Perkins and Perkins (Child support)

[2022] AATA 3066

Perkins and Perkins (Child support) [2022] AATA 3066 (29 June 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/SC022903

APPLICANT:  Ms Perkins

OTHER PARTIES:  Child Support Registrar

Mr Perkins

TRIBUNAL:Member T Bubutievski

DECISION DATE:  29 June 2022

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – a ground for departure established – decision not to depart – not just and equitable – decision under review affirmed

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. Mr Perkins and Ms Perkins are the parents of three children. The care of the children was shared between the parties until March 2022, when the oldest child moved into the care of Mr Perkins. He may yet return to the care of Ms Perkins. The case was registered with Services Australia (Child Support) (“the Agency”) from 6 June 2016.  Ms Perkins sought Agency collection from 25 March 2019.

2. Mr Perkins was assessed to pay child support at an annual rate of $4,815 when on 13 April 2021 Ms Perkins made an application to change the child support assessment. This assessment was based on Mr Perkins’ 2019/20 adjusted taxable income (“ATI”) of $51,882 and a 2019/20 ATI of $26,615 for Ms Perkins. Ms Perkins made an application to change the child support assessment on the basis of Reason 3 (the costs of educating the children); Reason 8A (that the assessment did not correctly reflect the income or financial resources of Mr Perkins); and Reason 8B (Mr Perkins’ earning capacity). Mr Perkins made a cross-application on the basis of Reasons 8A and 8B in relation to Ms Perkins’ income, financial resources and earning capacity.

3. On 6 July 2021 an Agency delegate of the Child Support Registrar (“the Registrar”) found Reason 8A established in the application and the cross-application and made the following changes to the assessment:

   ·For the period 1 April 2021 to 30 June 2023 Mr Perkins’ ATI is set at $215,188; and

   ·For the period 1 April 2021 to 30 June 2023 Ms Perkins’ ATI is set at $67,835.

4. Mr Perkins objected to this decision, and on 18 November 2021 the decision was reconsidered by an Agency objections officer, who allowed the objection and decided to reinstate the administrative assessment from 1 April 2021.

5. On 8 December 2021 Mr Perkins made an application for review by the Social Services and Child Support Division of this Tribunal. The Tribunal held a telephone directions hearing on 5 April 2022 and issued directions with which the parties complied.

6. The matter was heard by the Tribunal on 31 May 2022. Mr Perkins and Ms Perkins both attended the hearing by telephone and gave sworn evidence. The Registrar did not seek leave to appear. Both parties and the Tribunal had access to documents numbered 1 to 861 from the Agency, and after all submissions, documents A1 to A282 and B1 to B57 from the parties.

7. Following the hearing the Tribunal deferred the matter to undertake legal research into the issues surrounding the sale of the assets of Mr Perkins’ business. On 29 June 2022 it reconvened in the absence of the parties and made a decision.

ISSUES

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

2. The liable parent or a carer may apply to the Registrar for a determination to depart from the administrative assessment under Part 6A of the Assessment Act. The application for departure is authorised by section 98B of the Assessment Act. Section 98C of the Assessment Act provides that the Registrar may make a determination to depart from the formula assessment and establishes a three-step process. In order to depart from the administrative assessment the Registrar, and the Tribunal standing in place of the Registrar, must be satisfied:

   (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;

   to make a particular determination under this Part;

3. The grounds for departure from an administrative assessment of child support are set out in subsection 117(2) of the Assessment Act.

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 Assessment Act. Section 98S permits a range of determinations, including varying the annual rate of child support payable or the ATIs of the parties.

Issue 1 – Does a ground exist to depart from the administrative assessment?

Does a ground exist to depart from the administrative assessment under Reason 3?

1. Ms Perkins sought a departure from the administrative assessment on the ground that the costs of maintaining the children are significantly affected by the cost of educating them in the manner that was expected by her and Mr Perkins. This is the ground reflected in subparagraph 117(2)(b)(ii) of the Assessment Act.

2. There is no dispute in this matter that the oldest child attends [College 1], a Catholic school. He commenced in 2022, having previously been educated in a public school. There is also no dispute that each of the parents is being invoiced separately for half of the tuition fees.

3. Ms Perkins’ application is based on her understanding that she and Mr Perkins had an agreement that they would each pay half of all of the costs of the child’s attendance at the school, including uniforms, shoes and a laptop. Mr Perkins denied that this had been the agreement between them and said that he had only agreed to pay for half of the school fees, which he is doing.

4. Ms Perkins said that if she had been aware that Mr Perkins did not intend to pay half of all of the education expenses, she would not have agreed to the child attending [College 1]. This school was Mr Perkins’ preferred school. Ms Perkins said that the child could have stayed in public education or attended a different Catholic school which gave fee discounts to single parents. In support of her claims Ms Perkins provided copies of text messages between the parents and receipts for a number of education expenses. She also provided an Offer of Enrolment and Acceptance of Offer of Enrolment form for [College 1] signed by both parents on 16 April 2021; a Declaration signed by Ms Perkins on 26 February 2021 and Mr Perkins on 2 March 2021; and a copy of the school’s requirements in relation to technology and uniform. She argued that Mr Perkins having signed the forms indicated that he had committed to meeting half of all of the expenses required for their child to attend [College 1], not just the fees. The Offer of Enrolment form says that in signing the form to accept the offer of a place at [College 1] the parents “…agree to jointly and severally honour the financial commitments required by the school as per the Schedule of Fees and Charges…”. Ms Perkins also provided a copy of the Sydney Catholic Schools School Fee Collection Policy.

5. At the time that Ms Perkins lodged her application for a change to the child support assessment the child was still attending a public school and Ms Perkins was incurring the usual expenses to be expected in his education.

6. Before the Tribunal can consider whether or not Reason 3 is established it must form a view that the child is being educated in the manner expected by the parents. The established case law says that this relates to the type of education (e.g. private or public) that was expected, not the choice of individual school [Wild and Ballard (1997) FLC 92-771].

7. In this case, the parents did agree to the child’s attendance at a Catholic School. They have both accepted the offer of a place at [College 1] and committed to being jointly liable for the fees. An invoice dated 22 February 2022 show the total fees for all components of the education, including resource and sporting fees, to be $4,935 in 2022. This expense would significantly add to the cost of raising the child if it were not already being shared equally by the parents.

8. Ms Perkins argues that the child support payable by Mr Perkins should be increased to take account of all of the other expenses of the child’s education, which have been borne by her. The child support assessment in its usual form is intended to cover all costs that are common to raising children, regardless of the manner of their education. This includes things like school uniforms, school transport, electronic devices and computers, excursions, sport, and a degree of extra-curricular activity. While Ms Perkins has raised issues in relation to these ancillary costs that she is incurring, under the law it is only private school tuition fees which fall outside those usual costs and which can be considered under Reason 3. None of the other expenses raised by Ms Perkins such as laptops and uniforms would be for consideration under Reason 3. As the only costs which can be considered are already shared between the parents, the Tribunal cannot find that this ground to change the child support assessment is established.

Does a ground exist to depart from the administrative assessment under Reason 8A?

1. Ms Perkins sought a departure from the administrative assessment on the ground that the administrative assessment of child support does not reflect Mr Perkins’ income, property and financial resources. Mr Perkins made a cross-application on the same ground. This is the ground reflected in subparagraph 117(2)(c)(ia) of the Assessment Act. Mr Perkins sought $40,000 per annum in child support from 2016 onwards.

2. There is a statutory limitation on the Tribunal, and the Agency, preventing the backdating of a change to the administrative assessment without the leave of the court. There is a limitation of 18 months on backdating changes to the assessment in the absence of leave. Further, the Tribunal notes that there had been a previous change of assessment decision in this case on 24 July 2018, which had agitated this issue and found there was no reason established on which to base a change of assessment. Neither parent exercised their rights of objection in relation to that decision. Ms Perkins’ request for the child support assessment to be changed from 2016 onwards cannot be successful.

3. The Tribunal considered the circumstances of each parent separately.

Mr Perkins’ income and financial resources

1. Mr Perkins is a director of a private company called [Company 1] Pty Ltd (“[Company 1]”). He is self-employed through this vehicle and has been for many years. Ms Perkins said that Mr Perkins’ income is higher than is reflected in the [assessment]. Ms Perkins also queried the legitimacy of the alleged sale of part of [Company 1] to Mr Perkins’ mother in 2019. This sale has led to Mr Perkins’ mother being able to take dividends from the company which had previously been available to Mr Perkins. Ms Perkins also had concerns about Mr Perkins’ purchase of the former family home at auction. The Tribunal has no role to take in the issue of whether or not Mr Perkins was entitled to purchase the home. This is a matter for the court. The Tribunal will, however, examine the circumstances under which Mr Perkins received the money that he used to finance this purchase.

Partial sale of [Company 1]

1. [Company 1] was established in 2009. According to Mr Perkins’ accountants, on 20 May 2019 Mr Perkins’ mother became a shareholder. Mr Perkins told the Tribunal that his mother paid him the full equity value of the business as at 30 June 2019 of $421,586.10.

2. ASIC information confirms Ms Perkins was removed as a director of [Company 1] on 2 November 2018 and that Mr Perkins was the sole director of the business until 6 June 2019 when his mother also became a shareholder of [Company 1]. At the time, the ASIC register showed that Mr Perkins held 1054 B class shares and his mother had 49 ordinary shares. More current ASIC information shows that on 6 April 2021 the company details were amended to show that Mr Perkins now has 51 ordinary shares and 1054 B class shares (unpaid) and his mother has 49 A class shares. Mr Perkins remains director of the business.

3. A letter from Mr Perkins’ accountants, dated 19 January 2022, says that the company share structure consists of three share classes: ordinary class shares, A class shares and B class shares. The accountants say that Mr Perkins disposed of the A class shares to his mother on 20 May 2019 and that these shares represented all the retained profits and therefore the market value of the business at that time. He then purchased the B class shares to cover his personal liability in relation to the capital gains tax payable on the transfer of the A class shares. The cost of the B class shares remains unpaid as Mr Perkins has been allowed to defer the capital gain made from the transfer under existing small business tax law provisions.

4. Mr Perkins told the Tribunal that there had been no share transfer agreement made and no contract of sale for the business or its equity. He said that his accountant organised the sale and did the paperwork because he needed the money to purchase Ms Perkins’ half of the former marital home, in which he was living. Mr Perkins said the difference in valuation of [Company 1] between that of his accountant and the valuation of the business done for the purpose of the parties’ property settlement related to the exclusion of director’s loans in the independent valuation but not in his accountant’s valuation.

5. Mr Perkins said that in addition to purchasing the equity of the business, his parents also lent him money. He said that the total amount he received was $1.15 million. The Tribunal noted that this is significantly higher than the amount recorded in the decision of the objections officer, being $400,000 into the business and a $500,000 loan. Mr Perkins said that he had told the objections officer the correct figures and he could not account for the difference in what had been recorded. Mr Perkins advised that there was no loan agreement in relation to the loan funds and he considered it to be a private arrangement between himself and his parents. He said that they had recently sold a property and had the money available to lend to him. The purchase of the business was to allow his parents to continue to have a cash flow from those funds in the form of dividends from [Company 1]. Mr Perkins confirmed that he is not making repayments on the loan and is unlikely to do so.

6. The Tribunal asked Mr Perkins if he had given any thought to the impact of the decision to sell part of his business to his mother on his child support payments. Mr Perkins said that he had given it no thought as he had paid himself the same income from the business for the past 10 years; $52,000. That did not change as a result of the sale of the business, nor has it changed subsequently.

7. Mr Perkins’ accountants advised that as owner of the A class shares, Mr Perkins’ mother is entitled to 49% of any income and capital distributions from the company. As owner of the ordinary class shares Mr Perkins is entitled to 51% of any income and capital distribution from the company.

8. The Tribunal examined the arrangements for the sale of the business as far as they were available and also the information provided to ASIC. It seems that the decision to sell the equity in the business was a transfer of convenience between Mr Perkins and his mother, without the usual documents which would be associated with the transfer of shares in a private company. ASIC records changes in the share structure and shareholding on both 6 June 2019 and 6 April 2021. It seems apparent from the correspondence from Mr Perkins’ accountants that these changes were made with the view to limiting Mr Perkins’ capital gains tax liability rather than for any other purpose.

9. The Tribunal firstly considered whether this transfer should be considered as having been undertaken for the purpose of reducing Mr Perkins’ child support liability. The ATIs on which Mr Perkins’ child support assessment have been determined have been extremely consistent. Mr Perkins’ 2017/18 taxable income was $50,574; his 2018/19 taxable income was $52,309; and his 2019/20 ATI was $51,882. His 2019/20 income tax return discloses that he was paid $52,000 from his role as a managing director. This does appear to have remained consistent over time and there was no change to it as a result of the alleged sale of the business assets to his mother. What has changed is his ability to access 100% of the retained profits of the business on an ongoing basis, if he so chooses. These retained profits had never formed part of the child support assessment prior to Ms Perkins’ current application, so the reduction in Mr Perkins’ ongoing entitlements to access retained profits or dividends has not thus far affected the child support assessment. Mr Perkins’ evidence to the Tribunal was that he gave no thought to his child support liability in coming to the arrangement with his mother in relation to the sale of the business equity and the Tribunal considers this evidence likely to be true.

10. Nonetheless, the fact of the sale of the business equity has reduced the income potentially available to Mr Perkins and therefore the income potentially available to him for the payment of child support. In some circumstances, it is correct to continue to view the entire profits of a business as income available to a person for child support purposes, regardless of any other arrangements which may have been made through the vehicle of a company or trust to split income between family members. This is particularly the case when the income of the company or trust is solely derived from the work efforts of that person, and the person or people who are receiving income or dividends have made no financial contribution to the company. The Tribunal examined the existing case law and taxation rulings on the issue of alienation of personal services income, including Stein and Stein [1986] FamCA 27; Deputy Federal Commissioner of Taxation v Purcell (1921) 29 CLR 464 (“Purcell”); and IT 2121: Family companies and trusts in relation to income from personal exertion.

11. In considering the ownership of [Company 1] and the associated issue of ongoing profits and dividends, the objections officer formed a view that Mr Perkins’ mother is a genuine shareholder of [Company 1], and that in accordance with the entitlements of the share classes of the business she is entitled to receive 49% of profits as a dividend. The Tribunal is satisfied that this approach is consistent with the case law and taxation rulings, which say that when there has been a bona fide sale of assets in addition to income splitting, the income generated as a result of the purchase of the assets correctly lies with the owner of the assets. This is because the beneficial interest in the property passes absolutely to the purchaser. In Purcell, this was made clear even when it was possible to characterise the transaction as no more than ‘an ordinary family dealing’ which did not necessarily have the same degree of record-keeping as would be expected in an arm’s length transaction.

12. The Tribunal notes that the income tax returns of Mr Perkins’ mother show the dividends that she has received from the business as taxable income.

1. It would be open to the Tribunal to take the view that Mr Perkins remained entitled to all of the profits of the company if it was satisfied that the sale was a sham or was effected for the purpose of reducing Mr Perkins’ child support. It does not take that view. The evidence before it indicates that, although poorly documented, the sale is a bona fide sale for genuine reasons which were not related to child support assessment. The assets of the company were not sold for less than their market value. Of course, if Mr Perkins makes any future sales of company shares they would need to be considered in light of the circumstances around those sales.

2. The Tribunal finds that the partial sale of [Company 1] shares to Mr Perkins’ mother did not affect the child support assessment. It may have come to a different conclusion if that sale had occurred after a decision had been made by the Registrar to include Mr Perkins’ profits in his ATI for the purpose of the assessment.

Mr Perkins’ income and financial resources from [Company 1]

1. Mr Perkins’ evidence to the Tribunal was that he gets paid the same income from [Company 1] whether he is working or not. This has been a practice established over many years as Mr Perkins has a medical condition which affects his capacity to work. Mr Perkins said that he is now working less and less as his health is declining.

2. Mr Perkins said that he has a work vehicle which is only used for work purposes and also has a private vehicle. He said that he does not get a personal benefit from the work vehicle. It is an 11-year-old truck and has been almost fully depreciated. The Tribunal noted that Mr Perkins receives a mobility allowance from Centrelink in respect of his personal vehicle.

3. Mr Perkins confirmed that the business pays for his mobile phone. It does not pay him any additional benefits or superannuation above the statutory rate.

4. Mr Perkins noted that [Company 1] must retain around 10% of the funds paid for each job in case of warranty issues. The Tribunal notes that this is kept in a business bank account called “Independent Reserve”, which holds around $220,000 in respect of potential warranty repairs.

5. The [Company 1] profit and loss statement for the period ending 30 June 2019 shows the total business income in 2018/19 was $538,906.09. After expenses were deducted, the business profit was $131,271.13. Depreciation expenses were $1,542 and phone costs were $1,509.83. There is no amount shown as taken as a director’s loan or drawings in the 2019 financial statements, but the 2020 financial statements show an amount of $43,750.72 taken as a director’s loan in 2019. The balance sheet for 2018/19 shows retained profits of $421,582. There is no indication that dividends were paid in 2019, although Mr Perkins would have been entitled to them, as would his mother for a brief period.

6. The business profit and loss statement for the period ending 30 June 2020 shows the total gross income was $624,272.96 including jobkeeper and COVID-19 cash flow boost. After all expenses were deducted the business profit was $165,172. Depreciation expenses were $8,093 and phone costs were $1,901.05. The retained profit is $455,085.99. The director’s loan for that year is $31,029.68.

7. The Tribunal notes that [Company 1] had a much lower income and made a loss in 2018, indicating some variability in its income over time.

8. The [Company 1] profit and loss statement for 2021 supplied to the Tribunal by Mr Perkins shows total income of $207,035.61. Salaries were $50,616. Depreciation expenses were $4,330 and phone costs were $1,665.26. Net profit was $14,463.10. There is no amount for a director’s loan that year, which is confirmed by the interim financial statements for the period 1 July 2021 to 31 December 2021, showing the director’s loans for each year.

9. An interim profit and loss statement for the period 1 July 2021 to 31 December 2021 shows total income of $41,909.46. Salaries are $27,522. Depreciation expenses were $540 and phone costs were $735.38. The business shows a loss of $57,847.13 in the six-month period. Retained profit had reduced to $380,831.96 by 31 December 2021, which supports Mr Perkins’ evidence to the Tribunal that he continues to pay himself the same salary no matter how much work he does.

10. The Family Court has established the principle that in the case of self-employed parents, their taxable income may not be an accurate reflection of their earning capacity and financial resources. Several cases in particular have examined this issue closely, including Scott and Scott (1994) FLC 92-457, and Carey and Carey (1994) FLC 92-489. The courts consider that self-employed people are able to derive additional benefits from their business in addition to wages. They also have greater control over the structure of their finances than an employee receiving salary or wages, and so may be able to use the income of the business in ways other than paying wages. Expenses and deductions which may be legitimate for tax purposes may not be considered to take precedence over child support obligations. Under child support law, other than the basic expenses necessary for self-support there are very few expenses which take precedence over the support of children. There is considerable divergence between the taxation system, which is intended to provide general support for many, and the child support system, which is intended to provide specific support for the children of relationships.

11. The consequence of this line of legal authority is that the actual expenses of a business must be examined to determine whether they are necessary for the operation of the business to the extent that they would be considered to take priority over child support. They also need to be examined for personal benefits which should be considered to give a person extra financial resources or relieve them of their normal financial obligations. These are then added back to a person’s income for child support purposes.

12. Performing this exercise on the [Company 1] financial statements for 2019 shows that the depreciation expenses of $1,542 and a portion of the phone costs of $1,509.83 should be added back to Mr Perkins’ salary. Depreciation is frequently added back to a parent’s taxable income in circumstances such as these as it is an accounting entry, rather than money actually expended. Allowing for a conservative personal use component of the telephone expense of 30% is $453. It is also common to add back a personal use component of motor vehicle expenses, but in this particular case the Tribunal is satisfied that Mr Perkins does not derive a personal benefit from the company vehicle. It is an old truck and he uses his own vehicle for personal use, which his income tax returns show that he receives a Centrelink mobility allowance in respect of, for personal use. This brings the total add backs for the 2019 financial year to $1,995.

13. For the 2020 financial year, the relevant add backs would be depreciation of $8,093 (likely increased due to the small business asset write-off provisions which were changed during the pandemic) and phone costs of $570, bringing the total to $8,663.

14. In the 2021 financial year, depreciation expenses were $4,330 and the add back in respect of telephone expenses would be $500, a total of $4,830.

15. For the first half of the 2022 financial year, depreciation expenses were $540 and phone costs were $735.38, which would annualise to $1,080 and $1,470.76 respectively, giving a total add back for the financial year of $1,521.

16. When calculating the financial resources available to Mr Perkins from [Company 1], the original decision maker added the salary, profits and additional benefits from the business together to come to a view about Mr Perkins’ financial resources. The objections officer accepted both that Mr Perkins’ mother was entitled to a 49% share of the profits as a dividend, and that the performance of the business had been reduced due to COVID-19 and then proceeded to average the business performance over a period of three years and assess Mr Perkins’ income and financial resources on an average of the three years’ figures.

17. The Tribunal considers that there were errors in both these methodologies – the first because it did not take account of the entitlements of Mr Perkins’ mother and his actual additional benefits from his employment, rather than assumed benefits; and the second because it did not take account of the continuous decline of the business, in part because of Mr Perkins’ medical condition, although the fact of the medical condition itself and that Mr Perkins was fully exercising his earning capacity was accepted.

18. Mr Perkins’ 2018 taxable income was $50,574. Mr Perkins’ 2019 taxable income was $52,309. Mr Perkins’ 2020 personal income tax return shows income from his role as a managing director of $52,000; mobility allowance of $5,609 and gross interest of $64 for a total income of $57,673. Total deductions were $5,791 for a taxable income amount of $51,882. Mr Perkins’ 2021 taxable income is not yet available, but he has advised the Agency that it will be $52,000. These amounts are consistent with the financial statements and the evidence provided to the Tribunal by Mr Perkins that he pays himself $52,000 per annum. The Tribunal considers that a reasonable wage to take into account for Mr Perkins is $52,000 per annum.

19. The Tribunal finds that there have been significant changes in the performance of [Company 1] due to changes in trading conditions and Mr Perkins’ ability to work, and that each financial year should be considered separately, not as an average. Performing this calculation shows that the financial resources available to Mr Perkins in the 2019 financial year were equivalent to an ATI of $180,937 (wages of $52,000; profits of $126,942 after an allowance is made for entitlements of Mr Perkins’ mother of $4,329 in respect of her shareholding from 6 June 2019 as recorded by ASIC; and add backs for depreciation and telephone of $1,995); in the 2020 financial year they were $144,597 (wages of $52,000; 51% of the profits of $80,934; and add backs for depreciation and telephone of $8,663); in the 2021 financial year they were $63,917 (wages of $52,000; 51% of the profits of $7,087; and add backs for depreciation and telephone of $4,830); and in the 2022 financial year they are likely to be in the vicinity of $53,521 (wages of $52,000; 51% of nil profit; and add backs for depreciation and telephone of $1,521).

20. All of these amounts are higher than the incomes used for Mr Perkins in the assessment at the relevant times, and the Tribunal is satisfied that Mr Perkins’ income and financial resources have not been reflected correctly in the assessment.

21. The term “special circumstances” is not defined in the Assessment Act. In Gyselman and Gyselman [1991] FamCA 93 the Full Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary. The Tribunal is satisfied that the difference between the taxable income amount is used in the assessment and the financial resources available to Mr Perkins is a special circumstance which may render the assessment unfair to Ms Perkins and the children. The Tribunal finds this ground established. As a ground is established, the Tribunal must also consider whether it is just and equitable, and otherwise proper, to change the assessment. This involves a consideration of all the circumstances of the parents and the children. This will cover the issues in relation to both parties’ financial circumstances.

Issue 2 – Would departure from the administrative assessment be just and equitable?

1. As the Tribunal is satisfied that a ground has been established to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to depart from the assessment. In deciding whether it is just and equitable, the Tribunal must have regard to the following matters set out in subsection 117(4) of the Assessment Act:

   (a)the nature of the duty of a parent to maintain a child (as stated in section 3); and

   (b)the proper needs of the child; and

   (c)the income, earning capacity, property and financial resources of the   child; and

   (d)the income, property and financial resources of each parent who is a   party to the proceeding; and

   (da)the earning capacity of each parent who is a party to the proceeding;   and

   (e)the commitments of each parent who is a party to the proceeding that   are necessary to enable the parent to support:

   (i)himself or herself; or

   (ii)any other child or another person that the person has a duty to   maintain; and

   (f)the direct and indirect costs incurred by the carer entitled to child   support in providing care for the child; and

   (g)any hardship that would be caused:

   (i)to:

   (A)the child; or

   (B)the carer entitled to child support;

   by the making of, or the refusal to make, the order; and

   (ii)to:

   (A)the liable parent; or

   (B)any other child or another person that the liable parent   has a duty to support;

   by the making of, or the refusal to make, the order; and

   (iii)  to any resident child of the parent (see subsection (10)) by the making of, or the refusal to make, the order.

2. Section 3 of the Assessment Act states that it is the duty of both parents to financially support their children. All children should receive a proper amount of financial support from their parents in accordance with their capacity to contribute. The Tribunal only has to consider the factors set out in subsection 117(4) of the Assessment Act to the extent they are relevant in any particular case (see Gyselman).

Mr Perkins’ circumstances

1. Mr Perkins’ income and financial resources are as set out above. Ms Perkins submitted that Mr Perkins’ income from [Company 1] has reduced over time to affect the assessment of child support and that Mr Perkins is not fully exercising his earning capacity. She sought that the Tribunal make an earning capacity decision in relation to Mr Perkins.

2. Mr Perkins explained that he has [Medial condition 1] and that his condition is deteriorating over time. He said that this is having an impact on his ability to work. He agreed that he is working less now than he used to. He said that it was never expected that he would live for as long as he has. It was his view that he only has “a few years left”. Ms Perkins was of the view that this could not be known. She said that she accepts that Mr Perkins has a chronic medical condition and is sympathetic towards that, but that over the years Mr Perkins has worked out how to “work smarter” as a result of his health, so that the condition does not affect his income or earning capacity.

3. A letter from Dr [A], a [specialist] [at] [a] Hospital, dated 13 January 2022, says that Mr Perkins has [Medial condition 1]. She says that he has a complex and time-consuming daily medication regime and also performs [physiotherapy] daily. He engages in a significant amount of exercise each week as a means of optimising his health. Dr [A] says that Mr Perkins’ [Medial condition 1]

   … can cause increased levels of fatigue and illness which impact on his ability to work full-time. In addition, the considerable amount of time spent doing daily treatments and attending appointments reduces the amount of time available for work to ensure he remains healthy…

4. The legal test for an earning capacity decision to be made requires three criteria to be met. The first is that the parent is not working despite ample opportunity to do so, has reduced their work hours to below full-time or has changed their occupation, industry or working pattern. The Tribunal finds that Mr Perkins’ reduction in work hours satisfies this criterion. The second criterion is that this change is not justified by the parent’s caring responsibilities or state of health. The evidence before the Tribunal indicates that Mr Perkins’ change to his work conditions is justified by his state of health. The criteria for making an earning capacity decision are not established.

5. Mr Perkins’ Statement of Financial Circumstances shows his business income of $1,000 per week plus some Centrelink benefits in respect of mobility allowance and family assistance. He discloses savings of $8,487. He says that he has a mortgage of $750,000. His evidence to the Tribunal is that this is a loan from his parents, on which he is not currently making repayments. He also lists the balance to be repaid to [Company 1] as a result of the director’s loans in prior years and a capital gains tax liability, which the documentation from his accountant demonstrates has been deferred. Mr Perkins lists his total weekly expenditure at $605, including $48 per week in respect of education expenses (school fees).

6. Mr Perkins has no child support outstanding. The Tribunal is satisfied that he has a capacity to pay child support at least commensurate with the current administrative assessment, plus half the private school fees. The fact that he is making no payments in respect of rent or mortgage, and is able to continue to draw his usual wage from [Company 1] regardless of how much work he does, no doubt ensures this capacity.

Ms Perkins’ circumstances

1. Ms Perkins explained that one of their sons is currently living with Mr Perkins but that she had requested that he return to her care on the Monday following the hearing. She said that the court orders in relation to the care of the children have not been changed. Ms Perkins said that the child support assessment had been $4,000 per month after the change of assessment decision and if this had continued it would have been sufficient to meet the expenses for the children.

2. Ms Perkins raised a number of issues in relation to the asset values recorded by Mr Perkins for his assets and noted that she was going back to court to challenge the property settlement due to pre-separation debts she continued to service. The Tribunal is satisfied that the court is the appropriate forum in which to raise these issues and they do not impact on the child support assessment.

3. Following the parties’ settlement of property, Ms Perkins used $500,000 of her property settlement to purchase a business called [Business 1] (“[Business 1]”). The operating entity is [BUSINESS 2] Investments (“[BUSINESS 2]”), with the corporate trustee being the (“[FAMILY TRUST 1]”). Ms Perkins said that she purchased this business in March 2020, just prior to the pandemic commencing. Ms Perkins said that the business was always a struggle due to the pandemic as they could not generate enough [income]. She confirmed that she did receive some personal benefits from the business. It paid for her mobile phone, internet, computer and home office expenses and fuel for her car. [Details deleted].

4. Ms Perkins explained that the business was badly flooded in March 2021 with extensive damage. She said that she made an insurance claim and an assessor from the insurance company denied liability as it said the landlord of the property had not properly maintained their roof. Ms Perkins said that following the initial flood and damage there would be further damage and stock loss every time it rained. The water would cause the electricity to turn off and they would lose all their refrigerated items. The roof was not repaired, and she received no money from insurance. The business closed its doors on 7 February 2022. She said that she is currently in court in relation to the matter and is presently in receipt of Centrelink benefits. She said that she is looking for work, but she is “mentally not okay” at the moment. The business is worth nothing as the stock has been lost and the equipment has been damaged.

5. Ms Perkins said that she continued to pay the landlord the full amount of the rent while she waited for the insurance company to make a decision about her claim, although she was also having stock losses of up to $10,000 per week. Ms Perkins said that she thought everything would be fine once the insurance company made a settlement, but that did not occur. She said that she also withdrew $20,000 from her superannuation during the pandemic.

1. Ms Perkins confirmed that in the past she had been employed by a friend in their [business]. Prior to that she had not worked for eight years. A letter from that employer dated 16 March 2018 says that at that time Ms Perkins was employed on a salary of $98,800 per annum plus superannuation. Ms Perkins said that the business was liquidated, and her employment was terminated. She acknowledged that she had registered two business names [in] 2019. She said that she was medically advised to cease this work due to a pre-existing [injury]. She purchased [Business 1] on 19 March 2020, just prior to the first COVID-19 lockdown in NSW.  Ms Perkins said that she had expectations that the business would be able to provide her with a good income, but that she had no way of foreseeing the pandemic and the flood. She was not eligible for jobkeeper for [Business 1] as it was classified as a new business, and she was also not eligible for rent relief, although she did receive a small amount of NSW business grant.

2. The [FAMILY TRUST 1] financial statements to 30 June 2020 show revenue of $62,327 plus $10,000 in NSW government grants. There was a loss of $24,230, although the Tribunal notes that at this point the business had only been operating for just over two months, during a lockdown. Drawings were $16,303. The [FAMILY TRUST 1] 2020 income tax return shows a slightly higher loss of $25,776. Payments to associated persons are the same as the wages shown on Ms Perkins’ personal income tax return.

3. The [FAMILY TRUST 1] income tax return for 2021 shows total business income of $734,881 and total expenses of $992,025, a loss of $257,144. The return lists no amount for depreciation, but in terms of the personal expenses that Ms Perkins acknowledged the business met on her behalf, [FAMILY TRUST 1] paid computer expenses of $7,741, motor vehicle expenses of $3,329, office expenses of $1,485 and telephone/internet of $1,651. If these expenses were treated the same for both parents, with 30% being considered for personal use, this would add $4,262 to Ms Perkins’ income. When an allowance is made for Ms Perkins and the children eating at the restaurant, of a reasonable $100 per week, this is a further $5,200.

4. Ms Perkins paid herself an income of $450 per week from the business; $23,400 per annum. When the other benefits are added to this, her total benefit from the business was at least $32,862. Ms Perkins’ taxable incomes as used in the child support assessment were $26,615 in 2020 and $23,553 in 2021. Like Mr Perkins, Ms Perkins’ income and resources from her business are not correctly reflected in the assessment.

5. The business bank account number [shows] a number of apparently personal expenses including cabs, nails and beauty, chemist expenses, Foxtel, pet food and payments to [an] Adventure Park. There are also payments to afterpay and zipmoney, which are likely to be personal payments. It seems likely that the calculations made by the Tribunal above are conservative.

6. Further, the taxation return discloses that [FAMILY TRUST 1] owed Ms Perkins $123,256 as at 30 June 2021. This is money that Ms Perkins got from somewhere else and then put into the business and is in addition to commercial small business loans. Ms Perkins said that this money was made up of part of her property settlement proceeds and loans from family.

7. Mr Perkins has provided the Tribunal with copies of the children’s bank statements which show large amounts of money being deposited into, and then withdrawn from, those accounts. Ms Perkins said that these were amounts loaned to her by family so that she could cover her expenses because the business could not support her and the children. She said that she did not want the funds to be deposit into the business account. Some of these amounts went into the business for rent. She said that she told her family that she would repay them this money from the insurance settlement, but that if she does not receive a settlement, they are willing to forgo the repayments. The Tribunal queried the number of cash deposits made to the children’s accounts. Ms Perkins said that they were made by her grandmother as her grandmother does not do any form of electronic banking.

8. When the objections officer considered the income and financial resources available to Ms Perkins they came to the view that they had insufficient evidence about her business to form an opinion of the amount at her disposal. Instead, they worked on the basis of the expenses Ms Perkins said that she was meeting from her income, totalling $3,280 per week, which would require an after-tax income of $170,560 to meet. The officer also considered the information available about money being transferred into the children’s accounts. They found that in the period 18 April 2021 to 17 October 2021 a total of $156,921 was either transferred or deposited as cash into the accounts of the children. This is consistent with the evidence before the Tribunal.

9. There is a long line of legal authority which establishes that funds loaned by family members can be considered to be a financial resource for child support purposes when they are available to a person on an ongoing basis for the day-to-day support of themselves and the children.

10. The objections officer decided that business income and expenses would not generally be found in a child’s bank account. This is quite true, but the Tribunal does accept that a portion of the money that went into those accounts was used by Ms Perkins to meet business expenses. The Tribunal is unable to quantify how much of the money was spent for business purposes and how much on personal expenses. While it can see the money going into the children’s accounts and then leaving those accounts, there is no clear path from there into either Ms Perkins’ personal account or the accounts of [FAMILY TRUST 1]. This makes it extremely difficult to determine Ms Perkins’ financial resources.

11. Mr Perkins said that Ms Perkins’ financial statements showed living expenses of $5,180 per week and she has a shortfall of over $4,000 per week. He did not think that the cash payments into the children’s accounts had come from Ms Perkins’ grandmother. He said that there was over $250,000 deposited into the accounts in a 12-month period. He said that Ms Perkins’ credit cards do not show sufficient purchases to equal her claimed expenses. He also thought that Ms Perkins may own a second [business]. Ms Perkins said that she does not and that the only investment held by [FAMILY TRUST 1] is [Business 1] and there had been a confusion about whether [BUSINESS 2] was another business, not just the operating company for [Business 1].

12. Ms Perkins’ bank statements show that her wage from [Business 1] was a net amount of $416.80 per week. It also shows family assistance payments and jobseeker payment. Her 2020 income tax return shows income of $14,265 in wages and $14,510 in Centrelink benefits.

13. In her Statement of Financial Circumstances Ms Perkins discloses income of $1,063.72 per week including Centrelink benefits and wages from [FAMILY TRUST 1] ($55,313.44). This Statement was completed prior to the business closure. Ms Perkins says that she pays rent of $810 per week and estimates her weekly household expenses at $2,420 ($125,840 per annum). She also claims that she makes debt repayments. Ms Perkins says that she has $54,000 in credit card debt. She says she has a loan from an individual of $50,000. This indicates that her expenses do regularly exceed her income.

14. She also discloses business liabilities including a $70,000 business loan, a tax bill of $60,000, and debts to suppliers, which will be the responsibility of [FAMILY TRUST 1] although it appears that [FAMILY TRUST 1] is not presently in a financial position to meet any of these liabilities without an insurance settlement. They are not personal liabilities of Ms Perkins.

15. In cases such as these, it is not the Tribunal’s role to conduct a forensic examination of the financial circumstances of the parents. Rather, it needs to be broadly satisfied that it is more likely than not that the person has or had access to a certain level of financial resources. In a statement to the Tribunal in respect of this matter, Ms Perkins said that she received the sum of $810,673 upon the completion of the sale of the former matrimonial home on or about 6 August 2019. She said that she used part of that capital sum to repay her legal fees and repay loans to her family members. Ms Perkins told the Tribunal that after these repayments she had around $630,000 remaining. It cost her $500,000 to purchase her business, which would have left about $130,000 in settlement funds. As these were received as a result of the parties’ settlement of property, they are not considered to be income for child support purposes and the Tribunal proposes to exclude them from any consideration of Ms Perkins’ financial resources.

16. In her Statement of Financial Circumstances Ms Perkins discloses $682 in the bank, which means that these funds have been fully expended in the support of herself and the children; and the support of her business, since August 2019. The residual amount of the property settlement is very close to the total amount that Ms Perkins is owed by [FAMILY TRUST 1]. The Tribunal is therefore satisfied that the resources available to Ms Perkins and the children between late March 2020 and early February 2022 were more or less equivalent to her annual total benefits from the business of at least $32,862, plus significant amounts of loaned funds.

17. As the Tribunal does not have before it details of the full amount of money loaned to Ms Perkins in the period, it can only extrapolate from what is before it. In the period 18 April 2021 to 17 October 2021 a total of $156,921 was either transferred or deposited as cash into the accounts of the children. The information the Tribunal has from after this period of time shows that there was a further $26,100 paid into account number [XXXX] between 18 October 2021 and 26 April 2022; and $2,900 deposited into account number [XXXX] between 18 October 2021 and 23 December 2021. This indicates that the payments made to Ms Perkins were not regular and that she received less after October 2021 than she did in the period between April 2021 and October 2021. This is consistent with her evidence about her need to put money into the business and meet its expenses in the period after it was flooded and she was still expecting an insurance payment. The total deposits the Tribunal can see between 18 April 2021 and 26 April 2022 are $185,921, but it is mindful that it does not have complete bank statements for the accounts of all three children for the entire period, nor for the whole time since March 2020.

18. On the basis of the evidence before it, the Tribunal considers that Ms Perkins should be assessed as having had access to financial resources of at least $150,000 per annum from 19 March 2020 to 6 February 2022. Since then, her income has reduced.

19. Mr Perkins also sought that an earning capacity decision be made for Ms Perkins on the basis of her income in 2018 as disclosed by her then employer. As in Mr Perkins’ case, the Tribunal is not satisfied that the criteria for making an earning capacity decision are met for Ms Perkins. Prior to the job in 2018 she had a limited work history, skills and qualifications. Her position there was terminated due to the liquidation of the business. Her next business venture could not be continued for medical reasons. [Business 1] has closed due to circumstances beyond her control. She is currently in receipt of an income support payment which requires her to look for work and provide evidence of these efforts. There is no indication that Ms Perkins has changed her work situation in an attempt to affect the child support assessment. She has simply been affected by a myriad of events.

20. If an ATI for Mr Perkins for the 2021 financial year of $63,917 and an ATI for Ms Perkins of $150,000 for the 2021 financial year were substituted into the assessment in force at the time that Ms Perkins made her application to change the assessment, the annual rate of child support payable by Mr Perkins would be less than the assessment which was in force at the time. Mr Perkins has a demonstrated capacity to pay this assessment. The objections officer decided that it would not be just and equitable to change the assessment even though Reason 8A had been established in relation to both parents, and the Tribunal agrees. The situation would remain the same until at least February 2022.

21. The Tribunal considered whether or not the assessment should change from the closure of Ms Perkins’ business on 7 February 2022. Ms Perkins’ own personal bank account number [XXX] still shows total deposits of $44,754.14 in the four-month period from 2 January 2022 to 9 May 2022. Even if child support and family assistance are excluded, the total income into the account is still at a level which would not produce a child support assessment which is any higher than the administrative assessment.

22. The Tribunal is satisfied that it would not be just and equitable to depart from the administrative assessment. The Agency’s decision on objection is correct.

DECISION

The decision under review is affirmed.