Mykkanen and Gault (Child support)

[2022] AATA 632

Mykkanen and Gault (Child support) [2022] AATA 632 (25 January 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/SC022320

APPLICANT:  Ms Mykkanen

OTHER PARTIES:  Child Support Registrar

Mr Gault

TRIBUNAL:Member K Dordevic

DECISION DATE:  25 January 2022

DECISION:

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

• from 27 November 2020 to 30 June 2021 Mr Gault’s adjusted taxable income is varied to $199,535; and

• from 1 July 2021 to 31 September 2025 Mr Gault’s adjusted taxable income is varied to $271,360.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – 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

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. This matter concerns the child support payable by Mr Gault (the father) to Ms Mykkanen (the mother). This case was registered with the Department of Human Services (now Services Australia) – Child Support most recently on 2 December 2016 and the Child Support record indicates that it is collected privately. There are three children subject to the administrative assessment, who are recorded as being in the mother’s 76% care and the father’s 24% care.

3. The Registrar initiated a departure application. It was recommended that the father’s adjusted taxable income should be varied to $171,506 based on information provided by the Australian Tax Office (ATO) and the father’s bank records.

4. On 28 January 2021 a senior case officer refused the application. On 28 March 2021 the mother lodged an objection to that decision. On 18 August 2021 an objections officer allowed the objection, varying the father’s adjusted taxable income to $101,735 for the period 28 March 2021 to 31 October 2022. 

5. On 15 September 2021 the mother sought further review with the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal). The mother’s request to be represented by her father and the father’s request to be represented by his partner were refused on 15 December 2021. On the same date the directions hearing, scheduled for 25 January 2022, was cancelled. Directions, requiring compliance by 10 January 2022, were issued stating that the substantive hearing would take place on 25 January 2022.

6. The hearing was convened on 25 January 2022. The mother and father appeared by MS Teams audio. The mother’s request to have her father present as a support person was refused. Both parents indicated that they were willing to proceed with the hearing, despite understanding that it was a directions hearing. The Child Support Registrar was not represented at the hearing. The tribunal also considered the documentation provided by Child Support (folios 1 to 752), the mother (folios A1 to A80) and the father (folios B1 to B11). The tribunal reached its decision on the same day.

ISSUES

1. The statutory provisions relevant to this review are outlined in section 98C of the Act, which states that a decision to depart from the administrative assessment may be made if the following three 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 …

2. Therefore, the issues which arise in this case are:

   ·     Does a ground exist for departure from the administrative assessment of child support? And if so,

   ·     Would it be just and equitable and otherwise proper to make a particular determination?

CONSIDERATION

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure if the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent because of either parent’s income, property or financial resources.

2. At the time the departure application was initiated the father was liable to pay $5,082 in child support per annum during the period 7 January to 25 May 2021, based on the parents’ 2020 adjusted taxable incomes of $67,004 (the father) and $47,440 (the mother). In the period 1 September 2021 to 2 June 2022 the father was assessed to pay an annual rate of child support of $6,525. This is based on the father’s 2021 provisional adjusted taxable income of $68,880 and the mother’s 2021 adjusted taxable income of $58,597.

3. This application concerns the financial resources available to the father from the company, that are not reflected in his adjusted taxable income. The mother submits that his actual income and financial resources are in excess of $210,000 per annum.  The father submits that his income and financial resources are in the vicinity of $100,000, taking into account his wages and the benefits he received from the provision of a motor vehicle and telephone.

4. The father is the sole director and shareholder of [a Company]. At hearing he advised that he is [an Occupation]. The main business of the company is [a Job task]. The company has been in operation since 2014. He operated another [company] before this time, which went into liquidation some years before separation. [The Company]’s 2020 company tax return indicates that it had gross income of $1,984,809 and expenses of $1,872,309, with a profit of $112,500.

5. The father’s testimony can be summarised as follows.  In the 2020 financial year the business met about $8,000 of his personal legal expenses. He does not dispute that this is a financial resource available to him. He estimates the personal usage of his motor vehicle and telephone is about 20%. He met his personal legal costs of $8,000 from the business, which increases his gross income by $8,000. He denies the mother’s allegations that the company continues to meet other personal expenses, such as medical costs or meals. However, physiotherapy expenses in the business accounts reflect treatment of workplace injuries. Similarly, café and other food expenses are for working lunches, client meetings or catering of work functions. Purchases at retailers such as Myer reflect client gifts. He states that the director’s loan reflected in [the Company]’s 2019 balance sheet of $287,421 (an increase of $51,141 from the previous financial year) is one of the factors that resulted in the ATO raising a tax debt, of which $190,000 remains payable. He states that [the Company]’s current assets no longer include a director’s loan; since the ATO’s audit this is no longer reflected in the business accounts. He could not be more specific about the treatment of this asset.

6. As outlined above, the tribunal issued directions to the parents on 15 December 2021. The mother complied in full. The father did not respond to the tribunal’s directions to provide the following:

   1.6.1Statements for the period commencing 1 July to 30 September 2021 for all financial institutions accounts (including savings, cheque, credit cards, store credit cards and loans) held solely in his name, or jointly by him and another person, or accounts to which he is a signatory;

   1.6.2His 2021 income tax return;

   1.6.3The 2020 and 2021 financial statements, including income tax returns (not already in evidence), balance sheets and profit and loss statements, for any company of which he is a director, shareholder or office bearer;

   1.6.4Trust deed/s of any trust/s that he is a trustee or beneficiary and the financial statements, including balance sheets, profit and loss accounts and trust tax returns for the 2020 and 2021 financial years; and

   1.6.5A statutory declaration, with supporting documentation attached, regarding all payments made personally or from his company to his partner and/or any company of which she is a director, shareholder or office bearer for the period 1 July 2020 to 30 September 2021.

7. When asked to explain his failure to comply with the directions, the father initially stated that he never received them. He then amended this statement to confirm that, after checking his emails, he had overlooked the directions. He stated that he could ask his accountant to provide the information urgently, if required.

8. The tribunal was hampered in its capacity to test the veracity of the father’s statements regarding the benefits he currently receives from the business, including its net profit and director’s loans. The father’s failure to make a full and frank disclosure of his financial circumstances is unsatisfactory and leaves him open to adverse inferences being drawn: Humphries & Berry (SSAT Appeal) [2008] FMCAfam 409.

9. At hearing the father advised that he has completed his 2021 income tax return but could not recall his adjusted taxable income. His recollection is that [the Company]’s net profit in 2021 was $164,188 (excluding depreciation). The Gault Family Trust is not, nor ever has been, operational. As to his partner’s involvement in the business, his partner’s business contracts to the company, providing bookkeeping and marketing services about 30 hours per week. The increase in the accounting costs evident in the 2019 profit and loss statement is that the company engaged a bookkeeper and accountant as well as the father’s partner. There were performance issues with the bookkeeper, who was terminated. His partner then assumed the responsibility for this work. He does employ another bookkeeper who prepares all BAS statements for his accountant.

10. It is evident from the bank statements in evidence that the father did receive personal benefits from the business that are not reflected in his taxable income. The tribunal finds that [the Company]’s bank statements indicate that it met the father’s legal expenses relating to the parents’ divorce. In the 2020 financial year payments to his lawyers totalled $9,000. [The Company]’s partial bank statements in evidence for the 2021 financial year indicate that the business met $8,155 of these legal costs during the period July to October 2020. A PAYG income earner would need to earn $12,857 and $11,650 respectively to meet these legal expenses.

11. The 2020 company tax return indicates that the motor vehicle costs were $16,179. The 2019 profit and loss statement indicate that the telephone and internet expenses were $8,927. The tribunal accepts that the father’s personal usage of the motor vehicle and telephone is 20% of these costs. The tribunal finds that a PAYG income earner would need to earn $4,623 and $2,551 respectively to meet an equivalent expense. The tribunal was left with the impression that the father derives other personal benefits from the company, but was unable to determine the quantum of these benefits with any certainty.

12. The Child Support Guide at Chapter 2.6.14 (version 4.60) recognises that a parent may retain profits in a company instead of distributing it to themselves, which has the effect of reducing the parent’s taxable income and may mean the assessment of child support is unfair. In such cases, the Registrar (or this tribunal in its place) may include all or part of the undistributed profits from the company. In this case the tribunal accepts that the policy is consistent with the objects of the Act and that there is no inconsistency between the legislative provisions and the policy

13. The tribunal is satisfied that the father’s 2020 taxable income does not fully reflect his income and financial resources during the same period. The tribunal concludes that the father’s 2020 and 2021 income and financial resources are in the vicinity of $199,535 and $271,360 respectively. Application of his 2020 income and financial resources to the administrative assessment would require the father to contribute a further $18,087 in child support per annum. The 2021 financial year (when his other child support assessment is no longer in place) would require the father to contribute $30,495 per annum towards the costs of the children.

14. As the father’s income and financial resources are not properly reflected in the child support assessment, there are special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. The tribunal therefore concludes that the ground provided for in subparagraph 117(2)(c)(ia) of the Act is established.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the child, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula assessment.

2. The mother provided a Statement of Financial Circumstances dated 10 October 2021. She is employed on a full-time basis as a learning support teacher and reports gross income of $790 per week, supplemented by parenting pension of $214 per week. She declares $251 in savings, household contents of $3,751 and superannuation valued at $61,820. Her only liability is credit card debt of $1,998. Her weekly personal expenditure is $182 in income tax and $90 in private health insurance. She declares household expenses of $1,501, of which $1,139 relate to her care of the children (including rental costs). The mother is in good health.

3. The parents are in agreement that the children are in good health and they attend public schools. The payment of school fees is dictated by Family Court orders. The children participate in various extra-curricular activities, including their eldest child who is a national dance champion. The mother submits her out of pocket expenses regarding the daughter’s dance tuition and competitions are in excess of $8,000 per annum. In the absence of any documentary evidence indicating that this is a special need of the child, the tribunal was not persuaded that it is either just or equitable to amend the administrative assessment on this basis. 

4. In his Statement of Financial Circumstances dated 21 October 2021 the father declared gross weekly income of $1,699 ($88,248 per annum) from [the Company]. He estimates that his partner earns $1,000 per week. He declares savings of $39,200. His assets comprise of household contents of $4,000 and he states that his interest in [the Company] is valued at $0. His superannuation balance is $24,228. His only liability is legal fees of $7,500, which he is repaying at $250 per week. His weekly personal expenditure is $734, including private health insurance of $82, income tax of $404 and child support payments of $248. He declared weekly household expenses of $964, of which $329 relate to his care of the children. There is no evidence available regarding the father’s 2021 taxable income. In another child support case he was the liable parent, the case was terminated on 5 May 2021, when this child turned 18 years of age. The father suffers from recurrent [Medical condition 1] episodes and chronic [Medical condition 2].

5. The tribunal has concluded that it is appropriate that the father’s 2020 adjusted taxable income be varied to $199,535, consistent with his wages, personal benefits and retained profits of [the Company]. In the tribunal’s view this variation reflects the most reasonable conclusion to be drawn on the available evidence regarding the father’s income and financial resources. To find otherwise would result in a disproportionate amount of the children’s costs being borne by the mother.

6. The mother submits that the departure period should be backdated to 1 January 2017. Section 111 of the Act states that a parent must apply to a court to seek leave to make a determination in respect of a child support period that is more than 18 months earlier that the day on which the application is made. The mother states that she sought an investigation into the father’s income on 5 August 2018. This may be the case, but there is no evidence that she sought review of the decision not to amend the administrative assessment at this time or in the months following her request. In such circumstances, the tribunal is satisfied that she rested on her rights. The evidence suggests that the mother contacted Child Support on 27 November 2020, seeking a review of the child support assessment. A Registrar-initiated change of assessment was established on 28 January 2021. The tribunal is of the view that it is appropriate to depart from the administrative assessment from 27 November 2020, the date on which the mother sought a review of the father’s financial resources. This aspect of the tribunal’s decision will place the father in arrears of about $8,900.

7. The tribunal is satisfied that the father’s 2021 income and financial resources are in the vicinity of $271,360. It is appropriate that this income be reflected in the administrative assessment from 1 July 2021. This may well be a conservative estimate of his income and financial resources, given his failure to comply with the tribunal’s directions. The tribunal is satisfied that amending his adjusted taxable income on this basis will not place him in a position of undue hardship given his income, financial resources and earning capacity. Furthermore, these funds are necessary for the mother to adequately provide for the children. This aspect of the decision will place the father in arrears of about $9,400.

8. The tribunal is of the view that the father’s income and financial resources will not be accurately reflected by his taxable income into the foreseeable future. It is therefore appropriate that his adjusted taxable income be varied to $271,360 until 31 September 2025. This determination will provide certainty to the parties and minimise the need for repeat proceedings.

9. The tribunal is satisfied that the administrative assessment is unfair given the father’s income, financial resources and earning capacity. This results in an unjust and inequitable level of child support given the circumstances of each parent. For all these reasons it is just and equitable to depart from the administrative assessment.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents, rather than the community, have the primary duty to maintain a child. The mother is in receipt of income-tested benefits. Departing from the administrative assessment will result in a more appropriate apportionment of financial responsibility between the parents and the community.

33.The determination is otherwise proper.

DECISION

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

• from 27 November 2020 to 30 June 2021 Mr Gault’s adjusted taxable income is varied to $199,535; and

• from 1 July 2021 to 31 September 2025 Mr Gault’s adjusted taxable income is varied to $271,360.