Parrish & Torrey (SSAT Appeal)
[2009] FMCAfam 274
•1 April 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PARRISH & TORREY (SSAT APPEAL) | [2009] FMCAfam 274 |
| CHILD SUPPORT – Departure application – meaning of just and equitable – relevant considerations – assessment of property value in the context of child support. |
| Child Support (Assessment) Act 1989, ss.117, 117(1)(b)(ii)(A), 117(4), 117(4)(e), 117(7B) |
| Gyselman & Gyselman (1992) FLC ¶92-279; (1991) 15 Fam LR 219 Antmann and Antmann [1980] FLC ¶90-908 Abrahams v. Commissioner of Taxation (1945) 70 CLR 23 Sapir v Sapir (No.2) (1989) FLC ¶92-047 Dwyer v McGuire (1993) FLC ¶92-420 Savery and Savery (1990) FLC ¶92-131 Hides and Hatton (1997) FLC ¶92-759 Hallinan v Witynski [1999] FamCA 1127; (1999) FLC ¶98-009 Ross & McDermott [1998] FamCA 134; (1998) FLC ¶98-003 PJ & Child Support Registrar ( SSAT Appeal) [2007] FMCAfam 829 Tyagi & Meares (SSAT Appeal) [2008] FMCAfam 886 Charnock & Bullions (SSAT Appeal) [2008] FMCAfam 36 Bassingthwaite v Leane (1993) FLC ¶92-410 Humphries and Humphries (1993) FLC ¶92-430 Minister for Immigration & Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259; (1996) 136 ALR 481; (1996) 41 ALD 1; (1996) 70 ALJR 568 |
| Applicant: | MR PARRISH |
| First Respondent: | MS TORREY |
| File Number: | MLC 5166 of 2008 |
| Judgment of: | Riethmuller FM |
| Hearing date: | 26 November 2008 |
| Date of Last Submission: | 12 January 2009 |
| Delivered at: | Melbourne |
| Delivered on: | 1 April 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr Davis |
| Solicitors for the Applicant: | GSM Lawyers |
| Counsel for the Respondent: | Mr Grant |
| Solicitors for the Respondent: | Victoria Legal Aid |
ORDERS
That the decision of the Social Security Appeals Tribunal, appeal MC227067 be set aside.
The matter be remitted to the Social Security Appeals Tribunal to hear and determine according to law.
Any application for costs be made within 90 days.
AND THE COURT NOTES THAT:
Had this been an appeal from a decision of a tribunal covered by the Federal Proceedings (Costs) Act 1981, the relevant costs certificate would have been ordered.
IT IS NOTED that publication of this judgment under the pseudonym Parrish & Torrey is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLC 5166 of 2008
| MR PARRISH |
Applicant
And
| MS TORREY |
First Respondent
REASONS FOR JUDGMENT
The appellant appeals from a decision of the Social Security Appeals Tribunal dated 15 July 2008 where the SSAT determined that the appellant’s child support income amount should be set at
a)$44,895 per annum for the period 2 August 2007 to 20 August 2007, and
b)$129,554.00 for the period 22 August 2007 to 31 December 2008.
It is not apparent from the face of the decision what weekly or monthly rate of child support would flow from the decision.
Background
The Tribunal decision in this case covers a broad range of issues. For the purpose of the argument on the appeal, some background is required to understand how the Tribunal came to the relevant part of their decision.
The appellant works for a company primarily operated and controlled by his mother. His mother owned the business before he commenced working in it and continues to be the person primarily in control of, and directing, the business. The business involves selling clothing on a wholesale basis to retailers. The appellant is paid an income from the company and receives some bonuses from time to time. In addition, he receives superannuation entitlements consisting of the statutory minimum that employers are required to contribute together with additional entitlements. The amount of additional superannuation payments depends on decisions made by his mother based upon the available profits from the company at the end of the financial year and the extent to which they exceed the maximum tax effective contribution that she can make to her own superannuation fund.
At the hearing there was considerable evidence with respect the question of whether or not the appellant was earning an appropriate income amount from the company or whether there were arrangements in place to pay him less than he would otherwise earn in an arm’s length employment relationship. The Tribunal accepted that the business had suffered a downturn in revenue in recent times and that the reduction in working hours by the appellant from 5 days a week to 4 days to week was a genuine result of the business downturn and required by the employer. As a result the Tribunal was satisfied that the appellant was exercising his full earning capacity, after considering s.117(7B).
The appellant owns his home, in part as a result of gifts of money from his mother, and in part as a result of an interest free loan form his mother. When assessing the net value of the home, the Tribunal deducted the amount of the loan from the appellant’s mother. No challenge was made to these factual findings.
The Tribunal concluded that the appellant should be the subject of a formula assessment using a child support income amount that included three components:
[88] …
· the annualised total of [the appellant’s] current gross monthly income of $3,750 ($45,000);
· the average amount per annum for the 2006 and 2007 financial years by which employer contributions from [the appellant’s] employer, for his superannuation exceeded compulsory superannuation contributions payable in respect of his gross income from salary and wages ($35,753); and
· the annual simple interest ($48,800) which (the appellant) would be required to pay if he obtained a loan for his estimated net value of his [home] at a conservative rate of interest of six percent per annum. … [The appellant] did not provide any funds to purchase the property. He does not pay and is not required to pay accommodation costs. The Tribunal considers that [the appellant] derives financial benefit, being a financial resource, from not being required to pay accommodation costs. In the circumstances the Tribunal considers that it is both reasonable and appropriate to calculate the value of [the appellant’s] financial benefit by reference to a conservative rate of interest of 6% per annum based on his own estimate of the property’s net value.
The appellant challenges the Tribunal’s treatment of his interest in his home, and the superannuation contributions made by his mother’s company (his employer).
In order to understand the relevance of these findings, it is appropriate to return to first principles at this point. The Tribunal were considering the second step of the departure process: what would be a ‘just and equitable’ level of child support (see s.117(1)(b)(ii)(A) and Gyselman & Gyselman (1992) FLC ¶92-279; (1991) 15 Fam LR 219; 103 FLR 156). Section 117(4) lists a number of considerations that the Tribunal was required to take into account in considering what was ‘just and equitable’. The many mandatory considerations include:
(d) the income, property and financial resources 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;
In order to properly consider the appellant’s ‘income, property and financial resources’ it was necessary for the Tribunal to explore the appellant’s financial position in order to place a value upon the matters relevant to this consideration. The Tribunal identified the actual earnings of the appellant and made a finding with respect to his income. No issue is taken with this finding by the Tribunal. However, the appellant does take issue with the approach of the Tribunal with respect to his property (his home) and his financial resources (the employer superannuation contributions in excess of the statutory minimum)
The appellant’s home
When assessing the value of a person’s property, there are often a number of options open to courts and Tribunals. For example, in Antmann and Antmann [1980] FLC ¶90-908 (at 75,748) Evatt CJ, Bulley and Nygh JJ said that:
There is … no fixed rule as to what is the proper method of valuation. That must vary not only with each type of property or commodity concerned, but also with the purpose for which they were originally acquired and the need to realise them in the shorter or longer term. [The court is] entitled to determine on the evidence as to what was the most appropriate method of valuation in the circumstances.
If property is readily saleable, the market value is the appropriate measure. That is, ‘the price which a willing but not anxious vendor could reasonably expect to obtain and a hypothetical willing but not anxious purchaser could reasonable expect to have to pay’: see Abrahams v. Commissioner of Taxation (1945) 70 CLR 23 at 90 per Williams J. However, if property is not readily saleable (either through the lack of potential purchasers, or that the court would not expect that the property be sold) the value to the owner may be a more appropriate measure. This was explained by Young J in Sapir v Sapir (No. 2) (1989) FLC ¶92-047 at 77,543 where his Honour said:
… the Full Family Court said in Reynolds and Reynolds (1985) FLC ¶91-632; (1984) 10 Fam LR 388 at FLC p. 80,111; Fam LR p. 394:
We are doubtful, however, whether valuation methods which have been developed for commercial purposes are entirely appropriate for the purposes of Family Law. The present commercial or capital value of shares in a proprietary company may not reflect their value to the spouse, who either has control after divorce or who stands ultimately to benefit from them or control them after the death of generous parents, as appears to be the case here.
Other Family Court cases have taken the same view. In Hull and Hull (1983) FLC ¶91-360; (1983) 9 Fam LR 241, Nygh J. said at FLC at p. 78,410; Fam LR at p. 246, that it was artificial to value a wife's share in a private company in matrimonial proceedings according to the hypothetical purchaser rule. That rule is only applicable where there is a ready and available market, and where there is a closely held family corporation with restriction on transfer of shares the Court must value the shares on the realistic value they had to the parties. See also the same Judge's decision in Bowman and Bowman (1984) FLC ¶91-574; (1984) 9 Fam LR 619.
For the purpose of assessing periodic child support, determining the capital value of assets is only the first step in the reasoning process. The second step is to consider the facts and circumstances to determine whether the asset is yielding a reasonable rate of return. What amounts to a reasonable rate of return depends upon the nature of the asset and the circumstances of the parties. A person’s residence, at least to the extent that it is commensurate with their economic resources, would not ordinarily be expected to be sold or rented as it is where the party lives. Similarly the social security legislation does not require applicants for pensions to first sell their homes and exhaust the proceeds before providing relief. Thus a person’s home would not usually be considered an asset yielding less than an ordinary rate of return. If a relevant property could be expected to be sold (such as an unproductive business asset), then consideration of the reasonable earnings achievable from the proceeds of sale would be relevant: see, for example, Dwyer v McGuire (1993) FLC ¶92-420. Commonly the prevailing rate of return for secure investments is a reasonable method of assessing the income yielding potential of such an asset.
The value of the home to the appellant, if he is not expected to sell or rent the home, is the savings in accommodation costs that he would otherwise have to meet. That is, what reasonable rent would he be required to pay if he did not own his home. This can be assessed by reference to the standard of accommodation and his income. It is difficult to see how notional interest charges on borrowings in the same sum as the value of the home can logically provide a relevant assessment of the value of the property to the applicant. If the home is not categorised as an unproductive asset, then its value or relevance lies in the fact that the appellant has lower accommodation expenses than a person who does not own a home.
Even if the Tribunal had properly assessed the value of the home to him, by reference to rental savings, the proper approach would not be to add a rental allowance to the amount of income the appellant otherwise notionally receives, but rather take that circumstance into account when assessing the necessary commitments of the appellant and respondent under s.117(4)(e).
It appears that the Tribunal has fallen into error by approaching the ‘just and equitable’ requirement as if it is satisfied by determining a notional income amount and then re-applying the formula. What is required under s.117 is for the Tribunal to determine a ‘just and equitable’ rate of child support, not simply adjust one of the formula elements. Thus, in Savery and Savery (1990) FLC ¶92-131, Kay J said:
In the end result, to borrow the jargon of the commercial world “it's the total of the tape that counts”, and the custodial parent and liable parent are only interested in how much is to be paid each month and for how long the formula is to last. …
… Once a case meets the criteria set out in sec. 117(2) and there is to be a departure from the administrative assessment, then it seems to me any attempt to fit the new calculations within the child support formula may lead to confusion amongst those charged with administering the Act, amongst those offering legal advice and amongst the payers and payees. …
… it is generally safest to move away from jiggling the formula and move towards calculating an appropriate amount to be paid on an annual rate, taking into account each of the matters referred to in sec. 117(4). [emphasis added]
In the reasons given in this case, the Tribunal does not identify the periodic rate of child support that will be produced by the changes the Tribunal made. In the absence of some identification of the actual periodic rate of child support (‘the total of the tape’) it is very difficult to understand how the Tribunal could have concluded that the change was ‘just and equitable’ within the meaning of s.117(4). This point has been referred to repeatedly by the Full Court in appeals from single judge decisions, and by this court in appeals from the SSAT: see Gyselman& Gyselman (1992) FLC ¶92-279; Hides and Hatton (1997) FLC ¶92-759; Hallinan v Witynski [1999] FamCA 1127; (1999) FLC ¶98-009; Ross & McDermott [1998] FamCA 134; (1998) FLC ¶98-003; PJ & Child Support Registrar ( SSAT Appeal) [2007] FMCAfam 829; Tyagi & Meares (SSAT Appeal) [2008] FMCAfam 886; and Charnock & Bullions (SSAT Appeal) [2008] FMCAfam 36.
As a result I find that the Tribunal erred in considering this issue in that they took into account an irrelevant consideration, namely the interest charges that would apply if one borrowed a sum of money equivalent to the net value of the appellant’s home. I also find that the Tribunal failed to properly consider whether the ultimate outcome (which is not identified in the decision) was ‘just and equitable’.
Superannuation
The second ground argued by the appellant was that the Tribunal had added to his income amount the sum of $35,753 per annum being the additional superannuation contributions that were made by his employer, the company controlled by his mother.
There is no question that superannuation is a financial resource. The real question is whether it is a resource that ought to impact upon the rate of child support, given the restrictions upon accessing superannuation.
The fundamental reason for not adding to a person’s income amount for child support the compulsory employer contributions to superannuation of 9% is that those funds are simply not available to the person for them to pay child support. The funds must be deposited into a superannuation account and are not able to be accessed until later years. In some cases, where the payer of child support is of more advanced years and may have access to those funds, they may be relevant; however the appellant in this case is many years away from having access to those funds.
In cases where a person salary sacrifices or otherwise enters into voluntary arrangements to make additional contributions on their own behalf, ordinarily such additional contributions would be considered as if they were available income. This is because those contributions are voluntary and could be taken as income rather than superannuation contributions. The principle is no different to that which applies to negative gearing (with respect to negative gearing see Bassingthwaite v Leane (1993) FLC ¶92-410 and Humphries and Humphries (1993) FLC ¶92-430).
In some circumstances, however, the employer requires the payment of additional superannuation which can not be redeemed as salary, as a condition of employment (a notable example is universities which, in many situations, pay more than 9% in superannuation but will not provide the difference in cash as salary payments even if requested to do so by the employee). In such cases it would not be a resource that would ordinarily be capable of founding an increase in child support as it cannot be accessed to meet child support payments.
As a result careful findings of fact may be required in some cases to determine whether the appellant could obtain access to the funds for the purpose of meeting child support. That is, to determine the value of the benefits to the person.
In this case, the appellant’s mother owns the business and is clearly the primary manager and operator of the business. The monies that the business has placed into the appellant’s superannuation could be categorised in a number of different ways, such as:
a)a gift from his mother (though her control of the company), which she would not provide in a form other than superannuation;
b)a gift from his mother (though her control of the company), which she is likely to provide in a form other than superannuation if requested to do so by the appellant; or
c)an arrangement to pay the appellant an additional income other than in the form of a salary which, could be converted into a cash salary instead (perhaps by way of bonus).
It is only by making this factual enquiry, which relates to the potential capacity of the appellant to access these funds, that the Tribunal would be able to determine whether the contributions should be properly considered part of his income available for self support and child support.
The factual findings by the Tribunal in this regard are limited. The Tribunal recounted that:
The way the amount of superannuation contributions are determined is that [the appellant’s mother] allocates the total amount to be paid for superannuation and her accountant then apportions that amount between the fund members [it being a family fund] she pays more to herself because she is closer to retirement age.
The Tribunal then identified the precise amount paid from various documents and added the contributions to the appellant’s superannuation account (to the extent that they are in excess of the compulsory superannuation contributions) to the appellant’s income amount.
I have regard to the comments of the Kirby J in Minister for Immigration & Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259; (1996) 136 ALR 481; (1996) 41 ALD 1; (1996) 70 ALJR 568 that:
The reasons under challenge must be read as a whole. They must be considered fairly. It is erroneous to adopt a narrow approach, combing through the words of the decision-maker with a fine appellate tooth-comb, against the prospect that a verbal slip will be found warranting the inference of an error of law.
In a case where it appears clear that the appellant’s mother controls the business and genuinely owns the business (having controlled and owned the business before the appellant commenced working for her) it appears to me that the Tribunal is required to make some factual finding as to the basis upon which the payments are paid. It was argued by Mr Grant for the respondent that the Tribunal identified these payments as coming from the appellant’s ‘employer’ and implicit in this was a finding that they were in substance payments to him as an employee, rather than gifts from his mother utilising the company as a vehicle. Although the limited reasons on this issue have caused me some concern, I ultimately accept Mr Grant’s submissions on this ground.
Backdating
It is not apparent from the decision what the reasons were for reducing the child support assessment for the period 2 August 2007 to 20 August 2007 from that set by the Senior Case Officer, other than the finding that it would not be appropriate to make a retrospective change to the child support assessment beyond the date when the mother lodged a change of assessment application on 21 August 2007. As a result, despite findings that in the 05-06 financial year the father’s income was $62,981 (on his tax return) and their finding that his income amount for the August 07 to December 08 should be assessed at $129,554 per annum, the Tribunal reduced the father’s income amount in the period 2 August 2007 to 24 August 2007 to $44,895. This was the amount of an estimate lodged by the father which appears to have prompted the departure application, and which was an under-estimate, even on the findings of the Tribunal that have not been overturned on this appeal.
It is difficult to understand why the decision would not have been backdated to the date that the under-estimate took affect if the Tribunal were correct in their findings as to the income amount for the father for this period. The lodgement of an under-estimate must be a relevant consideration when considering whether to make a retrospective departure. The Tribunal do not appear to have referred to this consideration in the relevant part of their reasons (para [92] and [93] of the reasons).
This issue is not the subject of appeal by the appellant, he being content with the lower rate for this period of 22 days. The respondent did not seek to agitate this ground as she did not wish to have the SSAT decision set aside simply as a result of the issues relating to this 22 day period. If the SSAT decision was to be set aside for other reasons then the respondent did wish to have this period reconsidered. As set out above, the appeal will be allowed. It appears to me this period also needs to be specifically re-considered by the Tribunal for the reasons I have stated.
Conclusions
In this case it was important for the Tribunal to determine the amount of income reasonably available to the appellant from various sources, and to consider the impact of his property or financial resources.
It is difficult to see that the Tribunal could properly exercise its discretion to determine what is a ‘just and equitable’ child support assessment in a case such as this without identifying the weekly or monthly rate of child support that would ultimately be payable in the context of the income and expenses of the parties. Had this been done, consideration could have then been given to the practical steps the appellant would have been required to take to meet the child support assessment that would follow. In this case that may have highlighted some of the difficulties in the Tribunal’s approach to the matter.
In the circumstances, I allow the appeal and set aside the decision of the Social Securities Appeal Tribunal. I have considered whether I should determine the rate of child support on the appeal, however, the Tribunal has made no findings of the actual amounts of the necessary commitments of the parents, only setting out what each stated to the Tribunal (with only a partial breakdown of the total sum). In the absence of findings as to the parties’ necessary commitments, there is not a sufficient factual foundation upon which I could base an exercise of the discretion required by s.117(4). I must therefore order that the matter be remitted to the Tribunal to be heard according to law.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Riethmuller FM
Associate: Robin Smith
Date: 26 March 2009
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