Orbell and Pitchford (Child support)

[2018] AATA 956

Orbell and Pitchford (Child support) [2018] AATA 956 (27 February 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/BC011883

APPLICANT:  Mr Orbell

OTHER PARTIES:  Child Support Registrar

Ms Pitchford

TRIBUNAL:Member K Buxton

DECISION DATE:  27 February 2018

DECISION:

The Tribunal varies the decision under review so that, for the period 31 October 2016 to 17 January 2020, Mr Orbell’s taxable income is to be varied to $95,000 per annum.

CATCHWORDS

Child support – Departure determination - Earning capacity of parent – All three criteria met - Period of departure - Decision under review varied

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. This review is about how much child support Mr Orbell is to pay to Ms Pitchford in relation to their children, [Child 1], born March 2006 and [Child 2], born October 2007, who are recorded as being in Ms Pitchford’ 100% care.

2. The administrative assessment of child support in place required Mr Orbell to pay child support to Ms Pitchford at the following annual rates:

   ·for the period 1 January 2016 to 31 October 2016, $1,300 per annum, calculated using 2014/15 adjusted taxable incomes of $29,163 for Mr Orbell and provisional income of $19,395 for Ms Pitchford;

   ·for the period 1 November 2016 to 17 January 2017, $9,040 per annum, calculated using 2015/16 adjusted taxable incomes of $61,502 for Mr Orbell and $15,299 for Ms Pitchford; and

   ·for the period  18 January 2017 to 30 June 2017, nil based on estimated income of $0 for Mr Orbell and 2015/16 adjusted taxable income of $15,299 for Ms Pitchford.

3. On 31 October 2016 Ms Pitchford lodged an application for a departure from the administrative assessment of child support, in which she asserted that Mr Orbell’s income and financial resources were not properly reflected in the incomes used for him in order to calculate child support.

4. On 20 February 2017 a delegate of the child support registrar determined that a ground existed to depart and set Mr Orbell’s adjusted taxable income at $96,093 per annum for the period 31 October 2016 to 30 October 2019. Mr Orbell objected to that decision and, on 20 February 2017, an objections officer partly allowed the objection and decided that, for the period 31 October 2016 to 17 January 2020 Mr Orbell’s adjusted taxable income was to be set at $112,895 per annum.

5. Mr Orbell sought review by the tribunal. The application for review was heard on 27 February 2018. In reaching its decision, the tribunal has considered the sworn evidence given by both Mr Orbell and Ms Pitchford, who attended the hearing by telephone, both giving evidence on affirmation. The Child Support Registrar did not participate in the hearing, but the CSA provided subsection 37(1) and 38AA documents that were together marked Exhibit 1. Mr Orbell provided further documents, which were marked Exhibit A. Ms Pitchford provided further documents, which were marked Exhibit B.

CONSIDERATION

The legislative framework

1. The rate of child support payable by a liable parent is usually based on an administrative assessment made under Part 5 of the Child Support (Assessment) Act 1989 (“the Act”). A formula is used which takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent.

2. Part 6A of the Act allows for a departure from an administrative assessment if, in the special circumstances of a case, the administrative assessment results in an unjust and inequitable level of child support because of the income, earning capacity, property or financial resources of a parent (subparagraphs 117(2)(c)(ia) and (ib) of the Act) and if a departure from the administrative assessment would be:

   ·     just and equitable as regards the children and each parent; and

   ·     otherwise proper.

3. In those circumstances, the tribunal may make one of the range of determinations prescribed in section 98S of the Act, which include varying the rate of child support payable, the adjusted taxable income or the cost percentage for a child.

4. The words “in the special circumstances of the case” are not defined in the legislation. While 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 which is special or out of the ordinary. In Gyselman v 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 legislative intent is that the tribunal will not interfere with the administrative formula result in the ordinary run of cases.

Departure ground

10.  Until early 2017 Mr Orbell had for many years been employed as [Occupation 1]. He stated that he was employed casually, but effectively worked long, full-time hours. He and his wife live [in Business 1] previously owned by her alone and, from 2014, they operated [Business 1] as a partnership with both owning the property and any sharing derived income equally, and incurring expenses and liabilities equally. Mr Orbell stated that on 31 January 2017 his wife commenced a well-paying job requiring her [travel for work] and could no longer [operate Business 1]. Mr Orbell stated that he therefore resigned from his position as [Occupation 1], from which he was earning less than his wife was to earn, and began working [at Business 1] on a full-time basis. The [Business 1] partnership has reported significant losses for the three full financial years for which it has been operational. Mr Orbell said he did not know any of the financial details of the operation and he hoped that the [Business 1] would soon be profitable. He stated that the expenditure of the last few years had included investment in capital [items] and also expenses such as the costs of [various expenditures]. He stated that the [Business 1] partnership is anticipated to generate [income] but, thus far, the reported expenses have far outweighed income.

11.  In the 2015/16 year Mr Orbell’s income tax return showed income from [Occupation 1] of $112,895 and losses from the operation of [Business 1] of about $50,000, leading to his taxable income of $62,052. His taxable income for the 2016/17 year was $35,201, also consisting of income from [Occupation 1] of about $57,000 (earned until January 2017) less substantial losses from [Business 1].

12.  When Ms Pitchford applied for a departure she submitted that Mr Orbell might not have been assessed on all of his income from [Occupation 1] and submitted that he may have been using a mechanism such as employment through a family member to reduce that income. It is not apparent that she was aware of the losses from the operation of [Business 1]. In the event, Mr Orbell’s income was being reduced by the losses from the [Business 1] income, which had for some time been secondary to his primary income as [Occupation 1].  From July 2015 to January 2017, his income as [Occupation 1] had been about $113,000 per annum, as can be seen from his income tax returns for the two relevant years. His income from [Occupation 1] had been around $86,000 per annum in the two previous financial years. Mr Orbell elected to end his employment arrangement in January 2017. The tribunal will consider whether Mr Orbell had unrealised earning capacity after his resignation that has not been taken into account in the assessment of child support.

13.  The tribunal can only look to Mr Orbell’s earning capacity if his decision to change his working arrangements is not justified on the basis of his health or caring responsibilities. However, the tribunal is not satisfied that Mr Orbell has demonstrated health issues or caring responsibilities that would justify his decision. Mr Orbell has not identified any health issues of his own which may have led to the need for Mr Orbell to cease to be employed as a [Occupation 1]. He gave evidence at the hearing that he did not wish to [be employed in Occupation 1] on a long term basis, and gave evidence that the life of [Occupation 1] was lonely and that he was “never home”. He stated that he had changed his employment arrangements “in order to be home most of the time”. Mr Orbell stated that his wife left her previous job because of her health issues and that this led him to leave his employment. He stated that she had agreed to take a job that was higher paying, but with fewer working hours, in order to reduce her stress levels and improve her health and, as a result, he had to look after [Business 1]. Therefore Mr Orbell left his work for economic reasons, to look after the [Business 1] in the absence of his wife, so that she could take on a better paying and more suitable job, but not to discharge any caring responsibilities in relation to his wife as she had continued to work, electing to do so away from home.

14.  The tribunal may look to Mr Orbell’ earning capacity if the tribunal is not satisfied that the child support assessment was not a factor in Mr Orbell’s decision not to work or to alter his pattern. Mr Orbell stated that the child support assessment was not a factor in the decision to resign. However, Mr Orbell contacted child support almost immediately upon voluntarily ceasing his employment in early 2017. This co-incided with his wife’s commencement of her new role. He lodged an income estimate on 18 February 2017 stating that his income until 30 June 2017 would be nil. The tribunal is not satisfied that affecting the child support assessment was not a major purpose or factor in the entirely voluntary decision by Mr Orbell to resign from a well-paying position of employment in circumstances where he then commenced working [at Business 1] full-time for what was an uncertain, or variable, and limited income.

15.  Mr Orbell reported annual income from his primary source, as [Occupation 1], of between about $86,000 and $113,000 in the three financial years in which he has also worked [at Business 1]. The average of these incomes is about $96,000 annually. Mr Orbell has claimed some modest allowable deductions as a result of this income (rather than the [Business 1] related losses) of less than $1,000 per annum. Mr Orbell confirmed that he was earning income during the 2016/17 financial years at a similar rate to that in the previous year prior to tendering his resignation. Taking a broad approach to this data, the tribunal finds that Mr Orbell had the capacity to earn around $95,000 per annum at the time of his resignation. From June 2015 Mr Orbell’s income from [Occupation 1] was higher than this, but the tribunal accepts it has also been lower in the past and that Mr Orbell was a casual employee and that fluctuations of his working hours, and therefore his income, may have been outside of his control.

16.  The tribunal is therefore satisfied that Mr Orbell has income and financial resources available to him equivalent to income of at least $95,000 per annum up to the time of his resignation and, thereafter, he has unrealised earning capacity in the order of $95,000 per annum, which has not been reflected in the administrative assessment of child support.

17.  Mr Orbell’s income estimate of $0 per annum was accepted and applied to the administrative assessments of child support for the period 18 January 2017 to 30 June 2017, resulting in an annual rate of child support payable by Mr Orbell of $0 based on that estimated income of $0 for Mr Orbell and 2015/16 adjusted taxable income of $15,299 for Ms Pitchford. If a figure of $95,000 in adjusted taxable income for Mr Orbell were instead used to calculate child support for those periods, the annual rate of child support would be about $16,000 per annum. The tribunal regards the circumstances of this case, including Mr Orbell’ voluntary resignation and his subsequent engagement on a full-time basis in the loss-making enterprise of [Business 1], to be special. The significant difference which results from the use of Mr Orbell’ income and financial resources, or earning capacity, of $95,000 in the calculation of the applicable rate of child support, when compared with the determination of child support payable calculated using the formula, leads to the conclusion that the formula assessment is unjust and inequitable. As a result, the tribunal concludes that a ground for departure exists.

Just and equitable

18.  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 proper needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula. In considering the proper needs of the children regard must be had to the manner in which the children are being educated, and in which the parents expected them to be educated.

19.  The tribunal notes that Mr Orbell stated his expenses generally are modest. The [Business 1] partnership meets the major expense of the interest on the loan secured by [Business 1], where Mr Orbell lives with his wife. This is identified by Mr Orbell as an expense, but reported in his income tax returns as part of the expenses deducted from any taxable income produced by that partnership. There is no basis in the evidence to conclude that the self-support allowance in the formula (of about $24,000 per annum) is not an adequate measure of Mr Orbell’s proper needs.

20.  Ms Pitchford gave evidence that she was employed in a number of part-time roles and received newstart allowance at the time she applied for the departure. She has more recently obtained a part-time role in which she works some hours either four or five days per week, depending on availability of those hours, and no longer receives newstart allowance. Her adjusted taxable income for the 2016/17 year was about $29,000 and this has been used in the assessment from September 2017. She anticipates that her taxable income for the 2017/18 year will be similar. The lower adjusted taxable income for Ms Pitchford of about $15,000 per annum used prior to September 2017 would not produce a significantly higher level of child support payable by Mr Orbell, particularly having regard to the fact that Ms Pitchford has the children in her 100% care. Mr Orbell did not submit that Ms Pitchford’ income made the assessment unfair and the tribunal does not find that it does. The formula is therefore operating as intended in relation to the adjusted taxable incomes of Ms Pitchford.

21.  Ms Pitchford stated that she received family tax benefit to assist in meeting the needs of the children. However, Ms Pitchford stated that she cannot afford to meet all of the school fees, uniforms, book packs, extra curricular activities and daily needs of the children without a contribution from Mr Orbell. She submitted that a fair contribution to those need by Mr Orbell, through the child support assessment, would be about $150 per child per week.

22.  Mr Orbell submitted that it was not just and equitable for him to contribute and more than $200 per week for both children together. He stated that this represented the limit of his capacity to pay. That Mr Orbell has chosen to arrange his affairs in a way which limits income available to him for child support does not lead the tribunal to conclude that it is just and equitable, having regard the needs of both parents and the children, to overlook his unrealised earning capacity. Mr Orbell is the part-owner of a substantial [property] and was able to resign his position as [Occupation 1] although [Business 1] was not making a profit. The tribunal concludes from this that Mr Orbell has arranged his affairs in a way which has enabled him to meet his own expenses after his resignation and he will need to make whatever arrangements are necessary to enable a just and equitable contribution by him to the expenses of the children also to be met through the child support assessment.

Conclusions as to what is just and equitable

23.  The tribunal proposes to vary Mr Orbell’s adjusted taxable income to $95,000 per annum to reflect his income and financial resources and, subsequently, his earning capacity from the date Ms Pitchford departure application was lodged on 31 October 2016. The objections officer decided to set Mr Orbell’s income for the period 31 October 2016 to 17 January 2020. The tribunal considers the period imposed in the decision under review to be reasonable as the decision is reflective of either resources or earning capacity on which Mr Orbell has not been assessed and it is not reasonable to expect the parents to re-visit the departure process again next year to address the same issues. The parents may re-apply within this time if their circumstances genuinely change.

24.  The proposed departure leads to an overall increase in the assessed rate of child support payable by Mr Orbell when compared to the administrative assessment. Mr Orbell had arrears of child support at the time of the hearing and the effect of the proposed departure, when compared with the decision under review, will be to decrease those arrears. There is no evidence that a departure in the proposed terms would cause hardship to Mr Orbell, Ms Pitchford or the children. The proposed departure produces an annual rate of child support that is fair having regard to the incomes of the parents.

Otherwise Proper

25.  The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. The rate of child support should reflect the obligation of both parents to take financial responsibility for the children and, where increased, may result in an adjustment to income-tested benefits payable to the parents. A departure is therefore proper.

CONCLUSIONS

26.  The administrative assessment did not take account of the income, financial resources or earning capacity of Mr Orbell. The tribunal is satisfied that a departure ground exists and that it is just and equitable and otherwise proper to make a decision that Mr Orbell’ adjusted taxable income be increased from 31 October 2016, when Ms Pitchford sought a departure, to $95,000 per annum, to reflect his income, financial resources or unrealised earning capacity. This departure will apply until 17 January 2020 to provide a reasonable period of certainty for the parents.

27.  As the tribunal has made a decision on the departure application which sets Mr Orbell’s income for the same period as in the decision under review, but at a different rate of income, that decision is varied so that, for the period 31 October 2016 to 17 February 2020, Mr Orbell’ adjusted taxable income is varied to $95,000 per annum.

DECISION

The Tribunal varies the decision under review so that, for the period 31 October 2016 to 17 January 2020, Mr Orbell’s taxable income is to be varied to $95,000 per annum.