McCohen and McCohen (Child support)

[2022] AATA 3368

McCohen and McCohen (Child support) [2022] AATA 3368 (17 June 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/BC022830

APPLICANT:  Mr McCohen

OTHER PARTIES:  Child Support Registrar

Ms McCohen

TRIBUNAL:  Member P Jensen

DECISION DATE:  17 June 2022

DECISION:

The decision under review is varied so that Mr McCohen’s adjusted taxable income is varied to $83,333 per annum from 8 June 2021 to 31 December 2025.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision to depart - decision under review varied

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

Introduction

1. Mr McCohen and Ms McCohen are the parents of [Child 1], [Child 2] and [Child 3]. A child support case was registered from 8 June 2021 with the Child Support Agency (“the CSA”). Each parent has been recorded as providing 50% care for the three children.

2. The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care for the children. From 8 June 2021 the the administrative assessment was based on Ms McCohen’s 2019-20 adjusted taxable income of $70,300 and Mr McCohen’s 2019-20 adjusted taxable income of $30,207, and Ms McCohen was required to pay $5,376 per annum in child support.

3. The Act also provides for a departure from the administrative assessment in certain circumstances. Ms McCohen lodged a departure application on 2 July 2021. The CSA granted the application and varied Mr McCohen’s adjusted taxable income to $83,333 per annum from 8 June 2021 to 7 June 2024. Mr McCohen objected to that decision. An objections officer disallowed the objection. Mr McCohen applied to the Tribunal for further review. I conducted a directions hearing on 14 April 2022 and a full hearing on 17 June 2022. Mr McCohen and Ms McCohen gave sworn evidence via MS Teams.

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

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

   (ii)... it would be:

   (A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)otherwise proper;

   to make a particular determination under this Part; …

A ground for departure

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

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

   …

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

2. Mr McCohen is an [Occupation 1]. He said that in or about 2015 he ceased employment as an [Occupation 1] and, after completing a course, he commenced self-employment as an [Occupation 1]. He is a sole trader. Ms McCohen said she was not in paid employment from 2009 until 2015, but she returned to full-time paid employment in 2015 for the nine months that Mr McCohen was undertaking his course. She said she was in part-time employment from approximately 2016 to approximately 2018, working for five days per fortnight, and she has been in full‑time employment since approximately 2019. The parents separated in January 2020.

3. Ms McCohen said that throughout their relationship, apart from possibly the nine-month period in 2015 when Mr McCohen was undertaking his course, he paid her approximately $700 per week towards household expenses. At the directions hearing, Mr McCohen said it was sometimes more than $700 per week and sometimes less than $700 per week. I accept Ms McCohen’s evidence that it was approximately $700 per week, which equates to approximately $36,400 net per annum.

4. Mr McCohen provided his Notices of Assessment for the financial years from 2016-17 to 2019-20. His taxable incomes were $28,392, $22,455, $31,056 and $30,207 respectively. His 2020‑21 adjusted taxable income was $51,886, which included a withdrawal of $23,040 from his superannuation fund.[1] At the hearing, Mr McCohen said the money he withdrew was spent on an operation that he required. It follows that those funds can effectively be ignored when considering how he was able to pay Ms McCohen approximately $36,400 per annum from taxable incomes of $28,392, $22,455, $31,056, $30,207 and effectively $51,886 - $23,040 = $28,846.

   [1]Page A21 of the hearing papers.

5. During the directions hearing and the full hearing, Mr McCohen stated that his actual net incomes were greater than his taxable incomes and adjusted taxable incomes as assessed by the Australian Taxation Office (“the ATO”). For example, during the directions hearing he said he pays himself $850 to $900 per week, and later he said he normally has about $50,000 per annum to spend on himself. When asked to explain how that was possible, he said he was about to “write off” certain business expenses. However, he agreed that such business expenses were actually incurred, and were either recorded as having been incurred during the financial year in question (e.g. costs of sales) or over a number of financial years (e.g. depreciation). Either way, all business expenses were ultimately brought to account. Mr McCohen’s reference to writing off business expenses might explain how, for a short period, he was able to transfer ongoing net funds to Ms McCohen that exceeded his taxable income, but it does not explain how he was able to do so year after year.

6. Mr McCohen also stated that while he was transferring approximately $700 per week to Ms McCohen, he was also, from time to time, using those joint funds to meet his business expenses. Ms McCohen disagreed with that statement. She said that throughout their relationship they had maintained separate bank accounts. Mr McCohen had spoken as if the parents had at least one joint account, but when questioned directly on the issue, he acknowledged that they had not had any joint accounts. Ms McCohen stated that she had not transferred funds back to Mr McCohen, and further, there had not been any funds in transfer back to Mr McCohen because the $700 that he gave to her each week was spent on household expenses. Having heard from both parents, I considered Ms McCohen’s evidence on that issue to be the more reliable, and I find accordingly. More generally, I found Ms McCohen to be the more reliable witness, and further reasons for that conclusion are given below.

7. Mr McCohen also stated that he borrowed money from his parents from time to time to meet the shortfall between his income and expenses. I noted that Mr McCohen and Ms McCohen signed an agreement in December 2021 which formed the basis of consent court orders concerning the division of their assets and liabilities. Ms McCohen had three liabilities: a credit card debt, a HECS debt and a personal loan from an individual. Mr McCohen had two liabilities: a bank loan and a credit card debt. His listed liabilities did not include any loans from his parents. At the full hearing, Mr McCohen stated that when he signed the agreement he had in fact owed his parents over $50,000, notwithstanding his agreement to proceed with the property settlement on the basis that he had not owed them anything. Ms McCohen then stated that although the agreement was dated 16 December 2021, it reflected the parents’ respective financial positions as at the date of their separation. Mr McCohen agreed with Ms McCohen’s evidence on that point, and stated that he had owed his parents about $6,000 when he and Ms McCohen separated. Ms McCohen is to be commended on volunteering that information, notwithstanding the fact that it lessened (but did not remove) the disparity in Mr McCohen’s various accounts of events.

8. Mr McCohen also said he borrowed $23,000 from his parents in August 2021 and used the funds to purchase a [vehicle]. He said he sold the [vehicle] in December 2021 for $21,000 and the proceeds of sale were deposited into his bank account. The transaction details in his bank account statement for that $21,000 deposit state: “DIRECT CREDIT Personal Loan”. Mr McCohen acknowledged that the deposit had not been a loan. I noted that the entry falsely suggested that his financial position was worse than had in fact been the case. Mr McCohen said he could not control how the purchaser recorded the transaction. Ms McCohen observed that the deposit was recorded 22 December 2021, by which time the parents had reached an agreement concerning the proposed orders for their property settlement. It was another example of Ms McCohen’s scrupulously fair conduct during the proceedings. The misleading transaction details remain suspicious, but suspicion alone is not a proper basis upon which to make findings of fact. I will proceed on the basis that the purchaser of the [vehicle] unilaterally provided incorrect transaction details.

9. The original decision-maker undertook an analysis of Mr McCohen’s bank account statements for roughly the first half of 2021 and concluded that Mr McCohen’s rate of personal expenditure equated to approximately $83,333 per annum. The original decision-maker decided to vary Mr McCohen’s adjusted taxable income to that figure for child support purposes. In my opinion, that was a rather conservative approach; some decision‑makers would have considered it appropriate to gross-up that net figure to approximately $110,000 per annum.

10. I directed Mr McCohen to provide additional bank account statements from October 2021 to December 2021 and I randomly decided to focus on Mr McCohen’s credit card statements for October 2021. After doing so, neither parent sought to refer me to his other account statements.

11. Mr McCohen agreed that the vast majority of entries in his credit card statements were for personal expenditure. I excluded entries for MYOB, Go Electrical and Bunnings. The other entries for October 2021 total $5,339.62, which equates to $64,795 net per annum. There were also numerous automatic teller machine withdrawals from Mr McCohen’s savings account with the account number ending xx9684 during October 2021. Mr McCohen’s more recent bank account statements suggest that his general rate of personal expenditure in the first half of 2021, as assessed by the original decision-maker, had continued. I consider the original decision-maker’s assessment, which was based on a larger sample of transactions, to be the more reliable evidence of Mr McCohen’s general rate of personal expenditure.

12. In December 2021, Mr McCohen completed a Statement of Financial Circumstances. His list of household expenses suggested that he lived a spartan existence. After referring him to his credit card statements, he quickly conceded that he had provided incorrect information in his Statement of Financial Circumstances.

13. On 28 April 2022, Mr McCohen provided written submissions which included the following:

    As I have stated in the interview [directions hearing?], I am agreeing I earn around the $55k before my write offs that I’m lucky to be able to do being self-employed, which brings my taxable income down to the $34k bracket, but my real income should be $55k as that’s what my earnings and out goings are. So, my child support income should be more like the $55‑$60k bracket not $34k bracket, but in no way do I earn anywhere near the $83k bracket that child support has come too [sic].

14. Mr McCohen also suggested that the rate of child support payable between the parents should be varied to nil on the basis that both parents earn a similar income —Ms McCohen’s 2020-21 adjusted taxable income was $75,451 — and each parent provides 50% care for the three children.

15. Viewing the evidence as a whole, it is clear, and Mr McCohen conceded, that his income and financial resources for child support purposes significantly exceed his adjusted taxable incomes as assessed by the ATO. The administrative assessment’s use of his adjusted taxable incomes constitutes special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. Reason 8 is established.

Just and equitable

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

2. As noted above, Mr McCohen completed a Statement of Financial Circumstances which he later acknowledged was inaccurate. He lives in rented accommodation with the three children. He has not adequately explained how he has been able to maintain a level of personal expenditure which, year after year, has significantly exceeded his stated income.

3. The evidence does not allow me to precisely calculate Mr McCohen’s level of personal expenditure. There is no reason to believe that all of his personal expenditure appears on his credit card statements, or even on his bank statements, but to the extent that his personal expenditure can be discerned from his bank account statements, it suggests that his income and financial resources would fairly be reflected for child support purposes in an adjusted taxable income of at least $83,333 per annum.

4. Ms McCohen is employed as a [Occupation 2]. When she lodged her departure application she sought a variation to the rate of child support payable on the basis that she was living in the ex-matrimonial home and paying the associated loan repayments and other costs. Mr McCohen was living in rented accommodation. At the directions hearing, both parents agreed that both parents had accommodation costs and those circumstances did not warrant a variation to the otherwise appropriate rate of child support payable. In my opinion, those concessions were properly made.

5. Ms McCohen and the three children are currently living with Ms McCohen’s mother in Ms McCohen’s mother’s three-bedroom house, and Ms McCohen is paying her mother board. Ms McCohen said the situation is temporary and she is searching for her own rental accommodation. Mr McCohen acknowledged that Ms McCohen’s income and financial resources are fairly reflected for child support purposes in her adjusted taxable incomes as assessed by the ATO from time to time. In my opinion, that concession was properly made.

6. At the directions hearing, Ms McCohen submitted that the decision under review was fair. The evidence does not allow me to precisely calculate Mr McCohen’s income and financial resources for child support purposes, and there is some evidence to suggest that varying his adjusted taxable income to $83,333 per annum might understate his income and financial resources, but I am satisfied that varying his adjusted taxable income to that figure would produce a fair rate of child support payable.

7. When the child support case was registered, Ms McCohen promptly lodged a departure application. It is appropriate to vary Mr McCohen’s adjusted taxable income from the date from which the child support case was registered, i.e. from 8 June 2021.

8. At the hearing, Mr McCohen stated that he owes approximately $800 in child support. He is currently assessed to pay approximately $1,100 per annum in child support. He clearly has the capacity to pay those arrears and that rate of child support.

9. The evidence suggests that Mr McCohen’s adjusted taxable incomes as assessed by the ATO will continue to understate Mr McCohen’s income and financial resources for child support purposes. It is appropriate to vary the decision under review by extending its prospective effect. Mr McCohen’s adjusted taxable income will be varied to $83,333 per annum until 31 December 2025. Such a decision will be just and equitable.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child.

2. Both parents receive family tax benefit in respect of the children. Changing the child support payable vis-à-vis the administrative assessment will result in a more appropriate apportionment of financial responsibility between the parents and the community. The proposed decision will be otherwise proper.

DECISION

The decision under review is varied so that Mr McCohen’s adjusted taxable income is varied to $83,333 per annum from 8 June 2021 to 31 December 2025.