Nichols and Nichols (Child support)

Nichols and Nichols (Child support) [2019] AATA 4350 (20 August 2019)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2019/BC016444
APPLICANT:  Mrs Nichols
OTHER PARTIES:  Child Support Registrar
Mr Nichols

TRIBUNAL:Senior Member A Freeman
DECISION DATE: 20 August 2019
DECISION:

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

for the period from 10 August 2018 to 31 December 2020, Mr Nichols’ adjusted taxable income is varied to $120,000 per annum;
for the period from 10 August 2018 to 31 December 2020, Mrs Nichols’ adjusted taxable income is varied to $60,000 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents - benefits derived from business - income from family trust - decision under review set aside and substituted

REASONS FOR DECISION

BACKGROUND

Mr and Mrs Nichols are the parents of two children. Mrs Nichols’ care percentage in relation to both children is currently recorded for the purposes of assessing child support as 62% and Mr Nichols’ care percentage is recorded as 38%.
Mrs Nichols lodged an application with the Department of Human Services (the Department) on 10 August 2018 seeking a departure from the administrative assessment. Mr Nichols also lodged a cross-application. At the time of the applications, Mr Nichols was liable to pay an annual rate of child support of $4,876 for both children. This was calculated by reference to the application of the administrative assessment which was based upon an adjusted taxable income (ATI) of $87,613 for Mr Nichols and $92,307 for Mrs Nichols. On 1 October 2018, both parents’ ATI’s changed as follows:
· Mr Nichols’ ATI decreased to $54,870;
· Mrs Nichols’ ATI decreased to $45,585.
On 22 January 2019, the Department made a decision to depart from the administrative assessment in place and varied Mr Nichols’ ATI to $114,436 and Mrs Nichols’ ATI to $54,609 for a period from 22 January 2018 to 21 January 2021. This resulted in an annual rate payable by Mr Nichols to Mrs Nichols of $11,700 for both children.
Mr Nichols objected to that decision and on 30 April 2019 an objections officer allowed the objection, set aside the previous decision and made a new decision as follows:
· For the period from 22 January 2019 to 21 January 2022, Mr Nichols’ ATI is $104,000 per annum;
· For the period from 22 January 2019 to 21 January 2022, Mrs Nichols’ ATI is $70,000 per annum.
This had the effect of reducing the annual rate payable by Mr Nichols from $11,700 to $10,804 for both children.
Mrs Nichols has sought a further review of this decision.
Mrs Nichols submits that Mr Nichols’ ATI should be higher and hers should be lower such that both their incomes and financial resources make the assessment of child support unfair.
The Tribunal hearing was conducted on 20 August 2019. Mrs Nichols appeared at the hearing in person and Mr Nichols appeared by conference telephone. In reaching its decision, the Tribunal has considered the sworn evidence given by both parties at the hearing, together with the documentation provided by the Department (exhibit 1), the documentation provided by Mrs Nichols (exhibit 2) and the documentation provided by Mr Nichols (exhibit 3).

CONSIDERATION

The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of child support payable by the liable parent. The Act also provides for a departure from the administrative assessment in certain circumstances.
A departure from an administrative assessment may be made pursuant to section 98C of the Act if the following matters are established:
·         One or more than one of the grounds for departure referred to in subsection 98C(2) exists;[1]
·         A departure is just and equitable as regards the children and each parent;[2] and
·         It is otherwise proper to make a departure decision.[3]

Issue 1 – Grounds for departure

Assessment unfair because of the income, property, or financial resources of either parent

[1] See subparagraph 98C(1)(b)(i).

[2] See sub-subparagraph 98C(1)(b)(ii)(A).

[3] See sub-subparagraph 98C(1)(b)(ii)(B).

Mrs Nichols in her initial change of assessment application sought a departure from the administrative assessment on the ground that in the special circumstances of the case, the costs associated with the children’s special needs significantly affected the costs of maintaining the children. Mr Nichols raised in his cross application issues relating to the income of Mrs Nichols and the costs of childcare. Both parties confirmed at the hearing of this review application that the only issues for consideration in this proceeding related to the respective incomes of both parents and neither party pressed for the Tribunal to consider the issues concerning the children’s special needs or the costs of childcare. The Tribunal has therefore proceeded on this basis.
A ground to depart from the administrative assessment of child support may exist if, in the special circumstances of the case, the application of 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 and financial resources.[4]
[4] See subparagraph 117(2)(c)(ia).
The term “special circumstances” is not defined in the Act. In Gyselman v Gyselman [1992] FLC 92-279, the Full Court of the Family Court determined that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.
There are a range of circumstances that may support the finding that the administrative assessment would result in an unjust or inequitable determination of the level of child support. The calculation of income and financial resources for the purposes of taxation law does not limit the Tribunal’s consideration of the true resources available to a party to child support proceedings and is but one factor to be taken into account in the particular circumstances of the case.
In Ashcroft & Ashcroft (SSAT Appeal) [2008] FMCAfam 1250, the Federal Magistrates Court stated:
Whilst it may be legitimate for citizens to organise their financial affairs to minimise the taxation liability, it has long been recognised that the obligation to provide proper financial support for children is both a moral and legal obligation that all parents must bear to the best of their ability. It is appropriate to examine the financial affairs of parents to ensure their obligation to pay child support is not accorded less priority than obligations other than those reasonably necessary to support the payer.
For the purposes of the Act, a financial resource is something which is not property but from which a financial benefit can be gained.[5]
[5] See Costa & Fairbank [2010] FMCAfam 39 and Walker & Fielding [2010] FMCAfam 32.
Prior to separation, Mr Nichols worked [in Occupation 1]. This required him and the family to travel around the country to different project sites and his gross income (before expenses) was about $124,160 in 2017/2018.
Mr Nichols told the Tribunal that this income generated by him was done so via the Nichols Family Trust which is a discretionary trust of which both Mr and Mrs Nichols were the beneficiaries when they were married. The structure in place was that Mr Nichols would invoice [Occupation 1’s] for work performed under the entity [Company 1] as trustee for the Nichols Family Trust and this income would be paid into the Family Trust and then any remaining profits following the payment of expenses were distributed to the parties at the end of the financial year. Mr Nichols told the Tribunal that expenses such as the parents’ motor vehicles and mobile phones were also run through the Trust.
Following separation, Mr Nichols continues to operate his business through the Trust. Since about March 2018, Mr Nichols has taken up [another position] with [Occupation 1’s] at its [Suburb 1] office. He continues to invoice [Occupation 1’s] via [Company 1] and the income is paid into the Trust.
Mr Nichols told the Tribunal that since this change in position, he has been paid $2,300 per week plus GST. He submits that he works about 46 weeks per year, taking account for 4 weeks holiday and 2 weeks of sick leave per annum and therefore his income is best reflected by a figure of $105,000 per annum gross before expenses.
The Family Trust profit and loss statement for the 2018/2019 financial year records a total of $63,269 in operating expenses. These include the following:
·     Advertising and promotion - $915.96;
·     Borrowing expenses - $1,429.51;
·     Cleaning - $272.73
·     Depreciation - $2,927.61
·     Equipment storage - $2,641.82;
·     Insurance - $3,473.38;
·     Depreciation on the Fortuner (car) - $7,959.46;
·     Fuel, interest and repairs/maintenance on the Fortuner - $2,245.70;
·     Costs of running a Landcruiser - $4,652.14;
·     Rent - $1,308.04;
·     Site office/caravan expenses - $13,769;
·     Telephone and internet - $809.01;
·     Travel - $8,010.05
Mr Nichols told the Tribunal that the motor vehicle expenses related to two cars he and Mrs Nichols used for personal use. As of October 2018, the Fortuner has been sold and Mr Nichols continues to drive the Landcruiser. He also accepted that the depreciation amounts were book entries. The costs associated with the site office/caravan, according to Mr Nichols’ evidence, related to relocating the caravan from [coastal town] to the Gold Coast and some repairs done on it. It also was sold in October 2018. The insurance costs related to the caravan and the two vehicles and Mr Nichols thought the travel expenses related to him travelling to and from [coastal town], getting himself set up on the Gold Coast following separation.
Given that Mr Nichols, as of March 2018, has been working from an office at [Suburb 1], the costs of which are met by his employer, it would appear that the majority of these expenses put through the Trust are in fact personal expenses that any PAYG employee would likely incur as part of daily life. Therefore, the Tribunal does not consider it appropriate to reduce Mr Nichols’ gross income on account of these. Furthermore it would appear from some of the material provided by Mr Nichols that in relation to fuel for his car relating to business use, he has sought reimbursement from [Occupation 1’s] for this cost and ordinarily has the use of a Fleet Card for this type of expense.
A review of Mr Nichols’ bank account statements confirm that he does not receive any other income apart from that which [Occupation 1’s] pays him. Mrs Nichols submitted that Mr Nichols’ income was higher than the ATI of $104,000 currently applied pursuant to the objection decision, and she relied upon the previous findings by the Department in its decision of 20 April 2019 that Mr Nichols’ income was likely to be around $150,000 per annum before expenses based on a review of a three month period of his bank account statements.
The Tribunal has before it bank account statements for Mr Nichols’ personal accounts and the Trust and for the period from 24 October 2018 to 15 May 2019, [Occupation 1’s] paid Mr Nichols a total of about $88,808.56. This, annualised over 12 months, amounts to about $152,232 per annum.
Mr Nichols’ evidence was that some of these payments were the reimbursement of expenses incurred by him in the course of his work. The Tribunal considers this may explain some of the additional payments, but based on the documents provided, cannot see how this would account for an extra $40,000 in extra income per annum. In February 2019 there was about $415 in reimbursements claimed, in March 2019 there was $3700 claimed and in June 2019 there was $340 claimed. This, averaged out over a 12-month period, amounts to about $20,000 per annum. Therefore, the Tribunal finds that Mr Nichols’ income is likely to be higher than $105,000 per annum, possibly up to $130,000 per annum.
If Mr Nichols was paid $2,300 for 52 weeks of the year, this would amount to about $120,000 per annum.
In all the circumstances, the Tribunal finds that Mr Nichols’ income is best reflected by the figure of $120,000 gross per annum.
In addition to this income, Mr Nichols received about $50,000 net from the property settlement that was executed between the parties in March 2019. He also received about $71,000 from his mother in November 2018 which he used as a deposit to purchase a house.
The entry in Mr Nichols’ bank statement describes the deposit of $71,000 from his mother as a gift. However, Mr Nichols’ evidence was that it was a loan from his mother and that the bank was not prepared to lend him the money to purchase the house if he had borrowed the money for the deposit. Mr Nichols told the Tribunal that he had an agreement with this mother that once he received the property settlement funds, he would pay her back some of this money and he also agreed for his mother (who is terminally ill) to live with him for free. In April 2019, Mr Nichols repaid his mother about $25,000.
Mr Nichols also told the Tribunal that he purchased a boat and trailer for about $25,000 with the remaining funds he received from the property settlement.
In relation to the house purchase, Mr Nichols now has a $470,000 mortgage and is required to pay the minimum repayment of $2,179 per month off this.
The Tribunal accepts Mr Nichols’ evidence that the money from his mother was a loan and he has repaid at least $25,000 of this out of his property settlement funds. Given Mrs Nichols also received a payment as a result of the property settlement (which was put into effect via orders in the Federal Circuit Court), the Tribunal does not intend to take the property settlement funds into account as a financial resource for either parent for the purposes of assessing child support liability.
Whilst it is arguable that the remaining $45,000 that Mr Nichols received from his mother in November 2018 could be considered a financial resource from which child support could be paid, Mr Nichols used it to purchase a house to live in following separation and now has a mortgage and costs associated with that mortgage. The Tribunal considers the loan to ba a one off payment from his mother in order to set himself up post separation and it does not intend to take this money into account in terms of Mr Nichols’ ATI for the purposes of assessing child support in the circumstances. It will however be relevant to consideration of the issue of capacity to pay which will be taken into account later on when considering if a departure is just and equitable.
Therefore, the Tribunal finds that $120,000 per annum best reflects Mr Nichols’ income, property and financial resources.
At the time of the change of assessment application, Mr Nichols’ liability for child support was calculated on the basis that his ATI was $87,613. This decreased to $54,870 from 1 October 2018. The Tribunal has found that Mr Nichols’ income is in fact best represented by the figure of $120,000 per annum which is significantly higher than these ATIs.
The Tribunal therefore considers that, in the special circumstances of this case, whereby Mr Nichols’ income is funnelled through a discretionary trust structure which means his personal taxable income declared via his tax return may not necessarily reflect his actual income and financial resources, Mr Nichols’ income and financial resources make the application of the administrative assessment unfair and a ground to depart has been established.

Issue 2 – Would departure from the formula assessment be just and equitable?

Subsection 117(4) of the Act sets out the criteria that must be considered in determining whether it would be just and equitable as regards the children and the parents to make a departure order. This involves a consideration of the following:
(a)    the nature of the duty of a parent to maintain a child (as stated in section 3); and
(b)    the proper needs of the child; and
(c)    the income, earning capacity, property and financial resources of the child; and
(d)    the income, property and financial resources of each parent who is a party to the proceeding; and
(da)    the earning capacity of each parent who is a party to the proceeding; and
(e)    the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support;
(i)him or herself; or
(ii)any other child or another person that the person has a duty to maintain; and
(f)     the direct and indirect costs incurrent by the carer entitled to child support in providing care for the child; and
(g)    any hardship that would be caused:
(i)to:
(A)the child; or
(B)the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii)to:
(A)the liable parent; or
(B)any other child or another person that the liable parent has a duty to support;
by the making of, or the refusal to make, the order; and
(iii)to any resident child of the parent by the making of, or the refusal to make, the order.

Mr Nichols’ circumstances

Mr Nichols’ financial circumstances have been considered in some detail above and the Tribunal has found that Mr Nichols’ income and financial resources are best reflected by a figure of $120,000 per annum.
Mr Nichols lives with his elderly mother in a home he recently purchased with the assistance of a loan from his mother.
Mr Nichols estimates that his average weekly expenses amount to about $1,280 plus $200 per week in credit card repayments, making his weekly expenses around $1,480. This includes $650 per week in mortgage repayments (which amounts to about $2,600 per month being higher than the minimum repayments required) and the costs associated with his motor vehicle and insurances on his home, car and boat. All of these expenses, including the credit card repayments are met out of the Trust bank account.
Regarding Mr Nichols’ expenses, the Tribunal takes into account the following based on the evidence before it:
·     Mr Nichols is required to pay $545 per week off his mortgage ($2,180 per month);
·     Mr Nichols has costs associated with his car of about $90 per week (based on the total cost of the Landcruiser reported in the Trust profit and loss statement for 2018/2019);
·     Mr Nichols pays about $66 per week on insurance (based on the total cost of insurance reported in the Trust profit and loss statement for 2018/2019);
·     Mr Nichols pays about $200 per week off his credit card;
·     Mr Nichols has about $440 per week in other expenses not including holidays and entertainment (based on his Statement of Financial Circumstances).
The Tribunal therefore finds on the basis of this evidence that Mr Nichols’ average weekly expenses amount to about $1,341.

Mrs Nichols’ circumstances

Mrs Nichols is [employed in Occupation 2] who works for a clinic in Tweed Heads as a contractor. She works three days a week and is paid a percentage of the clients’ fees that she sees during those days. Her work also includes performing [visits] which can be out of office hours.
Mrs Nichols’ income can vary each week as it will depend upon the number of clients booked in for her to see each week but for the 2018/2019 financial year, she estimated her gross income was $66,561. This figure is confirmed by a review of her bank account statements. Mrs Nichols’ profit and loss statement for this year records about $10,656 in operating expenses. The bulk of these relate to motor vehicle expenses related to her use of her private car to travel to and from [visits], professional membership fees and phone, internet and travel expenses. Mrs Nichols claims a percentage of her personal mobile phone and internet use as she uses her phone to confirm and take bookings and she sometimes travels interstate to attend professional development courses.

Mrs Nichols recently registered a new business name and intends on operating [Business 1] from her residence. She is in the early stages of establishing this business and told the Tribunal she saw her first client in July 2019 and has seen about 10 clients in total, having made about $500 so far. She intends to bulk bill her clients and will receive about $53.80 for each half hour session. Mrs Nichols told the Tribunal that her plan was to operate from home on the two days a week she is not at the Tweed Heads clinic and she intends to see clients between 9:15 am and 2:00 pm (to work in with school drop offs and pickups).
Mrs Nichols lives with her partner in a house owned by him. She contributes $250 per week towards his mortgage. She also contributes to the household expenses by paying for most of the food, particularly given she has the children with her during the week, and paying for the electricity bills. She estimated her average weekly expenses to be about $1,120, including about $300 per week associated with the children’s needs. A portion of her motor vehicle and phone expenses included in this amount are claimed as work expenses on her tax return. Mrs Nichols also makes reasonably regular weekly payments of $150 into her superannuation account.
Apart from a car and some household items, Mrs Nichols does not have any significant assets. In March 2019, she received about $73,000 net from the property settlement executed between the parties. As noted with Mr Nichols, the Tribunal does not intend to take this into account in assessing either party’s income and financial resources.
Mrs Nichols also told the Tribunal that she was pregnant and due in December 2019 and she intended to take about six months off work after the birth but was hoping to be able to work from her home business in that period depending on how things go.

Consideration of whether a departure is just and equitable
a)Mr Nichols’ income and financial resources

As outlined above, the Tribunal finds that Mr Nichols’ income and financial resources is best reflected by an income of $120,000 per annum. This amounts to about $85,883 net per annum or $1647 net per week. If Mr Nichols’ expenses amount to about $1341 per week, this leaves about $306 per week for the payment of child support. The Tribunal notes that Mr Nichols’ credit card spending is largely discretionary personal spending and as a result, this should not take priority over the payment of child support. If Mr Nichols’ credit card repayments were taken out of the equation this would leave about $500 per week available from which child support could be met.
If an ATI of $120,000 was applied to the formula assessment of child support under the Act, an annual rate of about $12,000 per annum results which amounts to about $230 per week.
The Tribunal is therefore satisfied that Mr Nichols has the capacity to meet the annual rate of child support payable for both children if his ATI was varied to $120,000 per annum.
The Tribunal also takes into account that Mr Nichols’ capacity is currently greater than that of Mrs Nichols in relation to meeting the children’s needs and he has had the benefit of a $71,000 loan from his mother in recent times which enabled him to purchase a house for himself.
Therefore, the Tribunal finds that it is just and equitable to vary Mr Nichols’ ATI to $120,000 per annum.

b)Mrs Nichols’ income and financial resources

As noted above, Mrs Nichols is a contractor [in Business 1] which in the 2018/2019 financial year generated her about $66,561 in gross income, and about $55,904 after expenses.
The business expenses claimed by Mrs Nichols appear to be reasonable given the nature of her work and the Tribunal accepts that these are legitimate business expenses.
The difficulty with assessing Mrs Nichols’ income now and into the near future is that she has just established a new business, the viability and profitability of which is unknown and she also is going to be on a period of maternity leave early next year which will also have an impact upon her income over the next 12 months.
Based upon the evidence before it, the Tribunal finds that at least for the 2018/2019 financial year, Mrs Nichols’ income was $66,561 gross. Making provision for some legitimate business expenses in relation to her professional development and some motor vehicle costs associated with travelling to home and gym visits, a figure of about $60,000 gross per annum appropriately reflects Mrs Nichols’ income and financial resources.
In relation to the current financial year, this income is likely to be higher because of the income being generated by her home business. On a best-case scenario, if Mrs Nichols was to see five clients a day for the two days she works from home and she received $53.80 for each session, this would amount to about $500 per week or $26,000 per annum in extra income.
However, as noted above, Mrs Nichols will be on a period of maternity leave for about six months next year. It would seem likely that she would be eligible for some paid maternity leave via Centrelink for a part of that period and Mrs Nichols stated an intention to try and work from home as well.
Whilst the Tribunal accepts that Mrs Nichols’ income may increase as her home business becomes more established, there will also be a reduction later in the financial year due to her maternity leave. Balancing all of these matters, it is the Tribunal’s view that the best reflection of Mrs Nichols’ income and financial resources going forward is her current income, being about $60,000 gross per annum.
The Tribunal finds that Mrs Nichols’ income and financial resources is best reflected by an ATI of $60,000 for the purposes of assessing child support. At the time of the change of assessment application, Mrs Nichols’ ATI was $92,307. This reduced to $45,585 on 1 October 2018. There is considerable difference between these figures and the finding made by the Tribunal as to Mrs Nichols’ income as outlined above.
The Tribunal considers, in circumstances of this case, given Mrs Nichols’ income going forward is in many respects unknown, it is just and equitable to vary her ATI to $60,000 as the best reflection of her income and financial resources based on the information available to the Tribunal at this time.

c)Length of time for the decision

Mrs Nichols made her change of assessment application on 10 August 2018 and Mr Nichols shortly thereafter lodged a cross-application raising issues regarding the parties’ incomes.
The Tribunal has made findings in relation to each party’s income and financial resources for the 2018/2019 year, thus the Tribunal considers it appropriate that the decision commence from 10 August 2018 when the application was first made.
Going forward, Mr Nichols confirmed his income is unlikely to change in any real way. The uncertainties associated with Mrs Nichols’ income have been discussed above and taken into account when arriving at the figure of $60,000 per annum.
Both parties submitted that they would like the decision to run for as long as is reasonably possible so as to provide them with some certainty going forward. Taking into account that Mrs Nichols’ circumstances are subject to considerable change over the next 12 months, the Tribunal considers it appropriate to conclude its decision on 31 December 2020 to give Mrs Nichols some time to establish her home business and provide the parties with some certainly but to also allow for a reassessment of their respective circumstances in about 15 months’ time.

Issue 3 – Is a change of assessment otherwise proper?

In considering whether a departure is otherwise proper, the Tribunal must take into account subsection 117(5) of the Act which requires the Tribunal to have regard to the nature and duty of a parent to maintain a child and the effect that the making of the order would have on any entitlement of the child or carer entitled to child support to an income tested pension, allowance or benefit or the rate of any income tested pension, allowance or benefit payable to the child or the carer.
Mrs Nichols receives family tax benefits in respect of the children. The decision of the Tribunal has the effect of increasing the annual rate payable by Mr Nichols when compared to the administrative assessment in place at the time of the change of assessment application and therefore may result in a decrease to the family tax benefits payable and the cost to the community. Therefore, the Tribunal considers that the departure decision proposed is otherwise proper in the circumstances of this case.

DECISION

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

for the period from 10 August 2018 to 31 December 2020, Mr Nichols’ adjusted taxable income is varied to $120,000 per annum;
for the period from 10 August 2018 to 31 December 2020, Mrs Nichols’ adjusted taxable income is varied to $60,000 per annum.

[2019] AATA 4350

20 August 2019

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Statutory Construction

Judicial Review

Remedies

Jurisdiction