Mostyn and Yale (Child support)

Mostyn and Yale (Child support) [2020] AATA 6010 (29 December 2020)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2020/MC019305
APPLICANT:  Mr Mostyn
OTHER PARTIES:  Child Support Registrar
Ms Yale

TRIBUNAL:Member R Anderson
DECISION DATE: 29 December 2020
DECISION:

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

The annual rate of child support payable by Mr Mostyn is varied to $6,000 per annum in respect of the period 19 November 2019 to 31 August 2020; and
The annual rate of child support payable by Mr Mostyn is varied to $9,000 per annum in respect of the period 1 September 2020 to 31 December 2021.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – business income – a ground for departure established – decision to depart – 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 omitted from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

Mr Mostyn and Ms Yale are the separated parents of [Child 1], [Child 2] and [Child 3]. According to records of the Department of Human Services – Child Support, now known as Services Australia – Child Support (the Agency), the child support assessment was registered on 19 November 2019. The Agency has been responsible for the collection of child support from Mr Mostyn from the outset.
The child support liability is generally calculated in accordance with the administrative assessment, as provided in the Child Support (Assessment) Act 1989 (the Act). The calculation is based on the income recorded by each parent in their most recently completed tax returns, as lodged with the Australian Taxation Office (ATO), or the most recent estimate accepted by the Agency. It is open to either parent to lodge an application for a departure from the administrative assessment under Part 6A of the Act if they consider the administrative assessment results in an unfair amount of child support payable by one parent.
The initial assessment was based on the income recorded on the 2018/2019 tax returns of the parents, as lodged with the ATO. The adjusted taxable income of Mr Mostyn was $39,273 and the adjusted taxable income of Ms Yale was $24,639. The registered care of the children was 57% to Mr Mostyn and 43% to Ms Yale. The corresponding child support liability payable by Mr Mostyn to Ms Yale in respect of the children was calculated at $1,575 per annum.
On 9 December 2019, Ms Yale lodged a departure application on the basis that the administrative assessment produced an unfair outcome due to the earning capacity, income, property and financial resources available to Mr Mostyn (Reasons 8A and 8B) .
On 18 March 2020, a delegate of the child support registrar found that a ground was established to warrant a departure from the administrative assessment and decided to vary the adjusted taxable incomes of Mr Mostyn and Ms Yale to $193,612 and $50,801 respectively in respect of the period 1 January 2020 to 18 February 2021. This resulted in an increase in the child support payable by Mr Mostyn to around $12,500 per annum.
On 15 April 2020, Mr Mostyn lodged an objection to the decision of 18 March 2020 and raised additional grounds on the basis of the children’s private tuition costs and “high” child care costs significantly impacting on their overall costs (Reasons 3 and 6) and that his capacity to provide for the children was significantly reduced because of the costs he incurred as a result of a legal duty to care for other persons; the parents of Ms Yale (Reason 9). Subsequently, an objections officer decided to allow Mr Mostyn’s objection on 15 June 2020, finding grounds established under Reason 8A and Reason 6. The objections officer decided to vary the adjusted taxable income of Mr Mostyn to $153,746 in respect of the period 9 December 2019 to 30 November 2021 and to vary the adjusted taxable income of Ms Yale to $51,838 in respect of the period 9 December 2019 to 30 April 2020, to $41,461 in respect of the period 1 May 2020 to 31 May 2020 and reverting back to $51,838 in respect of the period 1 June 2020 to 30 November 2021. This decision resulted in an annual rate of child support payable by Mr Mostyn of $9,333, increasing to $11,007 for the month of May 2020 before reverting once more to $9,333.
It is noteworthy that a data entry error by the Agency has resulted in the objections officer’s decision commencing on 19 December 2019, when the decision is clear that the intention of the decisionmaker was to commence the departure decision on 9 December 2019, the date upon which Ms Yale lodged the departure application.
Mr Mostyn then lodged an application to this tribunal on 22 June 2020 for an independent review of the Agency’s decision. The directions hearing was conducted by telephone with Mr Mostyn and Ms Yale on 22 September 2020. Following this hearing, directions were made to both parties requiring them to provide further information and documents.
The hearing was held on 24 November 2020. Both parties participated by conference telephone and gave oral evidence on affirmation. The tribunal also received oral evidence on affirmation from the father of Mr Mostyn, Mr Mostyn Senior. The tribunal considered information in the documents provided by the Agency in accordance with the Administrative Appeals Tribunal Act 1975 numbered 1 to 872, documents lodged by Mr Mostyn numbered A1 to A190, documents lodged by Ms Yale numbered B1 to B208 and information from Centrelink, numbered C1 to C3. All of the documents were provided to all parties prior to the hearing.
On 11 August 2020 the tribunal decided to defer making a decision in this matter to give Mr Mostyn an opportunity to provide further information in relation to his sole trader business. Following the hearing further information was received from Mr Mostyn, numbered A191 to A234. These documents were exchanged with the parties for comment. A further submission from Ms Yale was then received by the tribunal, numbered B209 to B216 which was also exchanged for comment. As no further submissions were made by either party, the tribunal proceeded to make a decision.

ISSUES

When calculation of the rate of child support is based on the usual administrative formula as discussed above, it also takes into account, relevantly, factors such as the number of children, the level of care provided, the costs of the children, the costs of self-support of each parent and the income of each parent. Section 98C of the Act allows for a decision-maker to depart from the usual manner of calculating the rate of child support payable by one parent to the other parent for a child after considering the following issues:
·         whether a ground exists to depart from the administrative assessment; and if so
·         whether any proposed departure is fair to Mr Mostyn, Ms Yale and the children; and if so
·         whether any proposed departure is fair to the public.

CONSIDERATION

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

The grounds for departure are set out in subsection 117(2) of the Act. Each ground is prefaced by the words “in the special circumstances of the case”. The meaning of this expression is not defined in the Act. However, the tribunal was guided by the courts, which have concluded that the expression relates to the facts peculiar to each case such that those facts are “out of the ordinary” and set the case apart from the usual case (Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) and Philippe and Philippe (1978) FLC 90-433).
Ms Yale gave oral evidence that she simply wants what is fair. She further stated that her suggestion at early case appraisal for Mr Mostyn to pay child support at the rate of $6,000 per annum was not accepted, as Mr Mostyn’s preference was that neither parent should pay child support. She does not seek for him to pay an amount that is unfair. However, she considers that his adjusted taxable income used in the administrative assessment, based on the income recorded on his 2018/2019 and 2019/2020 tax returns of $39,273 and $0 respectively, produces an unfair outcome.
Mr Mostyn submitted that he does not recall refusal of the offer. He is not averse to paying child support if that is the result of the assessment based on his annual income. As his income fluctuates, he considers that any child support liability should also fluctuate accordingly. That is, if his financial resources exceed those of Ms Yale then it is fair for him to pay child support and if otherwise then he should not incur a child support liability. In his view, assessing him to pay child support until late 2021 based on the sole trader business operations in the 2017/2018 year is unfair. He further stated that he has incurred significant business losses in recent years and he has sold the shares and the [Town 1] business at a low point in the market. As such, he has borrowed additional funds from the family company, [Business 1]. In his view, the Agency has considered the assets held in his name such as shares and residential investment properties, which have since been disposed of in order to meet the conditions of the recent property settlement consent orders made in the Federal Circuit Court of Australia at Melbourne [in] August 2020 (the consent orders).
Both parties confirmed to the tribunal at hearing that no grounds were being pursued other than Reason 8. This is because the parties have come to an agreement in respect of the private school fees and child care costs in respect of the children. Furthermore, Mr Mostyn has no legal duty to support his in-laws, who have since moved out of his residence.

Reasons 8A and 8B – the income, property and financial resources and earning capacity of each parent

Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, use of the administrative assessment would result in an unfair level of child support payable by Mr Mostyn because of the available income, property and financial resources available to either parent. The Act goes on to state in subsection 117(7A) that the decision-maker must have regard to “the capacity of the parent to derive income, including any assets of, under the control of, or held for the benefit of the parent that do not produce, but are capable of producing, income” and disregard “the income, earning capacity, property and financial resources of any person who does not have a duty to maintain the child”.
Mr Mostyn has been self-employed since 2010, when he commenced operating his [occupation 1] business at [Town 2] through a sole trader entity. He purchased the business with assistance from a loan through [Bank 1] in the amount of $1,400,000 and from the family owned company, [Business 1] in the amount of $300,000. The family self-managed superannuation fund, [Fund 1] purchased the premises from which the [business] continues to operate in 2019. Mr Mostyn purchased a second [occupation 1] business in [Town 1] in mid-2016, which he operated through an incorporated entity ([Business 2]) for approximately 12 months before including it in his sole trader business. Additional loans from [Bank 1] and family were taken out to assist with the purchase of the [Town 1] [business]. The [Town 1] [occupation 1] business was sold in May 2020 at a loss. Mr Mostyn gave oral evidence that he borrowed from [Business 1] and sold his share portfolio to enable the associated [Bank 1] loan still held in the name of [Business 2] to be paid out in full.
Mr Mostyn gave oral evidence that there is no formal loan agreement between him and [Business 1] in relation to the existing loan, currently in the vicinity of $591,000. A loan to Mr Mostyn or the business is not evident in the 2018/2019 balance sheet of [Business 1]. Financial statements in respect of 2019/2020 were not provided.
It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott and Scott [1994] FLC 92-457; Carey and Carey [1994] FLC 92-489). As discussed with the parties, the role of the tribunal is not to conduct a forensic audit (Podmore & Pillai [2011] FMCAfam 952 and Frost and Frost and Anor [2011] FMCAfam 1311). Rather, it is to determine from the available evidence before it the financial resources available to the parties for child support purposes, such that a fair decision can be made in respect of the child support liability.
The administrative assessment from 19 November 2019 is based on the income recorded in the 2018/2019 tax return of Mr Mostyn in the amount of $39,273. Given that the child support assessment was registered in November 2019, the relevant period for the purposes of this review is the 2019/2020 year and beyond. Based on the 2019/2020 tax return of Mr Mostyn, the sole trader business made a net loss of $180,980. This is on the back of a net loss in 2018/2019 of $157,361. As a sole trader entity there is no requirement by an outside body such as ASIC, for formalised financial statements to be completed. After the hearing, at the request of the tribunal, Mr Mostyn Senior (the accountant for Mr Mostyn, the business, [Fund 1] and [Business 1]), provided a consolidated profit and loss statement of both [businesses] setting out the detailed income and expenses of the business in 2018/2019 and 2019/2020, instalment activity statements not previously provided, wages summaries and depreciation schedules. In addition a consolidated statement of the financial position of Mr Mostyn at 30 June 2019 and 30 June 2020 was also provided.
Ms Yale highlighted the significant change in operations from a net profit in 2017/2018 to the losses noted above following separation. An investigative report prepared for the Court by [a named officer] of [an agency] highlighted the numerous inter-entity transactions relating to loans and transfers of funds and noted the difficulty in following the trail of many of these transactions. Mr Mostyn’s interest in all of the family owned entities was also recognised.
Mr Mostyn gave evidence that the [occupation 1] industry has suffered a decline since 2016 and the business also suffered the loss of a major [client base]. The tribunal accepts that fixed costs such as rent, franchise fees and interest on bank loans cannot easily be adjusted. However, one would expect that costs such as purchases, wages, superannuation, motor vehicle costs and the like would be adjusted accordingly, yet this is not the case. While it is evident that purchases have reduced, wages and superannuation have not. Furthermore, the business received a cashflow bonus of $50,000 to 30 June 2020 which is not required to be reflected in the tax return of Mr Mostyn.
The wages summaries in respect of the [Town 2] [business] record Mr Mostyn making the maximum deductible superannuation contribution of $25,000 to [Fund 1] in 2018/2019 and 2019/2020. In 2019/2020 Mr Mostyn Senior received wages of $35,800 and he told the tribunal that the maximum deductible superannuation contribution of $25,000 was also salary sacrificed to [Fund 1] on his behalf. Mr Mostyn told the tribunal that after the retirement of his father as [a role] in a [major business], he assisted him in the business in bookkeeping, HR and payroll. More recently he has been in receipt of JobKeeper payments. The mother of Mr Mostyn also received wages in 2019/2020 of $28,507 and the maximum deductible superannuation contribution of $25,000 was made to [Fund 1] on her behalf, equating to excess superannuation of $22,292. Mr Mostyn Senior gave oral evidence to the tribunal that his wife ceased working in the business as [her role] in 2019 and the payments she received in 2019/2020 represented long service leave and annual leave entitlements. The tribunal is cognisant that as a sole trader Mr Mostyn cannot pay himself wages. As such, his remuneration is reflected in the annual profits of the business. As a qualified [occupation 1] and business owner it is difficult to accept that Mr Mostyn receives less remuneration from the business than either of his parents, one of whom no longer works in the business. The retaining of significant wages and superannuation costs has clearly contributed to the business losses.
Other expenses included depreciation in excess of $40,000, the majority of which was non-cash, the costs being paid out several years earlier in relation to the [Town 1] [business]. Interest expense in relation to a loan from [Business 1] is also recorded, despite the oral evidence of Mr Mostyn that no formal loan agreement existed and no record of such a loan is evident on the balance sheet of [Business 1] at 30 June 2019. However, Mr Mostyn Senior told the tribunal that interest is paid in arrears on a quarterly basis from the business to [Business 1]. Mr Mostyn gave oral evidence that rent expense is paid directly from the business to [Fund 1]. The [Town 1] [business] premises were leased from an independent party. Mr Mostyn also told the tribunal that while some private expenses go through the business, such as [a vehicle] registration, spousal maintenance and child care, they are treated as private expenses. However, such treatment was not evident in the spreadsheets provided after the hearing by Mr Mostyn Senior.
As noted at the outset, the role of the tribunal is not to conduct a forensic audit and the tribunal does not intend to attempt to do so and examine the plethora of transfers and transactions between entities. Regardless, as [an occupation 1] operating his own business it is difficult to accept that Mr Mostyn received nil financial resources and/or benefits from the business. In response to a question from the tribunal in respect of the superannuation contributions for him and his parents, Mr Mostyn explained that in order to maintain the two property investments in [Fund 1], a certain level of contributions are required by the bank. While this may be the case, the obligation to finance investments cannot be prioritised over the obligation to support the children.
It is clear that the financial circumstances of the business and other family owned entities are intertwined and have been arranged for maximum tax advantage, over which it is apparent that Mr Mostyn Senior has significant control from a financial perspective. An income of nil, as recorded on his 2019/2020 tax return is clearly not an accurate indication of the financial resources available to Mr Mostyn. According to his Statement of Financial Circumstances, Mr Mostyn estimates his income from the business to be between $50,000 and $70,000 per annum, or $1,150 per week. According to Agency records, during a discussion on 19 March 2020 Mr Mostyn indicated that his 2018/2019 income would likely approximate $100,000.
Furthermore, it is evident that Mr Mostyn has ready access to funds from [Business 1] on demand. He told the tribunal that he recently borrowed $80,000 and later repaid $60,000. While Mr Mostyn maintains that existing loans and the required repayments mean that he does not have the capacity to pay child support, he clearly has the ability to arrange his financial circumstances, or rather the family financial circumstances, such that he does have a capacity to contribute appropriately to the support of the children. In any event, in regard to his net asset position, this has already been dealt with through the consent orders.
Ms Yale initially raised the issue of earning capacity in respect of Mr Mostyn. A parent's earning capacity can only be taken into account in limited circumstances, as set out in subsection 117(7B) of the Act, this section requires the tribunal to consider three matters in determining that the parent's earning capacity is greater than is reflected in his or her income used in the administrative assessment.
·Whether the parent is:
o   not working despite ample opportunity to do so (subparagraph 117(7B)(a)(i)); and/or
o   has reduced their weekly hours of work to below full-time work (subparagraph 117(7B)(a)(ii)); and/or
o   has changed their occupation, industry or working pattern (subparagraph117(7B)(a)(iii)); and
·If the parent's decision about his/her work arrangements is not justified by either his/her caring responsibilities (subparagraph 117(7B)(b)(i)) or his/her state of health (subparagraph 117(7B)(b)(ii)); and
·If the parent has not demonstrated that it was not a major purpose of their decision not to work despite ample opportunity to do so or to stop working, reduce their hours of work or change their occupation, industry or working pattern to affect the administrative assessment of child support (paragraph 117(7B)(c)).

All three criteria must be met before a departure determination can be made to take into account whether the parties have a greater earning capacity. There is no dispute that Mr Mostyn has continued to work in the business as he has done in the past, despite the profit reducing significantly on paper and his taxable income reducing to nil. As such, the first criterion cannot be met. Therefore, as all three criteria cannot be met, it is not open to the tribunal to determine an earning capacity in respect of Mr Mostyn.
Mr Mostyn estimated his current balance in [Fund 1] to be in the vicinity of $154,834. The 2019/2020 financial statements of [Fund 1] have not yet been completed. According to the 2018/2019 Member Statement for Mr Mostyn in the [Fund 1] financial statements, his balance at 30 June 2019 was $260,209. However, a portion of this amount has been allocated to Ms Yale in accordance with the consent orders. As already noted Mr Mostyn has consistently made deductible contributions to the maximum level of $25,000 per annum.
According to his Statement of Financial Circumstances, completed on 25 September 2020, Mr Mostyn is the sole titleholder of his [Town 3] residence, which he values at $3,575,000. The corresponding [bank] mortgage statement records an outstanding balance at 31 August 2020 of $1,235,023. The [two specified locations] investment properties have recently been sold; the net proceeds will be divided in accordance with the consent orders following settlement. Mr Mostyn’s share portfolio has significantly reduced in the 2019/2020 year. According to [Agency 1] reports, he sold shares to the value of almost $390,000 in 2019/2020, which as discussed above, has been used to meet his debt commitments upon sale of the [Town 1] [business]. The [Agency 1] report at 19 October 2020 also records the total value of the share portfolio at $6,445, which may provide a small amount of dividends.
Mr Mostyn’s remaining assets are represented by a bank balance of around $13,000, two motor vehicles valued at $22,000 and household contents valued at $5,000. Based on valuations performed for the Court, Mr Mostyn recorded the value of the sole trader business at $1,075,000. In addition to the outstanding mortgage of $1,235,023, Mr Mostyn recorded the business [Bank 1] business loan of $1,400,000 and gave oral evidence that the loan from [Business 1] is currently $591,000. A loan from his brother of $1,000,000 represented the refinancing of a loan previously from his father. It has since increased to $1,066,000 on account of accruing unpaid interest. Mr Mostyn Senior confirmed to the tribunal that Mr Mostyn no longer has a loan from him and his wife, as he loaned the funds to his other son to on-loan to Mr Mostyn. It is unclear for what purpose such a refinancing transaction took place. Mr Mostyn Senior also stated that while a formal loan agreement exists between Mr Mostyn and his brother, no formal loan agreements exist between him and his other [children]. The tribunal notes that to date the terms of the loan agreement between Mr Mostyn and his brother have not been complied with.
Mr Mostyn confirmed that the other loans listed to Ms Yale’s parents and the remainder of the settlement funds owing to Ms Yale will be fully extinguished following settlement of the [two specified locations] properties. In response to a question from the tribunal, Mr Mostyn estimated that the balance of funds to be retained by him following the sale of the [two specified locations] properties after payout of the corresponding bank loans, $650,000 payout to Ms Yale and $225,000 to payout the loan from Ms Yale’s mother, in accordance with the consent orders to be $284,000. Mr Mostyn told the tribunal that this will be used to reduce the loan from [Business 1], which in November 2020 was $591,000. The tribunal observed that the balance sheet valuation of [Business 1] at 30 June 2019 was over $1,091,650. As a one fifth shareholder, Mr Mostyn has an entitlement in the vicinity of $220,000.
Mr Mostyn recorded a personal liability in respect of employee entitlements in the amount of $129,357. He acknowledged that superannuation is up-to-date. A note to the spreadsheet information relating to the business that was provided after the hearing states that no formal payroll system has been in operation. As such, it is difficult to accept that employee entitlements justifiably increased from $13,209 at 30 June 2019 to $109,561 at 30 June 2020. Overall, the net asset base of Mr Mostyn is approaching $1,000,000, albeit a significant amount of liabilities are family-related.
The courts have made it clear that in assessing whether a ground is established in respect of Reason 8, a change in income is not necessarily sufficient consideration. The tribunal must also consider the person’s commitments to be met by that income before being in a position to determine whether or not the resulting child support liability is fair (Ross & McDermott [1998] FamCA 134).
In respect of commitments, according to his Statement of Financial Circumstances, the total average weekly costs in respect of the household total $1,184, of which $530 are attributable to Mr Mostyn. He shares his residence with the children for 50% of the time and has no discretionary expenses recorded. However, Mr Mostyn gave oral evidence that he is yet to arrange an interest only loan on his mortgage requiring a weekly payment of $705, as recorded in his average weekly expenses. To date, his required mortgage repayment is $1,467 per week, which increases the average household expenses to around $100,000 per annum. The average weekly expenses attributable to Mr Mostyn increase to $910, annualising to $47,320. In addition, he meets private health insurance premiums for him and the children (a discretionary expense) in the amount of $67 per week. Mr Mostyn told the tribunal that he is generally in good health. While this exceeds the self-support amount used in the administrative formula in the 2020 year of $25,575, there is no evidence before the tribunal to suggest that there are any special circumstances in relation to Mr Mostyn’s costs of self-support.
Given his low taxable income, Mr Mostyn incurs little in the way of income tax. Mr Mostyn contended that he will have a significant capital gains tax liability going forward. Given his low taxable income and the carried forward taxable and capital losses available to Mr Mostyn, Mr Mostyn Senior agreed with the tribunal’s observation that there is minimal capital gains tax likely to be payable by him in 2020/2021 in respect of the sale of the investment properties. Moreover, if the business operations continue in 2020/2021 as they have done in 2019/2020 then no income tax or capital gains tax would be payable.
The tribunal then considered the financial circumstances of Ms Yale. She told the tribunal that prior to January 2020 she was employed as [an occupation 2] at [Employer 1]. Her annualised income was over $53,000 per annum. Since then she has been employed as [an occupation 3] with [Employer 2] which gives her more flexibility with her caring responsibilities of the children. While her starting salary was $40,000 per annum, after three months it increased to $50,000 per annum in addition to receipt of a motor vehicle allowance. As her [work] area encompasses [a named region], Ms Yale stated that her motor vehicle allowance is more than justified. Ms Yale went on to explain that she is also eligible for an incentive payment if she meets certain targets.
Her taxable income as recorded on her 2019/2020 tax return is $45,646. In addition to the motor vehicle expenses which are closely aligned to her allowance, it also appears that many of her expenses are related one-off expenses at commencement of employment such as carry bags and depreciation on computers, iPad, phone and the like.
Going forward from 1 July 2020, Ms Yale’s latest payslip at 31 August 2020 from [Employer 2] reflects an annual salary of $50,000. Based on her performance to the end of November 2020, Ms Yale’s incentive payments are approximately $2,500, annualising to $6,000. The tribunal accepts that the motor vehicle costs incurred by Ms Yale will be met by the allowance. Ms Yale has also acquired a small share portfolio since 1 July 2020; the corresponding dividends will be reflected on her future tax returns.
According to Centrelink records, Ms Yale has been in receipt of family tax benefit Part A and Part B since prior to registration of the child support assessment with the Agency. Information provided after the hearing confirmed that her most recent fortnightly payment was $306. It is also evident that she commenced receipt of parenting payment (single) pension (PPS) from 23 September 2020. Ms Yale told the tribunal that she is required to report her earnings on a fortnightly basis which impacts on her PPS entitlement. Information provided after the hearing confirmed that her most recent fortnightly PPS payment was $357, which included a coronavirus supplement of $250. It is well known that this supplement will reduce to $150 per fortnight from 1 January 2021 and will likely cease from 1 April 2021. Regardless, the PPS payments will be declared on her annual tax returns.
Pursuant to subparagraph 117(7)(b)(ii) of the Act, for child support purposes FTB is not considered to be a part of Ms Yale’s adjusted taxable income. FTB is an income-tested benefit. FTB is not defined as a tax-free benefit under section 5 of the Act to be included in adjusted taxable income (paragraph 43(1)(e) of the Act). Therefore, as FTB is not required to be included in adjusted taxable income, it is to be disregarded, as clarified at 2.6.17 of the Child Support Guide.
Overall, the tribunal is satisfied that Ms Yale’s tax returns will provide a reasonable reflection of her available income and financial resources from employment (after allowing for some work-related deductions), dividends and PPS, which the tribunal estimates will approximate $56,000 in 2020/2021. However, a timing issue in relation to the delayed application of information in the tax returns in the administrative assessment is an issue.
Mr Mostyn raised the issue of earning capacity in relation to Ms Yale, maintaining that she could complete her exams and work as [an occupation 1] on an increased salary. Understandably, Ms Yale left the employ of the business following separation. It is also clear that her 2017/2018 taxable income in excess of $169,000 was not in keeping with her qualifications as [a junior occupation 1]. Ms Yale gave oral evidence that she received payments from the business which were promptly repaid at a later date, as arranged by Mr Mostyn Senior, for the benefit of tax savings. While Ms Yale holds a [relevant qualification] she has not completed the exams necessary to be employed as [an occupation 1]. Her employment remuneration has increased since leaving [Employer 1] and commencing employment with [Employer 2]. As such, it is difficult to establish that any change in her employment was driven by a major purpose to impact the child support liability. As the third criterion as set out in subsection 117(7B) of the Act cannot be met, it follows that all three criteria cannot be met and it is not open to the tribunal to determine an earning capacity in respect of Ms Yale to date.
Ms Yale gave oral evidence that she is expecting to cease her current role at [Employer 2] in February 2021 as she has applied to several universities to be accepted into a [specified course] to commence in March 2021 on a full-time basis. At hearing she was yet to receive notification of a confirmed placement. She further stated that she intends to use the monies she receives from property settlement to fund the living expenses of her and the children, in addition to payments from family tax benefit and Centrelink. Furthermore, in time she may resume a part-time role at [Employer 2] once she is settled into her studies as she has negotiated three months leave without pay from [Employer 2].
In respect of Ms Yale’s decision to resume full-time study, the tribunal noted at hearing her obligation to provide for the children and the earning capacity criteria discussed earlier in these Reasons for Decision. However, at the time of writing there is no evidence before the tribunal of a finalised decision in this regard. Consequently, it is not necessary to consider the criteria as set out in subsection 117(7B) of the Act in respect of the “unknown” in a future period.
The tribunal considered the assets and liabilities of Ms Yale. According to her Statement of Financial Circumstances, completed 29 September 2020, Ms Yale’s assets consist of funds held in the bank of $35,000, a share portfolio valued at $6,000 and household contents valued at $2,000. Ms Yale gave oral evidence that the [vehicle] she drives is owned by a friend. In response to a question from the tribunal, Ms Yale stated that she spent the remainder of the settlement funds received to date of around $94,000 on the purchase of her share portfolio, repaying a loan from [a financial institution] of $12,000 and repaying a loan from a friend in the amount of $35,000. Therefore, the tribunal calculates the current net asset position of Ms Yale to be in the vicinity of $43,000 and finds accordingly.
However, upon the imminent settlement of the residential investment properties in [two specified locations], Ms Yale is to receive a further payment from Mr Mostyn in the amount of $450,000, in accordance with the consent orders. A further payment of $100,000 is to be paid to Ms Yale in August 2021 and again in August 2022. Ms Yale has no liabilities and has the security of a significant asset base going forward of approximately $693,000, albeit she does not own a residence.
The tribunal accepts the undisputed oral evidence of Ms Yale that at the date of hearing, she held a balance in her [Super] account of approximately $151,000, following a recent transfer from [Fund 1] of around $145,000.
Ms Yale gave oral evidence that she resides in rented premises with shared care of the children. While her mother does not live permanently with her, she stays during the times that Ms Yale has care of the children. Prior to 5 August 2020, Ms Yale had 43% care of the children. The care has since changed to 50% care to each of the parents from 5 August 2020. According to Agency records the change has applied from 1 September 2020.
Ms Yale estimated the current average weekly household expenses to be $2,473, of which $1,424 is attributed to her. Of this, medical costs of $200 were in error as her general health is good, albeit being recently diagnosed with [a condition]. Furthermore, discretionary costs in respect of entertainment, books, magazines, gifts and house cleaner amount to $135. The tribunal calculates the annualised estimated “necessary” costs of self-support attributed to Ms Yale to approximate $56,628. According to her Statement of Financial Circumstances, in addition Ms Yale pays combined private health insurance premiums of $49 per week (a discretionary expense) for her, noting that the children are included in the private health insurance policy of Mr Mostyn. While this exceeds the self-support amount used in the administrative formula in the 2020 year of $25,575, there is no evidence before the tribunal to suggest that there are any special circumstances in relation to Ms Yale’s costs of self-support. In response to a question from the tribunal, Ms Yale stated that she is able to meet the weekly expenses of the household through use of the funds received in accordance with the consent orders and prior spousal maintenance.
Based on the evidence before it, the tribunal is satisfied that the administrative assessment from 19 November 2019, whereby Mr Mostyn’s adjusted taxable income is $39,273 per annum is not an accurate reflection of the actual income and financial resources available to him. The tribunal also notes that to date Mr Mostyn has been meeting household expenses for him and the children of $1,880 per week (based on weekly mortgage payments for his residence of $1,467), or almost $98,000 per annum, before tax, in addition to private health insurance premiums and maximum deductible superannuation contributions.
Following lodgement of his 2019/2020 tax return, his adjusted taxable income used in the administrative assessment from 1 September 2020 has altered to nil and is clearly not indicative of the financial resources available to him. As noted above, Mr Mostyn had initially given oral evidence to the Agency that his income in 2018/2019 would approximate $100,000 and on his Statement of Financial Circumstances declared his current income from the business at between $50,000 and $70,000 per annum. In addition he receives bank interest and dividends from his remaining share portfolio. Furthermore, Mr Mostyn appeared somewhat indignant at hearing that any assumption should be made that the business would continue to make the losses incurred over the last two years.
The administrative assessment resulted in an initial annual child support liability payable by Mr Mostyn of $1,575. From 1 September 2020, following use of the income recorded by Mr Mostyn and Ms Yale on their 2019/2020 tax returns as lodged with the ATO of $0 and $45,646 respectively, the administrative assessment would result in a nil child support liability in respect of Mr Mostyn and Ms Yale would likely become the payable parent at an annual rate of $2,709. Based on the tribunal’s findings above in respect of the financial resources and benefits available to the parents and the expenses being met week-in and week-out, the annual child support liability based on the administrative assessment has clearly resulted in Mr Mostyn being under-assessed.
While Mr Mostyn maintains that his debt to the family and related entities has increased significantly in order to meet his expenses, it is clear that such decisions have essentially been in an effort to maintain his and/or the family’s investments. For example, salary sacrificing $25,000 directly into his [Fund 1] superannuation account. Mr Mostyn was unable to answer all of the tribunal’s financial questions and it was clear that it is Mr Mostyn Senior who makes the financial decisions in regard to the business and likely all of the other family-related entities. While Mr Mostyn Senior may well be making financial decisions in regard to the business for the purposes of maximising the tax advantages available through the income tax legislation, such decision-making is not necessarily appropriate under the child support legislation. As discussed at hearing, in making financial decisions, the obligation of Mr Mostyn to contribute to the costs of the children in accordance with his capacity must be prioritised. Mr Mostyn appeared to struggle to grasp this aspect of the legislation.
Therefore, the tribunal finds that special circumstances do exist in this case, in that the administrative assessment results in an unfair outcome. As such, the tribunal is satisfied that a ground for departure is established in relation to subparagraph 117(2)(c)(ia) of the Act.

Issue 2 – Is it fair or “just and equitable” in relation to Mr Mostyn, Ms Yale and the children to make a particular departure determination?

As the tribunal is satisfied that there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is fair as regards the parents and the children 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 have regard to a range of factors, including but not limited to those set out in subsections 117(4) and (6) to (8) of the Act, such as the needs of the children, the parents’ assets, liabilities, income and commitments and any hardship that would be caused by departing or not departing from the formula. The tribunal does not propose to explore every matter in detail. Rather, it will discuss those it regards as pertinent to this application (Gyselman).

The needs of the children

Section 3 of the Act makes it clear that the parents of a child have the primary duty to maintain the child, 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 (Ashcroft & Ashcroft (SSAT Appeal) [2008] FMCAfam 1250). In this case Mr Mostyn and Ms Yale have the primary duty to financially support the children.
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 expect them to be cared for, educated or trained, and any special needs (subsection 117(6) of the Act).
It is undisputed that the children are in good health. Given the additional child care rebates available throughout 2020 on account of COVID-19, the parents stated that the child care costs in respect of [Child 3] and [Child 1] have not been significant. [Child 1] commenced at a government school in 2020. In any event, the costs are shared equally by the parents. While [Child 2] attends [a named private] School, the costs are also shared equally by the parents.
The average weekly costs of the children, as estimated by Mr Mostyn (after adjustment for only his share of education and childcare costs) and Ms Yale were $589 and $1,049 respectively. Ms Yale acknowledged that her estimates included significant discretionary expenses such as entertainment, gifts, books, magazines, [music and sport] lessons. Furthermore, Mr Mostyn had not included his current mortgage repayments, instead apportioning the interest only repayments yet to be negotiated with the bank. Regardless, even based on combined necessary expenses of $1,200 per week, the average weekly expenses annualise to more than $62,000 per annum. In considering the proper needs of the children, the tribunal may also have regard to published guidelines as to the needs and the costs of children as used in the administrative assessment (Eades & Cadell (SSAT appeal) [2009] FMCAfam 275). The tribunal turned to the Costs of the Children Table. The administrative formula calculates the annual maximum and capped cost for three children less than 13 years of age in 2020, regardless of how high the combined annual income of the parents is above $243,000, to approximate $46,000.
It is clear that the children’s necessary and discretionary costs have been met by the parents. In response to a question from the tribunal, Mr Mostyn stated that he meets the weekly household expenses and all debt requirements by accessing funds from his family and [Business 1]. Ms Yale responded that she has managed to meet the average weekly costs of her and the children, albeit inflated, by accessing funds from the property settlement payouts and assistance from a friend, who has since been repaid.
The tribunal concludes that the children have no special needs and that their estimated “necessary” costs appear to be over-stated and not aligned to the current financial capacity as asserted by the parents.

The earning capacity, income, property and financial resources and commitments of each parent

As found earlier in these Reasons for Decision, the tribunal is satisfied that Mr Mostyn has and has had income, financial resources and benefits available to him that well exceed the amounts reflected on his annual tax returns. As also discussed, the tribunal is not in the position of conducting a forensic investigation, which is necessary to accurately quantify the financial resources directly available to Mr Mostyn from his sole trader business. It is noteworthy that such an investigation was unable to be fulfilled by a forensic accountant for the court on account of lack of evidence and/or further explanation, albeit Mr Mostyn maintains that such an explanation was not requested. However, as already discussed, the tribunal is well satisfied that the income and financial resources available to Mr Mostyn from all sources, exceed those amounts reflected on his annual tax return in 2019/2020 of nil, thereby producing an unfair outcome through application of the administrative assessment. As discussed at hearing, as a sole trader seeking to maximise his tax advantage, this scenario will likely continue into the future.
In contrast, the financial circumstances of Ms Yale are transparent and are not complex. The tribunal is satisfied that her annual tax returns are a fair estimate of her available income and financial resources for child support purposes, which in the 2019/2020 year was $45,646 and in 2020/2021 is likely to approximate $56,000. However, given that prior to lodgement of her 2019/2020 tax return, Ms Yale’s adjusted taxable income was based on the income recorded in her 2018/2019 tax return of $24,639, the timing issue also contributes to the administrative assessment producing an unfair outcome.
Despite the monies payable to Ms Yale from property settlement, it is clear that Mr Mostyn has a more favourable asset base than that of Ms Yale, largely due to the equity in his residence. The tribunal is satisfied that both parents have had access to financial resources that have enabled them to provide a comfortable lifestyle for themselves and their children. It is also noteworthy that neither parent has had the need to avail themselves of the early superannuation access program throughout COVID-19.
Going forward, Mr Mostyn indicated that he plans to retire soon, stating that the circumstances of the past few years have changed his perspective. Given the balance of his [Fund 1] account, such a plan would require access to significant financial resources. It is unclear where those resources would come from. However, given the intertwined nature of the various family entities, it is likely that Mr Mostyn Senior would arrange matters as required. Similarly, if the future study plans of Ms Yale eventuate, she also requires access to significant financial resources, which in her case have been made available to her through the consent orders.

Conclusion

After consideration of the income, resources, benefits and assets together with the liabilities and the commitments met by Mr Mostyn and Ms Yale and the needs of the children, the tribunal considers it is just and equitable to make a departure determination from the current administrative assessment in accordance with section 98S of the Act. As discussed above, the annual child support liability payable by Mr Mostyn based on the administrative assessment of $1,575 and nil clearly results in an unfair outcome, as does the position whereby Ms Yale may become the payable parent. The tribunal may make one of the determinations set out in section 98S of the Act. Section 98S sets out a range of determinations, including varying the annual rate of child support payable, the adjusted taxable income of a parent, or the costs of self-support.
The tribunal may not make a determination in respect of any period more than 18 months earlier than the date on which the application for a change in the way the child support liability is calculated was made (subsection 98S(3B)). In this case, as Ms Yale lodged a change of assessment application in a timely manner on 9 December 2019 following the initial assessment from 19 November 2019, the tribunal proposes to commence the departure decision at 19 November 2019. The tribunal is not confined to making a departure determination in respect of the same period as any determination made by the Agency (Child Support Registrar & Ahern and Anor [2014] FamCAFC 105). As noted earlier in these Reasons for Decision, a data entry error resulted in the Agency departure decision being implemented on 19 December rather than 9 December 2019.
As found above, Mr Mostyn has been meeting annual household costs of approximately $100,000 per annum to date, excluding any outstanding costs in relation to the residential investment properties, albeit partly by accessing funds from [Business 1]. This is also as a result of financial choices to remunerate his parents at a greater amount than he remunerates himself and to contribute the maximum deductible amount into superannuation. This is no doubt a financial decision made by Mr Mostyn Senior for the purposes of creating a current and future tax advantage for Mr Mostyn. The tribunal is also cognisant of the limitations on sole trader entities to create losses on account of superannuation contributions in respect of the sole trader.
The tribunal notes that Mr Mostyn has met the child support liability assessed by the objections officer of more than $9,000 per annum since 30 April 2020 and increasing to just under $13,000 per annum from 1 September 2020 following the change to equal shared care of the children. He told the tribunal that the arrears have been garnisheed directly from the business activity statements refund of the sole trader business each quarter. In the tribunal’s view such withholdings does not necessarily indicate the ability of Mr Mostyn to meet a child support liability of up to $13,000 per annum. In particular, given his oral evidence of regular loans from [Business 1].
The tribunal also acknowledges Ms Yale’s earlier proposal in regard to the child support payable by Mr Mostyn of $6,000 per annum at a time when her care of the children was 43%. Based on the evidence before the tribunal such a proposal is more than fair. The tribunal accepts that the decision of the Agency to vary the adjusted taxable income of Mr Mostyn to more than $153,000 per annum is likely over-stated. In particular given that the [Town 1] [business] ceased operation in May 2020, albeit only the consolidated financial information was before the tribunal, other than wages and depreciation. However, Mr Mostyn took issue to the tribunal’s observation that based on the financial information of the business in respect of the prior two years that the business may also incur a paper loss in 2020/2021. This indicates his expectation of improved financial circumstances of the business going forward with only the [Town 2] [business] in operation.
The decision proposed by the tribunal is to vary the annual rate of child support payable by Mr Mostyn to $6,000 in respect of the period 19 November 2019 to 31 August 2020. In respect of the period commencing 1 September 2020, when the Agency have registered the care change to 50% to each parent, the tribunal proposes to vary the annual rate of child support payable by Mr Mostyn to $9,000 per annum. Given the uncertainty surrounding the future circumstances of Ms Yale and the impact of COVID-19 on the business of Mr Mostyn, while also bearing in mind the provision of a degree of certainty in regard to the child support liability for the parents going forward, the tribunal proposes to end the departure decision at 31 December 2021. At this time, both parents will have had the opportunity to finalise their tax position for the 2020/2021 year. Furthermore, the financial circumstances of Mr Mostyn after fulfilling the terms of the consent orders will be clear, including any tax consequences, as will the position of the business in operating a single [occupation 1 business].
Subsection 117(4) of the Act requires the tribunal to consider whether any departure determination or failure to make a departure will cause any hardship to the children, the carer, the liable parent or any other person the liable parent has a duty to support.
According to Agency records, Mr Mostyn had outstanding child support arrears at 31 October 2020 of $1,080, which by 31 December would have increased to $3,241, noting that the next quarterly business activity statement available to garnishee will not occur until into 2021. Assuming correction of the data entry error at the Agency level, the proposed decision will result in a decrease in arrears at 31 December 2020 such that Mr Mostyn is in credit by approximately $400. In the circumstances, the tribunal considers this to be appropriate. The tribunal is satisfied that Mr Mostyn can manage his ongoing child support in the amount of $173 per week, in particular given that he makes the discretionary choice to contribute $25,000 per annum ($480 per week) into his [Fund 1] superannuation account and pay wages to his parents which far exceed his own remuneration, all of which appears to be for the benefit of the family investments. The tribunal is satisfied that the increase in the child support liability will not cause hardship to Mr Mostyn.
In contrast, based on her level of income the tribunal is satisfied that Ms Yale would incur hardship if the administrative assessment were in place and she became the parent liable to pay child support to Mr Mostyn from September 2020. While it is open to Ms Yale to spend her savings on a specific lifestyle for her and the children if she so chooses, it is not appropriate that funds received as a result of the agreed division of assets should be considered as a financial resource for Ms Yale to pay child support to Mr Mostyn because of his ability to reduce his taxable income to nil. He clearly has access to financial resources and it is open to him to arrange his financial circumstances such that his child support liability can be met. It is also open to both parents to prioritise the “necessary” costs of the children and of their own costs of self-support.

Issue 3 – Is it otherwise proper to make a particular departure determination?

The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act. Subsection 117(5) sets out the matters that must be considered when deciding whether it would be “otherwise proper” to make a departure determination.
In this case, Ms Yale has been in receipt of family tax benefit Part A and Part B throughout the relevant period under review in accordance with her registered care of the children. Ms Yale’s taxable income is currently below the threshold of $55,626 per annum, whereby she would begin to receive a reduction in the maximum rate of family tax benefit Part A. However, as the tribunal’s decision has increased the annual child support liability payable by Mr Mostyn to Ms Yale, the maintenance income test in accordance with the family assistance legislation will likely have a minimal impact on her entitlement to family tax benefit Part A. As a sole parent, there will be no impact on Ms Yale’s entitlement to family tax benefit Part B. Therefore, the tribunal is satisfied that it is otherwise proper to make the particular proposed determination.
As discussed at hearing, if the circumstances of either parent vary significantly to those upon which this decision is based, in particular due to the impact of COVID-19 and/or the fruition of the future plans indicated by each parent, it is open to either party to lodge a further change of assessment application.

DECISION

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

The annual rate of child support payable by Mr Mostyn is varied to $6,000 per annum in respect of the period 19 November 2019 to 31 August 2020; and
The annual rate of child support payable by Mr Mostyn is varied to $9,000 per annum in respect of the period 1 September 2020 to 31 December 2021.

[2020] AATA 6010

Key Legal Topics

Areas of Law

Family Law