Pannell and Pannell (Child support)

[2018] AATA 4898

Pannell and Pannell (Child support) [2018] AATA 4898 (10 December 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/AC014702

APPLICANT:  Mr Pannell

OTHER PARTIES:  Child Support Registrar

Ms Pannell

TRIBUNAL:Member K Millar

DECISION DATE:  10 December 2018

DECISION:

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

·     For the period from 23 June 2018 to 31 December 2018 the cost of the child for [Child 1] is increased by $2,790 per annum and the costs of the child for [Child 2] are increased by $1,280 per annum. 

·     For the period 1 January 2019 to 31 December 2019 the costs of the child for [Child 1] are increased by $2,810 per annum and for [Child 2] the costs of the child are increased by $1,470 per annum.

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 - 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 Pannell and Ms Pannell have three children, [Child 3], [Child 1] and [Child 2].  Mr Pannell pays child support for the support of [Child 1] and [Child 2] as [Child 3] is now over 18 years of age.  The children are in Ms Pannell’s 93% care.

2. Child support payments made by Mr Pannell have been governed by a child support agreement which ended 23 June 2018.  Under this previous agreement Mr Pannell paid child support as assessed by the child support agency as well as school fees, health insurance for the children, gap fees with respect to the health insurance and shared equally the extra-curricular and related expenses.    

3. Mr Pannell’s 2017 taxable income was $274,118 and his estimate of his 2018 taxable income was $218,466.  He provided his 2018 tax return with a taxable income of $221,321.  Ms Pannell’s 2017 taxable income was $45,089 and her 2018 taxable income was $13,944. 

4. The child support periods that apply are 1 September 2017 to 31 August 2018 and 1 September 2018 to 30 November 2019. 

5. On 5 April 2018, Ms Pannell applied for a departure from the administrative assessment in light of the ending of the child support agreement.  Ms Pannell sought a departure on the basis of the costs of educating the children and the special needs of the children.

6. A senior case officer found there was a ground to depart from the administrative assessment on the basis of the school fees, and increase the rate of child support paid by Mr Pannell by $6,101 for the period 23 June 2018 to 31 December 2018 and by $6,406 for the period 1 January 2019 to 31 December 2019 to reflect the school fees for [Child 1] and [Child 2].

7. Mr Pannell objected to this decision on the basis that it was not his expectation that the children were privately educated and his income was less than the adjusted taxable income previously set for him under a different departure determination.  An objections officer partly allowed his objection and increased the annual rate of child support payable by Mr Pannell by $3,200 for the period 23 June 2018 to 31 December 2018 and then at 80% of the school fees for [Child 1] and [Child 2] until [Child 2] finishes his secondary education. 

8. Mr Pannell has applied to this Tribunal for a review of this decision, on the basis that he did not agree to the children being privately educated. 

   CONSIDERATION

9. The statutory provisions relevant to this review are 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).

10. In the usual course of events, the rate of child support is based on an administrative assessment under Part 5 of the Act. The rate is calculated according to a statutory formula that takes into account factors such as the number of children, the percentage of care provided and the income of each parent.

11. A parent or a carer can apply to the Child Support Registrar under section 98B of the Act for a decision to depart from the administrative assessment under Part 6A of the Act. To change the administrative assessment of child support, the parent must show the matters set out in section 98C of the Act, being:

    · There is one or more of the grounds for departure from the administrative assessment listed in subsection 117(2) of the Act; and

    ·     It is just and equitable to depart from the administrative assessment; and

    · That it is otherwise proper to depart from the administrative assessment (section 98C of the Act).

12. In this case, Ms Pannell relies on the costs of educating [Child 1] and [Child 2] and [Child 2’s] special needs.  Mr Pannell raised Ms Pannell’s income, property and financial resources.   As he has recently moved to [another part of Australia], and incurs costs to see the children, his costs of spending time with or communicating with the children was also considered.  

Is there a ground to depart from the administrative assessment?

1. In her application to depart from the administrative assessment, Ms Pannell relied on the cost of [Child 2’s] special needs and the cost of education for [Child 1] and [Child 2]. The Tribunal has considered each of the grounds raised in turn. 

School fees

1. The ground in subparagraph 117(2)(b)(ii) of the Act states that it is a ground to depart from the administrative assessment where, in the special circumstances of the case, the costs of maintaining the child are significantly affected because the child is being cared for, educated or trained in the manner that was expected by his or her parents.

2. [Child 1] and [Child 2] attend [School 1].  Mr Pannell submits it was always Ms Pannell’s intention to send the children to this school and not his intention.  He says he did not agree with this decision and it was made against his will while he was away working.  He thinks it is an unnecessary cost and was happy for the children to attend a public school.

3. The enrolment forms are signed only by Ms Pannell and not by Mr Pannell.

4. The children were enrolled in this school in April 2013.  The parties separated in October 2014, a date confirmed by the child support agreement.  In the child support agreement Mr Pannell agrees he will pay the school fees for a private school and that Ms Pannell is to provide him the invoices for this purpose.

5. Ms Pannell said all of the children were baptised in the Catholic Church.  The children attended a Catholic School in [Country 1] before they migrated to Australia, however Mr Pannell said this was not a private school. [Child 3] attended an all-girls Catholic secondary school in [Country 1].

6. Ms Pannell said that on migrating to Australian all three children attended a Catholic school.  They moved to [Region 1] in 2013 and enrolled all three children at [School 1], however [Child 2] had to go on a waiting list, and in the 18 months he was on the waiting list he attended a public school.  Ms Pannell said this was not a success due to the lack of support he received.

7. I am satisfied that both parents intended the children to attend a Catholic school.  This is shown by the school they attended both in [Country 1] and Australia over a long period of time.  There is only one period in which [Child 2] attended a public school, and I am satisfied this was because he was waiting for a position with [School 1].  The children were attending a Catholic School before the parents separated.   

8. In these circumstances, I do not accept that Mr Pannell did not intend for the children to attend the particular school they currently attend.  As a result, I find that the parents intended that the children would attend [School 1].

9. The tuition fee, capital levy, P&F levy and resources levy for [Child 1] and [Child 2] in the 2018 and 2019 school years, as shown on the [school’s] internet site[1] are as shown below:

   [1] [Deleted.]

2018	2019
[Child 1]	$4,290 (Year 8)	$4,328
[Child 2]	$2,320 (Year 6)	$2,950

1. Ms Pannell’s 2017 taxable income was $45,089 and her 2018 taxable income was $13,944.  In these circumstances her costs in maintaining the children are significantly affected by the school fees.

2. Mr Pannell said he was advised by his lawyer that when the child support agreement ended this would end his obligation to meet the school fees for the children.  The agreement is expressed to cease on [Child 3’s] 18^th birthday.  It states at cl.3.8 that the parties agree that on the termination of the agreement they will negotiate terms of a further limited child support agreement.  It follows that while Mr Pannell may have understood that the end of the child support agreement ended some of his lability, the agreement does not reflect this.  I consider the end of the child support agreement was to reflect the cessation of liability for [Child 3] and was not to end Mr Pannell’s liability for the school fees for [Child 1] and [Child 2]. 

3. In the special circumstance of the case, where I have found the parents intended that the children attend a private school, the costs of maintaining them are significantly affected because of this education and this ground is established.  

[Child 2’s] special needs

1. Subparagraph 117(2)(b)(ia) of the Act sets out a ground to depart from the administrative assessment where, in the special circumstances of the case, the costs of maintaining a child are significantly affected by his or her special needs.

2. Ms Pannell provided a letter from [Child 2’s] paediatrician stating he has been diagnosed with [a condition].  Ms Pannell says this currently results in medication costs of $5 per month.  He requires review by a paediatrician every six months.  This results in a gap payment of approximately $80 as shown by the table provided by Ms Pannell.

3. At hearing Ms Pannell said at the time she lodged her application it was unknown what [Child 2’s] needs would be so she included this as a ground, but that now his condition has been diagnosed it has not resulted in a high cost.

4. As a result, I find that while [Child 2] has special needs the costs of maintaining him are not significantly affected by these special needs, and this ground is not established.

Ms Pannell’s income, property and financial resources

1. Subparagraph 117(4)(c)(ia) of the Act states it is a ground to depart from the administrative assessment where, in the special circumstances of the case the administrative assessment would result in an unjust and inequitable amount of child support because of the income, property or financial resources of the parent.

2. In his objections, Mr Pannell states that Ms Pannell owns several businesses which are going well.  He says she works from home and receives cash payments.  He says she will be earning more than declared to support her lifestyle.

3. Mr Pannell provided the business numbers for various businesses where the holder of the business name is Ms Pannell as a sole trader.  As all of the business names show that they are held by Ms Pannell personally and not in a corporate structure. All of any income from these businesses should be reflected in her personal tax return.

4. Mr Pannell states Ms Pannell receives cash payments, however there is no evidence of cash payments before me.  Mr Pannell raised Ms Pannell’s stated weekly household expenses which are in excess of her income.  Ms Pannell says she has funded the shortfall.  This was put to her at hearing and she said that until March 2018 she was living with someone else and this assisted with her living expenses.  From March 2018, she said she has used her savings and her bank account balance has fallen from approximately $24,000 in August 2018 to approximately $5,000 at the hearing. 

5. Ms Pannell said she has been building her business as a business coach and has recently signed up three new clients which will bring in $3,000 per month for the next three months.  She said that as this is business expenses for her client which they can claim she issues invoices and does not receive cash in hand.

6. As a small business owner, Ms Pannell can claim for items which can also be for personal use, such as office expenses, car expenses and mobile telephone.  She says she claims a proportion of these expenses in accordance with her business.  Her 2017/2018 taxable income was $13,944, and at this point I do not consider her ability to use any business assets makes the administrative assessment unjust and inequitable. 

7. While it is possible that Ms Pannell receives cash payments for other work, there is insufficient information before me to be satisfied that this is the case or, even it were, whether the amount that is received makes the administrative assessment unjust and inequitable.  Ms Pannell points to the decrease in her bank account to fund the excess of expenditure over her income in her financials.  Prior to March 2018 she said there was another person assisting her to meet the household expenses but that this is no longer the case. 

8. It follows this ground to depart from the administrative assessment is not established. 

Ms Pannell’s earning capacity

1. To be satisfied that a parent’s earning capacity is greater than is reflected in his or her income for the purposes of the Act, one of the following must apply:

   ·       He or she does not work despite ample opportunity to do so;

   ·       He or she has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full-time work for the occupation or industry in which the parent is employed or otherwise engaged;

   ·       He or she has changed his or her occupation, industry or working pattern (paragraph 117(7B)(a)).

2. If one of these factors applies, it is then necessary to consider if the change is justified on the basis of his or her caring responsibilities or his or her state of health (paragraph 117(7B)(b)).  If not, then the onus moves to the parent to show that it was not a major purpose of that decision to affect the assessment of child support. 

3. Ms Pannell was previously working for [Employer 1] full time as a [occupation 1], and commenced in April 2015.  She ceased this work in February 2017.  Ms Pannell has qualifications as [an occupation 1] from [Country 1], but has not had her qualifications accredited in Australia.

4. Ms Pannell said her previous employment ended because the business was not being run efficiently.  As she ceased this work, she has reduced her number of hours per week to below full-time employment, and one of the criteria to establish this ground applies.

5. Since then, Ms Pannell has started her own business as [an occupation 2].  This has involved changing her occupation and working pattern, which established another ground.

6. Given these are established, the Tribunal must look at whether the change is justified on the basis of her health or caring responsibilities.  Ms Pannell says she has started her own business to be available for the children.  Mr Pannell notes that the children were attending out of school hours care when she was working for [Employer 1], and they continue to attend out of school hours care.

7. The Tribunal is mindful that [Child 2] has been diagnosed with [a condition] as shown by the letter from his paediatrician.  On balance, I accept Ms Pannell’s oral evidence that she wants to be available for the children and that the change to working less than full time is justified on the basis of her caring responsibilities.

8. In regard to the cessation of her work for [Employer 1], I am satisfied the company is in liquidation and that the purpose of ceasing work was not to affect the administrative assessment of child support.

9. Mr Pannell also stated he considered that there was plenty of work for [occupation 1]s [in Region 1].  I considered whether it could be said Ms Pannell does not work despite ample opportunity to do so, however as she is working as [an occupation 2], conclude this did not apply.

10. This ground is not established. 

The cost of Mr Pannell in spending time with or communicating with the children

1. A ground for departing from the administrative assessment exists which, in the special circumstances of the case the costs of maintaining the children are significantly affected because of high costs involved in enabling a parent to spend time with or communicate with the children (subparagraph 117(4)(b)(i)).

2. A parent’s costs can only be high if the costs are more than 5% of the parent’s adjusted taxable income in the child support period (subparagraph 117(4)(2B). 

3. Mr Pannell has relocated to [a specified part of Australia].  He said he has done so to provide for his children, and that he could have taken a lower paying job in [the same state] and remained closer to his children. As a result he is incurring higher costs in seeing the children by flying them to [City 1] to see him. While he did not lodge a cross-application on this ground, it is a ground which would be reasonably available to him.

4. Mr Pannell said he had been advised he could claim under this ground by the child support agency, but had not incurred sufficient expenses.  The Tribunal notes that in the previous child support period his costs would need to be in excess of $3,705.90 and for the current child support period in excess of $10,923 for these costs to be considered high.

5. Both parents anticipate he will fly the children to [City 1] in each school holidays. Mr Pannell said he is required to spend a higher amount on airfares as Ms Pannell does not want the children travelling at night, however this has not resulted in high costs as defined in the Act to date.

6. This ground is not established.  

Is it just and equitable to depart from the administrative assessment?

1. As I have found that a ground to depart from the administrative assessment due to the costs of educating the children has been established, it is then necessary to consider the factors in subsection 117(4) to determine if it is just and equitable to make a particular determination.    

The particular determination

1. A determination can be made varying the costs of the children under s.98S(1)(j) of the Registration and Collection Act. In looking at the particular determination that could be made, I have considered the child support that would result from adding the cost of the school fees to the costs of the children.

2. In looking at which component or components of school fees should be added to the cost of supporting the children, I have considered which parts could reasonably be considered to be a part of the existing costs of the children under the administrative assessment.  I concluded the tuition fee and capital levy for each child are the components that are not addressed by the child support Mr Pannell pays. 

3. For [Child 1], the tuition fee and capital levy for 2018 was $2,790 and for 2019 it is $2,810 and for [Child 2] the 2018 tuition fee and capital levy was $1,280 and in 2019 it is $1,470.

4. The particular determination tested was adding these amounts to the costs of the children for these years, as adding the additional costs of the children allows the assessment to change with any changes to the adjusted taxable income of each parent and any change to the percentage of care.  It also reflects the circumstances for the ground which is established. 

5. Mr Pannell was advised at the start of the hearing that this is an approach that may be taken, and that if it was taken this would result in an adverse outcome for him, as on his current taxable income this would result in him meeting 100% of the school fees, rather than the 80% currently set by the objections officer. 

The nature of the duty of a parent to maintain a child

1. Section 3 of the Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain. In this case Mr Pannell and Ms Pannell have the responsibility to maintain [Child 1] and [Child 2] and this has priority over all commitments other than necessary commitments.

The proper needs of the children

1. The children’s education and special needs have been discussed above.

2. Ms Pannell has also sought a further contribution to the costs of the children’s extra-curricular activities, however I consider this is addressed by the administrative assessment of child support.    

The income, property and financial resources of the children

1. Neither parent stated the children had income, property or financial resources from which they can support themselves. 

Income, property and financial resources and earning capacity of the parents

1. The income, property and financial resources and earning capacity of Ms Pannell have been discussed above.  Mr Pannell continues to work full time, and there is no question regarding his earning capacity.

The necessary commitments of each parent

1. Ms Pannell’s expenses considerably exceed her income, and this has resulted in a significant diminution of her savings.  Ms Pannell says she has high food cost as she provides gluten free food for the children, however in the absence of any medical evidence that this is required I do not consider any further allowance should be made for this expense. 

2. Mr Pannell has credit cards, and says his savings will diminish in the next week when he has to pay his credit card bill.  He said any shortfalls in his weekly income are met through his credit cards which he attempts to pay off every month, but he has not been able to clear this debt.  He has loans for his car and a bed.  He said he wants to look at re-entering the property market but cannot meet the deposit required to do so. 

3. While Mr Pannell is attempting to pay his credit cards and has relocated to [City 1], he is on a relatively high taxable income and I consider he is able to meet his necessary commitment plus the additional child support that would result from adding the school fees to the costs of the children in the formula. 

Direct and indirect costs incurred by the carer entitled to child support

1. In having regard to the direct and indirect costs incurred by the carer entitled to child support in providing care for the child, I must have regard to the income and earning capacity foregone by the carer entitled to child support in providing that care (subsection 117(8)).

2. Ms Pannell says she has started her own business because she does not have family in Australia and Mr Pannell has relocated to [City 1] so she has to have the flexibility to be available for the children.    

Hardship to the parents or the children

1. If the child support is reduced, Ms Pannell says she may have to remove the children from their current school.  She says they would struggle at a state school, and that [Child 2] in particular struggles with peer groups and would have difficulty changing schools. 

2. Mr Pannell said that if the child support is increased it will put him further into debt and will mean he is unable to save for the deposit on a house.  He said he is unable to accumulate savings of more than $40,000.  He said the child support remained the same after [Child 3] turned 18, and he was hoping at this time to be able to save for the deposit on a house to provide longer term security for his children when he passes away.

3. Mr Pannell’s taxable income is over $220,000 and Ms Pannell’s has been far lower at approximately $45,000 in 2018 and approximately $14,000 in 2018.  The relative hardship lies with Ms Pannell due to her lower income.  This supports Mr Pannell meeting a greater proportion of the costs of the children. 

4. At this point in time, the hardship to the children in changing schools outweighs the hardship to Mr Pannell in being unable to save for a deposit on a house.  Child support is required for the support of the children while they are children, and not for some future point in time.

Conclusion – just and equitable

1. Having considered all of the factors in subsection 117(4), and particularly the disparity in the income of each parent and the object of the legislation that the children share in the standard of living of both parents, the Tribunal finds it just and equitable to add the costs of the children’s education to the costs of the child in the administrative formula. 

2. At the current income of each parent, this will result in Mr Pannell paying 100% of the school fees.  This may change as Ms Pannell’s income increases.  

Is it otherwise proper to make a particular departure determination?

76. The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act.

77. Subsection 117(5) of the Act sets out the matters that must be considered when deciding whether it would be “otherwise proper” to make a departure determination. Subsection 117(5) focuses on the balance of support carried between the parents on one hand and the taxpayer on the other. It is appropriate for the children to be primarily supported by their parents rather than by government assistance. Paragraph 117(5)(b) of the Act means that the Tribunal must consider whether the level of a benefit, in particular family tax benefit, received by the party caring for the children may be affected by the level of child support.

1. Ms Pannell receives family tax benefit, and any increase to the amount of child support Mr Pannell pays may result in a decrease to the burden on the taxpayer.

The period of the departure from the administrative assessment

1. The parents sought a determination to the time that [Child 2] finishes high school, however the school fees for future years is not known. I also consider a period is required with this decision in place to allow Ms Pannell to see if her income will increase as a result of building her business sufficiently to meet costs for the children she was not required to meet under the limited child support agreement.  The sustainability of the children remaining at the school will need to be determined at that time.

2. As a result, I consider the period of the departure should be from the date the limited child support agreement ended until the end of the 2019 calendar year. 

DECISION:

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

·     For the period from 23 June 2018 to 31 December 2018 the cost of the child for [Child 1] is increased  by $2,790 and the costs of the child for [Child 2] are increased by $1,280. 

·     For the period 1 January 2019 to 31 December 2019 the costs of the child for [Child 1] are increased $2,810 by and for [Child 2] the costs of the child are increased by $1,470.