Palfrey and Purdon (Child support)

[2022] AATA 227

Palfrey and Purdon (Child support) [2022] AATA 227 (6 January 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/BC021573

APPLICANT:  Ms Palfrey

OTHER PARTIES:  Child Support Registrar

Mr Purdon

TRIBUNAL:Member J Thomson

DECISION DATE:  6 January 2022

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that for the period 14 October 2020 to 31 October 2023, Mr Purdon’s adjusted taxable income is varied to $67,200 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – 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 omitted 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. Ms Palfrey and Mr Purdon are the parents of [Child 1], born 2012, and in the 100% care of Ms Palfrey.

2. On 14 October 2020 Ms Palfrey applied to the Child Support Agency (the Agency) for a change of assessment of child support for [Child 1] payable by Mr Purdon on the grounds that his income, property and financial resources were not accurately reflected in the administrative assessment of child support, making the assessment unfair, unjust and inequitable (the ground commonly referred to as Reason 8A).

3. The administrative assessment of child support in place at the time of Ms Palfrey’s application for a change of assessment required Mr Purdon to pay child support for [Child 1] at the annual rate of $443 for the period 1 May 2020 to 31 July 2021 based on his 2018/19 adjusted taxable income (ATI) of $25,000 and Ms Palfrey’s 2018/19 ATI of $115,455.

4. On 10 December 2020 an Agency decision maker [found] Reason 8A established and changed the assessment as follows:

   ·From 10 December 2020 to 9 December 2022 Mr Purdon’s ATI is set at $60,000.

5. On 24 January 2021, Mr Purdon objected to [the original] decision, and on 4 May 2021, an Agency objections officer partially allowed his objection, setting aside [that] decision and in its place, substituting the following decision:

   ·For the period 14 October 2020 to 31 October 2023, the annual rate of child support payable by Mr Purdon is set at $4,800.

6. On 27 May 2021, Mr Purdon applied to the Tribunal for review of the objections officer’s decision of 4 May 2021.

7. The Tribunal heard the matter on 4 November 2021. Both parents attended the hearing via conference telephone and gave affirmed evidence. The Tribunal had before it documentation provided by the Agency (Exhibit 1), Ms Palfrey (Exhibit A) and Mr Purdon (Exhibit B). At the conclusion of the hearing, Ms Palfrey was directed by the Tribunal to provide copies of her 2020/21 income tax return and related schedules, and Mr Purdon was directed by the Tribunal to provide a copy of his 2020/21 income tax return and related schedules. These documents have been provided and added to Exhibits A and B and copies provided to the respective parties for their consideration and comment.

ISSUES

1. The issues which arise in this case are reflected in the Tribunal’s Reasons set out below:

CONSIDERATION

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

The legislative framework

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act), the relevant provisions of which are set out below.

2. 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 an administrative assessment (a process commonly known as a “change of assessment”). Under subsection 98C(1), the Registrar may make such 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)(i));

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

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

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

4. 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 Tribunal may make 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 ATI or the cost percentage for a child.

5. Subparagraph 117(2)(c)(ia) (commonly referred to as Reason 8A) provides as a ground for departure:

   (c) that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child…

   (ia) because of the income. Property and financial resources of either parent…

6. 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 which is special or out of the ordinary. That is, the intention of the legislature is that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. 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 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.

Ms Palfrey’s evidence

1. Ms Palfrey’s evidence at the hearing focused on Mr Purdon’s sources of income, his property holdings with his partner, [Partner A], in [specified locations in] Queensland, and his borrowing capacity.

2. She gave evidence that Mr Purdon had operated a well-established [business] under the company name [Business 1] since 2009 which, she asserted, he had recently sold at under value for $28,000. She also gave evidence that until December 2019, he had been paying child support for their child [Child 1] at the monthly rate of approximately $750.00, which had reduced following a change of assessment application determination in March 2020 to approximately $400.00 per month ($4,800.00 per annum), which is approximately the current rate of child support he is paying, based on his 2018/19 ATI of $25,000 and Ms Palfrey’s 2018/19 ATI of $115,435.

3. She also gave evidence that Mr Purdon derives income from [a service 2] business he has been operating since 2014 (at or about the time the parents separated) under the company name [Business 2], using the business name “[Business 3]”, asserting he derived approximately $250 per week (annualised to approximately $13,000) from this source. She also gave evidence that he had recently borrowed funds to purchase two properties, from one of which he was deriving an income she estimated at approximately $450 per week (annualised to $23,000), and in or about December 2019, he had completed his obligation to remit the $35,280 balance of a $90,000 family law property settlement he had concluded with Ms Palfrey in or about late 2018 or early 2019. She submitted this unexplained source of funds was evidence of another undisclosed income source available to Mr Purdon.

4. Ms Palfrey acknowledged that she had no evidence to support her assertion that Mr Purdon had sold his [Business 1] business for under value, although she accepted that he had sold this business for approximately $28,000. She also asserted in her evidence that Mr Purdon had derived income in the form of Director’s fees of approximately $6,220 per annum from his [Business 1] and referred the Tribunal to the 2020/21 financial year profit and loss statement for the business, before the Tribunal at page B103 of Exhibit B, reflecting a profit of $52,020 for that financial year.

5. She gave evidence that she is currently employed as [an occupation 1] with [Employer 1] in Brisbane on a 2019/20 annual salary of $115,000. However, she gave evidence that her income for the 2020/21 financial year is likely to be approximately $105,151. She said this is her only source of income.

6. Mr Purdon did not challenge Ms Palfrey’s evidence regarding her current income status.

Mr Purdon’s evidence

1. Mr Purdon gave evidence that he was the sole director of [Business 1], the [service 1] company he operated until he sold the business in April 2021 for $28,000. A copy of the contract of sale was before the Tribunal as part of the Agency’s documentation at pages 285 to 293 of Exhibit 1 as was an Australian Securities and Investment Commission (ASIC) business name search of the company at pages 230 to 234 of the Agency’s papers, Exhibit 1.

2. Mr Purdon provided a copy of [Business 1’s] Profit and Loss statement for the 2020/21 financial year reflecting a profit of $52,020 for that financial year at page B103 of Exhibit B and a copy of the final 2020/21 income tax return for the company reflecting director’s fees paid to Mr Purdon of $6,220 in that year reflected in his 2020/21 income tax return, a copy of which he provided to the Tribunal at its post hearing direction and this was added to his documentation, Exhibit B.

3. He acknowledged in response to questioning by the Tribunal at hearing that the company had derived a profit of $52,020 for the 2020/21 financial year, as reflected in the Profit and Loss statement at page B103 of Exhibit B referred to in Ms Palfrey’s evidence above. However, he said since finalising the sale of the [Business 1] business on 10 April 2021, he has not received any further income from this source.

4. He also gave evidence of his professional qualifications, stating he holds a [Qualification 1] from [University 1], and confirmed that since 2014, he has been operating [a service 2] business through the corporate entity [Business 2], of which he is the sole director, as evidenced in the ASIC search at pages 232 to 233 of the Agency’s papers, Exhibit 1.

5. Mr Purdon gave evidence that through [Business 2], he markets a [service 2] product under the business name of “[Business 3]” a [specified service, and] he issues invoices to his clientele on a monthly basis. He provided evidence of his income from this source in the form of tax invoices for the period 28 March 2021 to 23 September 2021 (see pages B13 to B67 of Exhibit B).

6. He acknowledged in response to discussion with the Tribunal at the hearing that he derived income of approximately $2,500 in the 2020/21 financial year from this source. His 2020/21 financial year income tax return provided to the Tribunal post hearing reflects his income from [Business 2] for that year at $4,383.

7. In response to Ms Palfrey’s evidence regarding his property interests, Mr Purdon gave evidence that he and his partner, [Partner A], [an occupation 2], are the registered proprietors of three properties at the following locations:

   ·[Property 1];

   ·[Property 2]; and

   ·[Property 3].

8. [Property 1] is his residence. [Property 2] is rented at a weekly rent of $450.00 (annualised to $23,400). As this property is jointly owned with his partner, [Partner A], he gave evidence that the rental income is shared equally with [Partner A]. The property search at page 227 of Exhibit 1 reflects Mr Purdon as the sole registered owner of this property, and the copy of his 2020/21 income tax return he provided to the Tribunal post hearing suggests there was no apportionment of the rental income he received in that financial year.

9. He gave evidence at the hearing that [Property 3] is an investment property, but is not in a habitable state and not returning any income. Ms Palfrey did not challenge his evidence in this regard.

10. Mr Purdon provided a Statement of Financial Circumstances (SOFC) dated 10 June 2021 prior to the hearing. Extensive questioning by the Tribunal at the hearing regarding his income and real property assets and liabilities reflected in this document revealed significant errors and omissions in this document, and he was directed to provide a more accurate current SOFC post hearing together with copies of his and his business entities income tax returns for the 2020/21 financial year prepared by his accountants.

11. In compliance with this direction, he has done so. His amended SOFC dated 24 November 2021 records his 50% interests in the three properties referred to above together with the mortgage debts relating to each property. He also lists his current income sources, including his rental income from [Property 2], which he lists at $230 per week. His income tax return for the 2020/21 financial year reflects income from his [service 2] business, [Business 2], of $4,383, his [Business 1] director’s fees of $6,220, and net rental income of $1,956.

12. Mr Purdon had earlier provided the Agency with a copy of a letter from his property financiers, [named], dated 3 March 2021 (see page 259 of Exhibit 1) confirming that it had relied upon the superior income of Mr Purdon’s partner, [Partner A], in its decision to fund the joint property acquisitions referred to in the evidence above. Both versions of Mr Purdon’s SOFCs reflect [Partner A’s] income at $3,500 per week, annualised to $182,000.

13. Mr Purdon gave evidence at the hearing that his partner, [Partner A] had gifted him the sum of $30,000 to enable him to complete his obligations in accordance with the terms of the family law property settlement with Ms Palfrey, and provided a letter from [Partner A] to that effect (see page B12 of Exhibit B).

14. Ms Palfrey did not challenge this evidence.

15. At the hearing, Mr Purdon acknowledged that the profit from [Business 1], reflected at $52,020 in the Profit and Loss statement he provided for the 2020/21 financial year was a resource available to him for child support purposes, together with his income from the [Business 2] “[Business 3]” [service 2] business which he said was approximately $2,500, and his share of the rental from [Property 2], which he acknowledged was approximately $11,700, a total income of approximately $67,200. He accepted this as an accurate reflection of his average income earning capacity and income available to him for child support purposes.

16. At the hearing, Ms Palfrey acknowledged that she accepted that the evidence, on balance, available to the Tribunal was that Mr Purdon’s income, property and financial resources available to him for child support purposes was approximately in the range of $67,200, and that she was prepared to accept a determination of his ATI for child support purposes at $67,200.

17. The Tribunal is satisfied that the evidence, on balance, is that Mr Purdon’s income, property and financial resources available to him for child support purposes is to a level of approximately $67,200.

18. The administrative assessment at the time of Ms Palfrey’s change of assessment application on 14 October 2020 required Mr Purdon to pay child support for the period 1 May 2020 to 21 July 2021 at the rate of $443.00 per annum based on his 2018/19 ATI of $25,000, and Ms Palfrey’s 2018/19 ATI of $115,435. The Tribunal has found his income for the 2020/21 financial year was at a level of approximately $67,200, making the assessment unfair, unjust and inequitable, and a ground for departure from the administrative assessment established.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable and otherwise proper directs attention to what is fair to the parents, their children and the community. 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. No evidence was provided at the hearing to suggest that either parent or the child in the assessment, [Child 1], has special needs.

3. Ms Palfrey provided a statement of financial circumstances dated 7 July 2021 listing her occupation as [an occupation 1]. As noted above, she gave evidence that she estimates her income for the current financial year ended 30 June 2021 at approximately $105,151. This accords with her SOFC estimate of $2,000 per week, annualised to $104,000. She is not in receipt of any government benefits or other income and lists her current partner’s income as $300 per week, annualised to $15,600.

4. She lists assets to a total value of $548,300, comprising the residential property valued at $530,000, negligible bank savings, a 2014 [Vehicle 1] motor vehicle and household contents to a combined value of $18,300. She lists liabilities totalling approximately $499,013, comprising home mortgage debt of $454,679, a car loan on her motor vehicle approximately $34,000, personal borrowings of $5,000, income tax debt of approximately $3,000 and negligible credit card debt. She reports her superannuation accumulation [at] $133,998, unremarkable personal expenditure of $572 per week and average weekly household expenditure of $2,014, including mortgage repayments of $490 per week, and other unremarkable household expenses.

5. Mr Purdon did not seriously challenge Ms Palfrey’s affirmed SOFC.

6. The Tribunal has already commented upon the two SOFC’s provided by Mr Purdon in the reasons set out above. In his more recent SOFC provided at the direction of the Tribunal, post hearing, dated 24 November 2021 (the more reliable statement), he lists his occupation as self-employed. The Tribunal has already dealt with his sources of income, including his partner’s income in the reasons set out above.

7. He lists assets totalling $666,500, comprising the three properties referred to above, estimating his 50% interest in those properties approximately $1,305,000 against a total mortgage debt of approximately $1,158,392, a 2010 [Vehicle 2] motor vehicle valued at $6,500 and household contents of $15,000. He lists additional liabilities comprising a [Business 1] GST tax debt of $21,000, the subject of a repayment plan with the Australian Taxation Office, a personal tax debt of $8,638, and a Commonwealth study assistance loan of $69,000. He reports no superannuation entitlement.

8. His weekly personal expenditure items were unremarkable as were his average weekly household expenses totalling $1,820.

9. The Tribunal is satisfied that, having regard to his income, property interests and financial resources, its decision to vary his ATI to $67,200 will not cause undue hardship to him or his family.

Conclusion

1. Ms Palfrey sought a departure from the administrative assessment of child support in October 2020 at a time when Mr Purdon was assessed to pay child support calculated using an ATI for him which did not take into account his actual income from his various business and other financial resources. The Tribunal has found a ground to depart from the administrative assessment and determined that his ATI should be varied to $67,200 per annum from the date of Ms Palfrey’s change of assessment application on 14 October 2020.

2. At the hearing, Mr Purdon acknowledged that he had the capacity to generate income and provide financial support at a level of approximately $67,200 per annum. Applying the child support calculator using the varied income for Mr Purdon of $67,200 results in him being required to pay child support at a monthly rate of approximately $410 to $500.

1. Having regard to the evidence given by Mr Purdon at the hearing, and his financial circumstances generally, the Tribunal considers it appropriate to vary his ATI for the period 14 October 2020 to 31 October 2023.

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 the entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. Varying Mr Purdon’s ATI to $67,200 from the ATI of $25,000 used in the administrative assessment to more accurately reflect the level of his income, property and financial resources available to him for child support purposes will result in an appropriate apportionment of financial responsibility between the parents and 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 14 October 2020 to 31 October 2023, Mr Purdon’s adjusted taxable income is varied to $67,200 per annum.