Mullen and Mullen (Child support)

Mullen and Mullen (Child support) [2022] AATA 3519 (1 August 2022)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2022/SC023528
APPLICANT:  Ms Mullen
OTHER PARTIES:  Child Support Registrar
Mr Mullen

TRIBUNAL:Senior Member S De Bono
DECISION DATE: 1 August 2022
DECISION:

The decision under review is set aside and substituted as follows:

Ms Mullen’s adjusted taxable income for the 2019/2020 financial year is $153,516.
Ms Mullen’s year to date income for the period 1 July 2019 to 15 March 2020 is $114,219.26.
Ms Mullen’s taxable income for the estimate period 16 March 2020 to 23 May 2020 is reconciled to be $15,277.29. Which is an annualised income for the period of $80,814.65.
Ms Mullen’s taxable income for the estimate period 24 May 2020 to 30 June 2020 is reconciled to be $24,019. Which is an annualised income for the period of $230,698.55.

CATCHWORDS

CHILD SUPPORT – particulars of the administrative assessment – estimate reconciliation - 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

Ms Mullen and Mr Mullen are the separated parents of [Child 1], [Child 2] and [Child 3]. A child support case was registered with Services Australia – Child Support (Child Support) on 9 March 2020. Mr Mullen is the paying parent. Ms Mullen has 73% care of the children and Mr Mullen has 27% care of the children.
On 8 November 2021 an officer from Child Support reconciled Ms Mullen’s income estimates with her adjusted taxable income of $153,516 for the 2019/2020 financial year.
On 10 December 2021 Ms Mullen objected to this decision and on 14 January 2022 an extension of time was granted by Child Support to Ms Mullen’s objection. On 17 March 2022 an objections officer made the decision to partially allow Ms Mullen’s objection. The objections officer amended Ms Mullen’s year to date income to $88,573 and decided to reconcile Ms Mullen’s 2019/2020 estimate using Ms Mullen’s actual adjusted taxable income of $153,516 less the new year to date (YTD) figure, resulting in an assessment based on Ms Mullen receiving $64,943 income during the estimate periods. This meant that she had still under-estimated her income from 16 March 2020 but was entitled to more child support than she had been paid after the initial estimate reconciliation.
On 22 March 2022 Ms Mullen applied to the Administrative Appeals Tribunal (the tribunal) for an independent review of this decision. On 21 June 2022 Ms Mullen gave evidence via conference telephone under affirmation, Mr Mullen indicated he would not be available for the hearing but remained a party to the review. The tribunal had before it a bundle of documents (191 pages – referred to as the hearing papers) which had been sent to both Ms Mullen and Mr Mullen prior to the hearing. The tribunal deferred its decision to consider the evidence before it. Relevant aspects of the material and evidence will be referred to in the tribunal’s consideration of the issues to be decided.

LAW AND CONSIDERATION

The law relevant to this review is found in the Child Support (Assessment) Act 1989 (the Act) and the Child Support (Registration and Collection) Act 1988. Also relevant is the Child Support Guide (the Guide) which provides government policy and guidelines in order to promote transparency in decision making. The tribunal will have regard to the Guide unless the Guide is inconsistent with law.[1]
[1] This is in accordance with the findings in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) [1979] AATA 179.
The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Act. This requires the application of a statutory formula which takes into account factors such as the number and age of children, the level of care provided and the child support income amount of each parent.
The child support income amount is based on the adjusted taxable income of each parent as defined in section 43 of the Act to include, primarily, the parent’s taxable income for the last relevant year of income in relation to the child support period:
(1) Subject to this Part, a parent’s adjusted taxable income for a child for a day in a child support period is the total of the following components:
(a) the parent’s taxable income for the last relevant year of income in relation to the child support period, disregarding the parent’s assessable FHSS released amount (within the meaning of the Income Tax Assessment Act 1997) for that year of income;
(b) the parent’s reportable fringe benefits total for that year of income;
(c) the parent’s target foreign income for that year of income;
(d) the parent’s total net investment loss (within the meaning of the Income Tax Assessment Act 1997) for that year of income;
(e) the total of the tax free pensions or benefits received by that parent in that year of income;
(f) the parent’s reportable superannuation contributions (within the meaning of the Income Tax Assessment Act 1997) for that year of income
Note 1: Other provisions that relate to a person’s adjusted taxable income are section 34A and Subdivisions B and C of Division 7.
Note 2: The components of the definition of adjusted taxable income are defined in section 5.
If a person’s last relevant year of income has reduced by at least 15% they can estimate their adjusted taxable income and the assessment will be based on that estimate of income instead of the income from the last relevant year of income. If an estimate is no longer accurate, it can be revoked and updated with a new estimate. Income estimates are made for a financial year, and at the end of that year they are reconciled against the actual income the person received in the estimate period/s based on their Australian Taxation Office (ATO) taxable income for that year.
When a person first elects to estimate their income and the start of that estimate is not the first day of the financial year, they must advise Child Support of the amount that they have already earned in the financial YTD up to the day prior to the estimate of income starting. This ensures that when the estimate is later reconciled, the person will not be assessed on all income earned in the financial year but only on what was earned in the estimate period/s. Any assessment prior to the start of the first estimate will still be based on the last relevant year of income, as the YTD figure is only used in the reconciliation process. If the YTD figure is incorrect, the later reconciliation of the estimate will be incorrect.
A person can elect to estimate their adjusted taxable income for a year of income before the start of the income year (in accordance with subsection 60(1) of the Act). Or a person may elect to estimate their income for part of the year of income (in accordance with subsection 60(3) of the Act). This is worked out by the method statement in subsection 60(4) of the Act which works out the estimate of each income component for the remaining period which starts on the day of the income election and ends on the last day of the year of income. These amounts added together are the partial income amount which is then divided by the number of days remaining in the income year. Subsection 60(5) of the Act provides the start day of the income election is the day in which the income election is made or the first day of the child support period. In this case the child support period began on 9 March 2020 and the first income election was made by Ms Mullen on 20 March 2020.
On 20 March 2020 Child Support accepted Ms Mullen’s income estimation of her adjusted taxable income as $0 for the period 16 March 2020 to 30 June 2020. Ms Mullen provided a YTD income of $71,644.75[2] for the period prior to 16 March 2020 which was gross income from a previous employer. This included income from [Company 1].
[2] Page 38 of the hearing papers.
On 24 May 2020 Ms Mullen revoked her first income estimate of $0 and made a new income estimate of $12,500 per month as she indicated she had commenced new employment.[3] This assessment was annualised to reflect an income of $149,987 for the period 24 May 2020 to 30 June 2020.
[3] Page 52 of the hearing papers.
The summary of Ms Mullen’s estimated income was reflected as follows:[4]
[4] Page 60 of the hearing papers.
Estimate year   2019/2020 Financial year
Total income in financial year:    $87,270.49
Breakdown of financial year:
Year to date (YTD):                01/07/2019 - 15/03/2020
Year to date income:              $71,664.75
Estimate period:                    16/03/2020 – 23/5/2020
Estimated income:                 $0.00  $0.0 (per year)*
Remaining estimate period:      24/5/2020 – 30/6/2020            $149,897.00 (per year)*
Estimated income:                 $15,605.74
*Annualised income = (estimated income) / (days in the period) x 365
From 24 May 2020 Ms Mullen’s gross income in the estimate period of $15,605.74 was worked out in the following way:
Gross Income Per Pay: $12,500.00 monthly
Gross income in the estimate period (24 May 2020 to 30 June 2020)
$12,500 / 30.4375 x 38 days = $15,605.74
On 8 November 2021 Child Support received Ms Mullen’s adjusted taxable income for the 2019/2020 financial year, as assessed by the ATO, of $153,516. As Ms Mullen made more than one income election during the 2019/2020 financial year these estimates were reconciled with her actual adjusted taxable income for that year in accordance section 64A of the Act:
Reconciliation using a parent’s actual adjusted taxable income—more than one income election:
(1)This section applies for the purposes of assessing a parent in relation to the costs of a child of the parent for a day in a child support period if:
(a)   the day occurs in the application period for an income election relating to a year of income that was made by the parent; and
(b)   the parent made more than one income election relating to the year of income; and
(c)   the parent’s actual adjusted taxable income for the year of income has been ascertained by the Registrar; and
(d)   if the Registrar has made a determination under subsection 64AB(1) in relation to the parent—the parent’s actual adjusted taxable income for the year of income is more than the parent’s determined ATI for that year; and
(e)   if, under section 63A, 63B or 63C, the Registrar has amended assessment of child support payable by or to the parent—the Registrar determines that this section should apply in relation to the parent.
Ms Mullen’s income estimates were reconciled against that adjusted taxable income resulting in the following:[5]
[5] Page 75 of the hearing papers.
Estimate year   2019/2020 Financial year
Total income in financial year:    $153,516
Breakdown of financial year:
Year to date (YTD):                01/07/2019 - 15/03/2020
Year to date income:              $71,664.75
Total income less YTD income: $81,851.25 (this is the amount earned in the estimate periods)
Estimate period:                    16/03/2020 – 23/5/2020 (69 days)
Estimated income:                 $0.00  $0.0 (per year)*
Actual income:  $42,718.59  $225,975.15 (per year)*
Remaining estimate period:      24/5/2020 – 30/6/2020 (38 days)
Estimated income:                 $15,605.74   $149,897.00 (per year)*
Actual income:  $39,132.66  $375,879.49 (per year)*
*Annualised income = (estimated income) / (days in the period) x 365
As Ms Mullen had estimated she would receive less income in the estimate periods than she received based on the information from the ATO, the amount of child support she had been entitled to receive in the estimate periods was retrospectively reduced and an estimate penalty was raised against her.
Ms Mullen disagreed with the reconciliation of her estimates being based on the ATO assessment because she submitted that this was income earnt before the registration of the child support assessment. Specifically, Ms Mullen submitted that the income amounts she earnt before the registration of the child support assessment should not be included in her YTD income amounts. Ms Mullen said this included the income from [Company 1]’s and [Company 2] ($88,866) and the excluded lump sum payment D of $25,598.[6] Ms Mullen was of the view that only income earnt after the registration of child support should have been included in the reconciliation of child support. Ms Mullen submitted that any money earnt before this period, which she calculated to be around $114,000, is income that should be excluded.[7]
[6] As found by the tribunal this amount has not been included in the income for Ms Mullen.
[7] Ms Mullen thought the figure was about $114,000 made up of income of $88,866 and $25,598 = $114,464.
The tribunal has outlined how income estimations work and that income is reconciled using income earnt during the whole financial year. However, the income amounts for the estimate periods are worked out by deducting the YTD income first so that only income earned in the estimate period/s is used to reconcile the estimates.
The objection decision was that Ms Mullen’s YTD income at the start of the estimate period was actually $88,573, which resulted in her reconciliation being recalculated as follows:[8]
·      For the estimate period of 16 March 2020 to 23 May 2020 (69 days), Ms Mullen estimated an income of $0. But her actual income for this period was $31,815.21. Which meant her annualised income was $168,297.85.
·      For the estimate period of 24 May 2020 to 30 June 2020 (38 days), Ms Mullen estimated an income of $15,605.74. Her actual income for this period was $33,127.79. Which meant her annualised income was $318,201.04.
·      The objections officer made the decision to amend Ms Mullen’s YTD income to $88,573, and use Ms Mullen’s YTD income of $88,573.00 (rounded) to reconcile her income estimate using her actual taxable income of $153,516.00 for the 2019/2020 financial year.[9]
[8] Page 23 of the hearing papers.
[9] Pages 23 and 24 of the hearing papers.
In accordance with the legislation Child Support is entitled under section 63AE of the Act to determine a new YTD amount, which the objections officer did as part of their review of the reconciliation. The tribunal is therefore satisfied that the YTD figure is before the tribunal to determine because there is now evidence before the tribunal that Ms Mullen had received the deferred share benefit and the tribunal is satisfied Ms Mullen received this before the start of the estimate period.
In reconciling Ms Mullen’s income estimates with Ms Mullen’s adjusted taxable income for the 2019/2020 financial year the tribunal has found as follows: Ms Mullen’s ATO adjusted taxable income for the 2019/2020 financial year is $153,516; which is made up of $143,153 plus $10,000 superannuation contribution plus $363 rental property loss added back in.[10] This is the same finding as the objections officer.
[10] Page 13 of the hearing papers.
However, the tribunal has determined a different YTD amount than the amount found by the objections officer. The tribunal has determined that the YTD amount is $114,219.26, and not $88,573, which is made up of the following amounts:[11]
[11] This is the YTD amount prior to the first income estimation made on 24 May 2020.
·     $25,647 deferred share benefit scheme[12]
·     $84,866 earned from employers up until 24 January 2020[13]
·     $3,706.26 lump sum A[14]
[12] Page 10 of the hearing papers.
[13] Page 9 of the hearing papers.
[14] Page 9 of the hearing papers.
Total $114,219.26
·     Excluded is the lump sum payment D: $25,598.
Ms Mullen estimated an income of $0 for the period 16 March 2020 to 23 May 2020 (69 days) and an income of $15,605.74 for the period 24 May 2020 to 30 June 2020 (38 days).
At the end of the year of income (in this case the 2019/2020 financial year) the Registrar will compare the parent’s estimated income for the year with the actual taxable income for that year. If the actual income is less than or equal to the estimated income, the assessment will be amended using their actual income, under the provisions in Division 7A of Part 5 of the Act. If, after an estimate is reconciled, a higher amended taxable income is found then the child support assessment will be re-reconciled for that period using the actual income for the estimate period. In this case the estimate period which applies is 16 March 2020 to 30 June 2020.
Ms Mullen’s adjusted taxable income for the 2019/2020 financial year was $153,516. Ms Mullen’s YTD income up until the first income estimate was $114,219.26. In order to reconcile Ms Mullen’s income during the estimate period from 16 March 2020 to 30 June 2020: $114,219 (rounded down) is subtracted from $153,516 which equals $39,297 which is income earnt during the estimate period. Ms Mullen estimated $0 income for the first income estimate period and $15,605.74 for the second income estimate period. This means Ms Mullen underestimated her income by $23,691 (rounded): ($39,297 - $15,605.74 = $23,691.26) over the two estimate periods.
To work out Ms Mullen’s reconciled daily income for the estimate period this is done by dividing $23,691 by the number of days in the estimate period (107 days): ($23,691 / 107 = $221.41); $221.41 is the daily income amount.
As Ms Mullen’s income estimation for the period 16 March 2020 to 23 May 2020 (69 days) was $0: Ms Mullen underestimated her income by $15,277.29 ($221.41 x 69 = $15,277.29). In accordance with subsection 64A(4) of the Act the re-reconciled annualised income amount for this period is worked out by multiplying the daily income rate of $221.41 by 365 (days in a year) = $80,814.65.
For the estimate period 24 May 2020 to 30 June 2020 Ms Mullen estimated her income to be $15,605.74. The daily re-reconciled income amount for this period is $221.40 multiplied by the number of days in the estimate period: $221.40 x 38 = $8,413.20. Ms Mullen underestimated her income for this period by $8,413.20. This means that Ms Mullen’s actual income for this estimate period is $24,019 (rounded up) (the income Ms Mullen estimated of $15,605.74 + $8,413.20 = $24,018.94). The re-reconciled daily income for the estimate period is worked out by dividing the number of days (38 days) in the estimate period by the income amount: $24,019 / 38 = $632.07. To work out the annualised income for this estimate period: $632.07 x 365 = $230,698.55. This means Ms Mullen’s child support payments are to be based on re-reconciled annualised income for the period 24 May 2020 to 30 June 2020 of $230,698.55.

DECISION

The decision under review is set aside and substituted as follows:

Ms Mullen’s adjusted taxable income for the 2019/2020 financial year is $153,516.
Ms Mullen’s year to date income for the period 1 July 2019 to 15 March 2020 is $114,219.26.
Ms Mullen’s taxable income for the estimate period 16 March 2020 to 23 May 2020 is reconciled to be $15,277.29. Which is an annualised income for the period of $80,814.65.
Ms Mullen’s taxable income for the estimate period 24 May 2020 to 30 June 2020 is reconciled to be $24,019. Which is an annualised income for the period of $230,698.55.

[2022] AATA 3519

1 August 2022

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