Mcpherson and Hobson (Child support)

Mcpherson and Hobson (Child support) [2017] AATA 2863 (13 November 2017)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2015/PC007851
APPLICANT:  Mr Mcpherson
OTHER PARTIES:  Child Support Registrar
Ms Hobson

TRIBUNAL:Presiding Member S Hoffman
Senior Member R Ellis

DECISION DATE: 13 November 2017
DECISION:

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

For the period from 21 January 2015 to 30 June 2015, Mr Mcpherson’s adjusted taxable income is varied to $152,926 and Ms Hobson’s adjusted taxable income is varied to $77,372.
For the period from 1 July 2015 to 25 July 2016, Mr Mcpherson’s adjusted taxable income is varied to $169,185 and Ms Hobson’s adjusted taxable income is varied to $74,785.

Presiding Member S Hoffman

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

This review is about the child support assessment in respect of the twins, [Child 1] and [Child 2], who turned 18 years old [in] July 2016. The case started in 1998 and ended on 11 November 2016. Since 5 November 2014, child support has been collected by the Department of Human Services – Child Support (the Department).[1] The twins have been in Ms Hobson’s 100% care for the period relevant to this review and Mr Mcpherson has been the parent liable to pay child support.
[1] The Department was also responsible for the collection of child support for a few months in 2000.
On 21 January 2015 Mr Mcpherson lodged an application for a change of assessment with the Department, on the basis that the administrative assessment did not correctly reflect either parent’s income, property and financial resources, or their earning capacity.
The administrative assessment in place on that date was that Mr Mcpherson’s child support liability was $30,856 a year, based on a provisional income for him for 2013/14 of $158,914, and Ms Hobson’s adjusted taxable income for 2013/14 of $28,498.
On 16 April 2015 a senior case officer from the Department decided not to depart from the administrative assessment although grounds for departure were established, on the basis that it would not be just and equitable to do so (the original decision).
On 26 June 2015 Mr Mcpherson lodged an objection to the original decision. On 6 August 2015 an objections officer from the Department decided to vary Mr Mcpherson’s adjusted taxable income to $156,000 and Ms Hobson’s adjusted taxable income to $71,700 from 21 January 2015 until a terminating event occurs (the objection decision).
On 2 September 2015 Mr Mcpherson lodged an application for review by the Administrative Appeals Tribunal (AAT). Following a directions hearing held on 4 November 2015, the matter was heard by the AAT, differently constituted, on 14 December 2015.
The AAT made its decision on 4 January 2016, which was to set aside the objection decision and substitute that with a different decision such that from 21 January 2015 until a terminating event occurs, Ms Hobson’s adjusted taxable income was varied to $76,742.
Mr Mcpherson appealed the AAT decision to the Federal Circuit Court. On 21 December 2016 Lucev J issued consent orders allowing the appeal. The matter was remitted to the AAT’s Social Services and Child Support Division for re-hearing.
The Presiding Member held a directions hearing on 1 May 2017 and the hearing was held on 24 July 2017.[2] Mr Mcpherson attended the hearing in person and Ms Hobson attended via conference telephone.[3] Both gave sworn evidence.
[2] Only Presiding Member Hoffman was present at the directions hearing and hearing held on 24 July 2017.
[3] The hearing was held in [State 1] where Mr Mcpherson lives. Ms Hobson lives in [State 2]. She requested to attend via conference telephone and her request was granted by the member.
The tribunal had before it documents provided by the Department (numbered 1 to 328 and C1 to C12); by Mr Mcpherson (numbered A1 to A134); and by Ms Hobson (numbered B1 to B164). Although copies of all these documents should have been provided to the parties prior to the hearing, some of Mr Mcpherson’s submissions had not been provided to Ms Hobson. Ms Hobson did not want to proceed without the opportunity to peruse these submissions. In addition, although the parties had been directed to provide submissions by 31 May 2017, Mr Mcpherson brought a detailed document with him to the hearing that he wanted to be considered; Ms Hobson had not had the opportunity to peruse this document beforehand.[4] The hearing was adjourned to a later date. The tribunal directed the parties that they could make further submissions by 14 August 2017.
[4] The document of concern was a spreadsheet.
At the hearing of 24 July 2017 and in writing on 3 August 2017 Mr Mcpherson requested that Presiding Member Hoffman recuse herself and be replaced by another member. His request was refused. He made a three page submission in relation to this request. His main concern appeared to be that the she had not issued directions for Ms Hobson to produce particular records. The tribunal observes that it was able to make further directions before, during or after hearing if the tribunal considered that to be necessary. Refusal by the Presiding Member to accede to Mr Hobson’s wishes does not justify recusal.
Further submissions were made. By the time of the reconvened hearing on 17 October 2017 the documents before the tribunal were numbered 1 to 362 and C1 to C12 (from the Department), A1 to A233 from Mr Mcpherson and B1 to B184 from Ms Hobson.[5] The documents included the full transcript of the AAT hearing held on 14 December 2015.
[5] Both members were present at the October 2017 hearing.
Mr Mcpherson said that he had not received documents numbered 329 to 362. This bundle of documents was received by the tribunal from the Department in August 2017. Mr Mcpherson advised that he had moved home and the Department would not have had his correct address. The bundle comprised letters and assessment notices dated 12 September 2016 which had previously been sent to the parties following a change of assessment decision of that date. Asked if he wanted a copy of the documents numbered 329 to 362, Mr Mcpherson said no.
After the hearing the tribunal directed Ms Hobson to provide further evidence which was then sent to Mr Mcpherson to give him opportunity to comment on it. Ms Hobson’s additional documents were numbered B185 to B220. Mr Mcpherson’s final submission, received by the tribunal on 10 November 2017, was numbered A234 to A237. The tribunal made its decision on 13 November 2017.

ISSUES

The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act1989 (the Act). The Act provides for an administrative assessment of child support to be paid. Pursuant to section 98C of the Act, a decision to depart from the administrative assessment may be made if the following three requirements are met:
i.A ground is established; and
ii.It would be just and equitable as regards the child, the liable parent and the carer entitled to child support to make a particular determination; and
iii.It would be otherwise proper to make a particular determination.
The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Act.
If the tribunal is satisfied that the three requirements are met, it may make one of the determinations prescribed in section 98S of the Act, which include variations to the annual rate of child support payable, or to the adjusted taxable incomes of the parents and/or carer, or to other components of the statutory formula used to calculate child support.

CONSIDERATION

Issue 1 – Does a ground exist to depart from the administrative assessment?

Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, the administrative assessment of child support would result in an unjust and inequitable determination of the rate of child support because of the income, property and financial resources of either parent.
Ms Hobson is self-employed and Mr Mcpherson was employed by [Business 1] until September 2016 when he was made redundant. The tribunal will consider Ms Hobson’s financial situation first.

What is Ms Hobson’s income for child support purposes?

As recorded in the AAT decision made 4 January 2016 and confirmed by Ms Hobson as part of this review, she and her sister, [Ms A], decided to set up their own real estate business. Both are directors and shareholders of [Business 2] which started trading in about August 2013. Both had previous experience working in real estate with Ms Hobson’s experience mainly in [occupation] and [Ms A’s] mainly in [occupation]. They funded the business by drawing funds from their offset mortgage accounts.
Through the course of this change of assessment process, Ms Hobson has provided documents including business and personal tax returns, and financial statements for [Business 2] for 2013/14, 2014/15 and 2015/16. Mr Mcpherson has contended that these documents cannot be relied upon as “All documents provided by Ms Hobson are the by-products of documents and information to which Ms Hobson had and has 100% control.”[6]
[6] Mr Mcpherson’s submission dated 15 June 2017, page A119
Ms Hobson also provided the Department with copies of bank statements for two bank accounts for a period from November 2014 to February 2015, and copies of ledgers. She submitted to the tribunal [Business 2]’s purchases ledger for 2015/16, bank statements for a Westpac Saver account from May to October 2016 and other documents.
In a written submission from Mr Mcpherson dated 15 June 2017, he expressed his concern that Ms Hobson had “shown no understanding, or a complete disregard, of her obligations for full and frank disclosure.” He also stated that he had previously expressed this concern during two departmental reviews, the previous AAT review, and the Federal Circuit Court appeal. He referred to his request to this tribunal to direct Ms Hobson to provide certain documents and that the tribunal expressly direct that Ms Hobson is made fully aware of the extent of “full and frank” disclosure. He had requested that the tribunal direct Ms Hobson to provide three years’ worth of credit card and bank statements.
The tribunal is satisfied that Ms Hobson provided documents as requested by the Department or directed by the AAT during the course of this change of assessment process. It notes that there was delay in providing some documents to the Department. Ms Hobson’s explanation was that she understood from Mr Mcpherson that he was withdrawing his objection and so she thought providing documents as requested as part of the objection process was not necessary.
The tribunal is satisfied that Ms Hobson has provided sufficient evidence for it to properly determine an appropriate level of income for her for child support purposes, in particular [Business 2]’s financial statements for 2014/15 and 2015/16, and relevant tax returns.

[Business 2] financial records

[Business 2] made a profit of $67,851 in 2014/15 and a loss of $2,667 in 2015/16.[7] Total income for 2014/15 was $450,148 and for 2015/16 was $475,629. The financial statements for [Business 2] were prepared by [an accounting firm]. [Mr B] from that firm gave evidence at the December 2015 hearing. [Mr B]’s evidence was that he produced the financial statements based on documents provided by the company.
[7] The AAT decision of 4 January 2016 relied on draft financial statements for 2014/15 which showed a profit of $66,882. The final 2014/15 financial statements recorded a profit of $67,851.
At the 2015 AAT hearing, Ms Hobson gave evidence that [Business 2] employed three people in addition to herself and [Ms A]. The other staff comprised a full-time property manager, paid a salary plus fuel, a sales person who was paid a retainer plus fuel and a sales person who was paid on a commission basis only. Ms Hobson’s evidence then was that she and [Ms A] were paid a salary and did not get paid commission for any sales they made.
Ms Hobson said that when the child support case ended in November 2016, the staffing levels were about the same. Apart from her and her sister, there was one sales person and an administration person was to be taken on. She said that there had been no substantial growth in the business since 2015.
During the hearing of 17 October 2017 the tribunal asked Ms Hobson questions about income and expenditure categories in the profit and loss account. Ms Hobson said that she does not really understand the financial statements as her sister looks after this side of the business and because she does not really understand, that was why her accountant answered questions at the December 2015 hearing. It was apparent that Ms Hobson did not understand particular terms used in the financial statements but was trying to give the best answer she could. Her background is as [occupation]. The tribunal is satisfied that Ms Hobson was answering questions to the best of her ability.
With reference to the income categories recorded in the profit and loss statement for 2015/16, Ms Hobson’s evidence was that commission received (sales) represented fees paid by vendors and commission (rental) was made up of management and letting fees for rental properties. The reimbursement income figure of $51,172 reflected expenses such as advertising paid for by [Business 2] which was passed on to a vendor. The vendor reimbursed [Business 2] for that expense at the time it was incurred or at the time of settlement.
Ms Hobson said that they had considered selling the rent roll but had not done that. It has remained constant with about 50 rentals. Ms Hobson submitted a list of rental properties as at 22 May 2017. It lists 57 properties generating $1,326,000 rental income a year, which results in 7.4% commission of $98,589 a year. A handwritten note records that there were 54 properties on the rent roll as at 30 November 2016. That is broadly consistent with the commission (rental) amount of $91,640 as appears in the profit and loss statement for 2015/16. The equivalent amount for the previous year was $72,658.
With regard to income generated from property sales, Mr Mcpherson obtained sales data from internet sites such as realestate.com.au, and using this data, he estimated what he believed to be the value of fees earned by [Business 2] from selling properties. Mr Mcpherson had argued that his figures demonstrated that Ms Hobson was not providing reliable information about the income earned by the business.
At the December 2015 hearing [Mr B] explained that the total value of house sales did not mean anything (from his perspective) as it was commission earned on those sales (that is, the fees charged to vendors as recorded in the books of account) that were relevant when preparing financial statements.
At the same hearing, Ms Hobson gave evidence about the sales data available on the internet and the fees charged on sales achieved by the business. Sales recorded for each salesperson at [Business 2] can be found on the internet. Ms Hobson said that as marketing tool, there may be two sales people allocated to the same property. This was useful if a salesperson left [Business 2] before a sale was completed. Also she and her sister put one of their names to each of the properties sold to build their brand. This practice meant that by adding up sales recorded against each sales person as found on the internet, the final figure overstated the number of properties sold by the business. Also, there were separate lists maintained for rural and residential properties with some properties recorded on both lists which could also lead to double counting of the properties listed by [Business 2].
Before the October 2017 hearing Ms Hobson submitted sales reports for the business. She said that the number of sales was roughly the same each calendar year. Of the fees charged to vendors, she said that these used to be regulated by [a regulatory body] which set a maximum rate real estate agents could charge, but that no longer applied. However because of competition with other real estate agencies and in order to get the business, [Business 2] might negotiate their fee to be 2% or 2.5% of the sale price, or agree on a capped amount such as $10,000, and the agreed percentage or fixed fee may or may not include the cost of advertising. This evidence is consistent with the evidence given to the AAT in December 2015.
The sales reports list properties sold from 1 July 2014 to 30 June 2016, and the commission received from the vendor for each sale. The tribunal calculated the percentage of the fee (net commission) on the first fifteen sales recorded in the report. They varied between 2.1% and 2.6%. This corroborates Ms Hobson’s evidence that the income for the business generated by each property sale varied. Therefore it is not possible to ascertain [Business 2]’s income from property sales by applying a single percentage to the total value of the properties it sells.
Based on the transcript of the December 2015 hearing, [Mr B] and/or his firm audit the trust account held by the business but do not otherwise audit the business in a systematic fashion. However when responding to questions about fees charged to vendors and BAS statements, [Mr B] said that his firm “don’t just [take the information from] MYOB and translate it straight across in the financial statements”, and that if anything did not look right, he or his staff would sit down and go through it with Ms Hobson or her sister.[8]
[8] Square brackets denote edits by the tribunal to clarify meaning of quotes.
Mr Mcpherson raised concerns about errors that were identified in BAS statements and financial statements, and that the significance of these appeared to be dismissed by Ms Hobson and [Mr B] by referring to them as typos or just minor errors.
At the December 2015 hearing [Mr B] said that the figures in the 2013/14 financial statements submitted for that hearing were finalised but there were typos in some of the wording that would be corrected for the final version. There was discussion around categorising certain expenditures incorrectly in the BAS statements. The tribunal observes that it is not unusual for such errors to occur from time to time with bookkeeping tasks.
The tribunal notes that when [Mr B] was asked specific questions about the business’s financial statements he responded with clarity and in a manner that demonstrated that he was across the detail of the financial statements. In reviewing his evidence from the previous hearing, the tribunal is satisfied that there is no reason to doubt the reliability of the financial statements prepared by his firm.
Mr Mcpherson also raised concerns about business credit cards and the bank account being used to purchase personal items, and that Ms Hobson was able to hide the benefits she got from the business by doing this.
Ms Hobson said that the business had two credit cards. She said that when the business first opened, it was not possible to get credit cards in the business name, and when that did occur, her sister and brother-in-law were guarantors. Ms Hobson said that the business credit cards were used for direct debit subscriptions, such as for the portal used by real estate agencies and other regular payments. Asked if any personal expenses went on the business credit cards, Ms Hobson was adamant that they did not. She added that business expenses included chocolates and wine which were given to clients as settlement gifts (when a property sale is finalised).

According to the profit and loss statement for 2015/16, $35,500 was expended on low cost assets. Ms Hobson said that this money was spent mainly on furniture and a car for the business. Ms Hobson said that a redevelopment of the road system affected the business and they had to relocate, as if they had stayed where they were, there would have been little passing traffic.
Ms Hobson said that they purchased a second hand car privately through [a] website. It was to be used by the property manager or any other employee for work purposes. Not long after purchase (Ms Hobson said four weeks and when challenged said maybe it was longer than that), the engine blew up and that repair accounted for much of motor vehicle repair costs of $14,345 as per the 2015/16 profit and loss statement. Ms Hobson said they tried to follow up with the person from whom they bought the car as that person had sold an un-roadworthy car but gave that up.
Mr Mcpherson said that Ms Hobson could assert anything she wanted but there was no evidence to back up what she said. After the hearing Ms Hobson submitted [Business 2]’s purchases ledger for 2015/16 and more detail on the low cost assets. She wrote that [Business 2] purchased two cars for the business, one of which had problems and was sold in July 2017. The ledger entry for one of the car purchases supports Ms Hobson’s evidence that a car was purchased from an individual rather than a car dealership.
Ms Hobson said that her mobile phone was in her name and the telephone expense of $8,471 in the profit and loss statement was for the office landline and internet connections.
Asked why there was an increase in office expenses from $5,305 in 2014/15 to $18,295 in 2015/16, Ms Hobson said that new computers were purchased as well as signage for the car. In addition about $4,000 was spent on a car port at the old office.
In her post hearing submission, Ms Hobson gave a different explanation. She stated that particular types of monthly fees used in the real estate industry had been categorised as subscriptions in 2014/15. The accountant told [Business 2] they should be categorised as office expenses which was done for 2015/16. Whereas office expenses went up from $5,305 to $18,295 year to year, subscriptions dropped from $15,216 (2014/15) to $3,875 (2015/16). Ms Hobson wrote that the differences almost cancel each other out, and the residual difference was due to an increase in the monthly fees.
Mr Mcpherson said that a business can put in figures to make it appear that there are losses when there are no losses. Ms Hobson said that she and her sister run their business and try to keep everything right; the accountant produces the financial statements, and if there is a mistake or Mr Mcpherson is not happy with the figures, it is not her role as she does [details of occupation], and she cannot answer some of the points he makes.
Mr Mcpherson queried credit card balances that were recorded as liabilities in the balance sheet. Ms Hobson said that her stepfather [Mr C] purchased some items for the business when it opened using his credit card, so those balances were really loans to him which have never been paid back. The 2015/16 balance sheet records $299 owed to [Mr C] and $875 owed to [another individual]. Ms Hobson said there was nothing sinister with the credit card balances, they simply represented monies owed to relatives. Mr Mcpherson said this showed that expenses are inflated.
As already noted, [Business 2] made a profit of $67,851 in 2014/15 and a loss of $2,667 in 2015/16. The tribunal asked Ms Hobson to explain why the business made a loss in 2015/16 which she did in her post hearing submission.
Ms Hobson stated that she and [Ms A] each had a pay rise which was made possible after a staff member left in 2015 and this accounted for $6,878 of the difference in profit and loss when comparing the two years.
The tribunal observes that the salaries for associated persons increased from $82,150 in 2014/15 to $127,086 in 2015/16, an increase of $44,936. Their superannuation increased by $5,035, giving a total increase of $49,971. Wages and superannuation for other staff decreased by $41,819 year to year. Including superannuation, the difference was just over $8,000.
There was an increase in advertising and promotion costs of $14,887 year to year. Ms Hobson explained this as being due to promotions run by the business as well as the business absorbing some advertising costs in the vendors’ fees, rather than requiring vendors to reimburse advertising fees for their property.
The main additional expense was $34,000 spent on purchasing two vehicles under the low cost assets scheme. As one of the cars was problematic, repair costs of $14,345 were incurred. Ms Hobson identified motor insurance of $1,005 as being a new cost for the business in 2015/16. This points to the business not owning vehicles prior to 2015/16.
The profit and loss statement records conjunction fees of nil for 2014/15 and $10,145 for 2015/16. These are fees paid to agents of another real estate business for introducing a buyer for a property listed by [Business 2], if the introduction leads to a sale. A portion of the fee paid by the vendor goes to the other real estate agency. Ms Hobson wrote that this type of situation happened in 2015/16 but not the previous year.
Ms Hobson also mentioned general price increases for purchases whereas the business had to keep its fees the same to remain competitive. The tribunal observed that insurance premiums increased from $3,967 in 2014/15 to $12,016 in 2015/16. $2,735 was spent on travel, accommodation and conferences in 2015/16 whereas nothing was spent on this the previous year.
In summary there was no single reason for the loss made in 2015/16. Ms Hobson provided an explanation that accounted for most of the difference between that and the profit of the previous year.

Ms Hobson’s income

The tribunal will now consider Ms Hobson’s income from the business. The tribunal referred earlier in these reasons for decision to sales reports submitted by Ms Hobson listing properties sold from 1 July 2014 to 30 June 2016, and the commission received from the vendor for each sale. Ms Hobson said that these reports were standard ones available from [Business 2]’s computer system but were not used for anything in the business. She said that they found this report and produced it for the purposes of the review and to try and help the review process.
The reports split the fee from the sale (the commission) between the listing agent, the manager, and the selling agent with the residual amount being allocated to the office (ie, the business). Ms Hobson said that the 10% recorded against ‘manager’ was in fact an allowance made for advertising costs which were factored in before calculating an agent’s commission. Ms Hobson said that these reports were not used as the basis for paying commissions to employees and the amounts of commission as recorded in the reports were not actually paid; for example, the 10% recorded against ‘manager’ were not paid. There were columns in the sales reports for referrals and conjunction agents but there were no entries for these items. Noting that conjunction fees was an expense item in the 2015/16 profit and loss account, this is consistent with Ms Hobson’s evidence that although these reports are available to the business, they are not generally used.
Ms Hobson repeated evidence given to the AAT hearing in December 2015, that no commission is paid to her or her sister in relation to any sales they were involved with, as each was on a fixed salary. Using the sales report, Ms Hobson calculated the commission she would have earned if paid on a commission only basis to be $52,197 for 2014/15 and $72,403 for 2015/16.
Ms Hobson said that she was paid more by being paid a wage rather than being paid commission. While that appears to be the case for 2014/15 (assuming an annual salary of $62,400), it does not apply in relation to 2015/16.
Ms Hobson’s position was and is that commissions that she and her sister might otherwise receive are directed straight back into the company as those funds are required to keep the doors open. Mr Mcpherson, in his written submission dated 24 December 2015, contended that the commission Ms Hobson did not take and instead invested back into the business, was her capacity to earn. The tribunal addresses earning capacity later in these reasons for decision.
At hearing, Mr Mcpherson said that what Ms Hobson did with the business income was her concern and he was not contending that she chose not to take income she was entitled to take, to affect child support. He did however contend that because Ms Hobson is not paid all to which she is entitled, that is to his detriment with regards to the child support assessment. Ms Hobson said that the business was kept open only because she did not take more money out of it.
With regard to a person being entitled to be paid a particular amount or be paid commission rather than, or as well as, a salary, the tribunal observes that an employee might be entitled to a particular rate of pay or pay arrangement based on a contract or an award. In Ms Hobson’s position, as joint owner of the business, she with her business partner can decide the terms and amounts of their remuneration, which could be a fixed salary, or commission only, or a retainer plus commission, or drawings which vary week to week depending on how well the business is doing and how much Ms Hobson thinks she needs to pay her bills that week. To suggest that Ms Hobson is choosing not to take money she is entitled to because she is paid according to a fixed salary rather than commission (or a combination of both) is not, in the tribunal’s view, an accurate or reasonable characterisation of how she is paid.
The tribunal is required to consider a person’s income, property and financial resources. This is particularly relevant for business owners who may have a financial resource over and above their personal income, represented by the profits made by a business. There may be other benefits to the business owner that become apparent through examination of the financial statements. This was indeed the approach taken in the AAT decision of 4 January 2016 and will be applied in this review.
Mr Mcpherson said that the lifestyle Ms Hobson leads exceeds the payments she gets. At the December 2015 hearing Mr Mcpherson referred to Ms Hobson’s lifestyle and overseas trips. Ms Hobson gave evidence at the December 2015 hearing that she went overseas to [another country] twice in 2014/15 and that someone else paid for these trips. The tribunal notes that for some of the period relevant to this review, Ms Hobson was living with a partner. Ms Hobson’s 2014/15 tax return recorded her spouse’s income as $170,255. The tribunal also notes that some months after they separated, Ms Hobson sold her home, then she and the children moved in with her mother. Ms Hobson said that she sold her home and a block of land she part-owned because she could not afford the loan repayments. The proceeds from the sale were deposited in her bank account, and therefore available to her, until she purchased another property.
Mr Mcpherson said that Ms Hobson has six or seven bank accounts. Ms Hobson said that she had three or four accounts, and that was not unusual. She said that she used one account for day to day transactions. She had subsidiary accounts to that. She made regular payments to one from which she paid her bills, another she used as a holiday savings account, and a third one was an E-saver account where she deposited the proceeds from selling her home and the block of land. She has since purchased a new home using those funds.
Separate to this change of assessment process, Mr Mcpherson lodged a change of assessment application on 26 July 2016. A decision was made on 12 September 2016 to vary Ms Hobson’s adjusted taxable income from 26 July 2016 to a terminating event to $138,079.[9] Mr Mcpherson said that level of income for Ms Hobson was closer to what he thinks it should be although he did not agree with all of the reasoning in that decision.
[9] The decision also varied Mr Mcpherson’s adjusted taxable income for the same period to $169,185 a year.
Mr Mcpherson argued that for this tribunal to consider the period from 26 July 2016 to when the case ended on 11 November 2016 was beyond the scope of this review, on the basis that this review was a review of an objection decision to vary the parties’ adjusted taxable incomes from 21 January 2015 until a terminating event occurs. Mr Mcpherson said at the hearing on 17 October 2017 that he was told by a departmental officer that there was a terminating event when the children of the case turned 18 years old [in] July 2016.
Subsection 12(1) of the Act sets out when a child support terminating event happens. Paragraph 12(1)(c) specifies that a child support terminating event happens when a child turns 18 years old. Subsection 12(1) of the Act is followed by a note that paragraph (12)(1)(c) may be affected by section 151C of the Act, which deals with continuing administrative assessments and child support agreements beyond a child's 18th birthday in certain situations.
In this case the assessment of child support continued until the children finished school, [in] November 2016 ([Child 1]) and [shortly after in] November 2016 ([Child 2]). The tribunal is satisfied that the terminating event that would otherwise have occurred [in] July 2016 was affected by the application of section 151C of the Act, and therefore a terminating event did not happen [in] July 2016.
Further, in Ahern the Full Court of the Family Court considered whether there were limitations regarding the tribunal’s jurisdiction in relation to periods for which it could make determinations.[10] It stated that:
…the [tribunal] had by virtue of s 103T(1) of the Collection Act all the powers of the Registrar under Part 6A of the Assessment Act, including the powers in s 98S to make a departure determination in terms not sought in the application for a departure.
[10] Child Support Registrar & Ahern and Anor [2014] FamCAFC 105.
The tribunal is satisfied that it has the jurisdiction to make a departure determination in this case (that is, a decision which varies a child support assessment) that applies to a period beyond 26 July 2016.
The tribunal notes that while Mr Mcpherson said that he agreed with the decision made on 12 September 2016, Ms Hobson said that she did not agree with it but as the child support case was coming to an end, she chose not to appeal it. As Ms Hobson chose not to object to the decision made 12 September 2016, the tribunal has determined not to disturb that decision.
It will however briefly discuss the basis upon which the delegate arrived at an adjusted taxable income for Ms Hobson of $138,079 in order to explain why there is such a disparity between Ms Hobson’s income for child support purposes as determined by this tribunal compared with the decision made on 12 September 2016.
In arriving at an adjusted taxable income for Ms Hobson of $138,079 the delegate estimated the income, expenses and profitability of [Business 2] for 2015/16. The delegate’s 2015/16 expenses figure was arrived at by extrapolating from the expenses section of [Business 2]’s 2014/15 profit and loss statement. The delegate made various assumptions when doing this. It appears this was done without gathering information from Ms Hobson about any anticipated changes in business practice or staffing.
The income figure was estimated as follows. Mr Mcpherson provided sales data for Ms Hobson’s business which he had found on the internet as noted earlier. Ms Hobson also provided a list of properties sold by her business. The delegate observed discrepancies between information provided by Mr Mcpherson and by Ms Hobson and used a figure that fell between those provided by Mr Mcpherson and Ms Hobson. The delegate then calculated what fees would have been earned as a consequence of those house sales, making assumptions about what the relevant percentages might be. (Fees are typically a percentage of the sale price of the property sold). The delegate was unsure whether the fees were inclusive of GST or not.
The tribunal has already set out reasons given by Ms Hobson as to why sales data based on information obtained from the internet has to be regarded with caution. For marketing purposes a single property may be listed against two sales people, and/or listed as both rural and residential which could lead to some properties being inadvertently double counted.
While there is clearly a relationship between the value of properties sold and the income those sales generate for the business, based on Ms Hobson’s evidence as already recorded in these reasons for decision, this relationship is not necessarily straightforward. Ms Hobson said that the fees charged to vendors varied, with lower fees negotiated at times to get the business. In addition, the cost of advertising might be covered by the percentage fee in some cases and not others.
The delegate factored in notional commissions earned by Ms Hobson and her sister. Ms Hobson’s consistent evidence has been that she and her sister are not paid commissions, and receive wages instead. When reading the decision made 12 September 2016, the tribunal considers it possible that there was some confusion by the delegate between the fees charged to vendors which can also be referred to as commission on sales, and commissions paid to sales people; and confusion as to whether commission on sales was business income or Ms Hobson’s and [Ms A]’s personal incomes.
In summary, the adjusted taxable income figure of $138,079 for Ms Hobson which was applied from 26 July 2016 was based on assumptions made about total sales and assumptions made about fees charged to vendors. Estimates of expenses for 2015/16 were made by extrapolating from the profit and loss statement for 2014/15, using untested assumptions. Assumptions were also made regarding income generated through the property management side of the business, and commissions earned by Ms Hobson and her sister. The tribunal does not consider the method used by the delegate to have been reliable because of the number of assumptions made, and the nature of those assumptions. While the value of house sales, even if the total value could be reliably established from records available on the internet, could give an indication of business income in the form of fees, this indication is bound to be less accurate than calculating business income based on source documents such as invoices. The tribunal notes that the delegate did not have the benefit of the 2015/16 financial statements and tax returns when the decision of 12 September 2016 was made, which are available to this tribunal.
The tribunal also considered properties owned by Ms Hobson. She said that she used to live with the children in a house she owned, at [Address 1]. In July 2015 she borrowed against that property to purchase a block of land at [Address 2] with her then partner [Mr D]. That relationship ended soon after the block of land was purchased. The land was later sold, at a loss once the costs related to the purchase were factored in.
Ms Hobson provided sales history for the block which showed she and [Mr D] purchased it for $373,000 and sold it for $369,000, 10 months later. Ms Hobson said that after factoring in $11,000 paid for mortgage insurance and $12,000 in stamp duty, the loss on the property was about $27,000.
Mr Mcpherson queried how Ms Hobson was able to pay the mortgage on both her home and her block of land if her income was as low as she claimed. Ms Hobson said that [Mr D] gave her money towards the mortgage repayments of $392 a week for the block of land. She said that part of the reason she sold the [Address 1] property was that she could not afford the repayments for her home and the land. She sold her home in March 2016 and the block in June 2016. She and the children then went to stay with her mother for about 10 months, and she purchased a new place after the children decided which university they would attend.

Ms Hobson claimed expenses on two vehicles in her 2015/16 tax return. She said that one car replaced the other. Mr Mcpherson said that Ms Hobson had claimed more than the maximum allowed for motor vehicle expenses. The tribunal checked the ATO site and is satisfied that the maximum claimable applies to a vehicle rather than the person.[11]
[11] Australian Taxation Office (2017) Car expenses accessed 15 November 2017 at >
Ms Hobson submitted a Statement of Financial Circumstances (SFC) dated 11 August 2017 which she filled in to reflect her situation in July 2016. She recorded owning a [car] which was used solely by her daughter and purchased by her stepfather. Ms Hobson did not make claims through her tax return for the [car].
The AAT decision made 4 January 2016 varied Ms Hobson’s adjusted taxable income to $76,742 from 21 January 2015, based on Ms Hobson’s tax return for 2014/15 and draft financial statements for [Business 2] for that year, as follows:
Ms Hobson’s 2014/15 taxable income $33,269
65% of the net profit of the business $43,473
$76,742
Ms Hobson’s evidence at the December 2015 hearing was that she receiving a gross pay of $62,400. During the previous financial year (2014/15) the business repaid some of the loan she had made to it by way of start-up capital, as well as paying her a salary. Ms Hobson told the AAT in December 2015 that about $20,000 of her loan to the business was repaid to her in 2014/15. As set out in the AAT decision of 4 January 2016, her PAYG payment summary showed that she was paid gross pay of $41,675 and her taxable income was $33,269. The difference of $8,406 was made up as follows:
Travel costs  $4,520
Car service  $   240
Car washing                   $   248
Tyres   $   600
Protective clothing           $   230
Work uniform                  $   150
Subscription                   $   295
Customer meals               $   433
Electricity  $   520
Home office                    $   690
Telephone   $   480
$8,406
In determining Ms Hobson’s income for child support purposes, the AAT in the January 2016 decision apportioned [Business 2]’s profit for 2014/15 between Ms Hobson and [Ms A]. As Ms Hobson’s evidence was that she worked six days a week and was responsible for 55% to 65% of the sales, she was allocated 65% of the profit.
This tribunal has examined the 2014/15 financial statements and agrees with the reasoning of the AAT in its January 2016 decision that Ms Hobson’s income for child support purposes is to be varied to an amount made up of Ms Hobson’s 2014/15 taxable income plus 65% of [Business 2]’s 2014/15 profit. However, because of the difference between the profit recorded in the draft profit and loss statement ($66,882) and that in the final version ($67,851), rather than an adjusted taxable income of $76,742 as determined in the decision of 4 January 2016, this tribunal determines that from 21 January 2015, Ms Hobson’s adjusted taxable income is $77,372, as follows:
Ms Hobson’s 2014/15 taxable income $33,269
65% of the net profit of the business $44,103
$77,372
Since that review, 2015/16 financial statements have become available. For that reason, the tribunal determines that the income figure of $77,372 is to apply from 21 January 2015 to 30 June 2015 but no later.
The tribunal will adopt a similar approach to that used in the previous AAT decision to determine an appropriate income figure to be applied from 1 July 2015 until the end of the case, but using the financial statements for 2015/16. However the business did not make a profit in 2015/16.
In his post hearing submission, Mr Mcpherson pointed out that purchasing the vehicles for $34,000 as low cost assets wiped out what otherwise would have been the business profit. He argued that this amount should be added back, and referred to depreciation in this regard. However there was no depreciation expense in the 2015/16 profit and loss statement and the financial records indicate that these were cash purchases rather than, say, lease arrangements.
The tribunal acknowledges that business owners are entitled to use the income generated by the business for business purposes as they see fit but also considers there is merit in Mr Mcpherson’s point that the purchase of two vehicles can have an impact on his child support liability. In light of this the tribunal considers it appropriate for 50% of the value of the cars to be added back, which means the 2015/16 loss of $2,667 becomes a profit of $14,333 (-$2,667 + $17,000). Using the same basis as for 2014/15 to allocate the profit between Ms Hobson and [Ms A], $9,316 (65% of $14,333 = $9,316) is to be added to Ms Hobson’s income.
The tribunal notes that Ms Hobson sold two properties – her home and her block of land – during 2015/16 through [Business 2] for $551,000 and $369,000 respectively. According to the sales reports, no fees were charged for selling these properties. The tribunal considers this to be a benefit received by Ms Hobson as part owner of the business. The fees charged for the sale of two other properties of similar value to those owned by Ms Hobson amount to approximately $24,000. The tribunal determines that 50% of this amount, being $12,000, is to be added to Ms Hobson’s income for child support purposes in respect of this benefit.
Ms Hobson’s gross income according to her 2015/16 tax return was $63,045 plus interest earned of $1,178, totalling $64,223. Ms Hobson claimed deductions as follows:
[Car 1]] 100% business use   $4,235
[Car 2] 95% business use  $6,117
Tolls  $     88
Work uniform  $   278
Protective clothing   $   100
Study materials  $   130
Home office  $    980
Phone  $1,080
Adjustment[12]   $ (129)
$12,879
[12] These figures are taken from a printed version of the tax return which states that certain information does not show although it can be viewed online. The tribunal cannot explain the $129 discrepancy.
This results in a taxable income of $51,344 ($64,233 - $12,879). The tribunal considers that an 80/20 apportionment between business and personal use of Ms Hobson’s vehicle is more realistic, rather than 100% and 90% business use. The tribunal will therefore add back $2,125 in respect of motor vehicle expenses (20% of $4,235 = $847; 20% of ($6,117/0.95) = $1,288).
This means that the income to be used for Ms Hobson for child support purposes from 1 July 2015 is $74,785, as follows:
2015/16 taxable income                         $51,344
Add back 65% of profit  $ 9,316
Add back benefit from property sales          $12,000
Add back proportion of mv expenses $ 2,125
Total income for child support purposes      $74,785

100.In summary, the tribunal is satisfied that varying Ms Hobson’s income for child support purposes to $77,372 for the period 21 January 2015 to 30 June 2015 and to $74,785 for the period 1 July 2015 to 25 July 2016 reflects her income, property and financial resources.

What is Mr Mcpherson’s income for child support purposes?

101.Mr Mcpherson was employed as [occupation] by [Business 1] until [September] 2016 when he was made redundant. His taxable income for 2014/15 was $152,926 and for 2015/16 was $169,185. Mr Mcpherson’s final payslip following his redundancy shows that his base salary was $182,649 a year. His final gross pay was $80,138, made up as follows:
Ordinary pay                   $ 5,620
Annual leave                   $28,856
Lieu of notice                  $17,562
Redundancy payment        $28,100
$80,138

102.Mr Mcpherson said that he started [a different occupation] in November 2016.
103.The tribunal determines that it is appropriate to use Mr Mcpherson’s 2014/15 taxable income of $152,926 for the period from 21 January 2015 to 30 June 2015, and his 2015/16 taxable income of $169,185 for the period from 1 July 2015 to 25 July 2016 as his income for child support purposes.
104.As Mr Mcpherson observed, the rate of child support he was required to pay was close to the maximum and increasing his income for child support purpose makes little difference to the assessment.

How does the administrative assessment compare with an assessment of child support using the tribunal’s income figures?

105.The administrative assessment that applied when Mr Mcpherson lodged his change of assessment application on 21 January 2015 was that he was assessed to pay child support of $30,856 a year. Using incomes of $152,926 for Mr Mcpherson and $77,372 for Ms Hobson results in a child support liability of $26,752 a year. Given the difference between $30,856 and $26,752, the tribunal is satisfied that in the special circumstances of this case, the administrative assessment does result in an unjust and inequitable rate of child support, and that a ground for departure from the administrative assessment has been established pursuant to subparagraph 117(2)(c)(ia) of the Act.

Issue 2 – Is it just and equitable to make a particular departure determination?

106.As the tribunal is satisfied that there is a ground to depart from an administrative assessment of child support, the next step is to consider whether it is just and equitable as regards the children, Mr Mcpherson and Ms Hobson to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act. This in turn requires the tribunal to consider a variety of factors, as set out in subsection 117(4) of the Act.[13]
[13] The tribunal is required to give “overt consideration” to relevant factors listed in subsection 117(4) of the Act: Tyagi & Meares [2008] FMCAfam 886.
107.Section 3 of the Act makes it clear that parents have the primary duty to maintain their children, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain. In this case Mr Mcpherson and Ms Hobson had the primary duty to financially support the twins until the case ended on 11 November 2016.

Income, property and financial resources – Ms Hobson

108.The tribunal has already discussed matters related to Ms Hobson’s income from her business.
109.Ms Hobson owned a property at [Address 1] which she sold in March 2016 and has since purchased a property [another location]. In the intervening period she and the children lived with Ms Hobson’s mother. Ms Hobson had owned a block of land with a former partner which was sold at a loss as set out above.
110.Ms Hobson’s SFC dated 11 August 2017 reflected her situation in July 2016. At that time she did not own any property and had $194,178 in the bank, being proceeds from the sale of her home. She recorded investments of $1,446 and $63,032 in superannuation. Ms Hobson said that there were two cars in her name but one, a [Car], was her daughter’s car registered in her name. Ms Hobson recorded that she drove a [Car 1] which she owned.
111.Ms Hobson valued household contents at $60,000 and recorded that her son drove a [Car 2] valued at $13,000. She was in receipt of family tax benefit, and child support for another child, [Child 3]. Ms Hobson recorded an average income of $1,836 a week, with outgoings totalling $1,960.
112.The tribunal notes that at the December 2015 hearing Ms Hobson said that she did not get family tax benefit. Based on the transcript of that hearing, her circumstances were different in that she was partnered at that time.
113.At the hearing held in July 2017, following a comment by Mr Mcpherson about Ms Hobson getting an inheritance, Ms Hobson said that her grandmother passed away about a year ago, and left some money to Ms Hobson’s mother and her siblings. From that, Ms Hobson’s mother gave some money to Ms Hobson and her siblings. Ms Hobson said that she was given $7,500 in about October 2016 but it was from her mother, not an inheritance directly from her grandmother.

Income, property and financial resources – Mr Mcpherson

114.Mr Mcpherson also submitted a SFC, which was dated 18 August 2017 and completed as at 30 June 2016. He recorded average weekly income of $3,500 and personal and household outgoings totalling $3,716. The tribunal understood that there was another income from another occupant of Mr Mcpherson’s household but he did not want to provide details. According to his 2015/16 tax return, his spouse’s income was $50,000 a year.
115.Mr Mcpherson’s SFC suggests that he rents his home, and does not own any property. He wrote that his bank balance was nil, and he held investments worth $12,500. He recorded that he owns a [Car 4] worth $25,000. He listed household contents worth $30,000 and superannuation of $205,000.
116.Mr Mcpherson recorded liabilities of $20,000 margin investing with [a business], a $21,000 personal loan and $26,500 owed on credit cards. Mr Mcpherson said that his financial situation was okay.

Other issues pertaining to the parents’ incomes, property and financial resources

117.Subsection 117(7B) of the Act prescribes the circumstances in which a parent’s earning capacity can be taken into account; certain criteria have to be met. These include that the parent has failed to demonstrate that decisions made about their work arrangements were not substantially motivated by the effect they would have on the rate of child support.
118.Ms Hobson’s real estate business started trading in mid-August 2013. This was before the Department became involved in the collection of child support in November 2014. Ms Hobson works full time in her business. In this regard, she has not changed her work arrangements since that time. On that basis the tribunal is satisfied that it is not open to it to make an earning capacity determination in respect of Ms Hobson.
119.Mr Mcpherson has been employed on a full time basis until being made redundant about two months before the end of the child support case. Although this was a change in his work arrangement, because it was a redundancy and so close to the end of child support case, the tribunal is satisfied that this change was not motivated by the effect this would have on the rate of child support.
120.The tribunal is satisfied that it need not consider the application of section 117(7B) of the Act in relation to Mr Mcpherson or Ms Hobson any further.
121.The tribunal is required to have regard to the commitments of each parent that are necessary to enable the parent to support himself or herself, or any other child or another person that the person has a duty to maintain (paragraph 117(4)(e) of the Act). Ms Hobson receives child support for her daughter [Child 3] and Mr Mcpherson has a dependent child aged six years old. The child support formula takes account of these children as well as the children of this case.

Costs related to the children

122.In determining the proper needs of the children, it is necessary to have regard to the manner in which they are being, and in which the parents expected them to be, cared for, educated or trained, and any special needs they may have (subsection 117(6) of the Act).
123.At the December 2015 hearing Ms Hobson said that the children were [educated] at [a school]. She said that she paid the fees, had not sought a specific contribution to the fees from Mr Mcpherson and was happy with the situation with regard to school fees. The tribunal will not consider the question of school fees any further.
124.In her SFCs for the December 2015 hearing and for the 2017 hearings, Ms Hobson did not apportion a number of household expenses, such as for food and mortgage or rent, between herself and the children. Although some expenses were attributed to the children, the tribunal could not tell how much of these expenses related to the children of the case, or to their [sibling], [Child 3]. The form does accommodate a situation such as this whereby two children in the household are children of this case, and one is not.
125.In light of the foregoing, the tribunal considers that application of the “Costs of the Children Table” as used in the child support formula is reasonable in the circumstances of this case.[14]
[14] Clause 1 of Schedule 1 to the Act. The table is available at the Department of Social Services website, accessed 17 November 2017 align="left">Hardship
126.The tribunal is required to consider any hardship its determination might cause and is guided by Gyselman and Gyselman[15] in this respect:
[15] [1991] FamCA 93.
This requires the Court to balance the ‘hardship’ which the parents or the children may suffer as a result of either making or refusing to make the order. It is a recognition of the circumstance that in this area there is likely to be hardship both ways and the Court is required to take into account the balance of that hardship and give it the weight which is appropriate to the circumstances of the individual case.
127.The case finished in November 2016 with no arrears of child support. Because of the complexity of the child support formula, the calculations that follow are estimates only.
128.The tribunal estimates that Mr Mcpherson has paid child support of approximately $41,307 for the period 21 January 2015 to 25 July 2016 as follows:
Period                 No of days                 Incomes $   Rate of child support $
Mr Mcpherson   Ms Hobson         Annual              For the period
21/1/15 – 30/6/15        161           156,000            76,742            27,244          12,017
1/7/15 – 25/7/16         391           156,000 76,742            27,342          29,290
41,307
129.The tribunal estimates that its decision will result in a child support liability for the same period of about $43,223.
Period                 No of days                 Incomes $                     Rate of child support $
Mr Mcpherson   Ms Hobson         Annual              For the period
21/1/15 – 30/6/15        161           152,926            77,372            26,752          11,800
1/7/15 – 25/7/16         391           169,185 74,785            29,334          31,423
43,223
130.Therefore the tribunal estimates that its decision will create a further liability of approximately $1,916, payable by Mr Mcpherson. The tribunal did inform Mr Mcpherson at the directions hearing and at the hearing on 24 July 2017 of the possibility that the tribunal’s review could result in an increase in his child support liability. Mr Mcpherson said that he understood that.
131.The tribunal has limited information about Mr Mcpherson’s current circumstances although it understands he is employed. As mentioned above Mr Mcpherson said that his current financial situation was okay. The tribunal gave opportunity to Mr Mcpherson to provide more evidence about his current financial situation but that did not occur. There was no evidence before the tribunal from which it could conclude that its decision will cause financial hardship to Mr Mcpherson.
Any other relevant matters
132.The tribunal may take into account any other matters it considers relevant in making a particular departure determination (subsection 117(9) of the Act).
133.The start date of the tribunal’s determination is 21 January 2015 which is the date that Mr Mcpherson lodged his change of assessment application. This is consistent with the objection decision and the previous AAT decision. No submissions were made that another start date should be used. The tribunal is satisfied that this is the appropriate start date for its determination. The tribunal has already given its reasoning for ending its determination on 25 July 2016 rather than when the child support case ended on 11 November 2016.
134.According to the decision made by the Department on 12 September 2016, the Department gave effect to the AAT decision of 4 January 2016 by varying Ms Hobson’s adjusted taxable income to $76,742 and leaving Mr Mcpherson’s adjusted taxable income at $156,000 which was in accordance with the decision of the objections officer.
135.However that AAT decision set aside the objection decision. The intent of that AAT decision was that Mr Mcpherson’s adjusted taxable income would reflect his taxable income, not that it should be varied to $156,000. This tribunal considers that a mistake was made by the Department in giving effect to the decision of 4 January 2016, which has contributed to the liability that has arisen because of this decision.
136.As noted at paragraph 11 of these reasons for decision, Mr Mcpherson requested that the Presiding Member recuse herself, a request that she denied. Instead a second member was constituted for the purposes of this proceeding. Mr Mcpherson responded positively to there being a second member.
137.The tribunal asked both parties for their views should the tribunal’s decision result in an overpayment for Ms Hobson or an increase in liability for Mr Mcpherson. Ms Hobson said that she was not interested in getting any more child support from Mr Mcpherson. Mr Mcpherson said that if he had overpaid child support, Ms Hobson would repay it. In his post hearing submission, he addressed this point as follows:
...I was asked by the AAT member that if it turned out that I was correct, and that a debt was declared owed by Ms Hobson to myself, would I forgive the debt. This should not be any consideration as to how this determination plays out. I should not be discouraged from recovering a debt owed to me, crystallised out of a position that I have put forward for 3 years. If the CSA and the AAT have been incorrect for 3 years, and as a result my own family have suffered financially to Ms Hobson’s benefit, then I ought to be encouraged to recover.
Ms Hobson is not permitted to grow her personal wealth at my detriment. Supporting the children is by both parents – not predominantly by one parent while the other parent enjoys the benefits of working and living from a small business.
138.Ms Hobson wrote in a submission dated 17 December 2015 that she has supported the children for 17½ years with very little assistance. During the October 2017 hearing Ms Hobson said that Mr Mcpherson did not pay child support to her for 15 years. Mr Hobson responded that it was not for that long. At the hearing in December 2015 Mr Mcpherson said that he did not pay child support to Ms Hobson for seven or eight years. Although Ms Hobson said at the October 2017 hearing that she did not want any more child support from Mr Hobson, the tribunal is unable to make that particular determination.
139.As already noted Mr Mcpherson has raised concerns throughout the change of assessment process about the reliability of the evidence from Ms Hobson, and he had requested the tribunal to direct Ms Hobson to provide three years’ worth of credit card and bank statements. In the following paragraphs the tribunal addresses some of the issues raised by Mr Mcpherson.
140.At the October 2017 hearing, Mr Mcpherson said that as Ms Hobson and [Ms A] run the business, nothing had been provided that verified statements made by Ms Hobson, and if bank statements had been provided, what Ms Hobson said could be verified. He said that she should have been asked to provide bank statements from Day One, and the law says that small businesses must provide bank statements. Mr Mcpherson said that he was not expecting the tribunal to do a financial audit, but that he had asked the tribunal to get the documents. He said that he could not test her case without them.
141.In the tribunal’s view, even if three years’ worth of bank statements were made available, they would be of limited value in ascertaining the accuracy of [Business 2]’s financial statements without being able to check how individual transactions on the statements were posted to the books of account. That is, even if the business credit card statement suggested that there was personal expenditure of, say, $1,000 each month made on that card, without seeing how the expenditure items in question were posted to the books of account, the credit card statement of itself does not prove that a person was receiving benefits from the business that were being hidden in some way.[16] The point has been made by previous decision makers in this process that the role of the Department and the tribunal does not involve forensic auditing. Mr Mcpherson indicated in his written submissions that he understood this last point.
[16] If a business owner uses business funds or a business credit card account for personal expenditure, it is usually handled through the books of account by posting the particular expense to a drawings or loan account. In that way the personal expense does not show as an expense to the business in the profit and loss statement, and any personal expenditures are tracked and properly accounted for.
142.Mr Mcpherson contended in his submission dated 24 December 2015 that the tribunal should draw a negative inference in respect of Ms Hobson’s evidence concerning her gross income, for reasons set out in the following paragraphs. These were raised at the October 2017 hearing and/or by Mr Mcpherson in his submission made after that hearing.
143.In March 2015 Ms Hobson advised the Department in writing that she had received an annual salary of $52,000 from when the business started. In a Statement of Financial Circumstances (SFC) lodged with the AAT in September 2015, Ms Hobson stated that her annual income was $62,400. Mr Mcpherson acknowledged that it was possible that she received a pay rise in the interim period.
144.Mr Mcpherson’s point of concern was that Miss Hobson’s 2014/15 group certificate and tax return recorded her gross income to be $41,675. He said that in claiming her pay was $1,000 a week, as she had previously done, Ms Hobson was either lying to the tribunal or to the Australian Taxation Office (ATO).
145.Ms Hobson said that her tax return showed her gross income to be $41,675 on the advice of her accountant. She referred to having put her own money into the business as start-up capital, and some of what she received during the year from the business was offset against what she had put into the business, as a loan repayment. Ms Hobson said that she stood by what she said on this point, and that it was to do with getting back from the business what she had put into it. The tribunal has already discussed Ms Hobson’s gross income of $41,675 and the loan repayments made to her, when considering an appropriate income for her for the period from 21 January 2015 to 30 June 2015.
146.The tribunal accepts Ms Hobson’s explanation as being reasonable and does not accept it should draw a negative inference in respect of her overall evidence concerning her gross income especially as in her submissions to this tribunal and to the AAT at the hearing in December 2015, she stated that her income was the higher figure of $62,400 a year.
147.Mr Mcpherson also referred to evidence given by Ms Hobson that she was not paid bonuses by the business. He then drew the tribunal’s attention to a ledger account print out submitted by Ms Hobson that recorded she was paid a bonus of $2,000 on 16 December 2014. Ms Hobson said that this was part of her director’s loan being repaid to her and classified as a bonus.
148.The tribunal notes that there was nothing hidden about this payment. It was included in Ms Hobson’s taxable income for that year. Ms Hobson seemed surprised it was recorded as a bonus. This is consistent with Ms Hobson saying, as she did a number of times throughout the hearing, that she is not across the details of how the books are kept as her area and strength is [occupation].
149.Mr Mcpherson said that if Ms Hobson provided bank statements, that would be proof. The tribunal notes in relation to wages, bank statements would show net rather than gross pays, and in that regard are of limited value.
150.In his submissions and at the hearings Mr Mcpherson referred to inconsistencies in Ms Hobson’s evidence and pointed to certain documents which he contended demonstrated that her evidence could not be relied upon. The tribunal considers that Ms Hobson’s evidence over the years has been broadly consistent. Although there have been anomalies, they are minor in the overall scheme of things. Some of the concerns raised by Mr Mcpherson about Ms Hobson’s evidence were not justified.
151.For example, in a submission dated 24 December 2015, Mr Mcpherson referred to an ANZ bank account held by Ms Hobson and evidence given at the hearing of 14 December 2015. Mr Mcpherson recorded that Ms Hobson used that bank account to purchase groceries, withdraw cash, pay school fees, shop at Myer, surf shops, Kmart and cinemas, amongst other things. He stated in that submission that Ms Hobson had given evidence that this was:
…a business account, in her name because as a start-up business [Business 2] could not get a loan. Ms Hobson’s testimony to the tribunal is that these funds are kept in her account for use by the business, yet Ms Hobson is clearly receiving a benefit from [Business 2] Real Estate by using its accounts for her own benefit.
152.The inference appears to be that Ms Hobson was using a business account for personal expenses. However it is apparent from the bank statements that this was incorrect. The bank statement is for a personal bank account. Ms Hobson told the tribunal at the hearing of 17 October 2017 that she had taken a second mortgage out against her home to use as capital for the business and deposited those funds in her personal account as there was not a dedicated business account. Her pay was deposited into that account. It is clearly not a business account even though she may have used funds in it for business purposes. Mr Mcpherson’s statement that “Ms Hobson is clearly receiving a benefit from [Business 2] Real Estate by using its accounts for her own benefit” is incorrect in reference to that particular bank account.
153.Mr Mcpherson queried figures in two balance sheets Ms Hobson submitted for [Business 2] dated 30 June 2015 and 25 November 2015, both of which were produced on 25 November 2015. There is a statement on each that reads “this report includes year-end adjustments” which does not make sense for the balance sheet as at 25 November 2015. It is evident from their appearance that both are draft reports as might be generated from an accounting package, rather than finalised financial statements as produced by Ms Hobson’s accountant.
154.Some of the figures in these two balance sheets appear odd. For example, under the liabilities section, they show GST collected to be $65,035.48 (June 2015) and $68,923.56 (November 2015), and GST paid to be $26,751.66 (June 2015) and $32,239.31 (November 2015). In the assets section they record GST to be $11,472.43 and $2,501.43 respectively.
155.The finalised balance sheet as at 30 June 2015 does not have accounts called GST collected and GST paid, but has a GST asset account with a balance of $11,472.43 (same as the figure in the draft balance sheet as at 30 June 2015) and a GST payable control account with a balance of $13,872.34.
156.Mr Mcpherson contended that the GST figures in the draft reports suggested that sales were much higher than appeared to be the case according to the finalised financial statements and/or that they pointed to the unreliability of evidence submitted by Ms Hobson.
157.Also, the draft balance sheet as at 25 November 2015 records a balance of $42,121 as a superannuation guarantee liability. Mr Mcpherson said that this suggests a payroll much higher than that based on the finalised financial statements which record the superannuation liability to be $1,711 and the total superannuation paid during the year, based on the profit and loss statement, to be $21,849 ($9,993 and $11,856).
158.The tribunal examined the liabilities sections of the draft balance sheet as at 30 June 2015 and the finalised balance sheet of the same date, and compared each account. They do not match up. There were slightly fewer accounts in the final balance sheet compared with the draft balance sheet. While there are a number of differences when comparing at this level, the total liabilities in the draft balance sheet amount to $121,322 and in the finalised balance sheet amount to $124,485, the difference being $3,163 which is not significant. It suggests there may have been some mispostings between accounts and/or reconciliations that were yet to be done in the draft balance sheet, and for the finalised version some account balances that were shown in the draft version were amalgamated.
159.The tribunal also compared the net assets (also the equity figure) in the draft balance sheet which was $4,116.92 with the equivalent in the finalised balance sheet which was $2,219.26. Again, this difference is not significant. That is, despite differences at the level of individual accounts, when looking at total figures, there was not much difference between the draft and finalised balance sheets as at 30 June 2015. Comparing the 2014/15 profit and loss statements, the draft version showed a profit of $66,882 and the final version recorded a profit of $67,851. The difference is immaterial.
160.With regard to the draft balance sheets, because they were drafts, there was always the possibility that figures might be changed as appears to have occurred in this case. This tribunal had the benefit of the finalised 2014/15 financial statements whereas it seems that only the draft version was available to the member who made the AAT decision dated 4 January 2016.
161.In his final submission of 10 November 2017, Mr Mcpherson gave an example of how Ms Hobson’s evidence has changed during the change of assessment process. He wrote:
Ms Hobson testified on many occasions that the company does not fund her or her sister’s vehicles. However now, in her latest submissions, Ms Hobson has provided evidence that the company has provided at least 3 vehicles. So now there is evidence that the company DOES support the vehicles for Ms Hobson and her sister.
162.At the October 2017 hearing, the tribunal put questions to Ms Hobson about the vehicle she drove to ascertain whether she was getting a personal benefit from the business. When going through the profit and loss account for 2015/16, specifically low cost assets, Ms Hobson gave evidence about a vehicle purchased by the business during 2015/16. Based on the purchases ledger submitted by Ms Hobson, two cars were purchased in February 2016 which was after the date of previous AAT hearing (December 2015).[17] It is unrealistic to expect that Ms Hobson could have given evidence about the car purchases made in February 2016 during a hearing in December 2015. In his written submission, Mr Mcpherson also expressed concern that Ms Hobson claimed expenses for vehicles through her personal tax return as well as the expenses being covered by the business, stating that “Ms Hobson has caught herself out in an untruth”.
[17] Ms Hobson submitted copies of [Business 2]’s purchases ledger, page B209 refers.
163.Ms Hobson’s evidence at the October 2017 hearing was that the vehicle owned by the business was purchased for use by the property manager or any other employee for work purposes. She said that she did not use it as she used her own car. Ms Hobson said (as she did at the December 2015 hearing) that [Business 2] does not pay her vehicle costs as she claims these through her tax return.
164.Whereas Mr Mcpherson understood from Ms Hobson’s last written submission that the business purchased three vehicles, the tribunal understood from it that the business purchased two vehicles, not three, and they were two old [cars], one of which was used to transport signs and other large items, and which broke down not long after purchase and was sold in July 2017. The models purchased were [details of vehicles].
165.Given that [Business 2] is a real estate business, it follows that the property manager and sales staff are required to travel away from the office regularly to inspect or show properties. It makes sense that the business owns vehicles to be used by employees. It does not necessarily follow that because the business owns a vehicle, Ms Hobson uses it and/or is claiming vehicle costs through her tax return improperly. While that may be a possibility, there is not, in the tribunal’s view, any definitive evidence that the business pays for Ms Hobson’s personal vehicle.
166.In his final submission, Mr Mcpherson also commented on the funds used to start the business. [Business 2]’s balance sheet as at 30 June 2014 shows an unsecured loan of $97,927 owed to [Ms A], [Ms E] and Ms Hobson. This was raised at the AAT hearing in 2015. Ms Hobson gave evidence then that she (Ms Hobson) and her sister ([Ms A]) each contributed about $50,000 to start the business, and a third person was not involved. Based on Mr Mcpherson’s submission, [Ms E] is Ms Hobson and [Ms A]’s mother. About this, Mr Mcpherson wrote “Again, Ms Hobson has caught herself out in an untruth.” The tribunal does not accept this characterisation. Balance sheets as at 30 June 2015 and 30 June 2016 show that the unsecured loan is owed to Ms Hobson and [Ms A]. That the 2014 balance sheet listed three people may well point to a degree of sloppiness and poor record keeping that has since been corrected, but this does not equate to Ms Hobson being caught out in an untruth.
167.Given Ms Hobson’s acknowledgment that she is not across all the detail of the business when it comes to the financial records, and her explanations have been reasonable, the tribunal does not share Mr Mcpherson’s view of the reliability of the financial statements for the business. The turnover appears reasonable given the staffing levels. Apart from overseas trips which Ms Hobson said were paid for by others, there was no evidence of Ms Hobson’s lifestyle being extravagant or that she had access to financial resources not declared as part of the review process. Indeed, her evidence was that she was unable to pay her mortgage and sold her home and the block of land for that reason. The tribunal formed the view that Mr Mcpherson is reading too much into the discrepancies he has identified, some of which do not hold up under scrutiny. There will always be some inconsistencies in business accounts, given the volume of transactions.
168.Ms Hobson made the point that she is more involved in [the area of her occupation] rather than [administration], and she was not across the detail of administrative type matters. The tribunal formed the view that Ms Hobson did not necessarily know the answers to all questions she was asked but answered as best as she could, which gave rise to some anomalies in the evidence. Some of these were later clarified in written submissions.
169.As part of the review process, the tribunal considers a person’s credibility. The tribunal has formed the view that Ms Hobson’s evidence regarding her business and her personal financial situation is generally reliable. It has been largely consistent across the various interviews and hearings, and has been internally coherent. That is, her evidence and explanations have made sense when considered separately and as a whole. While there have been some inconsistencies with details, these have been not been sufficient as to cast doubt on her overall evidence.
Issue 3 – Is it otherwise proper to make a particular departure determination?
170.The requirement to consider whether a departure determination would be otherwise proper is concerned with what is fair to the community; it is preferable for a child or children to be primarily supported by their parents rather than by government assistance. Paragraph 117(5)(b) of the Act means that the tribunal must consider whether the level of a benefit, in particular family tax benefit, received by the party caring for a child or children, may be affected by the level of child support.
171.As already recorded Ms Hobson was in receipt of family tax benefit. The tribunal is satisfied that its determination will result in an appropriate apportionment of financial responsibility between the parents and the community, and would be otherwise proper.
DECISION
The tribunal sets aside the decision under review and, in substitution, decides that:
For the period from 21 January 2015 to 30 June 2015, Mr Mcpherson’s adjusted taxable income is varied to $152,926 and Ms Hobson’s adjusted taxable income is varied to $77,372.
For the period from 1 July 2015 to 25 July 2016, Mr Mcpherson’s adjusted taxable income is varied to $169,185 and Ms Hobson’s adjusted taxable income is varied to $74,785.

[2017] AATA 2863

13 November 2017

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Jurisdiction

Statutory Construction

Appeal

Remedies