McKenzie and Markel (Child support)

[2018] AATA 2286

McKenzie and Markel (Child support) [2018] AATA 2286 (11 May 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/MC012090

APPLICANT:  Ms McKenzie

OTHER PARTIES:  Child Support Registrar

Mr MarkelTRIBUNAL:     Member P Glass

DECISION DATE:  11 May 2018

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that:

·     from 16 February 2017 to 30 June 2017, Mr Markel’s adjusted taxable income is varied to $99,868 per annum; and

·     from 1 July 2017 to 30 June 2018, Mr Markel’s adjusted taxable income is varied to $124,416 per annum.

CATCHWORDS
Child support – Departure determination – Income and financial resources of parents – Business income – 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 McKenzie and Mr Markel are the parents of [Child 1], [Child 2] and [Child 3]. Mr Markel is the parent liable to pay child support.

2. On 22 March 2017, Ms McKenzie applied to the Department of Human Services – Child Support (the Department) for a change to the administrative assessment of child support on the grounds that the children have special needs (Reason 2), the assessment does not correctly reflect the parents’ income, property and/or financial resources (Reason 8A) and the assessment does not correctly reflect the parents’ earning capacity (Reason 8B).

3. On 9 May 2017, a decision-maker at the Department found that Reasons 8A and 8B were established but Reason 2 was not. For the period from 1 April 2017 to 30 June 2019, Mr Markel’s adjusted taxable income was set at $138,825 per annum.

4. On 10 May 2017, Mr Markel objected to that decision. On 7 July 2017, an objections officer at the Department partly allowed his objection. The objections officer found only Reason 8A to be established and set Mr Markel’s adjusted taxable income at $126,000 from 16 February to 30 June 2017 and set the annual rate of child support payable at the fixed annual rate from 1 July to 30 November 2017.

5. On 12 July 2017, Ms McKenzie applied to the Administrative Appeals Tribunal (the Tribunal) for an independent review of the objections officer’s decision. That application was heard on 11 May 2018. Ms McKenzie and Mr Markel appeared by telephone and gave evidence on affirmation. The Department did not participate in the hearing.

6. The Tribunal received into evidence the following documents:

   · Documents produced by the Department pursuant to subsection 37(1) of the Administrative Appeals Tribunal Act 1975, marked 1 to 1317 (Exhibit 1);

   ·     Documents received from Ms McKenzie and subsequently marked A1 to A443 (Exhibit 2); and

   ·     Documents received from Mr Markel and subsequently marked B1 to B221 (Exhibit 3).

7. The issues to be determined are:

   ·Whether a ground for departure from the administrative assessment of child support is established; and

   ·If so, what rate of child support should be paid by Mr Markel.

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 Child Support (Assessment) Act 1989 (the Act). Pursuant to section 98C of the Act, the administrative assessment may be departed from upon satisfaction of three matters:

   a.one, or more than one, of the grounds for departure set out in subsection 117(2) of the Act exists; and

   b.it would be:

   i.just and equitable as regards the child, the liable parent and the carer entitled to child support; and

   ii.otherwise proper to do so.

GROUND FOR DEPARTURE

1. The first relevant ground for departure applies if, in the special circumstances of the case, the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Markel for the children because of the parties’ income, property, financial resources (subparagraph 117(2)(c)(ia) of the Act).

2. Prior to Ms McKenzie seeking a departure from the administrative assessment of child support, Mr Markel had been assessed to pay child support as follows:[1]

   ·     from 1 January to 15 February 2017 at an annual rate of $32,631 based on Mr Markel’s estimated adjusted taxable income of $138,825 per annum;

   ·     from 16 February to 30 June 2017 at an annual rate of $414 based on Mr Markel’s estimated adjusted taxable income of $21,692 per annum;

   ·     from 1 July to 28 July 2017 at an annual rate of $414; and

   ·     from 29 July to 25 November 2017 at an annual rate of $34,710 based on Mr Markel’s 2016 taxable income of $146,664.

   [1] Exhibit 1, pages 116 to 128.

3. Mr Markel was made redundant on 25 November 2016.[2] He received a gross redundancy payment of $73,950.15.[3] His other income and reportable fringe benefits[4] for the financial year ending 30 June 2017 totalled $62,468.[5] He claimed total tax deductions of $12,002.[6] Accordingly, his net earnings for that financial year totalled $124,416.15.

   [2] Exhibit 3, page B15.

   [3] Exhibit 3, page B16.

   [4] Included as part of his adjusted taxable income pursuant to section 43 of the Act.

   [5] Exhibit 3, page B146.

   [6] Exhibit 3, page B150.

4. Based on the administrative assessments, Mr Markel paid child support on the basis of income of only $95,501 for the financial year ending 30 June 2017.[7] The discrepancy between his assessed income and his net earnings resulted in Mr Markel being assessed to pay significantly less child support. For that reason, I find the administrative assessment of child support results in an unjust and inequitable determination of the level of financial support to be provided by Mr Markel. A ground for departure is established.

   [7] Exhibit 1, page 112.

JUST AND EQUITABLE

1. In determining whether it is just and equitable as regards the children, Ms McKenzie, and Mr Markel to depart from the administrative assessment, the Tribunal has regard to the matters prescribed in subsection 117(4) of the Act. Ms McKenzie and Mr Markel have the primary duty to maintain their children.

2. The first period raised by the parties for consideration is the period from 16 February 2017 to 30 June 2017. Ms McKenzie sought to maintain the objections officer’s determination that Mr Markel’s income be assessed during that period at $126,000 per annum. Mr Markel argued that child support should be assessed on the basis of his taxable income for the financial year ending 30 June 2017 of only $70,901.[8] That submission ignores the totality of his earnings during that financial year, including a majority of his redundancy payment. I find Mr Markel should be assessed to pay child support based on his net earnings for that financial year which totalled $124,416.15.[9]

   [8] Exhibit 3, page B150.

   [9] See paragraph 11 above.

3. Prior to 16 February 2017, Mr Markel was assessed to pay child support based on an income of $138,825 per annum.[10] In order to accurately reflect his net earnings for the financial year ending 30 June 2017, his adjusted taxable income over the remaining 135 days needs to be $99,868.

   [10] Exhibit 1, page 112.

4. The second period raised for consideration by the parties is subsequent to 1 July 2017. Ms McKenzie sought that the Tribunal consider the period up until 30 June 2018. Mr Markel sought that the Tribunal limit its consideration to the period determined by the objections officer, which was until 30 November 2017. He submitted that it would be unfair for the Tribunal to consider a period beyond that date, principally because the Tribunal did not have before it relevant documentation after that date. The central documents he contended were not before the Tribunal were bank statements. I reject Mr Markel’s submission in circumstances where he has failed to comply with directions of the Tribunal to provide bank statements for all accounts in his name until 31 December 2017.[11] Despite giving evidence that he had complied with that direction, he ultimately conceded that he had not produced his Commonwealth Bank account statements from 1 September to 31 December 2017, the account he asserts to be the one he uses for “all income and expenses”.[12] Over the preceding three months, he had deposited $16,200 in cash into that account. [13]

   [11] Directions issued on 21 January 2018.

   [12] Exhibit 3, page B12.

   [13] Exhibit 1, page 901 and Exhibit 3, page B21.

5. Mr Markel has not complied with other directions of the Tribunal. His evidence was that he has received substantial support from his father, much of it in cash. He was directed on 21 January 2018 to provide a statement from either himself or his father setting out that financial support. The document he produced failed to particularise that support.[14]

   [14] Exhibit 3, page B162.

6. Despite being directed to make full and frank disclosure of his financial circumstances[15] and completing a Statement of Financial Circumstances,[16] Mr Markel failed to disclose the fact that he has cash in his possession of $1,600 prior to the hearing. Those failures allow the inference to be drawn that such explanations as he was able to provide would not have assisted his case.[17]

   [15] Directions made 31 October 2017 and 21 January 2018.

   [16] Exhibit 3, pages B1 to B9.

   [17] Hall v Hall [2016] HCA 43 per French CJ, Gageler, Keane and Nettle J at [48].

7. Mr Markel relied on evidence from his Business Activity Statements to demonstrate his earnings for the second half of 2017. For the quarter from July to September 2017, his statement reveals income (including GST) of $16,530.[18] He then relies on a worksheet to demonstrate his business expenses totalling $3,511.78 (including GST) for that quarter.[19] For the quarter from October to December 2017, his statement reveals income (including GST) of $16,717.[20] He relies on a worksheet to demonstrate his business expenses totalling $3,973 (including GST).[21] After payment of GST, those documents reveal Mr Markel’s net earnings to total $23,422 for those six months.

   [18] Exhibit 3, page B166.

   [19] Exhibit 3, page B176.

   [20] Exhibit 3, page B165

   [21] Exhibit 3, page B178.

8. From 1 July 2017 to 31 December 2017, Mr Markel has incurred expenses far in excess of that income. During that period, he paid rent of $350 per week totalling $9,100, spent a total of approximately $22,000 on his American Express credit card,[22] made payments on his Westpac Bank credit card totalling $2,121.46,[23] and made child support payments of $9,393.85.[24]

   [22] Exhibit 1, pages 918, 922 and 927 and Exhibit 3, page B167.

   [23] Exhibit 3, pages B19 and B173.

   [24] Exhibit 2, page A416.

9. It is clear that Mr Markel has access to significant financial resources that he has been using to support himself since his redundancy. To the extent that documents have been produced and evidence given, that support has included:

   ·     Cash deposits into his Commonwealth Bank account from June to August 2017 totalling $16,200.[25] Mr Markel gave evidence that his father was the principal source of that money along with proceeds of the sale of some of Mr Markel’s possessions.

   ·     Deposits onto his American Express credit card not referable to produced statements for his Commonwealth Bank account from March to May 2017 totalling $14,800.[26] Mr Markel gave evidence the source of those funds was his father.

   ·     Transfers onto his American Express account from September to December 2017 not referable to any produced bank statements totalling $13,955.[27]

   ·     Rent of $18,200 per annum since March 2017. Mr Markel gave evidence that his rent was paid by his father on all but two occasions.

   ·     Net earnings according to his activity statements and worksheets from July to December 2017 of $23,422.

   ·     Child support payments totalling $30,863.85 in June and October 2017.[28] Mr Markel gave evidence that his father paid the majority of those amounts.

   ·     Significant legal fees to which Mr Markel’s father has contributed.

   ·     A deposit of $5,617 from [a] Corporation on 9 March 218.[29]

   ·     Gross payments received by Mr Markel since February 2018 of $20,000 as a result of work for [a business], according to his oral evidence.

   [25] Exhibit 1, page 901 and Exhibit 3, page B21.

   [26] Exhibit 3, pages B33 to B34.

   [27] Exhibit 3, page B167 and Exhibit 1, page 901.

   [28] Exhibit 2, page A416.

   [29] Exhibit 1, page 1229.

10. Child support is ordinarily assessed by reference to earnings. However, objects of the Act include ensuring that the level of financial support provided by Mr Markel is determined according to his capacity to do so and that the children share in the standard of living of both of their parents.[30] I find that it is appropriate for the children to share in Mr Markel’s chosen standard of living, supported by financial resources to which he has access. He has continued to spend significant funds on discretionary purchases such as holidays, personal travel and alcohol.[31] He has spent considerable sums on digital marketing.[32] He gave evidence that his expenses have been extraordinary to avoid staying home and moping and that he has been getting a lot of support to keep going.

    [30] Child Support (Assessment) Act 1989 section 4(2).

    [31] For example, Exhibit 1, pages 785 to 786 and 924.

    [32] For example, Exhibit 1, pages 785, 787, 791, 929.

11. Despite Mr Markel giving evidence that he has reduced his expenditure since his redundancy, he also gave evidence that his Statement of Financial Circumstances was accurate. In that document, he lists expenses totalling $2,025 per week[33] or $105,300 per annum. I find that after 1 July 2017, he has continued in a standard of living commensurate with his standard of living in the financial year ending 30 June 2017. There is no evidence that the financial resources which he has used to support that standard of living will be depleted in the near term.

    [33] Exhibit 3, pages B7 and B8.

12. Mr Markel declares owning a motor vehicle worth $10,000 (a value disputed by Ms McKenzie[34]), contents worth $5,000 and having savings of $1,300.[35] He declared having a tax liability of $2,000, a credit card balance of $15,000 and loans from family of $20,000.[36]

    [34] Exhibit 2, pages A420 to A425.

    [35] Exhibit 3, pages B4 to B5.

    [36] Exhibit 3, pages B5 to B6.

13. Ms McKenzie declares that she owns a motor vehicle worth $14,000, contents worth $2,000, and an interest in a law firm with no value.[37] She gave evidence that she has approximately $1,400 in the bank although is required to meet a rental payment of $2,300 in three weeks. She declares having an interest in superannuation assets totalling $376,409 which are subject to family law proceedings.[38] Mr Markel gave evidence that he also has an interest in those superannuation assets, which he estimates to be worth $358,000.[39] Ms McKenzie gave evidence of having a credit card balance of $9,000 and has outstanding loans from family of friends totalling $8,200.

    [37] Exhibit 2, pages A411 and A412.

    [38] Exhibit 2, page A412.

    [39] Exhibit 3, pages B4 to B5.

14. Ms McKenzie declares that she has a weekly income from her legal practice of $250 and government benefits totalling $752.[40] She declares incurring weekly expenses totalling $2,098 of which $1,308.30 is referrable to [Child 2] and [Child 3] and $343.25 is referable to [Child 1].[41]

    [40] Exhibit 2, pages A409 to 410.

    [41] Exhibit 2, pages A432 to A433.

OTHERWISE PROPER

1. In determining whether a departure from the administrative assessment is otherwise proper, the Tribunal has regard to the matters prescribed in subsection 117(5) of the Act. It is necessary to consider the effect of any such departure on entitlements to income-tested pensions, allowances and benefits. Parents, rather than the community, have the primary duty to maintain the children.

2. Ms McKenzie received family tax benefit. Any increase to the child support payable by Mr Markel will result in a more appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

3. I find that it is both just and equitable as regards the children, Ms McKenzie, and Mr Markel and otherwise proper to depart from the administrative assessment so as to vary Mr Markel’s income to $99,868 from 16 February 2017 to 30 June 2017 and to $124,416 from 1 July 2017 to 30 June 2018.

4. One further matter arises. Ms McKenzie sought that I refer Mr Markel to the Australian Federal Police for investigation in relation to alleged offences under section 159 of the Act and section 119 of the Child Support (Registration and Collection) Act 1988. Both sections create offences for providing false or misleading statements to an officer of the Department. Ms McKenzie refers to statements made by Mr Markel to the Department about his income. What is said to be false or misleading is that Mr Markel has had access to funds in excess of his earnings. Mr Markel gave evidence that his statements about employment income were accurate as they related to his income net of expenses. I do not consider the evidence warrants the referral sought by Ms McKenzie.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that:

·     from 16 February 2017 to 30 June 2017, Mr Markel’s adjusted taxable income is varied to $99,868 per annum; and

·     from 1 July 2017 to 30 June 2018, Mr Markel’s adjusted taxable income is varied to $124,416 per annum.