Parkin and Hunter (Child support) - [2024] ARTA 208

Parkin and Hunter (Child support) [2024] ARTA 208 (4 November 2024)

Applicant/s: Mr Parkin

Respondent: Child Support Registrar

Other Parties: Miss Hunter
Tribunal Number: 2024/AC027552
Tribunal: General Member P Noonan
Place:Melbourne
Date:04 November 2024

Decision:
The Tribunal sets aside the decision under review and in substitution decides that: for the period 7 October 2023 to 31 March 2026, Mr Parkin’s adjusted taxable income is varied to $98,752.00 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources – Adjusted Taxable Income – personal taxation return – benefits derived from business – depreciation – 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 pursuant to subsection 16(2AB) of the Child Support (Registration and Collection) Act 1988.

Statement of Reasons

BACKGROUND

Mr Parkin and Miss Hunter are the parents of one child currently relevant to the child support assessment under review.
A child support case was first registered with Services Australia – Child Support (Child Support) on 30 March 2016 and child support has been registered for collection by Child Support from 1 December 2020. Child Support currently maintains a case completion date for this matter of 14 July 2033.
On 2 August 2023 Miss Hunter applied for a change to the assessment which at that time was for the period 7 October 2023 to 6 November 2023 and Mr Parkin was assessed to pay child support of $10,760 per annum based on his 2022/23 provisional income of $124,442 and Miss Hunter’s 2022/23 adjusted taxable income (ATI) of $38,729.
On 13 November 2023, a Child Support officer, acting as a delegate of the Registrar, found that a ground for departure was established in the following terms: “For the period 7 October 2023 to 30 April 2025, the ATI of Mr Parkin is set at $99,752 per annum”.
Mr Parkin objected to this decision and on 16 February 2024 the objections officer decided to partially allow the objection and depart from the assessment in the following terms: “For the period 7 October 2023 until 31 October 2025, the Adjusted Taxable Income (ATI) for Mr Parkin shall be set at $115,178”.
On 22 February 2024 Mr Parkin applied to the Administrative Appeals Tribunal for an independent hearing of Child Support’s decision. From 14 October 2024, the Administrative Appeals Tribunal (AAT) became the Administrative Review Tribunal (the Tribunal). Under the transitional provisions in the Administrative Review Tribunal (Consequential and Transitional Provisions No. 1) Act 2024 (the Transitional Act), applications for review to the AAT that were not finalised before 14 October 2024 are taken to be an application for review to the Tribunal. The Transitional Act gives the Tribunal the authority to continue and finalise any aspect of the review not already completed by the AAT. This decision and statement of reasons is made by the Tribunal.
The Tribunal dismissed Mr Parkin’s appeal for non-compliance with Tribunal Directions, however it then reinstated the appeal once compliance had been achieved, and a hearing for the matter was held on 4 November 2024 by conference telephone. The Registrar did not attend the hearing. Mr Parkin attended the hearing and gave evidence on affirmation. Miss Hunter advised just prior to the commencement of the hearing that she had broken the screen on her phone and asked for an adjournment of the hearing. The Tribunal refused this request for an adjournment. The Tribunal advised Miss Hunter to provide an alternative contact number prior to the commencement of the hearing however she did not do so and the Tribunal was unable to contact her at the appointed time of the hearing. Pursuant to section 81 of the Administrative Review Tribunal Act2024 the Tribunal proceeded with the hearing in her absence.
Pursuant to paragraph 98C(1)(b) of the Child Support (Assessment) Act 1989 (the Act), a decision to depart from the administrative assessment may be made if the following requirements are met:
(i)that one, or more than one, of the grounds for departure referred to in [subsection 117(2)] exists; and
(ii)that it would be:
(A) just and equitable as regards the child, the liable parent, and the carer entitled to child support; and
(B) otherwise proper; …

CONSIDERATION

The parents’ incomes and access to financial resources

Subparagraphs 117(2)(c)(ia) and (ib) of the Act, commonly referred to as Reason 8, provide as grounds 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; or
(ib) because of the earning capacity of either parent; …
The term “special circumstances” is not defined in the legislation. In Gyselman and Gyselman (1992) FLC 92-279, the Full Family Court indicated that for special circumstances to exist, the facts of the case must establish something which is special or out of the ordinary.
Mr Parkin owns a [business 1]. He submitted final financials for the business with respect to the 2022/23 financial year and for his personal taxation return. These were not available to the objections officer and that decision was largely based upon average profit to expense ratios for the business type as maintained by the Australian Taxation Office.
The Tribunal carefully assessed the business financials and is satisfied that they have been prepared using accounting software and an accountant and are the basis upon which the taxation returns for the business and Mr Parkin personally have been finalised.
The Tribunal started with Mr Parkin’s 2022/23 personal taxation return. This reflects that his taxable income was $66,416.00. This consisted of wages from Mr Parkin’s business of $28,512.00, a franked dividend of $28,663.00 and a franking credit of $9,554.00, both from the business.
The Tribunal discussed with Mr Parkin that it is a well-established principle that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources (DJM and JLM [1988] FamCA 97, Scott and Scott (1994) FLC 92-457, Carey and Carey (1994) FLC 92-489). When summarised, these cases establish that a ground of departure is established if self-employed people are able to derive additional benefits from their businesses, and also have a greater control over the structure of their finances than a PAYG employee.
The business had a gross profit of $916,124.00 up from $734,625.00 in 2021/22. The business claimed $34,500.00 in depreciation expenses in 2022/23, which it did not in 2021/22. Mr Parkin explained this claim was in respect to [an item 1] purchase which he uses for promotional purposes of the business and which accounted for $20,000.00 in depreciation claimed. The residual was in respect to [an equipment] purchase.
The Department’s Child Support Guide discusses the treatment of depreciation as follows:
Depreciation represents the loss or expense attributed to the use of business property or equipment. It is an entry in the business account that is not necessarily an expense that is actually incurred by the business. The aim of depreciation is to spread the cost of a capital asset (for example, motor vehicle, plant and equipment, machinery, building) over the period of its useful life, with a portion of the cost being expensed each financial year.
A claim for depreciation can mean that a parent has financial resources available to them that are not necessarily reflected in their taxable income or the resources of the business. In cases that involve depreciation, the Registrar will determine whether receiving a benefit through claiming depreciation expenses results in a parent having greater financial resources or income than their taxable income would indicate. The Registrar will consider a parent's complete financial situation including the business' overall financial position and the individual circumstances of the case.
Example: If business income is reduced by $10,000 as a result of depreciation and that amount is then used for day-to-day personal expenses the depreciation amount may be considered as an additional resource and added back to the parent's ATI.
Before depreciation expenses can be taken into account as income or a financial resource personally available to the parent, the underlying nature of the depreciation expense must be determined. If the amount claimed as depreciation is used or set aside for replacing equipment (for example, a capital replacement fund) or is actually accounted for as part of ongoing business activities (for example, to repay a loan on a depreciating asset or to otherwise reduce business debt), then this is unlikely to provide the parent with additional financial resources. Similarly, if the business operates at a loss even after accounting for depreciation expenses, these expenses will not be available to the parent as a personal financial resource. On the other hand, if the parent spends the benefit of depreciation on day-to-day living expenses or recreational expenses this will most likely be a reason for changing the assessment.
The Registrar can also consider the asset that is the subject of the depreciation expense, whether the asset is used for both business and private activities and whether the written down value is a reflection of market value.
While not bound by policy, in Drake and Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 it was established that a Tribunal should take into account government policy that is not inconsistent with the provisions or objects of the legislation. The Tribunal is satisfied that the policy in this instance is not inconsistent with the objects of the legislation.
Mr Parkin was unable to state if the depreciation claimed had been set aside for future capital purchases. The Tribunal noted that non-current liabilities in the form of a foundation loan linked to the purchase of the business had reduced by $19,154. The Tribunal will attribute this to depreciation and the residual is to be added back as the rest of the money claimed has not been used to reduce debt and has not been set aside for future capital purchases and the business runs at a profit. The residual depreciation amount to be added back is therefore $15,346.00.
In addition to the above Mr Parkin gave evidence that he has been using the business to meet some of his personal costs associated with his motor vehicle and for utility costs. He estimated the value of the utilities claim to him at around $3,000 per annum. The Tribunal notes that he also gains a phone benefit. The Tribunal will attribute an estimate of $6,000 in personal benefits per annum to these items in total.
The only other item that stood out as providing a personal benefit to Mr Parkin was the net profit of $39,653.00. The residual, after the dividend was paid, was retained in earnings. This amount was $10,990.00. While retained earnings is a legitimate business practice it also clearly constitutes money otherwise available to Mr Parkin for child support purposes.
In total then the Tribunal calculates the overall financial resources available to Mr Parkin at $98,752.00.
The Tribunal also reviewed and discussed Miss Hunter’s income and overall access to financial resources. Her income is derived from single parenting payment and child support payments and the income recorded in the assessment was $38,729 in 2022/23 and $26,019 from 4 March 2024. There was no evidence before the Tribunal that corroborated Mr Parkin’s assertion that her access to financial resources may be more than this. Accordingly it is appropriate to not depart from the administrative assessment with respect to Miss Hunter’s income.
Under the administrative assessment the annual rate of child support payable by Mr Parkin at the time of the departure application made by Miss Hunter was $10,760.00 per annum. Given the above considerations, the Tribunal calculates that the annual amount of child support payable by Mr Parkin is approximately $8,239.00 per annum. Such a difference in the child support payable constitutes special circumstances as the application of the assessment existing at the time of the review would result in an unjust and inequitable determination of the level of financial support to be provided by Mr Parkin in support of the child. As a result, a ground for departure in subparagraph 117(2)(c)(ia) of the Act exists.

Would departure from the assessment be just and equitable?

In considering this question the Tribunal had regard to the matters referred to in subsection117(4) of the Act.
Miss Hunter submitted a Statement of Financial Circumstances for the Tribunal’s consideration. She disclosed minimal savings and superannuation. She also disclosed minimal liabilities. She disclosed $637.00 per week in expenses or $33,214.00 per annum. This is roughly in accordance with her income and the Tribunal accepts it as reasonable.
Mr Parkin told the Tribunal he owns his home with a mortgage of $370,000.00. He has a debt to the tax office but also clearly enjoys some personal income and taxation benefits from the business not available to the ordinary income earner.
The Tribunal considered the potential hardship to Mr Parkin of an annual child support payment of approximately $8,239.00 per annum or $158.00 per week from the date set by the objections officer until 4 March 2024 and approximately $8,740 per annum or $168.00 per week from then. This is based upon care of 313 nights to Ms Hunter and this amount varies automatically with changes in care that may occur and with respect to Miss Hunter’s estimated and subsequently reconciled income.
The Tribunal notes Mr Parkin’s evidence that his business is a continuing entity and that it has a solid history of trading at a profit which increased in the past financial year and has significant gross profit. The Tribunal notes that this departure also reduced the amount of child support payable by him. The Tribunal is satisfied that he will not be placed in undue hardship by this departure decision. The Tribunal considers that Mr Parkin has access to sufficient financial resources to meet his necessary costs for self-support while making a contribution towards the financial support of the child that is commensurate with the income assessed for him by the Tribunal.
With respect to Miss Hunter the Tribunal is satisfied that she is in need of child support. She will be paid according to the Tribunal’s assessment of Mr Parkin’s capacity to do so.
Overall there was nothing in the material before the Tribunal to suggest that departing in the terms set out above would cause either parent or the child undue hardship and as such that it would not be just and equitable.

The child

In determining the proper needs of the child, it is necessary to have regard to the manner in which the child is being, and in which the parents expect the child to be, cared for, educated or trained, and any special needs of the child (subsection 117(6) of the Act). In Eades & Cadell (SSAT Appeal) [2009] FMCAfam 275, at paragraph 22, Slack FM stated as follows:
In considering the proper needs of the child [s 117(4)(b)], the SSAT:
a.would ordinarily consider the evidence of the parties about the needs of the children to assess the reasonableness and quantum of those needs;
b.may have regard to published guidelines as to the needs of the children (see Hallinan & Witynski at 94.323);
c.may also have regard to the costs of children used in the assessment of child support under the existing formula arrangements [although it is not sufficient or appropriate to rely upon the formula to perform that task, Lindenmayer J in Dwyer & McGuire (1993) FLC92-420 (and see also Gyselman (supra) at 79.078)].
No education or significant special needs costs were raised with respect to the child. Overall, the Tribunal considers this an appropriate case to largely distribute the costs of raising the child using the Costs of the Children Table maintained by Child Support, which is based on social science research giving the average costs of children in various family income brackets.
With respect to an appropriate departure date range the Tribunal will maintain the previous start date set by the objections officer and end the departure decision on 31 March 2026. This will enable both parents to plan their finances for supporting the child with some certainty for a period of time.

Conclusions

As discussed during the hearing, the principal object of the Act is to ensure that children receive a proper level of financial support from their parents. Further, the Tribunal notes the statements contained in sections 3 and 4 of the Act to the following effect:
·      parents of a child have a primary duty to maintain the child;
·      the duty has a priority over all other commitments of the parent other than commitments necessary for self-support;
·      the level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards; and
·      the level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.
The Tribunal considers that it is just and equitable to depart from the administrative assessment of child support payable in this matter.
The Tribunal is satisfied that an appropriate departure determination in this matter is as follows:
·For the period 7 October 2023 to 31 March 2026 Mr Parkin’s adjusted taxable income is varied to $98,752.00 per annum.
Overall, the Tribunal considers this departure determination is a just and equitable outcome with regard to the respective situations of each parent.

Otherwise proper

The Tribunal is satisfied that changing the amount of child support payable will not have any adverse effect upon the community as this decision results in the parents being required to pay child support according to their actual capacity to do so. Such a result would be otherwise proper.

DECISION

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

·For the period 7 October 2023 to 31 March 2026, Mr Parkin’s adjusted taxable income is varied to $98,752.00 per annum.

Date of hearing:

Monday, 4 November 2024