Marchand and Christian (Child support)

[2020] AATA 4403

Marchand and Christian (Child support) [2020] AATA 4403 (2 September 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/SC018655

APPLICANT:  Ms Marchand

OTHER PARTIES:  Child Support Registrar

Mr Christian

TRIBUNAL:Member K Buxton

DECISION DATE:  2 September 2020

DECISION:

The decision under review is set aside and a decision substituted that, for the period 1 September 2019 to 31 October 2022, Mr Christian’s adjusted taxable income is varied to $100,000 per annum.

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

BACKGROUND

1. Ms Marchand and Mr Christian are the parents of [Child 1], who is now 7 years of age. Mr Christian has sought review of a decision of the Child Support Agency (CSA) about the amount of child support which had been assessed as payable by him to Ms Marchand in respect of [Child 1], who is recorded by the CSA as in the 86% care of Ms Marchand and the 14% care of Mr Christian.

2. The administrative assessment of child support for the period 1 September 2018 to 31 August 2019 required Mr Christian to pay to Ms Marchand the annual rate of child support of $6,715 per annum calculated using income of $100,000 for Mr Christian, arrived at by a decision of the CSA from an earlier departure decision, and 2017/18 adjusted taxable income of $24,410 for Ms Marchand. From 1 September 2019, when the earlier departure decision ceased to apply, child support was payable by Mr Christian to Ms Marchand at the assessed rate of $2,284 per annum calculated using default income of $50,076 for Mr Christian, as his recent income tax returns had not been lodged, and 2018/19 adjusted taxable income of $21,345 for Ms Marchand.

3. On 5 June 2019 Mr Christian applied for a change of assessment, under Part 6A of the Child Support (Assessment) Act 1989 (the Act), on the basis that his income and financial resources from his business were not fairly reflected in the assessment and on the basis of the high costs of contact with [Child 1] and his obligation to financial support others. Ms Marchand cross-applied. On 19 September 2019 a delegate of the Child Support Registrar determined that a departure ground existed and decided that, for the period 5 June 2019 to 30 June 2022, Mr Christian’s adjusted taxable income was to be set at $349,000 per annum. Mr Christian objected to that decision and, on 13 March 2020, an objections officer allowed the objection and decided that, for the period 5 June 2019 to 31 October 2022, Mr Christian’s adjusted taxable income was to be set at $121,735 per annum.

4. Mr Christian applied to the tribunal to have the objections officer’s decision reviewed. The tribunal hearing took place on 2 September 2020. Mr Christian and Ms Marchand appeared by conference telephone and gave sworn evidence. In reaching its decision, the tribunal has considered the sworn evidence given during the hearing together with the documentation provided by the CSA (Exhibit 1), Mr Christian (Exhibit A) and Ms Marchand (Exhibit B).

5. In Mr Christian’s departure application, he raised the high cost of contact with [Child 1] and his obligations to financially support his partner’s children. During the hearing both parents accepted that the only issue requiring consideration by the tribunal in this review arose from the incomes and financial resources of the parents and how properly to reflect those in the child support assessment. No evidence was presented by either parent relating the issue of contact costs or obligations to support another person. The tribunal has not, therefore, considered any issues raised in the initial departure application other than those arising from the parents’ incomes and financial circumstances.

CONSIDERATION

The legislative framework

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. A formula is used which takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent. A parent may apply for a departure from the assessment, under Part 6A of the Act, in certain circumstances. However, the legislative intent is that the tribunal will not interfere with the administrative formula result in the ordinary run of cases. Under subsection 98C(1) of the Act, a change of assessment can be made only if:

   a.    a ground (or more than one ground) for departure exists; and

   b.    departure from the administrative assessment would be:

   i.just and equitable as regards [Child 1] and each parent; and

   ii.otherwise proper.

2. If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the tribunal may make one of the range of determinations, prescribed in section 98S of the Act, which include varying the rate of child support payable, the adjusted taxable income or the cost percentage for a child.

Ground for departure

Income, property, financial resources and earning capacity

1. The Act provides, as grounds for departure from the administrative assessment of child support (in subparagraph 117(2)(c)(ia)):

   (c) 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.

2. The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. In Gyselman and Gyselman (1992) FLC 92-279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The tribunal will consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence relevant to the parents’ financial positions.

Ms Marchand’s income and financial resources

10.  Ms Marchand is employed on a part-time basis and gave evidence that, although her income fluctuates with available work, she earns about $200 per week on average. Her 2019/20 adjusted taxable income of about $26,000 included taxable Centrelink payments together with her income from part-time work.

11.  The tribunal is satisfied that Ms Marchand’s available income, has been reflected in her adjusted taxable income used in the child support case. This may increase in the following financial year and will be reflected in the child support case when that updated information is available.

Mr Christian’s income and financial resources

12.  When Mr Christian applied for a departure in June 2019, child support was calculated using adjusted taxable income of $100,000 for Mr Christian, arrived at by a decision of the CSA from an earlier departure decision, from which he had not sought review. From 1 September 2019, when that decision ceased to apply, deemed income of just over $50,000 was being used by the CSA in the calculation of child support. However, Mr Christian has recently brought his personal tax affairs up to date and has lodged income tax returns disclosing taxable incomes of about $37,000 for the 2018/19 year and $36,000 for the 2019/20 year. Mr Christian operates a [specified] business through a company named [Company 1] of which he is the sole director and shareholder, and that he and his partner, [Ms A], are remunerated for work undertaken in the business, with Mr Christian receiving a director’s fee and his partner being paid as an employee.

13.  The business undertakes [services] and the tribunal is satisfied that any financial resources of the company are available to Mr Christian in order to meet his own expenses and to contribute to the needs of [Child 1]. Mr Christian produced to the tribunal completed profit and loss statements for the business for the 2017/18, 2018/19 and 2019/20 years. Mr Christian stated that the delays in producing these statements, and in bringing his financial affairs up-to-date, were largely the result of health issues suffered by his accountant. Mr Christian was also quite critical of his accountant’s work and mentioned throughout the hearing that items seemed to be missing, or incorrectly treated, in the accounts of the business. In particular, Mr Christian noted that the costs of two contract workers were paid from his own pocket but not included in the company’s expenses. When given the opportunity to give sworn evidence about what they were paid he did not do so. He also submitted that a line item of income in the statements, headed “refund/bounceback”, was reported as positive income but should have been a negative or loss. It was difficult to reconcile this submission with the accounts as the item is positive in some years and a loss in others. Mr Christian did not further elaborate on his concerns about the line item. Ultimately, Mr Christian submitted that the financial documents ought to be considered “as they are” and the tribunal has therefore approached those documents as an accurate record of the income and expenses of the business for the relevant years.

14.  Mr Christian’s partner, [Ms A], has operated her own [specified] business after inheriting the equipment and stock from a friend in September 2019. However, Mr Christian stated that she also works in his company and is remunerated for the work she undertakes. Mr Christian estimated that he works on a full-time basis and gave evidence that [Ms A] works around 30 hours per week in his business, although the tribunal notes that this may not be sustainable if she continues to operate her own business. The tribunal accepts that Mr Christian’s partner works in his business as well as in her own, and notes that Ms Marchand did not submit to the contrary. Mr Christian operates the business and determines the salary paid to his partner. He is paid a director’s fee from available profit and received other financial benefits discussed below.

15.  In the 2018/19 year Mr Christian’s company paid Mr Christian a salary of just over $38,000 and his partner a salary of just over $15,000. For the 2019/20 year Mr Christian was paid a salary of just under $36,000 and his partner was paid a salary of just over $15,000. The tribunal has considered the relative contributions made by Mr Christian and his partner and concludes that the amounts paid to Mr Christian’s partner were reasonably commensurate to her contributions to the income of the business.

16.  Mr Christian accepted that the business met his half share of the rental expenses of the home in which Mr Christian lives with his partner and her children. Mr Christian stated that he operates his business from home. Mr Christian accepted that payment by this business of his share of the rent represented a financial resource, of $300 per week, provided by his business to him and this amounts to about $15,600 per annum. It is also proper to consider whether other expenses met from the financial resources of the business provide a personal benefit to Mr Christian. The tribunal notes that Mr Christian discussed each such item with the tribunal during the hearing and accepted that it was reasonable to apportion any personal benefits towards him income used for child support purposes.

17.  The business met all of the car payments, registration, insurance, maintenance and fuel costs for two motor vehicles, a [Vehicle 1] which Mr Christian stated was his car, and a [Vehicle 2] which Mr Christian described as a small, sporty vehicle badged with business information and driven mostly by his partner but also by employees of this business.

18.  Mr Christian accepted that both he and his partner had some personal use of the vehicles, as well as using them for business purposes. Mr Christian also explained that the finance costs for the [Vehicle 1] were high as he had previously been insolvent and financiers viewed the transaction as high-risk. In the 2019/20 year the total sum of about $40,000 in vehicle expenses includes interest payments which Mr Christian confirmed were most likely for the [Vehicle 1] motor vehicle ($12,000), registration, insurance and car payments (together recorded under the heading “motor vehicle”- $20,000) and fuel ($8,000). Mr Christian estimated that he had about 30% personal use of the [Vehicle 1] and his partner had about 40% use of [Vehicle 2]. Ms Marchand submitted that the personal use of [Vehicle 2] would be much higher as Mr Christian also used this vehicle for personal use, and mostly used it when collecting and transporting [Child 1]. She also submitted that [Vehicle 2] vehicle was not badged and Mr Christian accepted that it was his intention to do so in the future. Mr Christian submitted that he couldn’t drive two cars, so he could only be regarded as having personal use of one or the other. However, the tribunal notes that this business is owned and operated by Mr Christian, yet the business appears to meet the personal car expenses of his partner. The tribunal accepts that there may be some business-related use by [Ms A], or other employees, of that vehicle, but finds that [Vehicle 2] is primarily the personal vehicle of his partner. It is therefore proper to add back an amount representing the costs of running that vehicle other than for proper business use. Further, Mr Christian would incur the fixed costs of running the other motor vehicle (repayments, registration, insurance) whether or not he also used the car for the business.

19.  In the absence of more detailed sworn evidence or other information about how the total annual costs of around $40,000 should properly be apportioned, and given that the costs related to two vehicles in total, where only one of those is used by the business owner, it is reasonable to add back to Mr Christian’s available income for child support purposes an amount representing 50% of the total motor vehicle costs claimed by the business, or about $20,000 in the 2019/20 year. The tribunal must draw reasonably available conclusions from the evidence and the tribunal is satisfied that, even if the vehicles are used by Mr Christian and his staff for work purposes, they are also the only vehicles available for private use by Mr Christian and by his partner and they are in fact used for both purposes. Splitting the total costs equally between business and personal use is the preferable conclusion based on the available evidence.

20.  Mr Christian submitted, and the tribunal accepts, that the mobile telephone and internet costs met by the business were all business-related, and that he maintains a separate private mobile phone and meets those costs himself.

21.  The profit and loss statements for the company details an expense of about $18,000 for depreciation, which is a non-cash expense and therefore represents a financial resource available to Mr Christian in that financial year. The company reported a pre-tax profit of just over $9,000 in the 2019/20 year which is also available for Mr Christian to distribute to himself as shareholder should he choose to do so. These amounts should be added back to Mr Christian’s 2019/20 income for child support purposes. The tribunal notes that a tax expense of $1,250 was also improperly claimed as a pre-tax deduction in the 2019/20 year. This should also be added back to available profits.

22.  When the business’ declared available profit for the 2019/20 year is added to the personal rental costs and personal motor vehicle expenses met by the business, and the claimed depreciation and tax expenses, together this amounts to about $64,000. The tribunal therefore finds that in the 2019/20 year, in addition to Mr Christian’s wages of about $36,000, he has had access to financial resources from the business equal to about $64,000. When added to Mr Christian’s wages, the tribunal therefore finds that Mr Christian has had access to income and financial resources equivalent to about $100,000 in the in the 2019/20 year.

23.  The tribunal notes that the business income, and expenses met by the business, have not varied greatly throughout the last three financial years for which financial statements were made available. The tribunal further notes that the finding that Mr Christian has available income and financial resources of about $100,000 is consistent with the earlier departure decision, that applied until September 2019, and from which neither parents had sought review.

24.  The tribunal is unable to predict Mr Christian’s future income and financial resources from the business with accuracy but considers it reasonable to conclude that, for the foreseeable future, Mr Christian will continue to have access to income and financial resources from the business at about the same level as that in the 2019/20 year, and in past years where business performance has been similar. The tribunal makes this finding despite Mr Christian making a submission that current economic conditions, and particularly the effects of Covid-19, have adversely affected his business. The tribunal notes that Mr Christian also submitted that his business was “struggling” when he lodged his departure application in June 2019. The financial statements and bank statements available to the tribunal are consistent with the tribunals findings as to Mr Christian’s available income and financial resources from his business. During the hearing Mr Christian stated that he had told the CSA that his income from the business should be regarded as about $70,000 per annum, and he later stated that it should be about $75,000 per annum or $77,000 per annum. For the reasons set out above, the tribunal does not accept either submission and has found that he has available income and financial resources from the business annually of about $100,000.

Conclusions in relation to the departure ground

25.  The administrative assessment of child support does not take account of the income and financial resources available to Mr Christian through the operation of the business. The administratively assessed rate of child support in place from 1 September 2019, required Mr Christian to pay to Ms Marchand child support at the assessed rate of $2,284 per annum calculated using default income of $50,076 for Mr Christian and 2018/19 adjusted taxable income of $21,345 for Ms Marchand.

26.  The tribunal has found that, at that time, Mr Christian had access to income and financial resources of about $100,000 per annum. If child support was instead calculated using income for Mr Christian at that level, Mr Christian would be assessed to pay child support to Ms Marchand for [Child 1] at the rate of about $7,000 per annum. The administrative assessment of child support in place at that time did not fairly reflect incomes and financial resources available to both parents and reversed the position such that Ms Marchand, who had comparatively greater care of [Child 1] and lower available income, became liable to transfer child support to Mr Christian. The existence of those factors together set this case apart from others, making it special.

27.  The tribunal is satisfied that the administrative assessment of child support produces a result which is unjust and inequitable having regard to the parents’ respective incomes and financial resources, particularly having regard to the disparity between the annual rate of child support calculated in the administrative assessment and that arrived at with regard to the actual income and financial resources available to Mr Christian from the business. The tribunal therefore finds that there is a ground to depart from the administrative assessment.

Just and equitable

28.  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 [Child 1], the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

Mr Christian

29.  Mr Christian lives with his partner and her children in a rented home. His half share of the rent, of $300 per week, is met through the business. He prepared a Statement of Financial Circumstances in which he stated that he has little savings and some personal debt. He stated during the hearing that he regularly borrows money from his mother to make ends meet and has that he has sold items and used his partner’s early-accessed superannuation to meet regular expenses. There is nothing in the evidence to suggest that the self-support amount allowed for in the formula (of approximately $25,000 per annum) is not an appropriate measure of Mr Christian’s proper needs. He reported regular household expenses for himself only of around $1,000 per week and stated during the hearing that his partner meets her own expenses. Based on the conclusions reached by the tribunal as to Mr Christian’s available income and financial resources, the tribunal is satisfied that Mr Christian has the capacity to meet his regular expenses together with a child support liability calculated having regard to his income and financial resources.

Ms Marchand

30.  Ms Marchand lives in rented accommodation with her partner and [Child 1]. She prepared a Statement of Financial Circumstances in which she estimated household expenses of just under $1,000 per week, which exceeds her after-tax income. There is nothing in the evidence to suggest that the self-support amount allowed for by the child support formula (of approximately $25,000 per annum) is not an appropriate measure of Ms Marchand’s proper needs. Ms Marchand indicated that she receives some family assistance in order to meet some expenses for [Child 1].

Conclusions as to what is just and equitable

31.From 1 September 2019 the tribunal proposes to vary the adjusted taxable incomes for Mr Christian used in the child support assessments in accordance with the findings made by the tribunal at $100,000 per annum for Mr Christian until 31 October 2022 in order to provide certainty for the parents for a reasonable period of time into the future.

32.Ms Marchand submitted that she required a higher level of support from Mr Christian for [Child 1] and that, either, his income should be varied to $200,000 per annum or the annual rate of child support should be varied to about $10,000 per annum. The decision of the tribunal will not lead to an assessment of child support payable by Mr Christian at that level. However, the tribunal considers that the proposed departure is consistent with the available evidence and takes into account the circumstances of Mr Christian (who has a relevant dependent in a separate child support case), Ms Marchand and [Child 1].

33.The proposed departure will create arrears for Mr Christian when compared with the administrative assessment. The tribunal is not satisfied that any hardship is created as a result of those arrears having regard to the nature and quantum of financial resources available to Mr Christian. It is proper that both parents be assessed on their actual income and financial resources. The tribunal is satisfied that the proposed departure will not cause hardship to either parent or to the child.

Otherwise proper

34.  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. Varying the income on which child support is calculated for Mr Christian from that used in the administrative assessment, based on Mr Christian’s income and financial resources (which are not reflected in the administrative assessment) will result in an appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

Conclusion

35.  Mr Christian and Ms Marchand both sought a departure from the administrative assessment of child support, with Mr Christian applying in June 2019 and Ms Marchand later cross-applying. The tribunal has found a ground to depart from the administrative assessment and has determined that Mr Christian’s adjusted taxable income should be varied to $100,000 per annum from 1 September 2019 (when the previous departure decision in the same terms ceased to apply) to 31 October 2022. The tribunal has found that a departure in those terms is just and equitable and otherwise proper.

36.  As the tribunal has reached a conclusion that differs from that in the decision under review, as to the start date and level to which Mr Christian’s income should be varied, that decision is set aside and a decision substituted that reflects the tribunal’s findings.

DECISION:

The decision under review is set aside and a decision substituted that, for the period 1 September 2019 to 31 October 2022, Mr Christian’s adjusted taxable income is varied to $100,000 per annum.