Oxby and Kilner (Child support)

[2018] AATA 5053

Oxby and Kilner (Child support) [2018] AATA 5053 (17 October 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/AC014744

APPLICANT:  Mr Oxby

OTHER PARTIES:  Child Support Registrar

Mrs Kilner

TRIBUNAL:Member M Kennedy

DECISION DATE:  17 October 2018

DECISION:

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

1. For the period 13 March 2018 to 30 September 2021, Mr Oxby’s adjusted taxable income is varied to $52,000pa, with that amount be increased by the Consumer Price Index National Weighted Average for the preceding March quarter  on 1 July 2019, 1 July 2020 and 1 July 2021.

2. For the period 13 March 2018 to 18 December 2018, Mrs Kilner’s adjusted taxable income is varied to $43,081pa.

3. For the period 13 March 2018 to 31 December 2018 the annual rate of child support is increased by $2652

4. For the period 1 January 2019 to 31 December 2019 the annual rate of child support is increased by $2243

5. For the period 1 January 2020 to 31 December 2020 the annual rate of child support is increased by $1230

6. For the period 1 January 2021 to 30 September 2021 the annual rate of child support is increased by $1291.

CATCHWORDS

CHILD SUPPORT – departure determination – costs of education - manner expected by both parents - cost of maintaining the children are significantly affected – financial resources of both parents - business income - 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

1. Mr Oxby and Mrs Kilner are the parents of [Child 1] and [Child 2], in respect of whom a child support assessment is in place.  Child support is calculated on the basis that Mrs Kilner has primary care of the children (79%).

2. Prior to any change of assessment decisions being made in relation to the case, Mr Oxby was assessed to pay $262pa for the period 1 February 2018 to 19 March 2019 based on an adjusted taxable income of $25,977 in 2016/2017, and a provisional taxable income for Mrs Kilner of $12,494.  In the previous child support period, the assessment was $1,394pa based on 2015/2016 adjusted taxable income for Mr Oxby of $36,279 and of $43,845 for Mrs Kilner.

3. Mrs Kilner applied for a change of assessment in special circumstances on 13 March 2018.  Mrs Kilner applied on the basis that the costs of maintaining the children was significantly affected because they were being educated in the manner expected by the parents in attending a private primary school, and also that the assessment was unjust and inequitable due to Mr Oxby’s income, property and financial resources.  In this regard, Mr Oxby is [an occupation 1] operating as a sole trader.

4. On 25 May 2018, a delegate of the Child Support Registrar (the Registrar) decided to make a departure determination setting Mr Oxby’s adjusted taxable income at $52,000 to be adjusted annually by the CPI, setting Mrs Kilner’s adjusted taxable income at $47,500 from 13 March 2018 until 31 December 2018, and then increasing the annual rate of child support by $2816 in 2018, $2269 in 2019 and $1362 in 2020.

5. In relation to Mr Oxby’s income and financial resources, the Registrar considered that reliance on average income for salaried [occupation 1s] provided a more just and equitable assessment of Mr Oxby’s financial capacity to support his children than his taxable income.

6. Mr Oxby objected to that decision on 5 June 2018.  The objections officer reviewed deposits into Mr Oxby’s bank accounts over a period of time, and decided to extrapolate an annual income from those deposits, and decided that Mr Oxby’s income and financial resources were better represented by setting his adjusted taxable income at $100,000.  The objections officer also made other adjustments to the departure determinations made by the Registrar.

7. Mr Oxby applied to the Tribunal for review on 6 August 2016.

8. The parties participated in a telephone directions hearing on 17 October 2018 and have substantively complied with directions I made on that occasion to produce further documentary evidence. The documentary evidence before the Tribunal consists of documents C1 to C393, being the documents provided by the Registrar pursuant to section 37 of the Administrative Appeals Tribunal Act 1975, documents A1 to A140, being documentary evidence provided by Mr Oxby; and B1 to B13, being documentary evidence provided by Mrs Kilner.  A small amount of further material was provided after the hearing and indexed accordingly.

LEGISLATIVE FRAMEWORK

1. The legislation relevant to this review is contained in the Child Support (Assessment) Act 1989 (the Act) and in the Child Support (Registration and Collection) Act 1988 (the Registration and Collection Act). The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. This requires the application of a statutory formula which takes into account factors such as the number and age of children, the level of care provided and the income of each parent.

2. Under section 98B of the Act, if special circumstances exist, a liable parent or a carer entitled to child support may apply to the Child Support Registrar (the Registrar) in writing, requesting a departure from the administrative assessment in relation to a child.

3. Under section 98C of the Act, before making a departure determination on an application made under section 98B of the Act, the Registrar must be satisfied that in the special circumstances of the case, one or more grounds under subsection 117(2) of the Act exist, and that it would be just and equitable and otherwise proper to make a particular determination.

ISSUES

1. The issues for me to determine in this case are therefore:

   · Whether one or more of the grounds for departure referred to in subsection 117(2) of the Act exists; and, if so

   ·       Whether it would be just and equitable as regards the child, the liable parent, and the carer entitled to child support; and otherwise proper; to make a particular determination to depart from the administrative assessment of child support.

CONSIDERATION

Is there a ground to depart from the administrative assessment of child support?

1. As to Reason 8, subparagraphs 117(2)(c)(ia) provides that, in the special circumstances of the case, a ground for a departure determination may be established if application of the legislative provisions relating to administrative assessment ‘result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent’ due to the income, property and financial resources of either parent in the special circumstances of the case.

2. The legislative provisions relating to administrative assessment will ordinarily use a parent’s adjusted taxable income as reported from time to time by the Australian Taxation Office.  In Mr Oxby’s case, the amount reported in respect of 2016-2017 produced a nominal assessment of $262pa.  Exhibit A48 is Mr Oxby’s 2017/2018 individual taxation return.  If the taxable income reported in that return is accepted ($27,379), it will likewise produce a nominal assessment.

3. The question therefore is whether adjusted taxable income provides a just and equitable basis of assessing Mr Oxby’s financial capacity to support his children.

4. The evidence available to consider that question now includes exhibit A17, the 2017/2018 financial report for Mr Oxby’s business as [an occupation 1] including comparative records for 2016/2017 in the form of a profit and loss statement and balance sheet.  Mr Oxby has also provided MYOB records accounting for drawings he has taken from the business. 

5. The Tribunal papers also include extracts of Mr Oxby’s bank account statements C108-C130 and further records provided by Mr Oxby A27 to A30 and A67 to A139.

6. As to the nature of Mr Oxby’s business and his practices in accounting for its financial performance, Mr Oxby confirmed that he had worked for many years as [an occupation 1].  He primarily works for a small number of [contractors], and ordinarily works to a rate per [work unit].  On occasion, Mr Oxby must quote for work, and up to about 10 times per year he might work for a client on a ‘one off’ basis.  Mr Oxby stated that he tends to get most of his work through word of mouth and doesn’t usually advertise.  Mr Oxby told me that he undertakes work primarily around the [specified region], but on occasion does travel elsewhere.

7. Mr Oxby told me that the clients would usually supply [some equipment], but he would provide [other equipment].  I note this appears to be reflected in the sales and cost of sales figures I have examined.

8. In terms of the financial and accounting side of his business, Mr Oxby told me that he operates one bank account which is used to receive payments from clients, hold the GST he collects, make business purchases and also make his own personal purchases.  Mr Oxby confirmed that his spouse is employed elsewhere and does not use the account in question.

9. Mr Oxby’s spouse undertakes his book-keeping and Mr Oxby is reliant on his accountant for the preparation of financial reports.  Mr Oxby stated on a number of occasions that he views his books as legitimate.  He gave sworn evidence in response to very specific questions from me that he does not undertake work for cash and all the income he earns from his work as [an occupation 1] is reflected in the financial statements.

10. Mr Oxby was able to respond to most of the questions I asked about the financial operations of his business, but struggled to respond to a fundamental query I posed.

11. I observed that the financial records available to me regarding owner drawings from the business show that in 2017/2018 Mr Oxby’s cumulative drawings increased by $51,693.47 (based on the balance sheet at A22), which was almost the same as the sum of drawings and expenses accounted for at A31 to A47.  I note from C288 that the accumulated drawings increased by $38,142.60 over the 2016/2017 financial year by way of comparison.

12. I queried how, in Mr Oxby’s understanding, his drawings could be so much higher than the trading profit over time.  In this regard, I note that his profit was $25,977 in 2016/2017 when he withdrew $38,142.60 from his business activities, and $27,379.27 when he withdrew $51,678 from his business activities.  Mr Oxby recognised the dilemma but was not confident with an explanation.

13. I noted that the balance sheet showed that a ‘cheque account’ liability increased by $12,163.52 in 2017/2018 and $8,774 in 2016/2017, but could not identify anywhere else in the evidence a reference to a business overdraft or similar facility.  Mr Oxby confirmed he did not operate an overdraft, and did not know what the reference to the cheque account was.  Mr Oxby speculated that it may be the way a redraw from his personal mortgage used for home renovations may have been accounted for, but the balance listed does not reflect his home mortgage balance and it seems highly unlikely that such a transaction would be accounted for in the business financials.

14. I allowed Mr Oxby an opportunity to make enquiries in this regard and provide a written statement addressing this issue.  Mrs Kilner did not wish to delay the decision by having an opportunity to comment on the information I was to receive.  The information provided by Mr Oxby is that the reference to the ‘cheque account’ is in fact a reference to a savings account which held ‘loan monies’ (which I understand to refer to amounts redrawn from a mortgage account).  Mr Oxby refers to a ‘petty cash component’ used to reconcile contributions made by his spouse for business expenses.

15. Unfortunately this explanation does not provide any clarity in understanding the financial statements.  My understanding from Mr Oxby’s evidence is that funds were redrawn from the mortgage account to finance personal home renovations.  If this is the case, there is no basis for any transactions related to the redraw to appear in the business financials.  Furthermore, the reference to a petty cash component is not clear given there is no petty cash entry in the financial statements.

16. The transactions list provided with the post-hearing response includes items narrated that are plainly not business related.

17. I explored aspects of the expenses list in the business financials.  In this regard, I prefer the list at exhibit A21 to the list at A3 which appears to include expenses that are not business-related.  The list at exhibit A21 includes typical and proportionate business expenses, but also items such as ‘business function’ for $2054.51 and relatively high motor vehicle expenses and depreciation (mainly for a motor vehicle).  Mrs Kilner alleged that the business function may have been Mr Oxby’s wedding, but Mr Oxby denied this.

18. I considered whether the excess of drawing over profit might be explained by ‘adding back’ the depreciation and other artificial or questionable expenses, but this does not fully explain the difference.

19. On balance, I am reluctant to wholly rely on the business financial statements as providing a clear, discrete and comprehensive record of Mr Oxby’s business activities.  I consider the best evidence available to me as to the value of the financial resource Mr Oxby’s work as a sole trader is by an examination of the drawings as reported in the balance sheet and as itemised, although I recognise that that I cannot fully understand where these funds come from in light of the profit and loss statement. In relation to 2017/2018, I also note that the figure of $51,678 is approximate to the figure identified by the Registrar as the average annual wage for (employed) [occupation 1s].  The convergence of those two figures is reassuring and useful in my view.

20. I prefer this evidence to any inference that may be drawn by analysing and annualising deposits into the bank account operated by Mr Oxby.  In particular, I accept that deposits paid into the account by Mr Oxby’s customers would include components for GST, and is not income upon which tax has been paid.  It is not therefore appropriate to ‘gross up’ the amounts deposited into the bank account in the way the objection officer did, and given I have better information before me as to how the account is used for Mr Oxby’s business.  Furthermore, given the nature of trades work such as [occupation 1], a period of 3 months may not provide an accurate snapshot of income received by the business.

21. In any event, if I deduct 10 percent from the figures identified by the objection officer, and do not gross the figures up, I get an annual figure of $83,100.  Deducting the cost of sales and a modest amount of further business-related expenditure bring the figure down to an amount entirely consistent and plausible with the figure identified as drawings, and the average wage of [an occupation 1] in Australia.  This exercise provides further reinforcement for my view that Mr Oxby’s business represents a financial resource for him that can be quantified on the basis of approximately $52,000pa.

22. In this case, I am satisfied that some aspects of the financial reports, and the confluence of average earnings for the trade, and the figures identified by the objection officer (albeit with some corrections) provides an acceptable evidential basis upon which to reach findings about the value of the financial resources available to Mr Oxby from his business.  I consider this approach to understanding Mr Oxby’s financial resources is superior to identifying his capacity to provide maintenance for the children on the basis of his taxable income.

23. As mentioned above, the child support assessment based on his taxable income produces a nominal amount.  The assessment generated if Mr Oxby’s income is set at $52,000pa for the period 13 March 2018 to 31 December 2018 is $5,010 if there are no other changes.

24. In my view, this calculation demonstrates that an assessment based on adjusted taxable income for Mr Oxby does produce a result that is unjust and inequitable when regard is had to my findings as to his actual financial resources. The discrepancy is large enough in my view to warrant a conclusion that there are special circumstances present.

25. I find the ground established.

Whether it would be just and equitable and otherwise proper to make a particular determination to depart from the administrative assessment of child support

1. As I am satisfied that there is at least one ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable and otherwise proper to depart from the assessment. In deciding whether it is just and equitable, the Tribunal must have regard to the following matters set out in subsection 117(4) of the Act:

   (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)       himself 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 incurred 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 (see subsection (10)) by the making of, or the refusal to make, the order.

2. It is convenient to first consider the controversy between the parents as to the private school fees incurred by Mrs Kilner.  This can be taken into account by considering the proper needs of the children, but it is necessary also to bear in mind that the related ground requires that I first be satisfied that the children are being educated in the manner expected by their parents.

3. Mrs Kilner’s evidence is that Mr Oxby had supported the enrolment of the children into a Catholic primary school in [Town 1], and had indicated willingness for the children to attend a trial at a Catholic school in [City 1].

4. Mr Oxby confirmed that  has not signed the enrolment form for the school now attended by the children in [City 1], and in his email correspondence regarding the school trial had indicated that if the school fees were higher than the school in [Town 1], he would not be able to afford them.

5. I am mindful that it is the manner of education expected by the parents that is in issue rather than any particular school.  I am satisfied that the balance of the evidence before me shows that at the commencement of primary schooling, both parents expected that the schooling would take place at a private catholic primary school.  In the circumstances of this case, I am therefore satisfied that the proper needs of the children, and also the direct costs incurred by Mrs Kilner in paying the school fees, justify taking into account the costs of the children’s attendance at a private catholic primary school.

6. I note that the evidence establishes that Mr Oxby had accepted the children’s attendance at a school in [Town 1], and has since then expressed concern about the schooling costs for schools in [City 1]. 

7. The evidence available to me shows that the costs associated with the children attending the [School 1] in [City 1] in 2018 is $6725.  Had the children remained at the school in [Town 1], the costs would have been $4538.  I have noted that Registrar and the objections officer had based departure determinations on the costs of schooling in [Town 1] by adding 50% of that cost to the annual assessment. I will consider a similar approach, although will consider the effect of adding the costs of the school actually attended by the children, and also adding the costs of schooling to the ‘costs of the child’ component of the formula.

1. No other matters were expressly raised in relation to the proper needs of the children or the direct or indirect costs associated with raising the children.  I have noted the itemised expenses identified by Mrs Kilner in her Statement of Financial Circumstances regarding extra-curricular activities but the nature of these expenses do not justify further departure from the child support formula.  Other matters mentioned by Mrs Kilner during the hearing are in the nature of predicted future expenses, and are not yet supported by evidence or sufficient detail to be taken into account.

2. No issue arises as to the income, earning capacity, property and financial resources of the children, the earning capacity of each parent who is a party to the proceeding, or the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to themselves or any other child the person has a duty to maintain. To the extent that the parents have commitments to maintain themselves or other children, I consider this is adequately taken into account through the ordinary child support formula in this case.

3. As to Mrs Kilner’s income, exhibit B12 is a notice of assessment for 2017/2018 showing taxable income of $38,670. Exhibit C312 is the full taxation return, showing gross taxable income of $43,081.  I have noted the objection officer formed the view that the deductions from her gross salary of $52,000pa (the tax return shows $50,230 so I assume this is a typographical error) were excessive and allowed only $3000.  I do not consider I have evidence to justify that Mrs Kilner’s deductions are excessive, noting that she has claimed mileage on her vehicle at a per kilometre rate and typical work related expenses.  I consider that the taxation information provides a just and equitable basis for taking into account Mrs Kilner’s income and accept her evidence that she does not have access to other financial resources other than her income from employment.  I consider that the adjusted taxable income as assessed by the ATO should be used.

4. In this regard, I note Mrs Kilner’s evidence that she has recently resigned her employment, but anticipate commencing similar alternative employment at approximately the same time her leave entitlements are exhausted.  In these circumstances, I consider the ordinary operation of the formula should be preserved in respect of Mrs Kilner’s income, and this has been available to the registrar since 12 July 2018.  However I will make further adjustments for that income amount to be used for the calculation of child support during the period of this departure, noting evidence that Mrs Kilner commenced that employment from the beginning of the 2017/2018 financial year and was previously assessed on a provisional income amount of $12,494.

5. In considering whether it is otherwise proper to make a particular departure determination, I take into account that Mrs Kilner is in receipt of family tax benefit and the rate of this payment will be affected by any child support assessment. I consider it otherwise proper to arrive at a departure determination based on the facts as I have found in this review.

6. I consider any departure determination should commence from the day of the application for the change of assessment.  Mrs Kilner explained at the hearing that she was unaware of the availability of this process prior to that time.  Nonetheless, I will adopt the ordinary practice of commencing the departure from the point in time that either parent put the child support assessment in issue.  I am not satisfied that there are sufficient grounds established to backdate the changes.

7. I have undertaken calculations to fully understand and compare the effect of the changes I am considering.  I note that for an assessment commencing in 2018, if I were to substitute Mr Oxby’s adjusted taxable income with $52,000, and Ms Kilner’s adjusted taxable income with $43,081, the annual rate produced is $4166pa. I consider this amount, as a base, to be just, equitable and otherwise proper.

8. If I were to further change the child support assessment by making provision for the school fees of $4538 in the ‘costs of the child’ component of the formula, the annual rate would be $6063.  If the amount for school fees dealt with this way was $6725, the rate would be $6977

9. If 50% contribution towards the school fees were applied, then the annual rate is $6435, and $7654.50 respectively.

10. I consider on balance that I will adopt the same approach as the earlier decision makers, and increase the annual rate of child support to reflect a contribution of 50% of the costs of the school in [Town 1], taking into account Mr Oxby’s indications that increases in school fees beyond that are unaffordable for him.  On my assessment of his entire financial circumstances, I consider that provision for private school fees in the child support assessment does approach the limits of what is affordable for Mr Oxby.  I will make further adjustments to reflect that [Child 1] is completing primary school prior to 2020, and increase the amounts by the same indexation factor as identified by the objections officer (5%).

11. I will therefore make determinations reflecting these reasons. I will increase the amount to substitute for Mr Oxby’s adjusted taxable income by the CPI for three years. I consider that Mrs Kilner’s adjusted taxable income is a just and equitable measure of her income for child support purposes, and so will allow that component of the formula to revert to the ordinary provisions of the Act from the date of this decision.

12. Finally, I consider that a period of three years from the date of the application for a change of assessment strikes an appropriate balance for the duration of the departure determination, adjusted to a point in the year when Mr Oxby will typically be in a position to produce financial statements regarding his business in the event that his financial circumstances need to be reassessed.

DECISION

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

1. For the period 13 March 2018 to 30 September 2021, Mr Oxby’s adjusted taxable income is varied to $52,000pa, with that amount be increased by the Consumer Price Index National Weighted Average for the preceding March quarter  on 1 July 2019, 1 July 2020 and 1 July 2021.

2. For the period 13 March 2018 to 18 December 2018, Mrs Kilner’s adjusted taxable income is varied to $43,081pa.

3. For the period 13 March 2018 to 31 December 2018 the annual rate of child support is increased by $2652.

4. For the period 1 January 2019 to 31 December 2019 the annual rate of child support is increased by $2243.

5. For the period 1 January 2020 to 31 December 2020 the annual rate of child support is increased by $1230

6. For the period 1 January 2021 to 30 September 2021 the annual rate of child support is increased by $1291.