Malhotra and O’Donnell (Child support)

[2019] AATA 6619

Malhotra and O’Donnell (Child support) [2019] AATA 6619 (2 December 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/AC017404

APPLICANT:  Mr Malhotra

OTHER PARTIES:  Child Support Registrar

Ms O’Donnell

TRIBUNAL:Member Y Webb

DECISION DATE:  2 December 2019

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – particulars of the administrative assessment – reconciliation of estimate of income - decision under review affirmed

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 the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. This review relates to the child support assessment regarding Mr Malhotra’s and Ms O’Donnell’s child who is now 20 years old (“the child”) but this matter relates to the child support assessment in the 2016/2017 year.  Specifically, this review is about Mr Malhotra’s estimate of income and the reconciliation of his income for the 2016/2017 year.

2. [In] March 2017 Mr Malhotra contacted the Department of Human Services (“Child Support Agency”) in relation to his income.  Mr Malhotra stated that he had ceased employment [in] December 2016 and that he had been living off his savings.

3. Mr Malhotra advised the Child Support Agency that his year to date income for the period 1 July 2016 to 26 March 2017 was $2,870 per week which was calculated to be $67,650 for the period 1 July 2016 to 12 December 2016.

4. On that date, [in] March 2017, the Child Support Agency recorded from Mr Malhotra an estimate of nil for the period 27 March 2017 to 30 June 2017.

5. [In] April 2019 the Australian Taxation Office advised that Mr Malhotra’s 2016/2017 adjusted taxable income was $143,718.

6. [In] April 2019 the Child Support Agency reconciled Mr Malhotra’s estimated income with his actual income for the period 27 March 2017 to 30 June 2017.  It did so on the basis that his year to date income was $67,650 and that rather than nil in the period 27 March 2017 to 30 June 2017 Mr Malhotra’s actual income was $76,068.  The Child Support Agency notified Mr Malhotra that he owed an additional $6,228.86 in child support to Ms O’Donnell applicable to the period 27 March 2017 to 30 June 2017.  It also imposed a penalty of $623 because there was a discrepancy between Mr Malhotra’s estimate and his actual income which exceeded 10 per cent or more of his actual income.

7. This determination resulted in a monthly child support liability of $2,082.92 in the period 27 March 2017 to 30 June 2017.

8. [In] May 2019 Mr Malhotra objected to that decision.  He was granted an extension of time to object [in] June 2019.

9. During the objection process Mr Malhotra provided additional information about his income.

10. [In] August 2019 Mr Malhotra’s objection was partly allowed.

11. The Child Support Agency decided that rather than a year to date amount of $67,650, Mr Malhotra’s correct year to date amount was $114,210 (taking into account deductions detailed in his income tax return). It amended Mr Malhotra’s year to date income accordingly.  The objections officer also decided that an amount of $30,979 received from his new employer ([Company]) needed to be included in the estimate period because this amount was received in the estimate period between 27 March 2017 and 30 June 2017 and was included in his 2016/2017 income tax return.

12. Hence the objections officer calculated that rather than nil in the period 27 March 2017 to 30 June 2017 Mr Malhotra’s actual income in that period was $29,416 (taking into account deductions as detailed in his 2016/2017 income tax return).

13. Annualised, this resulted in a reconciled income of $111,843 for the period 27 March 2017 to 30 June 2017 and resulted in a monthly child support liability of $1,374.83 in that period. 

14. On 16 September 2019 Mr Malhotra requested a review by the Administrative Appeals Tribunal (“the Tribunal”).

15. He attended the hearing on 26 November 2019 by way of a telephone conference and gave sworn evidence.

16. Ms O’Donnell also attended the hearing by way of a telephone conference and gave evidence on affirmation.

17. The Tribunal deferred making a decision pending receipt of additional information which Mr Malhotra wished to submit for consideration.

18. The additional material related to issues which were not reviewable by the Tribunal.

19. On 2 December 2019 the Tribunal reconvened and made its decision.

ISSUES

1. The issue which arises in this case is:

   ·      Was Mr Malhotra’s estimate of his income re-reconciled correctly?

CONSIDERATION

The child support law

1. The legislation relevant to this review is found in the Child Support (Assessment) Act 1989 (the Assessment Act) and the Child Support (Registration and Collection) Act 1988.

2. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Assessment Act. This requires the application of a statutory formula which takes into account factors such as the number of children, the level of care provided and the income of each parent. The specific income quantity is called a person’s adjusted taxable income, which is defined in section 43 of the Assessment Act.

3. The statutory scheme provides some flexibility for parents whose circumstances change from one year to the next. Relevantly, in specified circumstances, section 60 of the Assessment Act allows a person to elect that their adjusted taxable income is their current adjusted taxable income rather than the adjusted taxable income from the previous financial year.

4. Subsection 60(4) of the Assessment Act provides a method statement that must be followed where a parent makes a partial year election during an income year. Essentially this involves a calculation of annualising the parent’s estimate for the remainder of the year so that an annual amount is used to determine the parent’s child support income for a day in the child support period for the remainder of the income year that the estimate applies. The method statement is detailed below:

Method statement

Step 1.Estimate each income component amount for the parent for the period (the remaining period):

(a)starting on the start day for the election; and

(b)ending at the end of the last day of the year of income.

Step 2.Add up those amounts. The result is the partial year income amount.

Step 3.Divide the partial year income amount by the number of days in the remaining period.

Step 4.Multiply the quotient by 365.

1. A person making an estimate for part of a financial year must also advise the Child Support Agency of their income and supplementary amounts for the financial year up until the date that the estimate has effect. This is known as their “year to date income amount”. This is the total of the income component amounts for the period from the first day of the year of income to the day before the start day of the election (paragraph 60(3)(b) of the Assessment Act).

2. Later income estimate elections for a year of income can be made at any time within that year of income and the amount estimated may be higher or lower than the previous estimate (section 62A).  The start date of the election for a later part year estimate must be either:

   · the day on which the parent makes the election (subsection 62A(2) of the Assessment Act), or

   · if the annualised amount of the later estimate election is more than the amount of the earlier election, the date of the event that occurred to change the parent’s income (subsection 62A(3) of the Assessment Act).

3. When making a later income estimate election, the parent must inform the Registrar of the start day of the election, the partial year income amount (which is the total of each income component amount for the remaining period) and the amount of their income estimate election (subsection 62A(5) of the Assessment Act).

4. The Child Support Agency may refuse to accept the estimate if it is not accurate (section 63AA of the Assessment Act). Otherwise, it must accept the estimate and give effect to it.

5. If the Child Support Agency accepts an estimate election, the income estimate amount becomes the adjusted taxable income amount for the purposes of assessing the annual rate of child support payable in the application period (subsection 61(1A) of the Assessment Act).

6. After the end of the income year the Child Support Agency is required to undertake a reconciliation calculation which compares the parent’s estimated income with their actual income. If the actual income is higher than the estimated income, their assessment must be amended to use the actual income (sections 64 and 64A of the Assessment Act).

7. If the Child Support Agency becomes aware that the year to date income amount used in an estimate election is incorrect then a new year to date income amount can be determined (section 63AE of the Act).  This new amount then replaces the previously advised year to date income amount.

Was Mr Malhotra’s estimate correctly reconciled?

1. Mr Malhotra told the Tribunal that he did not necessarily dispute that his year to date income was $114,210 as amended by the Child Support Agency.  He also agreed that his actual income for the 2016/2017 year was $143,718.  His grievance is that he believes that there were accounting errors made by the Child Support Agency which have resulted in more child support being garnisheed from his wages and income tax return than he actually owed.  He contends that he has overpaid more child support than the $880.32 which the Child Support Agency calculated. 

2. Ms O’Donnell stated that she did not believe that she could add very much to the review. She stated that she does not know how the Child Support Agency works out the figures.  She stated that she has always earned approximately the same amount of income and she relied on the Child Support Agency to work out the amount of child support that she should receive.  She does not know for sure whether the decision of the objections officer is correct or not but she has repaid the amount of $880.32 which the Child Support Agency calculated she was overpaid. 

3. In its initial decision made [in] April 2019 the Child Support Agency applied the year to date figures provided by Mr Malhotra.  This was an amount of $67,650 in the period 1 July 2016 to 26 March 2017.  It calculated that therefore in the period 27 March 2017 to 30 June 2017 Mr Malhotra must have earned $76,068 (on the basis that his actual income for the 2016/2017 year was $143,718).  In the reconciliation process the Child Support Agency annualised the amount of $76,068 resulting in a reconciled estimate of $289,216 which it applied to the assessment for the period 27 March 2017 to 30 June 2017.  This reconciliation resulted in Mr Malhotra having a child support liability of $2,082.92 per month in that period.

4. However, the Child Support Agency re-considered the matter on objection. It became aware that Mr Malhotra received a number of payments from his employer in the year-to-date period of 1 July 2016 to 26 March 2017 including $72,923 in wages; a lump sum redundancy payment of $40,541 and an employment termination payment of $5,124.  These payments totalled $118,588.  Taking into account Mr Malhotra’s legitimate tax deductions of $5,941 (for the full year), the Child Support Agency calculated that Mr Malhotra’s correct year to date amount was $114,210 rather than $67,650 ($118,588 - $4,378 (being the apportioned amount of Mr Malhotra’s tax deductions for the period 1 July 2016 to 26 March 2017).  The Tribunal is satisfied that the amended year to date income amount of $114,210 is correct.

5. This new year to date income amount of $114,210 was then used in the re-reconciliation of Mr Malhotra’s income by the Child Support Agency in the objection decision. 

6. In addition the Child Support Agency became aware that Mr Malhotra had obtained new employment shortly after lodging his estimate on 27 March 2017 and his income tax return showed that his gross income from this employer ([Company]) in the estimate period was $30,979 rather than nil income which Mr Malhotra had previously advised.  After subtracting the balance of the apportioned deductions of $1,563, the objections officer calculated that in the period 27 March 2017 to 30 June 2017 Mr Malhotra’s income was $29,416.  The Tribunal finds that this amount of $29,416 of estimate income has been correctly calculated.

7. The Tribunal also finds that Mr Malhotra’s income in the estimate period was higher than the amount he advised and therefore it must be recalculated using the correct income amount of $29,416.  This must be annualised.  The number of days in the estimate period is 96 days.  Therefore $29,416 divided by 96 = $306.41666 multiplied by 365 = $111,843 (rounded).

8. The Tribunal notes that this is the reconciled taxable income used in the assessment period 27 March 2017 to 30 June 2017.

9. The Tribunal has carefully considered the calculations and it is satisfied that they are accurate and that they have been calculated in accordance with section 64 of the Assessment Act.

10. Hence the Tribunal agrees with the decision of the objections officer that the Child Support Agency correctly re-reconciled Mr Malhotra’s estimate of income.

11. The Tribunal acknowledges that Mr Malhotra is aggrieved because he considers that he has overpaid child support to a more significant degree than the Child Support Agency calculated.  However, that is an issue which is not reviewable by the Tribunal and which he may wish to follow up with the Child Support Agency.

DECISION

The decision under review is affirmed.