McConnell and Gray (Child support)

[2019] AATA 4882

McConnell and Gray (Child support) [2019] AATA 4882 (16 October 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/PC016738

APPLICANT:  Ms McConnell

OTHER PARTIES:  Mr Gray

Child Support Registrar

TRIBUNAL:  Member S Cullimore

DECISION DATE:  16 October 2019

DECISION:

The decision under review is affirmed.

This means that the administrative assessment (currently the Minimum Annual Rate of child support) will continue to apply.

CATCHWORDS

CHILD SUPPORT – departure determination – whether there was a ground for departure – income, property and financial resources of both parents – earning capacity of parent – ground for departure not established – decision under review affirmed

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. The following background matters are drawn from the files of DHS – Child Support (“the CSA”) and are not in dispute.

2. The child support case between the parents is now for three children who are now aged 16, 14 and 11.

3. The case was registered on 5 September 2011 and has been Registrar Collect since that date.

4. Care is recorded as 91% to Ms McConnell and 9% to Mr Gray.

5. As at 1 November 2018 Mr Gray was paying the Minimum Annual Rate of child support (“the MAR”), which was then $427pa.

6. On 21 November 2018 Ms McConnell lodged a change of assessment application based on Reasons 8A and 8B for an increase in the annual rate of child support payable to her.[1]

   [1] C38 onwards.

7. On 23 February 2019 a decision maker found that Reason 8A was established and fixed the income of Mr Gray at $30,438pa. The departure period was from 21 November 2018 to the end of the child support case and this decision initially produced a rate of child support payable by Mr Gray of $1,791pa.[2]

   [2] C136

8. Mr Gray lodged an objection to that decision on 29 March 2019.[3]

   [3] C165

9. On 29 May 2019 an objections officer allowed the objection and refused to make any change to the assessment. The objections officer found that no ground for departure had been established.[4]

   [4] C10

10.On 13 June 2019 Ms McConnell applied for further review by this Tribunal of the objection decision. 

DOCUMENTARY EVIDENCE AND HISTORY OF THE HEARING

11.The Tribunal had before it the original bundle of documents provided by the CSA. These documents are referred to as C1 to C231.

1. A directions hearing was held on 21 August 2019 and directions were made concerning the production of further documents.

2. Documents received from Ms McConnell were marked A1 to A35 and documents received from Mr Gray were marked B1 to B82.

3. Supplementary documents were received from the CSA. These were marked C232 onwards.

4. Mr Gray and Ms McConnell attended the hearing on 16 October 2019 via teleconference.

5. Each party gave evidence and made verbal submissions.

CONSIDERATION

The relevant child support law

17.The law relevant to this review is contained in the Child Support (Assessment) Act 1989 (“the Assessment Act”).

18.Ordinarily, child support is worked out under a formula set out in Part 5 of the Assessment Act.

19.The formula has regard to the adjusted taxable incomes of the parents, to the number of children, and to the ages and respective care percentages of the parents for each child.

20.Adjusted taxable income consists of the person’s taxable income (as assessed by the ATO) with various sums “added back”, if they are applicable.

21.Part 6A of the Assessment Act sets out certain circumstances in which the Registrar, on application by a parent, may depart from the administrative assessment, or in other words, change in some way the manner of working out the child support liability of the payer. The circumstances are called grounds for departure in the law, but are commonly referred to as “Reasons 1 - 10”. 

22.Each ground for a departure from the administrative formula is prefaced by the words, “in the special circumstances of the case”. Therefore, when considering whether any of those grounds exist in this case the Tribunal must be satisfied that there are “special circumstances” in the case which tend to justify or support a departure determination being made.

23.Further, the Tribunal proceeds on the basis that the need for special circumstances is a separate and discrete requirement to the establishing of the actual ground for departure. That is, the factors and matters which are relevant for meeting the requirements for establishing a ground for departure are not (or at least are not necessarily) the same as the factors and matters which constitute special circumstances. Hence, it is not the case that, if the requirements for establishing a ground for departure are met, then, ipso facto, there must necessarily be special circumstances.

24.Once satisfied that there are special circumstances, the following three-step process must then be followed.

25.Firstly, the Tribunal must consider whether any departure from the administrative assessment is warranted in the special circumstances of the case.

26.If a ground for departure is made out, then, secondly, the Tribunal must be satisfied that a particular departure determination must be “just and equitable” to all parties.

27.Thirdly, it must be proved that a particular departure determination must be “otherwise proper” in terms of affecting income-tested Centrelink benefits of either parent.

28.If, and only if, all of these requirements are met, section 98S of the Assessment Act sets out a list of the possible departure determinations that can be made. Essentially, it would be open to the Tribunal to set an annual amount of child support, or to vary some of the elements that are considered by the formula, for example, a parent’s adjusted taxable income, or the “self-support amount”, being the level of income deemed necessary for a parent’s basic self-support.

29.A departure determination may be backdated to a date 18 months before the person lodges the change of assessment application – this would be 21 May 2017 in this case: subsection 98S(3B) of the Assessment Act.

30.In circumstances where the Tribunal is satisfied that there are no grounds for departing from the administrative assessment, or that it would not be just and equitable or otherwise proper to make a departure determination, the Tribunal may refuse to make a departure determination, without taking any further action. This is done under section 98F of the Assessment Act.

The relevant administrative assessments in this case

31.The administrative assessment in this case from 1 November 2018 onwards has been the MAR. In 2018 this was $427pa. For calendar year 2019 the MAR is now $435pa.

32.The MAR has been in place because the adjusted taxable income of Mr Gray has been low, and he has qualified for the MAR either because of his previous receipt of a newstart allowance (this was in the 2017/18 financial year) or because he has been initially assessed to pay the Fixed Annual Rate of child support but has successfully applied for that rate to be reduced to the MAR.[5]

[5] This is the current position. See C239 onwards. The FAR is now $1,443 per child.

33.The Tribunal’s task is now to determine whether a departure is warranted from that administrative assessment.

IS THERE A GROUND FOR DEPARTURE?

34.The Tribunal has carefully considered the whole of the evidence and the submissions of the parties as to the potential bases for any change of assessment in this case.

35.The Tribunal has concluded that the evidence and the submissions of the parties, taken as a whole, raise two potential “Reasons” for a change of assessment, namely Reason 8B (the earning capacity of either of the parents), and Reason 8A (the income, property and financial resources of either of the parents).

Reason 8B

36.This ground for departure is set out in subparagraph 117(2)(c)(ib) of the Assessment Act.

1. To arrive at a departure determination based on a person’s earning capacity, it must be established 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 provided by the liable parent for the child…because of…

   (ib)      the earning capacity of either parent;…

2. Subsection 117(7B) of the Act then states (emphasis added):

   117 (7B)  In having regard to the earning capacity of a parent of the child, the [Tribunal] may determine that the parent's earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the [Tribunal] is satisfied that:
   (a)  one or more of the following applies:

   (i)the parent does not work despite ample opportunity to do so;

   (ii)the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full‑time work for the occupation or industry in which the parent is employed or otherwise engaged;

   (iii)the parent has changed his or her occupation, industry or working pattern; and

   (b)   the parent's decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern, is not justified on the basis of:

   (i)  the parent's caring responsibilities; or

   (ii)          the parent's state of health; and

   (c)the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child.

39.The Tribunal considered the current situation and then considered the issue of whether in the recent past Mr Gray has worked reduced hours or otherwise been working at less than his earning capacity.

40.The Tribunal finds that Mr Gray normally operates [a] business in [Town 1], a small town in south-western [State 1], some 200kms south of [City 1]. 

41.He has operated this business, a sole trader, for many years.

42.The work includes [undertaking various activities]. He uses machinery to do the work, but nevertheless the work is at times physically demanding.

43.The Tribunal is satisfied that Mr Gray is currently not working at all, and that he has been in receipt of a newstart allowance from Centrelink since early July 2019.

44.The first requirement is therefore prima facie met.

45.As to the second requirement, the Tribunal is satisfied that his state of health was the reason for Mr Gray stopping performing the earthmoving work in July this year.

46.On 8 July 2019 he was involved in a serious accident on a motorbike, which resulted in a [specified injury] in his [Body Part 1]. A medical report from his general practitioner states that he will [require specified mobility aid] for six months and will require a further six months from that time for rehabilitation. His doctor has certified him incapacitated for work for Centrelink purposes until 31 January 2020.[6]

[6] See B13 and B14.

47.Accordingly, the Tribunal finds that the elements set out in subsection 117(7B) are not established in relation to the current earning capacity of Mr Gray.

48.With regard to his income and earning capacity in recent years, the Tribunal notes the evidence of his gross business income and business expenses in recent years, as set out below.

49.In October 2000 he had a previous accident where (among other injuries) he fractured his [Body Part 2].[7]

[7] B15

50.A report from [a medical specialist] of 13 November 2003 discloses that he was complaining of pain in his [Body Part 3], [Body Part 4] and medical aspect of his [Body Part 5]. He was only able to tolerate about 30 minutes on his feet before the pain made him need to rest.[8]

[8] B17

51.The [specialist] also noted a pronounced limp in [Body Part 2] and poor results for [body part] movement on rotation and flexion. The surgeon diagnosed a permanent residual disability of [Body Part 2] and recommended [specified medical procedure to] take place in the “medium to long term”.

52.Mr Gray was then only 31 and he has not yet had [the medical procedure].

53.In the view of the Tribunal, the above facts, without more, are not sufficient to be the basis of an earning capacity determination.

54.The Tribunal is not convinced that in recent years Mr Gray has “reduced” his working hours to a level below full-time hours for that kind of work (which is seasonal and tends to occur principally in the autumn months) nor is the Tribunal convinced that, even if this was the case, such a reduction was not “justified” by his state of health after the October 2000 accident.

55.Finally, while from the medical evidence the Tribunal can infer that the 2000 accident has affected his ongoing work capacity, perhaps quite significantly, the earning capacity provisions of the Act (above) do not go as far as to include scenarios where a person may be found to have additional earning capacity on the basis that they have unreasonably refused medical treatment which might increase their work capacity (if indeed this was factually the case here). The legislation does not go that far.

56.The actual ground for Reason 8B is therefore not made out, either at present or in the recent past, and the Tribunal need not consider the separate issue of “special circumstances”.

Reason 8A

57.Reason 8A is contained in subparagraph 117(2)(c)(ia) of the Assessment Act as follows:

…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;…

58.The test requires the Tribunal to consider the level of child support resulting from the “application in relation to the child of the provisions of this Act relating to administrative assessment of child support” on the one hand, which here is the MAR of only $435pa, and the income, property and financial resources of each parent on the other hand, and decide whether the result is in common parlance unfair (strictly, “unjust and inequitable”). This Reason presupposes that the level of child support could be “unfairly” low or “unfairly” high, in a particular case.

59.From all of the evidence before it, the Tribunal finds the following material facts concerning the income, property and financial resources of the parents:

·Mr Gray does not own any real estate assets;

·His major source of income in recent years has been the [specified] business;

·In 2017/18 his taxable income was $12,556, consisting of net business income and newstart allowance (of $4,209);

·His gross business income was $45,776 and his business expenses were $39,223;

·In 2018/19 his taxable income was $16,943;

·His gross income was $31,278 and his business expenses were $14,335;

·He received no newstart allowance in 2018/19;

·He has been receiving a newstart allowance since early July 2019;

·Ms McConnell lives in [Town 2], [State 1], some 150kms from Mr Gray;

·She does not own any real estate assets in her own name, but she lives in a house on her parents’ farm;

·She pays $710pf to her parents as “rent”, which goes towards the mortgage repayments for the loan which they took out to pay for the costs of building her house;

·There is a repayment of capital in that sum;

·She receives parenting payment single and family tax benefit, for four children (she has a “relative dependent child” who is now 6);

·Her Centrelink payments, which include FTB rent assistance, come to about $1,700–$1,800pf;

·She receives child support of the MAR for her other child;

·In 2017/18 her taxable income was $20,717;

·She works part time cleaning holiday homes;

·Last financial year from that work she earned gross $7,367 with business expenses of $3,071 and net income of $4,296;

·She started that work in November 2018;

·Annually her net income from this work would be about $7,000;

·She has some $13,500 in savings.[9]

[9] See A34

60.The applicant for a change of assessment is Ms McConnell. She bears the onus of proof and needs to convince the Tribunal that all of the elements for a Reason 8A change of assessment are made out.

61.Taking into account all of the above evidence, the Tribunal is not convinced that the current administrative assessment (the MAR) is “unfairly low” because of the income, property and financial resources of either parent.

62.Both parents have, on the face of it, a low taxable income, in fact well under the self-support amount (now $25,038). Both of them are self-employed and both have the opportunity (if not also the incentive) to receive some payments for their work in cash. While the bank statements supplied by each of them contain no evidence of this occurring, in the way of evidence of excess discretionary spending, the Tribunal cannot exclude that one or both of them are taking cash payments.

63.The tax returns of Mr Gray do contain some anomalies and inconsistencies. For example, in the 2017/18 year his business expenses were some 86% of his gross business income. This figure seems to the Tribunal to be both unlikely and excessive. In 2018/19 his expenses were only 45% of his gross business income. That figure is much more consistent with the ATO benchmark for “[Industry 1]”, for a business with a turnover of $50,000, of an average for expenses of 60% of turnover.

64.Mr Gray explained that his turnover was much higher in 2017/18 because he had “one big job” and he had some higher expenses resulting from doing more work and some one-off expenses, including a new computer for his truck.

65.While the Tribunal retains some suspicion that either the turnover of Mr Gray’s business has been understated, or the expenses have been overstated, especially in 2017/18, or even both, given that the ATO benchmark for expenses as a proportion of turnover for “[Industry 1]” is high, the Tribunal finds that it is not likely that there is any significant, extra amount of net income available to Mr Gray from the business which makes the child support assessment “unfairly low”.

66.Further, the financial position of Ms McConnell seems to be relatively stable and secure. Her financial circumstances do not amount to being in any obvious degree of financial hardship. She lives in a house belonging to her parents. She pays “rent” which in reality is a mortgage repayment and by paying off $710pf this is giving her equity or further equity in the property.

67.She also has some $13,500 in savings in the bank. She receives about $1,700–$1,800pf in Centrelink payments. She has income of about $7,000pa from her cleaning business.

68.There is nothing in Ms McConnell’s overall financial position which persuades the Tribunal that the payment of the MAR is “unfairly low” because of her income, property and financial resources.

69.In short, there is nothing in the financial position of either parent at present, or in recent times, before the accident to Mr Gray, which persuades the Tribunal that the MAR is unfairly low because of the income, property and financial resources of either parent.

70.The ground contained in Reason 8A is not made out.

71.There is no basis to change the administrative assessment of child support in this case.

DECISION

The decision under review is affirmed.

This means that the administrative assessment (currently the Minimum Annual Rate of child support) will continue to apply.