Mr Mansour and Mrs Chen (Child support)

[2018] AATA 219

Mr Mansour and Mrs Chen (Child support) [2018] AATA 219 (2 January 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/MC011918

APPLICANT:  Mr Mansour

OTHER PARTIES:  Child Support Registrar

Mrs Chen

TRIBUNAL:Member P Noonan

DECISION DATE:  02 January 2018

DECISION:

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

• From 1 December 2016 to 31 December 2018 Mr Mansour’s adjusted taxable income is varied to $42,634.

Member P Noonan

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

CATCHWORDS
Child Support – Departure determination – Income and financial resources of parents – Business income – Decision under review set aside and substituted

REASONS FOR DECISION

BACKGROUND

1. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable. It uses a formula, which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances.

2. Mr Mansour and Mrs Chen are the parents of [Child 1] aged 7.

3. A child support case was first registered with the Department of Human Services (the Department) on 1 December 2016 and child support is registered for collection by the Department. The tribunal noted that the care of [Child 1] is currently recorded as 100% to Mrs Chen.

4. On 25 January 2017 Mrs Chen lodged a change of assessment application with the Department. Mrs Chen applied on the basis that Mr Mansour’s income and overall access to financial resources was such that application of the administrative assessment resulted in an unjust and inequitable determination of the amount of child support Mr Mansour must pay to her.

5. The liability history screens in respect to this case, as maintained by the Department, show that for the period 1 December 2016 to 28 February 2018 Mr Mansour is assessed to pay child support of $414 per year, based on his 2015-16 adjusted taxable income of $23,402 and Mrs Chen’s 2015-16 provisional income of nil.

6. On 10 April 2017, a Department decision maker decided that a reason for departure had  not been established.

7. On 18 April 2017 Mrs Chen objected to this decision and on 6 June 2017 an objections officer decided to allow her objection. The officer decided that a departure determination was appropriate in the following terms:

• The annual rate of child support payable by Mr Mansour is set at $4,160 per annum for the period 1 December 2016 to 30 November 2017.

• The annual rate of child support payable by Mr Mansour is set at $4,420 per annum for the period 1 December 2017 to 30 November 2018.

1. Mr Mansour subsequently applied to this tribunal for an independent review.

2. A hearing for the matter was held by the tribunal on 1 December 2017. The Child Support Registrar did not attend the hearing. Mr Mansour attended the hearing in person and gave evidence on affirmation. Mrs Chen attended the hearing by conference telephone and gave evidence on affirmation. The tribunal was assisted by an interpreter in the Arabic language in respect to Mr Mansour’s evidence and by an interpreter in the Mandarin language in respect to Mrs Chen’s evidence.

3. In reaching its decision the tribunal considered the verbal evidence of Mr Mansour and Mrs Chen and the documentation provided by the Department (numbered 1 to 235), Mr Mansour (numbered A1 to A157) and Mrs Chen (numbered B1 to B34).

4. Pursuant to paragraph 98C(1)(b) of the Act, a decision to depart from the administrative assessment may be made if the following requirements are met:

   (i)that one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and

   (ii)that it would be:

   (A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)otherwise proper;

   to make a particular determination under this Part …

ISSUES

A ground for departure

Mr Mansour’s income and access to financial resources

1. Subparagraphs 117(2)(c)(ia) and (ib) of the Act, commonly referred to as Reason 8, provide as grounds for departure:

   (c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child:

   ...

   (ia) because of the income, property and financial resources of either parent….

   (ib) because of the earning capacity of either parent.

2. Mr Mansour earns his income from property investment and property development. He currently owns four [properties] located in [State 1]from which he derives rental income. He also owns vacant land in the form of three adjoining blocks in [Suburb 1], [State 1]and an industrial property] in [State 2]. He purchased the vacant land about a year ago using finance from a lender called [Lender 1]. He borrowed $300,000 for this purpose from this lender, secured against a property located in [Suburb 2],[City 1]. He also borrowed $100,000 from [Lender 2] secured against a property located in [Suburb 3],[City 1]. He had intended to sell a property to help finance the development of this land. However, he is now unable to deal in his properties as Mrs Chen has placed caveats upon them pending property settlement. He expected this would occur around June 2018. Mrs Chen confirmed to the tribunal that her lawyers had arranged for such caveats to be placed upon properties owned by Mr Mansour.

3. Turning to Mr Mansour’s rental income the tribunal noted that his 2016-17 taxation return declared gross income of $81,901. Depreciation expenses claimed were $7,733 and all other expenses were $59,263. His declared taxable income was $22,638.

4. Mr Mansour did not produce a detailed list of itemised expenses however he has mortgages drawn at around $400,000. The tribunal considered the bank statements show that his interest expense is around $27,000 per annum. He also noted in his Statement of Financial Circumstances that he incurs around $5,000 per annum in rates and land taxes, $6,000 in insurance costs and $4,000 in agent costs. The tribunal accepted these costs as reasonably indicative of the ongoing costs associated with the properties. These total $42,000. Mr Mansour did not list any other expenses associated with his properties however the tribunal will allow $5,000 for basic ancillary costs associated with property maintenance. The difference of $12,263 will accordingly be added back to his taxable income. The tribunal considered it is entitled to be robust in such circumstances where an applicant has not provided documentation evidencing claimed expenses.

5. Mr Mansour also claimed depreciation costs of $7,733. Depreciation is a paper expense. A person can claim a depreciation expense in a particular tax year even though the asset in question may have been fully paid for several years earlier. On the other hand the initial capital outlay is not a deductible expense. The Department’s Child Support Guide at 2.6.14 suggests that it is relevant to consider whether claiming depreciation expenses results in a parent having greater financial resources or income than the parent’s taxable income indicates. So, for example, if the amount claimed as a depreciation expense is actually available to the parent and used by them to meet living expenses, it may be appropriate to add back the depreciation amount to the parent’s income for child support purposes. On the other hand, if the amount is used for replacing equipment, then it is unlikely that the depreciation expenses have provided the parent with such a benefit. Depreciation was claimed on painting and equipment, a cost incurred on 1 January 2005, an air conditioner purchased on 1 January 2005, a motor vehicle purchased on 1 April 2016 and a motor vehicle purchased on 19 October 2016. The tribunal noted capital purchases are an occasional outlay for the business and there was no evidence of an ongoing schedule for the renewal or replacement of capital items. Some of the items, such as vehicles, appear to be largely personal in nature. The tribunal considered it appropriate to also add back the depreciation expense to Mr Mansour’s taxable income.

6. In 2016-17 the tribunal therefore considered the value of Mr Mansour’s overall access to financial resources is reasonably reflected by an adjusted taxable income of $42,634.

7. Turning to Mr Mansour’s assets the tribunal noted that he has taken on debt and invested in passive non-income producing investments, in the form of land, either just prior to or around the time of his relationship ending with Mrs Chen. Such an approach could well be taken as an attempt to reduce his income and therefore his child support payable. He gave evidence that the relationship with Mrs Chen ended in October 2016. He settled on the land soon after this event. His stated his motivation was to create further income for himself. The tribunal noted that the settlement date on his finance statement was set out as 22 June 2016. He planned to sell his house and build [shops] on the land. Mrs Chen stated that she was aware of his plans in regard to this development while they were in a relationship. On balance the tribunal considered Mr Mansour’s activities in regard to the [land] are reflective of his normal business practices rather than an activity specifically undertaken to reduce his child support liability. In respect to the current value of Mr Mansour’s investment assets he listed them in a submission as having a gross value of $1,160,000. The tribunal had no independent valuations in respect to these properties but noted that a cursory search of the property valuation site [website name deleted] indicated that his valuations of several of his properties was significantly less than their current market values. The tribunal concluded Mr Mansour retains significant equity in his properties.

8. Turning to Mr Mansour’s bank statements the tribunal noted that these indicate he has recently been receiving regular credits from a [Mr A] of around $1,000 per month. Mr Mansour stated this is money being borrowed by him from [Mr A] to help him survive. It is a return of a favour he made to [Mr A] when he helped him out some time ago. The tribunal also noted that in January 2017 Mr Mansour made payments of $17,100 to his credit card and made purchases of $13,073. In February 2017, he also made payments of $4,000 and purchases of $8,335. Mr Mansour gave evidence that he was able to make these lump sum payments due to settlement coming through on a property he sold. There was no evidence of this transaction before the tribunal. However, the tribunal noted that Mr Mansour’s debt levels have not reduced significantly and concluded the equity realised was likely minimal.

9. Mr Mansour also submitted that Mrs Chen was living at no cost in his house and that he had moved out and was paying rent on a small rental unit. Mrs Chen confirmed this was the case however she noted that she must pay utility costs. Mrs Chen also drives a car bought for her by Mr Mansour. Overall Mr Mansour appears relatively asset rich and relatively income poor, in part due to his current arrangements with his vacant land, which are temporary and will likely cease once property settlement is resolved. Mr Mansour also appears to currently have some access to regular funds from an associate as a favour to him and has sourced some lump sum money from previous property dealings in assisting him manage his credit card debt. However, the tribunal was mindful that Mr Mansour currently still services significant debt and that this debt has not been reducing. He also rents privately while providing Mrs Chen and the child with accommodation. There appeared no danger that this arrangement would cease prior to property settlement. On balance, given the current situation, the tribunal considered the adjusted taxable income derived by the tribunal above (being $42,634), was an appropriate reflection of Mr Mansour’s overall access to financial resources at the time of Mrs Chen’s departure application.

Mrs Chen’s income and access to financial resources

1. Mrs Chen informed the tribunal she is entirely reliant upon Commonwealth income and family support, child support and accommodation support from Mr Mansour. There was no evidence to suggest Mrs Chen’s income, and overall access to financial resources, was not accurately reflected by her most recently available taxable income assessment. 

Conclusion

1. Under the original departure determination the annual rate of child support payable by Mr Mansour was $414. The tribunal has found that Mr Mansour’s overall access to financial resources is reflective of an adjusted taxable income of $42,634. The annual amount of child support payable by Mr Mansour, using this adjusted taxable income (and Mrs Chen’s 2015-16 adjusted taxable income of $0), is $3,210. The tribunal considered such a difference in the child support payable meant that application of the administrative assessment, (resulting from the original departure determination) would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Mansour in support of the child when considered within the context of Mrs Chen’s very low income. As a result, the tribunal has determined that a ground for departure in subparagraph 117(2)(c)(ia) of the Act does exist.

Would departure from the administrative assessment be just and equitable?

Mr Mansour

1. In his Statement of Financial Circumstances, Mr Mansour disclosed ownership of property worth $1,560,000. The tribunal has already noted that the valuations in respect to his investment properties appear significantly under their current market worth, however pending property settlement with Mrs Chen currently prevents any dealings in these assets. He also disclosed a vehicle worth $6,000 and a second vehicle worth $9,000. His liabilities consist of mortgages of $400,000, credit card debt of around $30,000, and a personal loan to a friend of $2,000. He disclosed weekly personal expenditure of $190, mainly related to credit card payments. He also disclosed $1,398 in weekly household expenditure although a good portion of this appeared to relate to his commercial interest paid and other business expenses.

2. Overall the tribunal considered Mr Mansour’s disclosed level of expenses was reasonable, and roughly in accordance with his income as calculated by the tribunal, (after taking into account his business expenses). Overall, the tribunal considered he has sufficient income and access to financial resources to meet his necessary expenses for self-support and has the capacity to make a contribution to the ongoing financial support of the child.

Mrs Chen

1. In her Statement of Financial Circumstances Mrs Chen disclosed average weekly income of $510, which relates to Commonwealth family income support payments. She stated she has not been receiving any child support from Mr Mansour. She disclosed ownership of a [car] valued at $4,000. She disclosed no other assets or liabilities. She listed weekly household expenditure of $495 or $25,740 per annum. The tribunal accepted the information disclosed by Mrs Chen to be reasonable. It is clear that any child support payable to her would assist her in maintaining the child as her expenses are roughly equivalent to her income.

The child

1. In determining the proper needs of the child it is necessary to have regard to the manner in which the child is being, and in which the parents expected the child to be, cared for, educated or trained, and any special needs of the child (subsection 117(6) of the Act). In Eades & Cadell (SSAT appeal) [2009] FMCAfam 275 at paragraph [22], Slack FM stated as follows:

   In considering the proper needs of the child [s 117(4)(b)], the SSAT:

   a.    would ordinarily consider the evidence of the parties about the needs of the children to assess the reasonableness and quantum of those needs;

   b.    may have regard to publish guidelines as to the needs of the children (see Hallinan & Witynski at 94.323).

   c.    may also have regard to the costs of children used in the assessment of child support under the existing formula arrangements (although it is not sufficient or appropriate to rely upon the formula to perform that task, Lindenmayer J in Dwyer & McGuire (1993) FLC92-420 (and see also Gyselman (supra) at 79.078).

2. There were no special needs mentioned that significantly affect the costs of the child. Overall the tribunal considered each parent should simply meet the costs of raising the child according to their respective financial capacity as determined by the tribunal. The tribunal considered this an appropriate case to largely distribute the costs of raising the child using the relevant child support formula, which is based on social science research giving the average costs of children in various family income brackets.

Otherwise proper

1. Mrs Chen receives family tax benefit in respect to the child. An increase in child support payable may accordingly reduce the cost to the community. As such the tribunal was satisfied that changing the amount of child support payable would not have any adverse effect upon the community. Such a result would be otherwise proper.

Conclusion

1. It is open to the tribunal to vary the rate of child support payable or vary some of the variables that are used in the administrative assessment formula. The tribunal considered Mr Mansour has access to financial resources such that it is reasonable to expect him to provide some child support.

2. The tribunal recognises that the principal object of the Act is to ensure that children receive a proper level of financial support from their parents. Further, the tribunal notes the statements contained in sections 3 and 4 of the Act to the following effect:

   ·     Parents of a child have a primary duty to maintain the child;

   ·     The duty has a priority over all other commitments of the parent other than commitments necessary for self-support;

   ·     The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards;

   ·     The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.

3. Mr Mansour submitted that he could not pay child support at the level currently assessed by the Department and he cannot manage financially. He may be able to pay up to $100 per week if Mrs Chen left the family home however while he has to pay rent separately he cannot afford it. In contrast he suggested Mrs Chen and the child would not be adversely affected by a drop in child support as he provides her with free accommodation.

4. Mrs Chen submitted that she feels financially very insecure at the moment. She has no assets. She has family in [Country 1], including an adult child but they are not in a position to support her. She needs all the child support she can get. She submitted an increase in child support payable by Mr Mansour would have no impact on him as he is wealthy.

5. In respect to appropriate dates for a departure determination Mrs Chen had no submission and Mr Mansour considered a shorter period would be appropriate. The tribunal noted submissions that an impending property settlement between Mr Mansour and Mrs Chen is likely by mid 2018. There was no certainty or documentary evidence in respect to progress on this issue before the tribunal. However, the tribunal accepted as reasonable that Mr Mansour is currently unable to deal in his properties and it appeared accepted by both parties that settlement proceedings are underway. Once property settlement has been enacted the respective situations of both Mrs Chen and Mr Mansour will likely vary considerably from their current situations. The tribunal considered such an outcome would likely have eventuated by at least the end of 2018.

1. With regard to all of the reasoning, as set out above, the tribunal decided to vary the adjusted taxable income of Mr Mansour to $42,634 from 1 December 2016 to 31 December 2018.

2. The departure start date is in line with that adopted by the objections officer, which is reflective of the date that the application for child support was first lodged with the Department. The length of the departure determination will provide both parents with some immediate certainty in planning their respective finances however does not extend for much time due to the impact of the pending property settlement, as discussed earlier in these reasons.  

3. The tribunal considered the actual amount of child support payable by Mr Mansour to be averaged at around $3,210 per annum or $62 per week. No arrears are generated by this decision to Mr Mansour. As he is in arrears at the moment, there should be no overpayment generated to Mrs Chen either.

4. The tribunal considered it just and equitable that Mr Mansour be required to make such a payment of child support that was reasonably reflective of both parents’ current overall access to financial resources and the costs of caring for the child. In considering any hardship to Mr Mansour the tribunal considers he has access to sufficient financial resources, as ascertained earlier in these reasons, to meet this child support requirement.

5. The tribunal also did not consider that Mrs Chen will be placed in financial hardship by this decision. She currently has no accommodation costs, (and there was no suggestion this would change prior to property settlement), and she will be paid some child support that is commensurate with the tribunal’s analysis of the parents’ current overall access to financial resources, and will be able to budget for the next period with some degree of certainty.

6. Overall the tribunal considered both parents will be provided with certainty in planning their respective finances to adequately support the child by the implementation of this departure determination, and that it is a just and equitable outcome in regard to the respective situations of each parent.

DECISION

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

• From 1 December 2016 to 31 December 2018 Mr Mansour’s adjusted taxable income is varied to $42,634.