McKennie and McKennie (Child support)

[2020] AATA 5574

McKennie and McKennie (Child support) [2020] AATA 5574 (10 November 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/SC019431

APPLICANT:  Mr McKennie

OTHER PARTIES:  Child Support Registrar

Ms McKennie

TRIBUNAL:Member M Douglas

DECISION DATE:  10 November 2020

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from business – just and equitable to make change – 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. Mr McKennie and Ms McKennie are the parents of [Child 1].  The Child Support Registrar has issued an administrative assessment of child support for [Child 1] that obligates Mr McKennie to pay child support to Ms McKennie for him.

2. The Child Support Registrar acts through a government department known as Services Australia and it is convenient to refer to the Registrar and the persons employed by Services Australia who have been delegated power to make decisions on behalf of the Registrar as Services Australia in these Reasons.

3. On 31 January 2020 Ms McKennie applied to Services Australia for a determination to be made to depart from the provisions of the Child Support (Assessment) Act 1999 (the Act) relating to the assessment of child support for [Child 1].  Services Australia refers to such an application as a “change of assessment application” and the Tribunal shall adopt that same term in these Reasons.

4. The relevant assessments then in force obligated Mr McKennie to pay child support for [Child 1] as follows:

   a.     At an annual rate of $1,416 for the period 1 December 2019 to 28 February 2020.  That assessment was issued in accordance with a prior departure determination Services Australia made on 24 October 2018;

   b.     At an annual rate of $1,024 for the period 29 February 2020 to 4 May 2020.  That assessment was calculated on Mr McKennie’s taxable income for the 2019 financial year of $33,572 and Ms McKennie’s taxable income for that same year of $45,846;

   c.     At an annual rate of $435 for the period 5 May 2020 to 1 December 2020.  That assessment was calculated on an amended adjusted taxable income for Mr McKennie for the financial 2019 year of $23,686 and Ms McKennie’s 2019 taxable income.

5. On 16 April 2020 Services Australia refused Ms McKennie’s change of assessment application.  Ms McKennie then lodged an objection on 29 April 2020 to that refusal decision.  On 29 June 2020 Services Australia allowed her objection and set aside its decision of 16 April 2020 and substituted that with a determination varying Mr McKennie’s adjusted taxable income to $72,800 for the period 1 January 2020 to 31 December 2023.  That determination had the effect of increasing the annual rate at which Mr McKennie was required to pay child support to $5,681 commencing 1 January 2020. 

6. The Tribunal notes that subsequent to that decision being made, a new child support period commenced on 1 September 2020 in which the annual rate of child support payable by Mr McKennie, based on the determination Services Australia made on 29 June 2020, is assessed at an annual rate of $5,623.

7. Mr McKennie has applied to the Tribunal for a review of the objection decision Services Australia issued on 29 June 2020.

8. The Tribunal heard Mr McKennie’s application for review on 10 November 2020. Both he and Ms McKennie participated in the hearing by telephone.  Mr McKennie gave affirmed oral evidence and Ms McKennie gave sworn oral evidence.  No one from Services Australia appeared, as is customary.

9. Prior to the hearing, Services Australia provided the Tribunal and Mr McKennie and Ms McKennie with its papers relevant to its objection decision (numbered 1–319). Mr McKennie provided a bundle of papers (marked A1–A78) and Ms McKennie provided a bundle of papers (marked B1–B49).

10. The Tribunal has had regard to these documents and to the oral evidence of Mr McKennie and Ms McKennie. 

RELEVANT LAW AND ISSUES

1. Part 5 of the Act contains the provisions by which Services Australia assesses the annual rate at which a liable parent is to pay child support to the carer entitled to child support. Broadly speaking, a formula is used that 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.

2. A parent liable to pay child support or the carer entitled to child support may, if there are special circumstances, apply to Services Australia under subsection 98B(1) of the Act for a determination to depart from the provisions of the Act relating to an assessment of child support.  As mentioned, Services Australia refers to such an application as a change of assessment application.

3. Services Australia, if satisfied that the criteria of subsection 98C(1) are met, can make one or more of the determinations listed in subsection 98S(1) to depart from the provisions of the Act relating to an administrative assessment of child support. The criteria specified in subsection 98C(1) are:

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

   ii.that 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 determination [under subsection 98S(1)].

4. The grounds for departure referred to in subsection 98C(2) are listed in subsection 117(2) of the Act.  The matters that Services Australia must consider in deciding whether it is just and equitable to make a determination to depart from the provisions of the Act are listed in subsection 117(4) of the Act.  The matters Services Australia must consider in deciding whether it is just and equitable to make a determination to depart from the provisions of Part 5 are listed in subsection 117(5) of the Act.

CONSIDERATION

Is a ground for departure established?

1. In her change of assessment application Ms McKennie relied on the grounds for departure provided in subparagraphs 117(2)(c)(ia) and (ib) in support of her change of assessment application. It is convenient to deal with the ground provided in subparagraph 117(2)(c)(ia), which reads:

   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. Ms McKennie said in her change of assessment application that Mr McKennie owns multiple businesses that “he has put under his father’s trust” and from which he receives more income and profit and money than that reflected in his tax returns. 

3. Mr McKennie’s evidence to the Tribunal was that he is the managing director of a company known as [Business 1] and runs a business conducted by a company known as [Business 2].  He would not disclose to the Tribunal who else is involved with either of these companies saying that he was “not at liberty to disclose that” because it is “commercial in confidence”.  He told the Tribunal that he does not get any financial reward for the work he does for [Business 1].  He told the Tribunal that he works around two hours a month for that business.  He told the Tribunal that the business conducted by [Business 2] is the supply of [specified] services. 

4. Mr McKennie provided a document to the Tribunal titled “payroll activities summary” in which was recorded the income that [Business 2] paid him in the 2020 financial year.  That was $53,400. 

5. Mr McKennie also provided a copy of his personal tax return for the 2019/2020 year which revealed that in addition to the wage [Business 2] paid to him he also received $4,167 in allowances and payments from the Australian Government.  He also received income in the form of interest in the amount of $47.  His gross income in that year from all sources was therefore $57,614.  He claimed work-related expenses of $767, resulting in his declaring a taxable income of $56,847.

6. Mr McKennie’s evidence to the Tribunal was that his income has reduced during the 2020 year for two reasons.  Firstly, the payments the Australian Government paid him have reduced and, secondly, [Business 2] has recently entered into a lease of an office and that company now applies more of its income towards that commitment; a consequence of which is that it pays him a lesser wage.

7. Mr McKennie provided to the Tribunal a copy of the tax return that [Business 2] lodged for the 2019/2020 year.  That revealed that its gross income in that year was $154,632.  Against that the company claimed expenditures totalling $156,110, which included the wages paid to Mr McKennie. When those expenses were offset, the company incurred a loss of $1,478.  The Tribunal observes that in a section in the company’s tax return titled reconciliation statement, there was an amount of $10,000 listed, which was added to the loss of the company, and when that was done, this resulted in the company declaring a taxable loss of $11,478.

8. Mr McKennie also produced to the Tribunal copies of the statements [Bank 1] issued him for the period 31 March 2020 to 30 September 2020 for an account that [Business 2] holds with the bank.  That statement revealed that within that period the company’s account was debited on several occasions for purchases at [a list of retailers].  The account was also debited on numerous occasions for purchases of fuel and also on occasions for purchases at restaurants and resorts. 

9. Mr McKennie’s evidence to the Tribunal was that the purchases [Business 2] made at [specified retailers] related to the purchase of “consumables” for the business [Business 2] conducts and for furniture for the premises it recently commenced to lease.  With respect to the purchases the company made for fuel, Mr McKennie’s evidence was that some of that related to his vehicle, which is a motorcycle, which he said he uses infrequently for personal use.  He also said that the purchases the company made for petrol related mainly to other vehicles the company used.  He said that many of the company’s clients are in regional areas and consequently the company needed to make regular purchases of petrol to ensure that he could get to its clients’ premises.  Mr McKennie’s evidence was that the amounts paid to [Utility 1] covered the electricity for his private residence, which was used by the company to conduct its business prior to it leasing recently an office. 

10. Mr McKennie also produced a copy of the statement [Bank 1] issued for an account [Business 1] holds with it for the period 31 March 2020 to 30 September 2020.  That statement revealed that that company’s account had been debited regularly to pay for services from [two telecommunications businesses].  It too was also debited to pay amounts to [Utility 1] and to pay for purchases of petrol.  As the Tribunal understood Mr McKennie’s evidence, the payments that company made for telecommunication services to [these two telecommunications businesses] were for services that were used both by Mr McKennie personally and by [Business 1] for its business.

11. Mr McKennie produced to the Tribunal a copy of a statement that [Bank 2] issued to him for the period 1 July 2020 to 30 September 2020 relating to an account he holds with it.  Mr McKennie’s evidence was to the effect that this is the account that he uses for his personal expenses.  That account did not reveal that it had been debited for any power bill or telecommunication or internet services.  It revealed that Mr McKennie had debited the account on numerous occasions for purchases at fast food outlets, restaurants and cafes.  It also revealed he debited the account less regularly for purchases from liquor outlets. 

12. Based on what the Tribunal could identify as being debits from that account at fast food outlets, restaurants, cafes, and liquor outlets, the Tribunal calculated that in July Mr McKennie spent $726.95 for those purchases, $1,432.80 in August, including $198 paid at [Restaurant 1] on 5 August 2020 and $316.96 paid to [a liquor shop] on 29 August 2020, and $1,095.90 in September 2020, including $118 paid to [Restaurant 2] on 4 September 2020 and $92.98 paid to [another liquor shop] on 15 September 2020.  Further, the account revealed that on 3 September 2020 Mr McKennie paid $141.38 to [a named gym] and paid $237 on 4 September 2020 to [a named massage centre].

13. When the Tribunal asked Mr McKennie during the hearing about these purchases and how he considered the Tribunal ought to weigh these expenditures with his obligation to support [Child 1], Mr McKennie responded by saying that he is very careful with his money and able to do nice things for himself on occasion.  He said that his alcohol purchases were to do managing stress relating to issues with child support.  He said that he sporadically goes to restaurants and he estimated that he would spend only $600 a year on that.

14. The Tribunal considers that that is not consistent with what the evidence in the form of his bank statements reveals.  In other words, the Tribunal finds that Mr McKennie spends significant amounts of money at fast food outlets, liquor outlets, restaurants and cafes and more than what he estimates. 

15. The Tribunal notes that Mr McKennie’s personal bank statements do not reveal any debits for telecommunication services, internet services or power.  The Tribunal finds that the companies of which Mr McKennie is associated, namely [Business 1] or [Business 2], pays for the cost of Mr McKennie’s personal use of those services.  Given that, the Tribunal considers that [Business 1] and [Business 2] are financial resources available to Mr McKennie in that they provide him with a financial benefit beyond the wage he draws from [Business 2].  The Tribunal considers that as a result of Mr McKennie having that financial resource, a child support assessment calculated based on his taxable income produces an unfair determination of the level of financial support to be provided by him for [Child 1].  The fact that Mr McKennie has that financial resource available to him is a special circumstance, in the Tribunal’s view.

16. It follows that this ground for departure is established.

Is it just and equitable to make a determination?

1. As already mentioned, the matters the Tribunal must take into account when considering whether it is just and equitable to depart from the provisions of the Act are listed in subsection 117(4) of the Act. The Tribunal is not required to go slavishly through each of those matters but have regard to those that are relevant to the particular circumstances of this case. Rather than dealing separately with each matter that is relevant, insofar as the matters have relevance it is convenient for the Tribunal to group the matters and consider them by a reference to the following headings.

[Child 1’s] circumstances

1. Ms McKennie’s evidence to the Tribunal was that [Child 1] is unable to attend school because he has sensory issues and as a consequence he is schooled by her at home.  No evidence was provided regarding what costs if any arise from that, but the Tribunal infers that there is an indirect cost to Ms McKennie in that in that she is unable to engage in remunerative employment.

2. The Tribunal understands that [Child 1] has all the other normal needs of a child of his age. 

3. [Child 1] is recorded as being in Ms McKennie’s care for 100% of the time.  Consequently, she incurs all the direct and indirect costs associated with [Child 1’s] care.

4. The Tribunal considers that hardship would be caused to [Child 1] were there not to be a determination departing from the usual provisions of the Act that regulate the amount of child support Mr McKennie is to pay for [Child 1].  Those provisions, if applied, would result in Mr McKennie’s child support obligation being assessed by reference to his taxable income from the 2019/2020 year, which as the Tribunal has found, does not reflect the totality of income and financial resources available to Mr McKennie.  Were a determination not to be made departing from the provisions of the Act with respect to the assessment of child support, then Ms McKennie would receive a lesser amount of child support than what the Tribunal considers Mr McKennie is able to contribute towards the cost of [Child 1’s] care, and consequently that would cause hardship to [Child 1] were there not to be a determination departing from the provisions of the Act with respect to the assessment of child support.

Ms McKennie’s circumstances

1. Ms McKennie signed a Statement of Financial Circumstances on 1 November 2020.  She revealed in that that her income comprises a parenting payment, carer payment and family tax benefit received from the Australian Government.  She does not have any assets of significance.  She has all the normal commitments to meet to support herself and to support [Child 1].

2. As discussed above, because [Child 1] is being home-schooled and given too [Child 1’s] young age, Ms McKennie has no real capacity to take on remunerative employment. 

3. The Tribunal is satisfied that Ms McKennie is in need of assistance from Mr McKennie for the cost she incurs in caring for [Child 1] and were there not to be a departure from the provisions of the Act with respect to the assessment of child support, undue hardship would be caused to her.

Mr McKennie’s circumstances

1. Mr McKennie did not complete a Statement of Financial Circumstances.  As the Tribunal understood from his evidence, his only assets consist of a motorcycle and household furniture.  He leases his residence. Living with him there are two [children] from another relationship.  One of [those children] works full-time and contributes $100 a week towards their household budget.  The other child works only casually and [sporadically] makes a contribution towards the household budget.

2. Mr McKennie’s income and financial resources have been discussed above.  As mentioned above, the Tribunal considers Mr McKennie has a capacity to provide more financial support towards the cost of [Child 1’s] care than that that would be required of him under an assessment of child support issued in accordance with the usual provisions of Part 5 of the Act.  The Tribunal considers that there would be little hardship caused to Mr McKennie by making a determination that would result in an increase in his child support obligation from that which it would assessed under the provisions of Part 5.  Indeed, if there were, then he has the capacity to alleviate that hardship by foregoing some of his expenditures at restaurants, fast food outlets, liquor outlets and cafes. 

3. In summary, having regard to [Child 1’s] circumstances, Ms McKennie’s circumstances and Mr McKennie’s circumstances, the Tribunal considers that the determination Services Australia made in response to Ms McKennie’s objection, which was to vary Mr McKennie’s adjusted taxable income to $72,800 for the period 1 January 2020 to 31 December 2023, is just and equitable.

Is it otherwise proper to change the assessment?

1. In deciding whether it is otherwise proper to depart from the administrative assessment, the Tribunal must have regard to the fact that the primary obligation to support [Child 1] rests with Mr McKennie and Ms McKennie, and also have regard to whether, and if so how, any determination it makes would affect the entitlement of Ms McKennie or [Child 1] to an income-tested pension, allowance or benefit. 

1. The Tribunal understands that [Child 1] does not receive an income-tested pension, allowance or benefit and, also, that circumstance will not change whatever determination the Tribunal makes. 

2. Ms McKennie receives family tax benefit from the Commonwealth Government.  The rate at which the Government pays that to her depends to some extent on the child support she receives from Mr McKennie, such that the more child support she receives the less the benefit.  In other words, making the determination that the Tribunal considers it is just and equitable to make, which results in an increase in the amount of child support that Ms McKennie would be entitled to receive under an assessment that issued in accordance with the usual provisions of the Act, will, as the Tribunal understands matters, result in a decrease in the family tax benefit Ms McKennie would receive, although that decrease will be less than the additional child support to be paid by Mr McKennie.   Given the circumstances discussed above, and noting that the primary obligation for the support of the children rests with Mr McKennie and Ms McKennie, and not the Australian community, the Tribunal considers it is otherwise proper to make the determination that it considers it is just and equitable to make.

DECISION

The decision under review is affirmed.