be gained.[5]

   [5] See Costa & Fairbank (SSAT Appeal) [2010] FMCAfam 39 and Walker & Fielding (SSAT Appeal) [2010] FMCAfam 320.

6. In the present case, at the time of Ms Sala’s change of assessment application, Mr Maddox’s ATI for the purposes of the administrative assessment was $30,908 per annum. Mr Maddox’s 2017/2018 tax return shows a gross income of $49,745 per annum. Mr Maddox’s position is that this should be the income applied to the assessment of child support.

7. Given there is a significant difference between what was applied under the administrative assessment and what Mr Maddox himself accepts is reflective of his income and financial resources, the Tribunal is satisfied that in the special circumstances of the case, the administrative assessment would result in an unjust and inequitable level of child support because of Mr Maddox’s income.

8. Therefore, the Tribunal is satisfied that a ground to depart from the administrative assessment has been established.

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

1. Subsection 117(4) of the Act sets out the criteria that must be considered in determining whether it would be just and equitable as regards the children and the parents to make a departure order. This involves a consideration of the following:

   (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)him 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 incurrent 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 by the making of, or the refusal to make, the order.

Mr Maddox’s circumstances

1. Mr Maddox is a self-employed [tradesman]. He operates a [business] via a discretionary trust structure of which he is the sole beneficiary.

2. In 2017/2018, the business generated about $714,201 in gross income and had about $664,456 in expenses, leaving a net profit of $49,745. This amount was then distributed to Mr Maddox as a trust distribution for the purposes of his personal income upon which tax was calculated for that year. Mr Maddox told the Tribunal that he did not in fact receive the distribution and it was reinvested back into the business. This is reflected in the business’ books as a loan from Mr Maddox. As at 30 June 2018 this loan amounted to about $82,673.

3. Also recorded in the business’ books was a loan to Mr Maddox which increased from the 2017 financial year to the 2018 financial year by $57,400. Mr Maddox was unable to explain what this loan was.

4. In the 2018/2019 profit and loss statement this loan to Mr Maddox was reduced from $136,275 to $59,622 and the loan owed by the business to Mr Maddox was no longer recorded. It would appear therefore that the loan owed to Mr Maddox was applied to the debt he owed the business, leaving him with a net debt of $59,622. Mr Maddox was also unable to explain this.

5. The expenses for the 2017/2018 year included an amount of $75,765 for depreciation related to machinery and equipment and $14,082 depreciation for motor vehicles. Mr Maddox accepted that these were book entries in the sense that there was no money set aside for the replacement of these items.

6. In 2018/2019, the total amount recorded for depreciation was $119,423 but the business ran at a loss of $37,155 that year.[6]

   [6] As at 31 March 2019.

7. The business owns three or four light vehicles of which Mr Maddox has the use of one. He does not have a private vehicle. He accepted that about 10% of the costs of running the vehicles would be reflective of his personal use. In 2018/2019 these costs amounted to about $85,046, of which 10% would be about $8,504. Similarly, Mr Maddox’s mobile phone is owned and paid for by the business and he accepted that there was a personal use component to this.

8. Mr Maddox does not get paid a regular wage by the business. He told the Tribunal that he takes money from the trust bank account when there is money available, as a trust distribution, to pay for his living expenses. A review of the trust bank account statements shows that for the period from July 2018 to March 2019, Mr Maddox received trust distributions totalling $39,500. This averages out to be about $4,388 per month or $52,666 per annum.

9. It is also apparent from the bank statements that child support is paid from the trust bank account. Mr Maddox says he pays about $500 per month which amounts to about $6,000 per annum.

10. Adding the annualised trust distributions of $52,666 to 10% of the motor vehicle expenses (being $8,504), $6,000 per year in child support payments and about $700 for mobile phone expenses,[7] a figure of $67,870 is produced. The Tribunal finds that this figure represents the net income and financial benefits received by Mr Maddox for the 2018/2019 year. Given this figure is a net amount and the assessment of child support is based upon gross income and the expenses met such as car, phone and child support expenses would ordinarily be met from a PAYG earner’s net income, it is necessary to gross up this figure to arrive at an ATI for Mr Maddox. $67,870 per annum net is about $89,000 per annum gross. Therefore, the Tribunal finds that Mr Maddox’s income is best reflected by a figure of $89,000 per annum gross.

    [7] Based on the average mobile phone plan of about $60 per month or $700 per annum.

11. In relation to the amounts claimed for depreciation in the books and records of the business, the Tribunal considers that these are book entries and the money is not in fact set aside by the business to account for replacing equipment and vehicles at a later date. Whilst the profit and loss statement for the 2018/2019 year states that the business has run at a loss of $37,155 for the year so far, it is the Tribunal’s view that this book entry for depreciation means that there was in fact an amount of about $82,000 left within the business to which Mr Maddox has had access in order to pay the trust distributions to himself and for the other personal expenditure identified above. Therefore, the Tribunal will not add back an amount for depreciation as it concludes that this has been taken into account already.

12. The Tribunal is satisfied based on the evidence before it that the other expenses claimed by the business are legitimate business expenses and should not be considered further for the purposes of assessing Mr Maddox’s income and financial resources.

13. In the 2018/2019 financial year, Mr Maddox also received $20,000 from his parents. He told the Tribunal that this money was a loan which he used to prop up the business when it was struggling with cash flow. The Tribunal can see that at least one amount of $10,000 was immediately transferred from Mr Maddox’s personal account into the trust account and then used for business expenses. The Tribunal therefore accepts Mr Maddox’s evidence about this. However, the Tribunal does take this into account when considering Mr Maddox’s capacity to pay child support which is considered below.

14. Since about February 2018, Mr Maddox has lived with his parents who allow him to reside with them effectively free of charge. Mr Maddox said he was supposed to pay them $200 to $250 per week board but hasn’t done so yet. He estimates his average weekly living expenses to be about $205 which is primarily for food and a small amount for clothes and other personal expenses. This does not include mobile phone or vehicle expenses because they are covered by the business.

15. Ms Sala, via her representative, raised an issue concerning a cottage that is located on Mr Maddox’s parents’ farm. Ms Sala’s position is that Mr Maddox has an interest in this cottage, and it is able to be rented out and thus produce an income for Mr Maddox. Mr Maddox told the Tribunal that he built the cottage in 2012 after borrowing some money from his parents to do so and that at a later stage the cost of this was taken off the purchase price of the land the parties bought off his parents when they were married.

16. Mr Maddox said he does not have an interest in it and his parents rent it out to farm hands and workers on their property, but he does not benefit from this in any way. Mr Maddox could not say how much rental income the cottage generates.

17. There was no evidence about this issue placed before the Tribunal apart from the oral evidence of Mr Maddox and some assertions from Ms Sala’s representative (which are not evidence). In any event, the Tribunal finds that whatever interest Mr Maddox may (or may not) have in the cottage, he does not receive any income from it nor is he likely to be able to realise such interest in the cottage in any real way that might have any bearing on the assessment of child support.

18. Mr Maddox told the Tribunal that he has a loan of about $100,000 owing to his parents. There is a line of credit that is secured by his parents’ property that he accessed to purchase a [machine] for his business in 2012 and he borrowed $45,000 to build the cottage mentioned above. He has up until about 6 to 8 months ago, been paying $1,000 per month off this loan. He was in advance on these payments, so he has not been paying anything in recent times. Mr Maddox told the Tribunal that he will have to start making payments again in about 3 or 4 months.

Ms Sala’s circumstances

1. Ms Sala is currently studying full time to be a [health worker] and is not employed.

2. For a period of time in 2018, Ms Sala was employed by her parents’ company in an administrative role. She told the Tribunal she was working up to 8 hours per week and earning about $100 per week. This work ceased in November 2018 when Ms Sala’s ability to work was significantly reduced by depression and anxiety.

3. Ms Sala provided some evidence of her being placed on a mental health care plan by her General Practitioner following the marriage breakdown. She has been seeing a counsellor regularly and takes medication for her depression. Ms Sala’s evidence was that this has taken a big toll on her and has affected her ability to work. She is currently studying but requires special procedures put into place by the university in relation to her assessment and the like.

4. When the parties were married, Ms Sala was a stay-at-home mother who occasionally worked in the business with Mr Maddox doing some bookkeeping. She had previously been employed in [certain] roles before she had children.

5. Ms Sala is in receipt of parenting payments and family tax benefits from Centrelink. She receives about $750 to $790 per fortnight in parenting payments. This amounts to about $20,000 per annum.

6. Ms Sala resides in the former matrimonial home with the children. In 2018 she refinanced the home loan so that she is only required to pay interest on the loan for the next 5 years. This amounts to about $390 per week. The parties have yet to finalise the property settlement following separation and there is a trial listed in the Federal Circuit Court in August this year to deal with the disposal of this asset and others as between the parties.

7. Ms Sala estimates her average weekly expenses amount to about $800 to $1,000 per week which includes provision for the children in relation to food, clothing, utilities and pharmaceuticals. Ms Sala’s parents bought a car for her to use and they pay for the cost of running it. Ms Sala also pays about $21 per week in daycare fees for the children to attend daycare 3 days a fortnight while she attends university.

Consideration of whether a departure is just and equitable

(a) Mr Maddox’s income and financial resources

1. As outlined above, the Tribunal considers that Mr Maddox’s income and financial resources are best reflected by a figure of $89,000 gross per annum.

2. If this figure is applied to the formula for assessing child support under the Act, an annual rate payable by Mr Maddox of about $15,000 per annum is produced. This figure is based upon Ms Sala’s ATI being $20,000 per annum and Ms Sala having 100% care of the children. This will be reduced once the care percentage for the parents has changed to reflect what the Tribunal understands to be the current arrangements.

3. $15,000 per annum amounts to about $288 per week. The Tribunal has found that Mr Maddox’s net annual income is $67,870 which is about $1,305 per week. He has expenses of about $205 per week plus $177 per week in car and mobile phone expenses which have been added back to his income and therefore should be included in his weekly expenses. Deducting these expenses leaves some $923 per week from which child support could be met.

4. Mr Maddox submitted that his income for the purposes of assessing child support should be what his personal taxable income is, that being $49,745 gross per annum. This amounts to about $956 gross per week or $789 net per week. Therefore, even on Mr Maddox’s best case, he has capacity to pay $288 per week in child support from about $580 income net of expenses per week.

5. The Tribunal also takes into account, in relation to Mr Maddox’s capacity to pay child support, that he has had access to a ready source of funds from his parents both in recent times and in the past and that there was no real evidence of any obligation to repay this money any time soon or evidence that his parents are likely to call on these loans in the near future.

1. The Tribunal also takes into account that Mr Maddox lent the business $9,000 in February this year as well as other smaller amounts in previous months. This also demonstrates his capacity to pay child support which should be prioritised over business loans.

2. The Tribunal also takes into account that at this point in time it would appear that Mr Maddox is not being required to make repayments off the loan from his parents and has not done so for about 6 to 8 months. Prior to that, he was able to make payments over and above the minimum required such that he was “in the green” which meant that he did not have to pay anything for almost 12 months.

3. On the other hand, Ms Sala is dependent on Centrelink payments for income and she has considerable expenses to meet including in relation to the children such that the Tribunal considers that Mr Maddox’s capacity to contribute to these is greater than Ms Sala’s.

4. Therefore, the Tribunal concludes that it is just and equitable to depart from the administrative assessment of child support and vary Mr Maddox’s adjusted taxable income to $89,000 per annum.

(b) Ms Sala’s income and financial resources

1. At the time of Ms Sala’s change of assessment application, her ATI was recorded as $14,496 per annum, based upon her Centrelink payments.

2. The Department in its objection decision determined, based upon a letter written by her father in February 2018, to vary Ms Sala’s ATI to $83,200 per annum. The letter had been written for the purposes of supporting Ms Sala’s refinance application in relation to the home loan (that is, to change it to an interest only loan for a period of time) and indicated that she was on a period of maternity leave at that time but they expected her to return to work with his business and be earning $1,600 per week in a few months’ time. Ms Sala told the Tribunal this never occurred due to her mental health issues.

3. The Tribunal can see from Ms Sala’s bank account statements that she has never been paid $1,600 per week and that from November 2018, she has received no income except for her Centrelink payments. The Tribunal therefore accepts that Ms Sala does not earn $83,200 per annum.

4. Mr Maddox raised issues regarding Ms Sala’s capacity to earn an income and submitted that she should be assessed on the income that she used to be able to earn in the past.

5. When considering whether there should be a departure from the administrative assessment of child support as a result of a person’s earning capacity, the Tribunal must be satisfied that:

   a)    the parent:

   i.is not working despite ample opportunity to do so (subparagraph 117(7B)(a)(i)); and/or

   ii.has reduced his/her weekly hours of work to below full-time work (subparagraph 117(7B)(a)(ii)); and/or

   iii.has changed his/her occupation, industry or working pattern (subparagraph 117(7B)(a)(iii)); and

   b)    the parent’s decision about his/her work arrangements is not justified by either his/her caring responsibilities (subparagraph 117(7B)(b)(i)) or his/her state of health (subparagraph 117(7B)(b)(ii)); and

   c)    the parent has not demonstrated that it was not a major purpose of their decision not to work despite ample opportunity to do so or to stop working, reduce their hours of work or change their occupation, industry or working pattern to affect the administrative assessment of child support (paragraph 117(7B)(c)).

6. All three of the above criteria must be met before a departure determination can be made in relation to earning capacity.

7. In this case, the evidence before the Tribunal is that for a period of time prior to separation, Ms Sala was not working full time and following separation she worked up to 8 hours a week maximum until November 2018 when she stopped altogether. Arguably, Ms Sala does not fall within the first criteria because she has not reduced her weekly hours to below full time (because she was never working full time to begin with) or changed her working pattern in any substantive way. However, even if it was considered that she had changed her working pattern by ceasing work altogether in November 2018, the Tribunal is satisfied that this decision was justified by the state of Ms Sala’s health, being her depression and anxiety and her caring responsibilities. On the material before the Tribunal it is satisfied that Ms Sala’s depression and anxiety made it difficult for her to continue to work in circumstances where she had the care of two very young children not at school yet.

8. Furthermore, the Tribunal does not consider that a major purpose of the decision to not work was to affect the assessment of child support, particularly given that Ms Sala’s income was below the self-support amount allowed under the formula such that any change to this was unlikely to make any real difference to the liability owed by Mr Maddox under the administrative assessment.

9. Therefore, the Tribunal does not consider it appropriate to assess Ms Sala based on her earning capacity because the criteria under the Act have not been met.

10. The Tribunal finds that Ms Sala’s income is about $20,000 per annum based on her parenting payments and family tax benefit. The ATI applied at the time of the change of assessment application was about $14,496. Changing Ms Sala’s income to $20,000 will not make any real difference to the assessment of child support payable by Mr Maddox because it is below the amount allowed for self-support of parents under the administrative assessment. Therefore, the Tribunal does not consider it just and equitable to vary Ms Sala’s ATI.

(c) Length of decision

1. Ms Sala made her change of assessment application on 12 June 2018. Therefore, the Tribunal considers it appropriate to vary Mr Maddox’s ATI from that date.

2. The evidence before the Tribunal suggests that Mr Maddox’s financial circumstances may be subject to change over the next couple of years as he restructures his business. Ms Sala seeks a decision that takes effect over a couple of years to give the parties certainty. The Tribunal considers that the income of Mr Maddox’s business has been reasonably stable over the last two financial years and therefore considers it appropriate to conclude its decision at the end of 2020 in order to give the parties some certainty going forward but to allow for the situation to be re-assessed in the near future.

Issue 3 – Is a change of assessment otherwise proper?

1. In considering whether a departure is otherwise proper, the Tribunal must take into account subsection 117(5) of the Act which requires the Tribunal to have regard to the nature and duty of a parent to maintain a child and the effect that the making of the order would have on any entitlement of the child or carer entitled to child support to an income tested pension, allowance or benefit or the rate of any income tested pension, allowance or benefit payable to the child or the carer.

2. Ms Sala receives family tax benefits in respect of the children. The decision of the Tribunal has the effect of increasing the annual rate payable by Mr Maddox when compared to the administrative assessment in place at the time of the change of assessment application and therefore may result in a decrease to the family tax benefits payable and the cost to the community. Therefore, the Tribunal considers that the departure decision proposed is otherwise proper in the circumstances of this case.

DECISION

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

·         For the period from 12 June 2018 to 31 December 2020, Mr Maddox’s adjusted taxable income is varied to $89,000 per annum.