Newton and Newton (Child support)

[2018] AATA 3078

Newton and Newton (Child support) [2018] AATA 3078 (12 June 2018)

;DIVISION:  Social Services & Child Support Division

REVIEW NUMBER:  2017/SC012407

APPLICANT:  Mr Newton

OTHER PARTIES:  Child Support Registrar

Ms Newton

TRIBUNAL:Member K Timbs

DECISION DATE:  12 June 2018

DECISION:

The Tribunal sets aside the decision under review and substitutes the decision that Mr Newton’s adjusted taxable income is $85,000 from 16 February 2017 to 31 December 2019.

CATCHWORDS
Child support - Departure determination - Criteria for earning capacity determination satisfied - A ground for departure established - Adjusted taxable income of the liable parent varied - 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

Child support assessments

1. Mr Newton and Ms Newton are the parents of [Child 1] (born 2007) and [Child 2] (born 2009). At relevant times, the Department of Human Services made child support assessments for them on behalf of the Child Support Registrar. Mr Newton is the parent liable to pay child support.

2. From 16 February 2017, the Department used adjusted taxable incomes of $40,045 for Mr Newton and $15,121 for Ms Newton. Both parties had estimated their 2017 adjusted taxable incomes and the annual rate of child support was $2,972.

3. From 1 July 2017, the Department used adjusted taxable incomes equal to the parties’ 2016 taxable incomes of $17,336 for Mr Newton and $24,793 for Ms Newton. The annual rate was the fixed annual for two children of $2,746.

4. If not for the decision under review, from 1 October 2017, the Department would have used an adjusted taxable income equal to his 2017 taxable income of $19,018 for Mr Newton. The annual rate would have been the fixed annual rate for 2017 of $2,780.

Change of assessment decisions

1. On 23 January 2017, Ms Newton applied for a departure from the administrative assessment of child support (change of assessment). On 9 May 2017, a delegate of the Registrar accepted the application and increased the annual rate of child support for a specified period. On 21 August 2017, an Objections Officer of the Department allowed Ms Newton’s objection to that decision and decided that his adjusted taxable income would be $90,000 from 23 January 2017 to 31 December 2019.

Application for review

1. On 29 August 2017, Mr Newton applied for review of that decision. The Tribunal heard the application for review on 8 March 2018.

RELEVANT LAW AND ISSUES TO DETERMINE

1. In the usual case, the Registrar assesses the annual rate of child support for a child support period using a formula in the Child Support (Assessment) Act 1989 (the Act). Either parent may apply to change the formula assessment (section 98B). The Registrar may change the assessment if the case meets the following three criteria (section 98C):

• There is a ground for changing the assessment (section 117(2) of the Act lists the 12 grounds).

• It is ‘just and equitable’ to make particular changes to the assessment.

• It is ‘otherwise proper’ to make those changes to the assessment.

1. To make a decision on Ms Newton’s application for review, the Tribunal considered whether this case meets those criteria.

CONSIDERATION

Evidence considered

1. The Tribunal considered documents relevant to the decision under review provided by the Department, Mr Newton and Ms Newton.  Mr Newton and Ms Newton gave evidence at hearing.

Issue 1 – Is there a ground to change the assessment?

10.  The first step is to decide if there is a ground for changing the assessment. Section 117(2)(c)(ia) and (ib) provides that there are grounds to change the assessment if the formula assessment:

in the special circumstances of the case …would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child … because of the income and…earning capacity of either parent;…

1. When considering whether the outcome of the assessment is unjust and inequitable (unfair), the Tribunal takes into account the objects of the Act in section 3.  The principal object of the Act is to ensure that parents provide a proper level of support for their children.  The particular objects include ensuring that parents provide support for their children according to their capacity and, in particular, that parents with similar financial capacity provide their children with similar levels of support.

12.  To further those objects, the child support formula calculates the annual rate of child support for a child support period using adjusted taxable incomes. They are equal to taxable incomes and supplementary amounts (such as reportable fringe benefits) for the parents for the financial year that ended before the start of a child support period. Ordinarily, they are commensurate with the parents’ ongoing incomes and their relative capacities to support their children.

13.  After determining adjusted taxable incomes, the Registrar deducts amounts for self-support and the support of any other children to calculate child support incomes for both parents.  The next step is to determine the costs of the children in the assessment according to their ages and the combined child support incomes using the Costs of the Children Table in Schedule 1 to the Act.  The Table recognises that parents spend more to support older children and ensures children share in the lifestyle of parents with higher incomes if they do not live with them.  The formula then allocates a portion of the total cost of the children to each parent according to their share of combined child support income.  The annual rate of child support will be equal to the paying parent’s share of the costs of the children if they have a care percentage of less than 14%.  Otherwise, the annual rate reduces to take account of the costs that parent meets while the children are in their care.

14.  The fixed annual rate of child support for parents with low incomes applies if the paying parent has an adjusted taxable income below the base rate of parenting payment but does not receive income support from Centrelink.

15.  It follows that the annual rate will be similar to the financial support provided by others in similar circumstances if both parents’ adjusted taxable incomes are commensurate with their earning capacity (or income or capacity to provide support for a child from property or financial resources).  If not, the annual rate might be unfair to the child because it is not a proper amount of financial support.

Mr Newton’s earning capacity

1. The Tribunal firstly considered whether the assessment is unfair because of Mr Newton’s earning capacity. It may not make a finding that Mr Newton’s earning capacity is greater than his income unless he meets three earning capacity tests in section 117(7B) (set out in the attachment).

2. Mr Newton told the Tribunal he worked for approximately 25 years as a night [employee] for [Company 1]’s [workshop]. He left that employment in November 2014. He told the Tribunal his salary was approximately $100,000 a year at that time. However, he did not dispute information in his 2015 tax return showing his remuneration included $106,000 in salary and $15,000 in reportable fringe benefits. This placed him in a similar position to other PAYG employees with taxable income of approximately $120,000.

3. Mr Newton told the Tribunal he left his job because it did not exist after the business restructured. He said the employer “put two of us off on one day”. The Tribunal pointed out that in statements to the Department he did not say that his position was redundant. Rather, he reported that, after a restructure, he thought it was time to “follow his passion” after 25 years in the same industry and to look after his health after 20 years on nightshift. He then said that his [role] ended and that his only option was to “go back on the floor”. The Tribunal pointed out again he did not say that his position no longer existed in earlier statements to the Department. He did not provide any explanation for failing to mention it previously. Rather, he said he “just didn’t want to be there anymore” and that the main reason for leaving was “to get off night shift”.

4. The Tribunal also noted [Company 1] did not pay him a redundancy package and he said that was usual. The Tribunal does not accept that was the case and infers the company complied with relevant industrial laws.

5. The Tribunal finds Mr Newton’s position was not redundant and that he chose to leave ongoing employment. He went from that position to work full-time as a sole trader in businesses (discussed below) that are unrelated to the [previous] industry. In that case, he meets the first earning capacity test because he changed his occupation and industry when he left working in the [previous] industry. In that case, the Tribunal finds he meets the first earning capacity test in section 117(7B).

6. Mr Newton said that he needed to stop working night shift for health reasons. However, he has no relevant medical evidence and the Tribunal is not satisfied the decision he made is justified by his state of health. It finds he meets the second earning capacity test in section 117(7B).

7. The third test is satisfied if Mr Newton “has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support”. It is not for the Tribunal to decide whether Mr Newton intended to affect the child support assessment when making the relevant decisions.  Rather, Mr Newton meets the test unless he demonstrates that is not the case.  It is a very low bar because it is difficult to demonstrate that a person does not have a particular intention. 

8. Mr Newton said he turned his mind to his child support obligation when he left [Company 1]. He said he continued to pay child support at a similar rate from his savings for approximately 18 months. He said he estimated his adjusted taxable income at that time because he was finding it difficult to continue to provide that level of financial support for the children. He agreed with the Tribunal’s suggestion that he did not expect to earn a similar income from newly established businesses within 18 months. It asked him what plans he had made that would allow him to provide a meaningful contribution to the support of the children in the medium to long term after he dissipated his savings. He did not outline any relevant plan. Rather, he said he has continued to contribute to the support of the children by paying school fees and other ad hoc expenses.

9. The Tribunal infers Mr Newton was aware the annual rate of child support would reduce over time if his income reduced. In its view, it is likely he considered that when making plans to change his occupation. It finds he “has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support” and that he meets the third earning capacity test.

10. Having made the above findings, the Tribunal may make a further finding that Mr Newton’s earning capacity is greater than his income. Changes in [that industry’s] landscape are well reported by the media and it is likely that he would not have had the opportunity to continue in employment in the same position in the medium to long-term. However, he told the Tribunal he had the option of working “on the floor” and that he is aware of employees in those positions who currently earn approximately $85,000 a year. The Tribunal is satisfied, on his evidence, that he had capacity to earn at least that amount each year.

Mr Newton’s income

1. The Tribunal next considered Mr Newton’s income from his current business. He started [Business 1] and set up [Business 2] while he worked at [Company 1]. He operated both businesses as a sole trader and continues to operate [Business 2].

2. Mr Newton said he rented the premises for [Business 2] early in the 2014 financial year and opened the business in October 2013. He made a significant loss from both businesses in that year. His 2015 tax return reports a profit after expenses from both businesses of approximately $21,000 from gross business income of approximately $135,000. His 2016 tax return shows a profit from both businesses of approximately $16,000 from gross income of approximately $202,000. Mr Newton closed [Business 1] in the 2016 financial year and his 2017 tax return shows a profit from [Business 2] of approximately $18,000 from gross income of approximately $188,000. The gross income for that business had increased significantly by approximately $50,000 from the previous year (which coincided with an increase in salaries from approximately $23,000 to approximately $56,000).

3. Mr Newton provided a list of income and expenses for the first two quarters of the current financial year. It shows gross income (less GST) of approximately $115,000 with profit after expenses of approximately $18,800. The Tribunal infers Mr Newton will have a taxable income in 2018 equal to a full year’s profit of approximately $37,000.

4. Ms Newton asserted Mr Newton earned cash income from [Business 2] and, in particular, he did not declare income from working [there]. Mr Newton denied that was the case.

5. Mr Newton’s business account shows he draws approximately $26,000 ($500 a week) from the business. That is enough to cover the modest personal expenses (discussed below) that he declared in his Statement of Financial Circumstances of approximately $450 but not his child support liability.

6. The drawings are greater than the profit of the company in all relevant years except the current financial year. The business account has not been in debit and the Tribunal infers Mr Newton has put money back into the business to make up the shortfall. (This would include money he spent on capital items for which the business claims depreciation over time.) In that case, the amounts he drew from the business over time were no greater overall than its profit. Again, that is enough to cover his personal expenses but not to pay his child support liability.

7. Mr Newton said he believed the business claimed his drawings as an expense before it declared a profit. The Tribunal explained that was not the case and he said he met any expenses he could not meet from the business profit from his savings. He said he had $60,000 to $70,000 in savings when he left [Company 1] and his earlier evidence was that he used it to set up the business and to pay child support. He said he added the profit of approximately $40,000 from the sale of a house about 18 months before the hearing date and that he had about $20,000 after selling a car and purchasing a less expensive one.

8. Mr Newton had approximately $120,000 in savings by September 2017 before the sale of the car. It follows he had $80,000 in savings from another source. This is more than the savings he had when he left [Company 1] and the Tribunal suggested he had saved money after November 2014, rather than spending his savings on the expenses referred to above and using the limited income declared from his businesses to meet his expenses. He could not explain how his savings had grown, rather than dissipated apart from speculating that he had more savings when he left [Company 1] and/or he made more money when he sold the house.

9. He said the savings were not from cash from [Business 2]. He said the [clients] paid fees by direct [debit]. However, Mr Newton later told the Tribunal a payment to [Business 2] shown in bank statements were for [an employee] to use the [facilities at Business 2] and that two [employees] “subcontract to [Business 2]”. Its website offers [services] for $50 an hour and [details deleted]. There are no transactions for those items in the business accounts and the Tribunal infers they are usually paid in cash.

10. The Tribunal therefore finds Mr Newton has opportunity to earn cash income from [Business 2] and/or as [an employee] at [Business 2]. In the absence of any other explanation, the Tribunal infers he has met some of his expenses and increased his savings from that source. It is satisfied he has had income greater than his adjusted taxable income at relevant times. However, it is unable to make any more specific finding.

Conclusion

1. The Tribunal has found Mr Newton has some cash income from his business and that he has capacity to earn at least $85,000 in the occupation that he left. This takes the case out of the usual run of cases where parents fully exercise their earning capacity and declare all income that is assessable under taxation laws. That makes the circumstances of this case special. Those special circumstances mean that the annual rate of child support is not similar to the financial support provided to children by other parents in similar circumstances with similar capacity. In addition, because Mr Newton has cash income, the Tribunal is not satisfied that he has a low income. For both reasons, the Tribunal finds the annual rate that applied from 16 February 2016 and the fixed annual rate of child support for low-income parents is not a proper amount of support for the children. In that case, it finds the outcome of the assessment in this case is unfair to Ms Newton and the children and that the grounds in section 117(4)(2)(c)(ia) and (ib) apply.

Issue 2 - Is it fair to make a particular change to the assessment?

37.  The next step is to consider whether it is just and equitable (fair) to make a particular change to the assessment.  To do this, the Tribunal considered relevant matters listed in section 117(4).

Duty to support the children

38.  Mr Newton and Ms Newton have a primary duty to support the children that has priority over all their other commitments except the commitments they must meet to support themselves and other people they have a duty to support (section 4). They have no other children and the Tribunal has no evidence they have a duty to support any other person.

Income, financial resources, property and earning capacity of the children and the parties

39.  The children are full-time students and have no income, assets or access to financial resources. They rely on the parties to meet their proper needs.

Mr Newton

1. The Tribunal has found the assessment is unfair because Mr Newton has cash income and capacity to earn at least $85,000 a year.  The Tribunal proposes to increase his adjusted taxable income to that amount from 16 February 2017 to ensure he provides a proper amount of financial support for the children that is similar to others in similar circumstances with similar capacity to earn.  It will extend the determination to the end of the 2019 calendar year to give some certainty to the parties.

2. Mr Newton owns his interest in the business, some superannuation, a car and the savings discussed above. He declared some modest credit card debts.

Ms Newton

1. Disregarding family tax benefit, Ms Newton receives approximately $500 a week in carer allowance and carer payment in respect of [Child 1]. There is no evidence of income from any other source.

2. Ms Newton said she worked full-time as [an occupation] with [an employer] for eight years until 2011 when she lost her job because she could not concentrate because she has post-traumatic stress disorder. She said she last worked part-time for a [business] until the same thing happened about 18 months before the hearing. Mr Newton did not suggest Ms Newton voluntarily left her employment and the Tribunal is not satisfied she is not working despite ample opportunity because it has no evidence (such as labour market statistics) about her chances of obtaining employment. She does not meet the first earning capacity test in that case and the Tribunal may not make a finding that her earning capacity is greater than her income.

1. Ms Newton owns a home that she lives in with the children. She values it at approximately $600,000 (while Mr Newton values it at approximately $900,000). It has a mortgage of approximately $450,000. Otherwise, she has modest savings, a small amount of superannuation and a 15-year-old car.

2. Apart from the mortgage, she owes approximately $8,000 to [a state agency] and has a HECS debt (that is not repayable while she has a low income).

The children’s proper needs

1. If the Tribunal made the proposed determinations, the costs of the children determined according to the Table in Schedule 1 to the Act would be approximately $14,500.  The Tribunal is guided by the Table and finds that the parents must spend that amount to meet their proper needs.   

2. If the Tribunal made the proposed determinations, Mr Newton would be responsible for meeting all of those costs because Ms Newton does not have income (other than family tax benefit and carer allowance) other than income support payments for herself. However, he has care percentages for both children of 24% and the formula assumes he meets 24% of those costs while they are in his care. The annual rate would therefore be approximately $11,000. The Tribunal is satisfied that is a proper contribution to cost of meeting the children’s usual expenses having regard to his earning capacity.

3. The Tribunal must also consider any special needs and the cost of education in a manner expected by both parents (section 117(6)).

4. [Child 1] has special needs because she has [a health condition]. Ms Newton said the school provides speech therapy and the National Disability Insurance Scheme meets the cost of other necessary services. She told the Tribunal that she spends a significant amount on petrol to take her to therapy sessions. However, the amount is similar to the amount paid in carer allowance in relation to [Child 1].

5. Ms Newton said that [Child 2]’s teachers have identified similar issues. However, she cannot afford to follow up their recommendation for assessment by a paediatrician. In the absence of such an assessment, the Tribunal does not find that [Child 2] has any special needs.

6. The children are both educated at a Catholic primary school as expected by both parties. Mr Newton pays half of the school fees and Ms Newton said that the school has waived the other 50% of the school fees because she cannot afford them. 

Hardship/necessary commitments­

52.  Mr Newton lives with his mother and declares very modest expenses. The Tribunal takes into account that he would like to purchase a home and then would have similar expenses to Ms Newton for accommodation. It is unable to determine how much income he receives from the business and, in that case, the Tribunal cannot determine whether he would suffer hardship if it made the proposed determination. It is satisfied he would not suffer hardship if he were fully exercising his capacity to earn approximately $85,000 a year.

53.  Ms Newton has the usual expenses to run a household, including mortgage payments of $600 a week. Her home is larger than necessary but the cost is usual for accommodation for three people in [City 1]. She said she ensures she meets the children’s basic needs but they have very limited extracurricular activities. For example, she said that neither of them can swim because she cannot afford swimming lessons. The Tribunal finds she could not meet the expenses for herself and meet the proper needs of the children if the Tribunal does not make the proposed determination. It is satisfied she and the children would suffer hardship if it did not make the proposed determination.

Conclusion

54.  If the Tribunal made the proposed determination, the annual rate of child support would be a proper contribution to the cost of meeting the children’s needs having regard to Mr Newton’s earning capacity.  The Tribunal did not find he would suffer hardship if it made the proposed determination and is satisfied that Ms Newton and the children would suffer hardship if it did not do so. In those circumstances, and having regard to the nature of Mr Newton’s duty of support for the children, the Tribunal is satisfied it is fair to the parties and to the children to make the proposed determination.

Issue 3 – Is it otherwise proper to make the proposed determinations?

55.  The final step is to decide whether it is otherwise proper to depart from the administrative assessment.  To do this the Tribunal must consider the effect the determination will have on the cost to the community of supporting children through payment of family tax benefit.  It must decide whether this is a proper outcome given parents have the primary responsibility to support their children.

56.  Ms Newton relies on Family Tax Benefit to meet the needs of the children and the rate would reduce if Mr Newton paid a higher rate of child support in accordance with the proposed determination. The Tribunal finds it is otherwise proper to make the determinations in that case.

CONCLUSION

57.  The Tribunal has found there is a ground to change the assessment and that it is just, equitable and otherwise proper to make the proposed determination.  In that case, it will set aside the decision under review and substitute the decision to make that determination.

DECISION

The Tribunal sets aside the decision under review and substitutes the decision that Mr Newton’s adjusted taxable income is $85,000 from 16 February 2017 to 31 December 2019.

CHILD SUPPORT ASSESSMENT ACT 1989 – Section 117

(7B)  In having regard to the earning capacity of a parent of the child, the court may determine that the parent's earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied that:

(a)  one or more of the following applies:

(i)  the parent does not work despite ample opportunity to do so;

(ii)  the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full-time work for the occupation or industry in which the parent is employed or otherwise engaged;

(iii)  the parent has changed his or her occupation, industry or working pattern; and

(b)  the parent's decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern, is not justified on the basis of:

(i)  the parent's caring responsibilities; or

(ii)  the parent's state of health; and

(c)  the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child.