O’Connell and Lolley (Child support)

[2023] AATA 3393

O’Connell and Lolley (Child support) [2023] AATA 3393 (22 September 2023)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2023/BC025959

APPLICANT:  Mr O'Connell

OTHER PARTIES:  Child Support Registrar

Ms Lolley

TRIBUNAL:Member J Thomson

DECISION DATE:  22 September 2023

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that for the period 1 July 2022 to 31 October 2023, Ms Lolley’s adjusted taxable income is varied to $85,000.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the carer entitled to receive – 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 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

1. Mr O’Connell and Ms Lolley are the parents of [Child 1], born 2014 who is recorded as being in the shared, equal 50% care of the parents from 13 February 2023.

2. Mr O’Connell applied to Services Australia (Child Support) on 14 October 2022 for a change of assessment of child support payable by him to Ms Lolley on the ground that her income, property and financial resources available to her for child support made the administrative assessment unfair (the Reason commonly referred to as Reason 8A).

3. At the time of his application, the administrative assessment required Mr O’Connell to pay child support to Ms Lolley as follows:

   ·     For the period 1 October 2022 to 16 November 2022, at the annual rate of $10,934, based on his 2021/22 adjusted taxable income (ATI) of $161,971 and Ms Lolley’s 2021/22 ATI of $62,448, ([Child 1] being in the primary care of Ms Lolley and the regular care of Mr O’Connell);

   ·     For the period 17 November 2022 to 11 December 2022, at the annual rate of $15,925, based on his 2021/22 ATI of $161,971 and Ms Lolley’s ATI of $62,448, ([Child 1] being in the above primary care of Ms Lolley); and

   ·     For the period 12 December 2022 to 31 December 2023, at the annual rate of $10,934, based on his 2021/22 ATI of $161,971 and Ms Lolley’s 2021/22 ATI of $62,448.

4. On 16 January 2023 a Child Support delegate, DM McDonald, found Reason 8A established and changed the assessment, setting Ms Lolley’s ATI at $95,229 for the period 14 October 2022 to 31 December 2023.

5. On 13 February 2023, Ms Lolley objected to DM McDonald’s decision of 16 January 2023, and on 29 March 2023, a Child Support objections officer partially allowed her objection, deciding, pursuant to section 98F of the Child Support (Assessment) Act 1989 (the Act), to refuse to change the assessment on the grounds that it was not just and equitable to change the assessment.

6. On 8 April 2023, Mr O’Connell sought review of the objections officer’s decision of 13 February 2023.

7. The Tribunal heard the matter on 15 August 2023. Both parents attended the hearing via conference telephone and gave affirmed evidence. The Tribunal had before it documentation provided by Child Support (folios 1 to 549) admitted into evidence and marked Exhibit 1. Mr O’Connell provided documentation (folios A1 to A116) admitted into evidence and marked Exhibit A. Ms Lolley provided documentation (folios B1 to B99) admitted into evidence and marked Exhibit B.

8. Mr O’Connell had copies of folios 1 to 547 of Child Support’s Exhibit 1 documents with him at the hearing; otherwise, both parents had copies of Exhibits 1, A and B with them at the hearing.

9. Folios 548 and 549 of Exhibit 1, relevantly, reflected a change in the child support assessment from 1 October 2022, consequent upon the issuing of an amended Australian Taxation Office (ATO) income tax assessment for Ms Lolley for the 2021/22 financial year, increasing her ATI from $62,448 to $69,649. This change in her assessment was discussed by the parents at the hearing, which proceeded with Mr O’Connell’s agreement, notwithstanding he did not have copies of pages 548 and 549 with him at the hearing.

10. At the conclusion of the hearing, the Tribunal directed Ms Lolley to provide further evidence to clarify if a distribution of $32,000 from [Trust 1] reflected as income in her 2021/22 income tax return before the Tribunal as part of the documentation she provided at pages B14 to B27 of Exhibit B included loans made to Ms Lolley by her father, [Dr A], reflected in her personal [Bank 1] statements at pages B30 to B94 of Exhibit B. Ms Lolley has failed to comply with the Tribunal’s direction.

ISSUES

1. The statutory provisions relevant to this review are set out in the Act. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. A formula is used. It takes into account variables including each parent’s ATI for the last relevant year of income, the number of children, and the level of care provided by each parent. Part 6A of the Act allows for a departure from the administrative assessment (a process commonly known as a “change of assessment”). Under subsection 98C(1), the Registrar may make a departure determination if three matters are established:

   ·     One, or more than one, of the grounds for departure referred to in subsection 98C(2) exists (subparagraph 98C(1)(b)(ii));

   ·     A departure is just and equitable as regards the children and each parent (sub- subparagraph 98C(1)(b)(ii)(A)); and

   ·     It is otherwise proper to make a departure decision (sub-subparagraph 98C(1)(b)(ii)(B)).

2. Subsection 98(2) provides that the grounds for departure are the same as the grounds set out in subsection 117(2) of the Act.

3. If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the Registrar may make it one of the determinations prescribed in section 98S of the Act. It permits a range of determinations, including varying the rate of child support payable, the adjusted taxable income or the cost percentage of the child.

Grounds for departure

1. Subparagraph 117(2)(c)(ia) provides as a ground for departure:

   (c) that, in the special circumstances of the case, the 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; or…

2. The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something that is special or out of the ordinary. That is, the intention of the legislation in subsection 117(2) must be guided by the qualification that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. In Gyselman and Gyselman (1992) FLC 92-279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The Tribunal will consider whether the application of the administrative assessment would result in an unjust and inequitable determination of child support payable, having regard to the evidence relevant to the parents’ financial positions.

3. The issues which arise in this case are whether Ms Lolley’s income applied in the administrative assessment accurately reflects her income and financial resources available to her for child support purposes, and whether it is just and equitable to require Mr O’Connell to contribute to the speech therapy special needs of the child, [Child 1].

CONSIDERATION

1. In reaching its decision, the Tribunal has considered the affirmed evidence given by the parents at the hearing and the documentation contained in Exhibits 1, A and B before the Tribunal at the hearing.

2. Mr O’Connell’s issue at the hearing was the determination of Ms Lolley’s actual ATI for the 2021/22 financial year and whether funds paid to her by her father, [Dr A] reflected in her [Bank 1] account number 9156 ([Bank 1] 9156 account) for the period 1 July 2021 to 30 June 2022 should be included in her ATI as a financial resource available to her for child support purposes.

3. Copies of Ms Lolley’s [Bank 1] account 9156 were before the Tribunal at pages B30 to B94 of Exhibit B as was her lodged 2021/22 income tax return (see pages B14 to B27, Exhibit B).

4. Mr O’Connell submitted in his evidence that Ms Lolley’s [Bank 1] account 9156 reflected 53 credit deposits by Ms Lolley’s father, amounting to financial support for Ms Lolley totalling approximately $26,006.62 which he asserted should be added to Ms Lolley’s taxable income of $62,448 reflected in her 2021/22 income tax return and subsequently amended to $69,649 as recorded in Child Support’s updated assessment notices issued on 13 June 2023 (see pages 536 to 540 of Exhibit 1).

5. In response, Ms Lolley gave evidence to the following effect.

6. She acknowledged and agreed that, as a consequence of an ATO audit of her 2021/22 income tax return, prepared and submitted by her accountants, [named] (see pages B12 to B27, Exhibit B), her taxable income for the 2021/22 financial year was amended to $69,649, as reflected in Child Support’s letter of 13 June 2023 and assessment notices referred to above.

7. She gave evidence that she had worked for her father as a [Occupation 1] in his [medical] practice for a brief period in 2020 during the COVID-19 pandemic when work in her normal occupation as a [Occupation 2] had fallen away. She also acknowledged and agreed that she had received a distribution of $32,000 from her father, [Dr A], in his capacity as Trustee of his [medical] practice’s Trust , [Trust 1], (the Service Trust) reflected as income in her 2021/22 income tax return (see page B16, Exhibit B), and that her father had provided her with financial support in the form of loans during the course of the 2021/22 financial years when work in the [Occupation 2] field was scarce. She gave evidence that he continues to support her, providing her and the child, [Child 1] with rent-free accommodation in his house.

8. Ms Lolley provided copies of correspondence from her father, dated 13 July 2023, and his professional accountant, [Mr B] of [Firm 1], Accountants and Business Advisors, dated 20 July 2023, confirming the loan arrangements regarding [Dr A]’s financial support provided for her during the course of the 2021/22 financial year referred to in the preceding paragraph (see pages B28 to B29, Exhibit B).

9. [Mr B]’s letter addresses two relevant issues arising from Ms Lolley’s 2021/22 income tax return:

   ·      the bank deposits to Ms Lolley’s [Bank 1] 9156 account from [Dr A]; and

   ·      the Service Trust’s distribution of $32,000 to Ms Lolley in the 2021/22 financial year from [Dr A]’s [medical] practice.

10. [Mr B]’s letter confirms [Dr A]’s deposits to Ms Lolley’s [Bank 1] 9156 account during the 2021/22 financial year, were loans, as distinct from distribution of $32,000 paid to Ms Lolley from [Dr A]’s Practice Trust in the 2021/22 financial year and reflected as income in her 2021/22 income tax return, together with her other sources of income from her [Occupation 2] at pages B14 to B21, Exhibit B.  

11. [Dr A]’s letter confirms the financial support he provided in the form of deposits to Ms Lolley’s [Bank 1] 9156 account when her [Occupation 2] work was quiet, which he describes as loans repayable by Ms Lolley over time from her anticipated [Occupation 2] income.

12. As noted above, Ms Lolley acknowledged and agreed in the evidence she gave at the hearing that she had received an income distribution of $32,000 from [Dr A]’s Service Trust in the 2021/22 financial year, recorded in her income tax return at page B16, Exhibit B. She also acknowledged and agreed [Dr A] had provided her with financial assistance with periodic loans deposited to her [Bank 1] 9156 account and identified as deposits from [Dr A] in the bank statements for that account at pages B30 to B94, Exhibit B. Her bank statements also record the periodic repayments she has made in respect of those loans over the period 13 August 2021 to 16 June 2022, including a substantial repayment of $1,000 on 11 May 2022 (see page B80, Exhibit B).

13. The Tribunal has scrutinised Ms Lolley’s 2021/22 income tax return prepared by her accountants and is satisfied it accurately reflects her gross income from her [Occupation 2] and the Service Trust for that financial year, and that her taxable income was subsequently amended to $69,649 as a consequence of the ATO disallowing certain deductions claimed by her in the income tax return prepared and lodged by her accountants, [named].

14. The Tribunal has also scrutinised Ms Lolley’s [Bank 1] 9156 account bank statements for the period 1 July 2021 to 30 June 2022 (pages B30 to B94, Exhibit B) and is satisfied they reflect deposits from [Dr A] totalling $19,250 and her repayments totalling $3,170.

15. However, the Tribunal notes that the deposits identified as being from [Dr A] from 1 July 2021 to 29 February 2022 are for relatively modest amounts and it was not until 1 March 2022 that the level and frequency of his deposits significantly increased to amounts of $1,000. The Tribunal calculates that from 1 March 2022 to 27 June 2022, the deposits from [Dr A] amounted to approximately $17,100.

16. Ms Lolley acknowledged and agreed in discussions with the Tribunal at the hearing that [Dr A]’s loans from 1 March 2022 to 27 June 2022 constituted a significant financial resource available to her from which she supported herself and the child, [Child 1]. Ms Lolley also acknowledged and agreed that there is no written agreement between her and [Dr A] regarding the repayment of the deposits he made to her [Bank 1] 9156 account, nor is he charging her interest on those deposits.

17. Ms Lolley also provided evidence of her anticipated income for the 2022/23 financial year (see page B95, Exhibit 1) which reflect income from [Dr A]’s Service Trust of $6,400. The Tribunal notes that [Dr A] has established a practice of distributing income to Ms Lolley from his Service Trust and concludes it is likely the deposits he made to her [Bank 1] 9156 account may be absorbed as income distributions from his Service Trust.

18. The Tribunal finds that, in addition to her taxable income of $69,649 for the 2021/22 financial year, Ms Lolley received an additional financial support in the form of interest free loans from [Dr A] amounting to a net financial benefit of approximately $15,350 (deposits from 1 March 2022 to 27 June 2022 – $17.000 – repayments 10 March 2022 to 16 June 2022 – $1,650 = $15,350) increasing her income and financial resources available to her for child support purposes to $85,000 ($69,649 + $15,350 = $85,049, rounded down to $85,000).

19. Ms Lolley’s ATI currently applied in the assessment for the period 1 October 2022 to 31 December 2023 is her taxable income of $62,448 reflected in her 2021/22 income tax return. The Tribunal has found she had the benefit of an additional financial resource in the form of interest free loans from her father, [Dr A], amounting to approximately $15,350, not reflected in her ATI of $62,488 applied in the current child support assessment or her amended 2021/22 income tax assessment of $69,649, increasing her income and financial resources available to her for child support purposes to approximately $85,000. This makes the assessment unfair, unjust and inequitable, and a ground for departure from the administrative assessment is established.

Just and equitable considerations

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’ requirements and any hardship that would be caused by departing or not departing from the formula.

2. Both parents provided Statements of Financial Circumstances (SOFCs).

3. Mr O’Connell affirmed the contents of his SOFC dated 19 April 2023, in which he lists his weekly gross income of approximately $3,000 from his employment as a [Occupation 3] with [Company 1] for the past 4 years and 3 months, annualised to $156,000. He also provided a copy of his 2022/23 employer’s ATO income statement reflecting his gross income for the 2022/23 financial year at $168,145 (see page19, Exhibit A). No motor vehicle fringe benefits allowance was reflected in this statement or the three most recent pay slips he provided to the Tribunal (see pages A11 to A13, Exhibit A).

4. He also provides copies of his 2021/22 income tax return and ATO income tax Assessment Notice recording his taxable income for that year at $161,971. The Tribunal is satisfied his income is accurately reflected in the current assessment and his income for the 2022/23 financial year will be adjusted in the formula process by Child Support in accordance with his current financial year income statement referred to above.

5. He lists a $nil contribution to household income from his current partner, [Ms C].

6. Mr O’Connell listed assets totalling $412,428, comprising his half interest in his residential home valued at $389,000, his $11,428 half share of joint bank savings with [Ms C], his half share in a joint share investment portfolio valued at $7,000 and household contents valued at $5,000. His only reported liability was the mortgage debt on his jointly owned residence of $377,300 in respect of which he said he contributes to 70% of the weekly mortgage repayments of $280 in recognition of [Ms C]’s contribution of the deposit on the purchase of the home.

7. He lists superannuation savings of $201,521 and weekly household expenses totalling $1,670 including his $280 contribution to mortgage repayments of $560 per week.

8. Ms Lolley did not challenge his SOFC evidence.

9. Ms Lolley affirmed the contents of her SOFC dated 7 May 2023 subject to the changes she made to her statement at the hearing, details of which appear below.

10. She listed her occupation as “[Occupation 2], mentor” and her estimated weekly income from her [Occupation 2] contract work at $1,000, annualised to $52,000 per annum. She lists no real property assets and, as noted in the Reasons set out above, gave evidence that she resides, rent free, with her parents in their home. Her listed assets total an estimated $52,897, comprising bank savings of approximately $9,000, a [specified] motor vehicle valued at $33,300, household contents valued at $10,000 and Bitcoin investment values at $597.

11. Ms Lolley’s only listed liability was her [credit card] debt of $3,800. However, in response to questioning by the Tribunal regarding her evidence in the hearing her father’s deposits to her [Bank 1] 9156 account, she acknowledged there was no written agreement recording a repayment arrangement nor was she being charged interest on those funds although she said she makes repayments as and when her financial situation permits.

12. She reported no superannuation savings and minimal personal weekly expenditure of $75 for health insurance and $100 for credit care repayments.

13. Regarding her weekly household expenses, which she listed totalling $2,715.40, Ms Lolley made a number of changes. In response to questioning by the Tribunal, she acknowledged she does not incur the listed food expenses of $150 for other adults or the listed petrol expenses of $160. She also acknowledged that the estimate for children’s activities at $179 was not accurate and substituted a more realistic estimate at $105, resulting in an overall reduction in her total average weekly expenses of $429 to $2,286, annualised to $118,872 .

14. Ms Lolley acknowledged in her evidence that she receives significant financial support from her father, [Dr A]. Having regard to her income earning capacity reflected in her SOFC as set out above, the Tribunal finds the reality is that her father meets the bulk of her listed weekly household expenses, including her accommodation for herself and the child, [Child 1].

1. Ms Lolley gave evidence of special needs for the child, [Child 1], regarding the treatment of his speech therapy and associated disabilities, involving ongoing weekly speech therapy and occupational therapy treatment sessions and psychologist’s consultations which have contracted from weekly to fortnightly and now monthly sessions.

2. Ms Lolley accepted her out-of-pocket costs assessed by the objections officer in the decision under review at $4,116 was an accurate reflection of the costs she had incurred to the date of the objection decision. However, she contended for additional ongoing psychologist’s treatment with [Mr D] of [Clinic 1] and provided invoices for an assessment report dated 14 December 2022 costing $1,900, two consultations on 9 March 2023 and 30 May 2023 at $203 each, and a training course described as ‘Teaching Students with Dyslexia and Disgraphia’ dated 10 March 2023 at a total cost of $3,615.

3. The assessment report was considered by the objections officer in his assessment of costs at $4,116.

4. The Tribunal considers there is evidence, based on the assessment reports provided by [Clinic 1] dated 14 December 2022 and 10 January 2023 (see pages 340 to 367 and 368 to 404, Exhibit 1) and [Ms E] dated 5 August 2022 and 5 December 2022 (see pages 408 to 409 and 414 to 415, Exhibit 1), that [Child 1] has special needs.

5. Mr O’Connell’s response to Ms Lolley’s submissions was that since 10 February 2023, the care percentages have changed to week about 50% shared care. Mr O’Connell said he is taking [Child 1] to therapy sessions on an as needs basis on the weekends, he has care and pays the cost of those sessions. He also pays for [Child 1]’s private health care insurance cover.

6. As noted in her evidence above, Ms Lolley resides rent free with her parents and notwithstanding her listed weekly household expenses reflected in her SOFC as amended at the hearing, she is not incurring the cost of providing accommodation for herself or [Child 1] when he is in her care and that a number of the usual household expenses she would otherwise incur are being met by [Dr A]. During the objections process she acknowledged to the objections officer that the extent to which she does not incur these usual household expenses, she has sufficient funds available to meet the cost of [Child 1]’s special needs. There was no evidence before the Tribunal to suggest the child, [Child 1] has income, financial resources or property.

7. Mr O’Connell, however, is incurring the expenses of providing accommodation for [Child 1] while he is in his care, which, since 10 February 2023, has increased to 50% shared care.

8. The Tribunal therefore considers it would not be just and equitable in the circumstances to determine a contribution by Mr O’Connell to [Child 1]’s special needs.  

Conclusion

1. The Tribunal has found the loan funds provided to Ms Lolley by [Dr A] referred to in the Reasons set out above totalling $15,350 are a financial resource available to her for child support purposes in addition to the income of $69,649 she derives from her [Occupation 2] activities, not reflected in her ATI of $62,488 applied in the administrative assessment, making the assessment unfair and a ground for departure established.

2. The Tribunal is satisfied Mr O’Connell’s taxable income for the 2021/22 financial year is accurately reflected in the assessment, and his anticipated income for the 2022/23 financial year of approximately $168,145 will be reflected in the administrative assessment formula when he lodges his income tax return for that financial year with the ATO in due course.

3. The Tribunal will therefore vary Ms Lolley’s ATI to $85,000 for the period 1 July 2022 to 31 October 2023 to reflect the additional loan funds financial resource referred to above and her [Occupation 2] income of $69,649 available to her for child support purposes.

4. Applying Ms Lolley’s income as varied above and Mr O’Connell’s income set out above in the Child Support calculator reflects the following outcome:

   ·      Applying Ms Lolley’s ATO amended 2021/22 income of $69,649 and Mr O’Connell’s ATI  of $161,971 applied from the period 1 October 2022 to 16 November 2022 (see pages 537 to 540, Exhibit 1),  when the recorded care percentages were 66% to Ms Lolley and 34% to Mr O’Connell reflects an annual rate of child support payable by Mr O’Connell to Ms Lolley of $10,564; varying Ms Lolley’s ATI to $85,000 results in a reduced annual rate of child support payable by Mr O’Connell of $9,684 for that period;

   ·      Applying the same incomes as used in the immediately preceding subparagraph with the changed care percentages of 100% to Ms Lolley and 0% to Mr O’Connell from 17 November 2022 to 11 December 2022 reflects an annual rate of child support payable by Mr O’Connell of $15,727; varying Ms Lolley’s ATI to $85,000 results in a reduced annual rate of child support payable by Mr O’Connell of $15,135 for that period;

   ·      Factoring in the changed care percentages recorded for the period 12 December 2022 to 12 February 2023 of 71% to Ms Lolley and 29% to Mr O’Connell, reflects the results referred to for the period 1 October 2022 to 16 November 2022 in the first subparagraph above; and

   ·      For the period 13 February 2023 to 31 October 2023, applying the changed care percentages for 10 February 2023 of 50% shared equal care to the parents, and using the ATI of $161,971 for Mr O’Connell and the varied ATI of $85,000 for Ms Lolley results in an annual rate of child support payable by Mr O’Connell of $3,779 compared with an annual rate of $4,970 payable by Mr O’Connell, applying Ms Lolley’s ATI of $69,649 for that period.

5. The Tribunal is satisfied the special needs of the child, [Child 1], are being adequately met from Ms Lolley’s [Occupation 2] income and the financial resources and other support she receives from [Dr A] without significantly impacting upon those resources for the period
   1 July 2022 to the date of the change in care coming into effect on 10 February 2023, and thereafter each parent will share those costs equally as submitted by Mr O’Connell in his evidence to the Tribunal set out above.

6. The Tribunal is satisfied that changing the assessment of child support payable by Mr O’Connell set out above adequately takes into account the duty of the parents to maintain the child, [Child 1], the child’s special needs, the income and financial resources of the parents and their income earning capacities necessary to support themselves and that no undue hardship will be caused to either parent or the child, [Child 1].

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. Varying Ms Lolley’s income as set out above on which child support is calculated which is not reflected in the administrative assessment will result in an appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that for the period 1 July 2022 to 31 October 2023, Ms Lolley’s adjusted taxable income is varied to $85,000.