Nhung and Drury (Child support)

[2018] AATA 530

Nhung and Drury (Child support) [2018] AATA 530 (23 January 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/BC012258

APPLICANT:  Mr Nhung

OTHER PARTIES:  Miss Drury

Child Support Registrar

TRIBUNAL:  Member P Jensen

DECISION DATE:  23 January 2018

DECISION:

The decision under review is affirmed.

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

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

Introduction

1. Mr Nhung and Miss Drury are the parents of [Child 1] and [Child 2]. A child support case was registered from 12 September 2016. Mr Nhung has been recorded as providing 27% care to the children from 12 September 2016 and 19% care from 26 April 2017. Miss Drury has been recorded as providing the balance of care.

2. The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of 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. From 12 September 2016 the administrative assessment was based on Mr Nhung’s provisional income of $72,781 per annum and Miss Drury’s 2015-16 adjusted taxable income of $21,857, and Mr Nhung was required to pay $8,842 per annum in child support. From 9 December 2016 the administrative assessment was based on Mr Nhung’s provision income of $60,780 per annum and Miss Drury’s 2015-16 adjusted taxable income of $21,857, and Mr Nhung was required to pay $6,774 per annum in child support.

3. The Act also provides for a departure from the administrative assessment in certain circumstances. Miss Drury lodged a departure application on 18 January 2017. The Department of Human Services – Child Support (“the CSA”) granted her application and varied Mr Nhung’s adjusted taxable income to $130,000 per annum from 1 February 2017 to 31 January 2021. He was consequently required to pay approximately $18,000 per annum in child support. He objected to that decision and an objections officer disallowed his objection. He sought further review by the Tribunal. I conducted a directions hearing on 14 November 2017 and a full hearing on 23 January 2018. In reaching my decision I have taken into account the sworn evidence of Mr Nhung and Miss Drury and the documentation that was provided by the CSA, Mr Nhung and Miss Drury prior to the full hearing. After the full hearing, Miss Drury sought to have additional evidence taken into account. That evidence could have been provided prior to or during the full hearing, and I decided not to take that evidence into account: see, generally, section 30 of the Child Support Review Directions.

4. Subsection 98C(1) of the Act provides, relevantly, that a decision to depart from the administrative assessment may be made if:

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

   (ii)... 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 …

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act, commonly referred to as Reason 8, provides as a ground for departure:

   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; …

2. Mr Nhung is the sole director and shareholder of [Company 1] (“the Company”) which runs a [service] business. On 12 August 2016, Mr Nhung signed an affidavit which was lodged with the Federal Circuit Court. Under the heading “WHY MY 2 BOYS SHOULD REMAIN UNDER MY CARE”, he stated, relevantly (with minor typographical errors in the original):

   68.I work 5 days a week and have the weekend off. I have put away a large sum of money away within a year and I have been paying the kids tuition and daycare fees since they were kids.

   ...

   71.I am a sub contractor and I have people work under me, I earn over $2000 per week and I am able to put away savings after my rent and other expenses.

3. At the full hearing I referred Mr Nhung to that evidence. He stated that the Company’s revenue had been over $2,000 per week but he had earned significantly less than $2,000 per week. He agreed that if he had stated in his affidavit that the Company’s revenue had been over $2,000 per week, it would have shed almost no light on his financial circumstances. On balance, I find that when Mr Nhung stated that he earned over $2,000 per week, he intended to communicate that he earned over $2,000 per week.

4. On 17 November 2016 the CSA contacted Mr Nhung about his child support payable and noted, relevantly:

   Mr Nhung advised that he is still paying for all the debts accumulated when they were still together. They had a business together however everything were [sic] under his name as he was the one could borrow money. The still has 40000 overdraft from the business, 20000 in debt from ATO, 30000 credit card debt. He advised that they are in the court proceeding trying to sort out the custody and address all of these issues as well.

5. At the full hearing I noted that there was no mention of him having put away a large sum of money, or of his capacity to save money after paying rent and other expenses. Mr Nhung stated that the children were in his full-time care for ten months from approximately February 2016 to December 2016, and providing for the children during that period had depleted his savings of approximately $10,000 to $12,000. There is an obvious inconsistency between Mr Nhung’s earlier statement that he could save money after paying his expenses (which would necessarily include the children’s expenses while they were in his care) and his later statement that providing for the children had depleted his savings. Further, Miss Drury stated, and Mr Nhung conceded, that his statement that the children were in his full-time care for ten months was false; they were in his full-time care for nine weeks from July 2016 to 9 September 2016, at which point Miss Drury’s application for a recovery order was granted and the children were returned to her primary care. Nevertheless, Mr Nhung maintained that providing for the children during those nine weeks had depleted his savings of $10,000 to $12,000.

6. On 11 January 2017, Mr Nhung signed another affidavit that was lodged with the Federal Circuit Court. He stated, in part:

   57.My weekly income is about 2-3k a week and I spend $480 a week for rent and $150‑$200 per week for food and I have the financial capacity to provide all the necessities for my children to make them happy and comfortable.

7. On 18 January 2017, Miss Drury lodged her departure application.

8. On 19 January 2017 the CSA noted the following:

   Outbound call to Mr Nhung to follow up with the conversation he had with another SO [service officer?] yesterday re hardship.

   Asked if he tried to borrow money.

   He advised that he had borrowed money from Mum and Dad still own [sic] them 80000, couldn’t borrow anymore.

   He advised that he had tried to apply 30000 loan from [Bank 1] July last year but was unsuccessful. He applied to draw equity out of my home loan but got knocked back based on tax return info: Income was too low.

9. On 28 February 2017, Mr Nhung informed the CSA that his income was “about $30k to $40k per annum”, he was “really struggling” and he was “living on the poverty line eating just rice”. 

10. The CSA obtained the Company’s bank account statements for the period from 22 September 2016 to 17 January 2017 and it extrapolated the Company’s annual revenue to be $247,232 (including a GST component). The CSA assumed that the Company’s expenses were 40% of its revenue and it concluded that the remaining 60%, which was approximately $130,000 per annum, represented Mr Nhung’s income and financial resources for child support purposes. I note that that conclusion was consistent with Mr Nhung’s earlier statements that he earned more than $2,000 per week and approximately $2,000 to $3,000 per week.

11. As noted earlier, Mr Nhung objected to the original decision-maker’s decision and an objections officer disallowed his objection. He applied for further review and provided written submissions which included the following:

    [The original decision-maker] assessed my income based on a 3 months period where the time of work was at its peak busy period ...

12. At the directions hearing, Mr Nhung stated that he had completed the Company’s 2016-17 financial statements but the lodgement of the Company’s tax return and his personal tax return were “out of my control”. After further discussion he stated that he would be able to arrange for the lodgement of those tax returns. He also stated that the Company’s revenue was deposited into two bank accounts: a [Bank 2] account with an account number ending [1] and a [Bank 1] account with an account number ending [2]. I directed him to provide the following:

    -    [Company 1’s] business activity statements for the four quarters of 2016-17;

    -    [Company 1’s] complete 2016-17 financial statements, including its profit and loss statement and balance sheet;

    -    [Company 1’s] 2016-17 company tax return, including all schedules;

    -    Mr Nhung's 2016-17 individual tax return, including all schedules;

    -    [Company 1’s] bank account statements for the [Bank 2] account number ending [1] for the period from 1 July 2016 to 30 June 2017;

    -    [Company 1’s] bank account statements for the [Bank 1] account number ending [2] for the period from 1 July 2016 to 30 June 2017; and

    -    The letters from [Company 2] and [Company 3] that Mr Nhung referred to during the AAT directions hearing.

13. Mr Nhung did not provide business activity statements for the four quarters of 2016-17. He provided one business activity statement for the whole of 2016-17. He provided the Company’s draft 2016-17 financial statements and tax return and he provided his draft 2016-17 tax return. He provided the bank account statements from 1 July 2016 to 30 June 2017 for account [1], but not for account [2]. He provided some letters from [Company 2] and [Company 3].

14. At the full hearing, Mr Nhung confirmed that the Company had lodged quarterly business activity statements during 2016-17. He stated he was unable to retrieve them from the Australian Taxation Office portal. He did not provide any documentary evidence in support of that statement. He also stated that he had been unable to arrange for his accountant to lodge the Company’s tax return and his personal tax return. He did not provide any documentary evidence in support of that statement. He was unable to explain why he had not provided the bank account statements for account [2]. He stated that [Company 3] was one of the Company’s clients. He referred me to page A19 of the hearing papers which was a screenshot of a number of remittances from 21 February 2017 to 11 July 2017. He stated that the document showed all the remittances from [Company 3] during 2016-17. He stated that the remittances corresponded to deposits in account [2]. Of course, that statement could not be tested because he had not provided those bank account statements. I observed that there appeared to be a barely legible entry below the entry for 21 February 2017 (which suggested an earlier entry; the list was in reverse chronological order). Mr Nhung stated that there were no other entries. I referred him to page A18 of the hearing papers which was a different screenshot which included the earlier entry. Mr Nhung acknowledged that his previous assertion had been incorrect. It is not clear from the screenshots whether Mr Nhung omitted to include other remittances.

15. Mr Nhung stated that one of the Company’s clients was [Company 4] and the Company ceased working for [Company 4] in approximately September 2016. I referred Mr Nhung to the bank account statements for account [1]. I noted transactions in April 2017 that referred to [Company 4]. Mr Nhung said [Company 4] had not deposited money into that account [1]; it had deposited money into account [2] and he had promptly transferred the deposits into account [1]. He said the payments were in respect of work done up until September 2016. His acknowledgement that additional funds were deposited into account [2] during 2016-17 reinforced my concerns over his failure to comply with my directions.

16. Mr Nhung said he could provide the Tribunal with further documentation. I asked him whether he was applying to have the matter adjourned so that he could provide further documentation. He replied that he did not want the matter adjourned. (It should not be assumed from that exchange that if Mr Nhung had made the application, it would have been granted.)

17. Mr Nhung stated that the Company did not pay him a wage. He said the Company pays his personal expenses throughout the year and his accountant subsequently identifies his personal expenditure and records it as a director’s loan. I referred Mr Nhung to the Company’s draft balance sheet which indicated that the Company had lent him a further $28,751 during 2016-17. Mr Nhung said that information was incorrect. I referred him to his draft personal tax return which listed his “salary or wages” from the Company as $83,333. Mr Nhung said that information was also incorrect.

18. Mr Nhung provided an undated and unsigned letter from [Company 3] which stated that it would not be renewing the Company’s contract from 4 December 2017. Mr Nhung stated that the Company had not earned any income since 4 December 2017 and, consequently, he had not earned any income since 4 December 2017. He did not provide any bank account statements in respect of the period from 4 December 2017 to date. I note that the Company has had different clients from time to time and even if it were accepted that the Company was no longer working for [Company 3], it does not automatically follow that it is no longer earning any income. In response to further questions, Mr Nhung stated that he had not applied for an income support payment from Centrelink because he believed his equity of approximately $300,000 in his real estate would disqualify him. He completed a Statement of Financial Circumstances on 20 August 2017. He estimated that the value of his real estate was $1,420,000 and the balances of the associated home loans totalled $1,349,000, i.e. he estimated that his equity was approximately $71,000. In response to further questions, Mr Nhung appeared to concede that it was unlikely that his real estate had appreciated by approximately $229,000 in five months (which would represent a rate of appreciation of 38.7% per annum). Given the unsatisfactory state of Mr Nhung’s evidence on the issue, I am not persuaded that there has been a recent change in his earnings.

19. There were other aspects of Mr Nhung’s evidence that were unsatisfactory but I do not consider it necessary to list them all in these written reasons. I found Mr Nhung to be an unreliable witness. He failed to comply with most of my directions and I do not accept his various explanations as to why he did not comply with those directions. I consider his failure to provide bank account statements for account [2] to be particularly telling. In light of those matters, there is no utility in recounting other details of Mr Nhung’s Statement of Financial Circumstances.

20. The evidence that has been provided does not allow me to calculate Mr Nhung’s income and financial circumstances for child support purposes with mathematical precision. Nevertheless, I am still required to make findings of fact on the balance of probabilities, doing the best I can in the circumstances. Mr Nhung disputes the CSA’s decision to vary his adjusted taxable income for child support purposes to $130,000 per annum but he failed to comply with directions to provide certain evidence that was pertinent to that issue and he conceded (but did not volunteer) that some of the evidence that he did provide was incorrect. He gave sworn evidence to the Federal Circuit Court on different occasions that he was earning over $2,000 per week and he was earning about $2,000 to $3,000 per week. I find that his income and financial resources are fairly reflected for child support purposes in an adjusted taxable income of $130,000 per annum.

21. Miss Drury submitted that Mr Nhung should be assessed on his earning capacity. That issue would only arise if he was not working or if he had reduced his income: subsection 117(7B) of the Act. I am not persuaded that he is not working and I am not persuaded that he has reduced his income.

22. When Miss Drury lodged her departure application the administrative assessment was based on Mr Nhung’s provisional income of $60,780 per annum. At the time, his income and financial resources were fairly reflected for child support purposes in an adjusted taxable income of $130,000 per annum. The discrepancy between those figures, and the consequential rates of child support payable, constitute special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. Reason 8 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 children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. On 11 January 2017, Mr Nhung stated that he had the financial capacity to provide all the necessities for the children. I accept that evidence. I am not persuaded that his financial capacity has changed significantly since then. He has the capacity to make a significant financial contribution, via child support, towards the children’s costs.

3. Miss Drury’s 2016-17 adjusted taxable income was $17,891. She stated that she started working for her partner on a part-time basis in July 2017 and she earns $480 per week. She stated that she has accrued debts in respect of the parents’ separation and their subsequent disputes concerning their care of children, and she has started repaying those debts now that she has returned to part-time employment. She stated, in effect, that she required financial assistance from Mr Nhung to assist her in meeting the costs that she incurs in respect of the children. Mr Nhung did not dispute her evidence and I accept it as correct.

4. The children attend a private primary school. I queried whether it might be appropriate to require Mr Nhung to make an additional financial contribution towards the children’s tuition fees. Miss Drury stated that the primary school fees are relatively modest and while Mr Nhung was required to pay an appropriate rate of child support – and she consider the rate payable pursuant to the decision under review to be appropriate – she was not seeking a further contribution towards the children’s tuition fees. She added that she might seek an additional contribution from Mr Nhung when the children commence secondary school and their tuition fees increase.

5. The decision under review applies from 1 February 2017, which is shortly after Miss Drury lodged her departure application, and I consider that aspect of the decision to be appropriate. The decision under review applies until 31 January 2021. In light of Mr Nhung’s failure to fully and frankly disclose his income and financial circumstances, I consider that aspect of the decision to be appropriate. The decision under review varies Mr Nhung’s adjusted taxable income to $130,000 per annum and for the reasons stated above I consider that aspect of the decision to be appropriate. Miss Drury’s income increased in July 2017 but it is only slightly higher than the child support self-support amount and she provides 81% care to the children. Varying her adjusted taxable income would have a negligible effect on the rate of child support payable and it would suggest a degree of precision in the calculation of the rate of child support payable that would be at odds with the necessarily imprecise calculation of Mr Nhung’s adjusted taxable income. I do not consider it appropriate in those circumstances to vary Miss Drury’s adjusted taxable income.

1. As at 21 August 2017, Mr Nhung owed child support arrears of $6,777. The CSA has not provided an updated arrears balance. In any event, it would not be appropriate to vary the otherwise appropriate decision on the basis that Mr Nhung had not promptly paid his child support payable. In summary, the decision under review is just and equitable and remains the preferable decision in the circumstances.

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. Both parents stated that they do not receive family tax benefit in respect of their care of the children. (Miss Drury’s partner earns a relatively high income.) The decision under review is otherwise proper.

DECISION

The decision under review is affirmed.