Petralia and Petralia (Child support)

[2021] AATA 1974

Petralia and Petralia (Child support) [2021] AATA 1974 (27 April 2021)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/MC020015

APPLICANT:  Mr Petralia

OTHER PARTIES:  Child Support Registrar

Mrs Petralia

TRIBUNAL:Member R Anderson

DECISION DATE:  27 April 2021

DECISION:

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

• The adjusted taxable income of Mr Petralia is varied to $75,000 in respect of the period 1 January 2020 to 30 September 2020;

• The adjusted taxable income of Mr Petralia is varied to $80,000 in respect of the period 1 October 2020 to 30 September 2022; and

• The adjusted taxable income of Mr Petralia is varied to $85,000 in respect of the period 1 October 2022 until a terminating event occurs in respect of the child support assessment of [Child 3].

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – business income – decision to depart – decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. Mr Petralia and Mrs Petralia are the separated parents of [Child 1], [Child 2] and [Child 3].  [Child 1] ceased to be a child of the assessment in November 2018. While [Child 2] is currently recorded as ceasing to be a child of the assessment from 24 June 2020, advice from Services Australia – Child Support (the Agency) at the time of writing is that the objections officer’s decision in respect of the objection by Mr Petralia on this issue is yet to be made. This issue is not before the tribunal. It is the Agency who has had responsibility for the collection of child support from Mr Petralia from the outset.

2. The child support liability is generally calculated in accordance with the administrative assessment, as provided in the Child Support (Assessment) Act 1989 (the Act). The administrative assessment is generally based on the income recorded by each parent in their most recently completed tax returns, as lodged with the Australian Taxation Office (ATO), or the most recent estimate accepted by the Agency.

3. It is open to either parent to lodge an application for a departure from the administrative assessment under Part 6A of the Act if they consider the administrative assessment results in an unfair amount of child support payable by one parent. In August 2018 an objections officer affirmed an earlier departure decision whereby the adjusted taxable income of Mr Petralia was varied to $97,250 in respect of the period 1 January 2018 to 31 December 2019. 

4. On 17 July 2019, Stewart J delivered final property settlement orders in the Federal Circuit Court of Australia at Melbourne which included at clause 2 that Mrs Petralia’s application for a departure from the existing administrative assessment of child support be dismissed.  This meant that Stewart J considered that the annual rate of child support payable by Mr Petralia in accordance with the objections officer’s decision of 8 August 2018 in the amount of $20,228 was “just and equitable” and “otherwise proper” without requiring any further variation. 

5. On 21 October 2019, Mrs Petralia lodged an application for a departure from the administrative assessment under Part 6A of the Act on the basis that from 1 January 2020 the administrative assessment will produce an unfair outcome due to the earning capacity, income, property and financial resources available to Mr Petralia (Reasons 8A and 8B). Mr Petralia lodged a cross-application on the basis that his capacity to provide financial support for the children was significantly reduced because of his commitments necessary to enable him to support himself (Reason 7).

6. On 9 April 2020, a delegate of the child support registrar found that a ground was established in respect of Reason 8A and decided to vary the adjusted taxable income of Mr Petralia to $83,000 for the period 1 January 2020 to 30 November 2020 and $84,992 in respect of the period 1 December 2020 to 31 March 2022.  Mr Petralia lodged an objection and on 31 August 2020 an objections officer decided to allow the objection and varied the adjusted taxable income of Mr Petralia to $83,350 in respect of the period 1 January 2020 to 31 December 2021.

7. On 8 October 2020, Mr Petralia lodged an application to this tribunal for an independent review of the Agency’s decision. The directions hearing was conducted by telephone with Mr Petralia on 23 February 2021. Mrs Petralia did not make herself available for the directions hearing.  However, her representative, [Ms A], participated by telephone.  Following this hearing, directions were made to both parties requiring them to provide further information and documents. The hearing was held on 27 April 2021. Both parties participated by conference telephone and gave oral evidence on affirmation. Mrs Petralia was represented by [Ms A] of [Law Firm 1] who also participated by conference telephone.  

8. The tribunal considered information in the documents numbered 1 to 621 provided by the Agency in accordance with the Administrative Appeals Tribunal Act 1975, documents lodged by Mr Petralia numbered A1 to A230 and documents lodged by Mrs Petralia numbered B1 to B262.

ISSUES

1. When calculation of the rate of child support is based on the usual administrative formula as discussed above, it also takes into account, relevantly, factors such as the number of children, the level of care provided, the costs of the children, the costs of self-support of each parent and the income of each parent. Section 98C of the Act allows for a decision maker to depart from the usual manner of calculating the rate of child support payable by one parent to the other parent for a child after considering the following issues:

   ·         whether a ground exists to depart from the administrative assessment; and if so

   ·         whether any proposed departure is fair to Mr Petralia, Mrs Petralia and the children; and if so

   ·         whether any proposed departure is fair to the public.

CONSIDERATION

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

1. The grounds for departure are set out in subsection 117(2) of the Act. Each ground is prefaced by the words “in the special circumstances of the case”. The meaning of this expression is not defined in the Act. However, the tribunal was guided by the courts, which have concluded that the expression relates to the facts peculiar to each case such that those facts are “out of the ordinary” and set the case apart from the usual case (Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) and Philippe and Philippe (1978) FLC 90-433).

Reason 7 – “out of the ordinary” and  “necessary” expenses impact on the capacity of the parent to provide for the child.

1. At hearing, Mr Petralia confirmed that the expenses he was seeking the tribunal to consider related to the mortgage, rates and insurance in respect of the [Address 1] property where Mrs Petralia and the children reside.  He sought consideration during the period from separation until the court orders were made on 17 July 2019. 

2. Sub-subparagraph 117(2)(a)(iii)(A) of the Act provides that a ground is established if, in the special circumstances of the case, a parent’s capacity to provide for the child is significantly reduced due to their “necessary” commitments to support themselves.

3. In this case, the tribunal’s view is that the more appropriate ground for consideration is Reason 5, which relates to money, goods or property provided for the benefit of the children.  However, as discussed below, it is irrelevant what ground is the more applicable.

4. The tribunal explained that Stewart J had already considered the expenses Mr Petralia incurred in respect of the [Address 1] property amongst all of the other financial circumstances of the parties and decided that it was not just and equitable to depart from the existing child support assessment at that time.  The departure decision in existence at 17 July 2019 varied the adjusted taxable income of Mr Petralia to $97,250 and made no adjustment in respect of Mr Petralia’s additional commitments in respect of the [Address 1] property.  It is not the role of the tribunal to rehash a decision of the Court.  Accordingly, it is not applicable to consider a ground for departure in relation to the expenses paid by Mr Petralia in respect of the [Address 1] property.

Reasons 8A and 8B – the earning capacity, income, property and financial resources of each parent

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, use of the administrative assessment would result in an unfair level of child support payable by either parent because of the available income, property and financial resources available to them. The Act goes on to state in subsection 117(7A) that the decision maker must have regard to “the capacity of the parent to derive income, including any assets of, under the control of, or held for the benefit of the parent that do not produce, but are capable of producing, income” and disregard “the income, earning capacity, property and financial resources of any person who does not have a duty to maintain the child”.  Mr Petralia’s partner, [Ms B] has no legal duty to provide for the children.

2. In response to a question from the tribunal, Mr Petralia stated that he did not dispute that the income recorded on his annual tax returns were not an accurate reflection of his available income, benefits and financial resources.  His 2018/2019 tax return recorded an adjusted taxable income of $0.  His 2019/2020 tax return records an adjusted taxable income of $56,899, after a reduction of some $60,342 of prior year business losses.  However, it has not yet been applied to the administrative assessment.  He further stated that the income recorded in his 2019/2020 tax return is inflated because of the sale of large pieces of equipment. In his view, the adjusted taxable income determined by the Agency in the amount of $83,350 is too high and does not accurately reflect his true income, benefits and financial resources. 

3. On behalf of Mrs Petralia, [Ms A] submitted that Mr Petralia receives significant benefits through his sole trader entity that a PAYG employee cannot. In particular, motor vehicle, telephone, electricity expenses, in addition to interest on his private residence.  [Ms A] also pointed out that it appears he has continued to claim on the [Address 1] property also.  She further stated that it is unfair that Mrs Petralia be continually forced to seek legal representation to obtain financial assistance for the children and to incur the associated costs, noting that Mr Petralia has child support arrears of around $40,000.

4. It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott and Scott [1994] FLC 92-457; Carey and Carey [1994] FLC 92-489).

5. Mr Petralia gave oral evidence that he commenced his sole trader business, [Business 1], in 2001.  It was originally involved in [specified types of work].  Over the years it developed into [other types of work].  A second business within the sole trader entity was registered in 2013, [Business 2].  Mr Petralia told the tribunal that the onset of his medical condition around 2017 has severely limited his capacity for physical work.  He maintains that the [Product 1] business has held the overall business together, with the additional assistance of JobKeeper, and provides the majority of the income today.  In addition, he sells industrial parts from the shop front of the business premises.  A [Product 1] plant also exists at the premises where [Product 1] is mixed and delivered to customers in [specified equipment].   

6. Mr Petralia gave oral evidence that his role consists of general organisation of the business operations and the [Product 1] plant.  While he continues to work full-time hours, he stated that he has had to adapt his role due to the limitations on his physical capabilities. 

7. He explained that he employs three staff who all work full-time hours.  According to the payroll summary for January 2021 they each received the same monthly gross wage of $4,000, or $48,000 per annum. [Ms B] completes administrative work and helps out in the shop.  A younger man, his right-hand man, drives the [specified equipment] and completes all of the physical tasks while another employer is in the shop and controls all of the invoicing.  It was evident from the ATO documents that Mr Petralia was no longer eligible for JobKeeper payments for the staff after 30 September 2020.  Mr Petralia told the tribunal that at this point the business no longer qualified, as the turnover had picked up in the next quarter. 

8. Based on the accountant-prepared profit and loss statement in respect of 2018/2019, the business made a net loss of $60,227.  This was due to the immediate write-off of assets to the value of over $118,000 in accordance with the small business entity provisions.  The proprietors’ funds account records drawings by Mr Petralia of $83,350. 

9. In respect of the 2019/2020 year, the accountant-prepared profit and loss statement records a net profit of $90,530.  The income included a profit on sale of machinery in the amount of $151,235 and the immediate write-off of assets of just over $2,300.  While Mr Petralia contended that he was required to sell assets in order to comply with the Court orders, he also stated that he sold equipment that was largely related to the [other] side of the business that was no longer continuing.  As the general pool had been fully expensed in the prior year, this meant that 100% of the sales were taxable, regardless of whether any finance remained.  Excluding the sale of assets, it was evident that overall income had declined by more than 50%, despite the assistance of some $24,000 of JobKeeper payments and the cashflow bonus of $11,154. The proprietors’ funds account records drawings by Mr Petralia of $71,309, noting a capital contribution to the business by Mr Petralia of $10,376.  Mr Petralia gave oral evidence that he withdrew $10,000 from his superannuation in May 2020 under the COVID-19 early release from super program. 

10. In respect of the period 1 July 2020 to 31 December 2020, the accountant-prepared profit and loss statement records a net loss of $17,550.  It is evident that further assets were sold in the amount of $21,710 (having already been written-off in prior years) and purchase of the [specified equipment] was written-off in full under the small business entity provisions in the amount of $42,727.  Excluding the sale of assets, when annualised, it was evident that overall income will likely increase by 30 June 2021, in addition to $54,000 of JobKeeper payments and further cashflow bonus payments to 30 September 2020 of $15,462. The proprietors’ funds account records drawings by Mr Petralia to 31 December 2020 of $18,892, noting a capital contribution to the business by Mr Petralia of $10,000.  Mr Petralia gave oral evidence that he withdrew a further $10,000 from his superannuation in July 2020 under the COVID-19 early release from super program. 

11. [Ms A] highlighted the discrepancy in net assets recorded on the accounting software-generated balance sheet at 12 March 2021 in the amount of $1,994,499 and the negative net asset base recorded in the accountant-prepared balance sheet at 31 December 2020 of $588,619.  In respect of the accounting software-generated profit and loss statement at 12 March 2021 it is evident that a range of private expenses are included, such as child support and credit card payments. 

12. The tribunal prefers the reports prepared by the accountant who has the expertise in relation to a more accurate allocation of expenses.  However, the tribunal acknowledges the significant blurring of private and business expenses, in particular in respect of the [Address 2] residence of Mr Petralia and expenses in relation to the [Address 1] property.  As discussed at hearing, this makes it difficult to quantify the exact amount of income and financial resources available to Mr Petralia from the business.  

13. However,  as discussed with the parties, the role of the tribunal is not to conduct a forensic audit (Podmore & Pillai (SSAT Appeal) [2011] FMCAfam 952 and Frost and Frost (SSAT Appeal) [2011] FMCAfam 1311). Rather, it must be satisfied on the balance of probabilities as to the party’s income, property and financial resources available to the parties for child support purposes, such that a fair decision can be made in respect of the child support liability.

14. In the tribunal’s view, a reasonable approach to assessing the income and financial resources available to Mr Petralia is on the basis of drawings.  In respect of benefits, in Costa & Fairbank (SSAT Appeal) [2010] FMCAfam 39, the Court interpreted “financial resources” as:

    something which is not property but from which financial benefit is or may be gained. In light of the objects of the Act, the term should be broadly defined and would refer to any financial benefit that would enhance the capacity of parents to provide a proper level of financial support for their children.

15. Mr Petralia estimated his monthly benefit of fuel for his motor vehicle to be $100 and for telephone around $50. He has also had the benefit of expensing costs such as rates and in addition the interest related to [Address 1], noting the significant decline in interest expense after the [mortgage] loan in respect of [Address 1] was paid out in July 2020 and no longer on the balance sheet as a liability. 

16. The tribunal accepts the written evidence of Mr Petralia, that at 26 February 2021, he held a balance in his [Super Fund 1] account of $49,671, following a rollover of funds from [Super Fund 2] and after withdrawals totalling $20,000, as discussed above, in mid-2020.

17. The tribunal considered the assets and liabilities of Mr Petralia. According to his Statement of Financial Circumstances, his assets consist of his residence at [Address 2] ($365,000) and his business premises at [Address 3] ($485,000).  At hearing Mr Petralia estimated his net funds in the bank to be negative $35,500, due to the business overdraft account.  In addition a [Vehicle 1] and [Vehicle 2] are valued at $10,500, plant and equipment in respect of the business at $301,000 and household contents of $5,000.

18. The liabilities of Mr Petralia are significant and include a mortgage on [Address 2] property of $197,201 (albeit no statements were provided) and a mortgage in respect of the business premises, recently refinanced with [named financier] in the amount of $364,000.   Finance contracts in respect of business plant and equipment total $167,034.  Outstanding superannuation payable in respect of employees exceeds $37,000, outstanding ATO debt exceeds $60,000 and his combined credit cards exceed $95,000. Outstanding legal fees remain payable of $134,694.  While Mr Petralia records accounts payable in respect of the business at $144,000, it is noteworthy that according to the balance sheet at 31 December 2020, accounts receivable exceeds $100,000. Overall, the net assets of Mr Petralia are negligible. Mr Petralia gave oral evidence that he owes his mother $83,000 having reduced it from $100,000 since mid-2019.  However, there is no legal document in respect of this loan.

19. Mr Petralia told the tribunal that he shares the [Address 2] property with [Ms B].  In response to a question from the tribunal, Mr Petralia stated that he pays the mortgage and all of the bills, while [Ms B] contributes to the food in the amount of approximately $100 per week.  Given that the mortgage alone requires payments of $392 per week, the tribunal pointed out that $100 per week does not equate to a fair contribution by [Ms B].  Mr Petralia responded that she does all of the cooking and cleaning and cares for him. She is in good health.

1. The tribunal accepts the written statement from [Dr C], consulting [medical specialist] at [Hospital 1], dated 7 May 2018 and [Dr D], [medical specialist] Registrar at [Hospital 2], dated 26 March 2018, both of whom confirm that Mr Petralia was diagnosed with rapidly progressive [Medical Condition 1] and severe [Medical Condition 2] in 2017.  There is no expectation that there will be an improvement going forward as the disease is chronic, and the prospect of worsening function over time is high.  Mr Petralia told the tribunal that he incurs out-of-pocket expenses in respect of specialist consultations and he has a health care card that assists with his prescriptions.  He estimates his weekly medical and pharmacy costs to be $105.  Overall, Mr Petralia’s “necessary” costs , including his share of the household costs and his medical and pharmacy expenses, are closely aligned to the self-support amount used in the administrative assessment in 2021 of $26,319.  According to the integrated client account statement, Mr Petralia is also meeting regular payments toward his outstanding credit card debt of around $461 per week ($2,000 per month).  It is noteworthy that the regular payments to the ATO of $372 per week ($1,612 per month) are in respect of GST and PAYG withheld in relation to the business.

2. The tribunal considered the financial circumstances of Mrs Petralia, who has been employed in a permanent contract position as a [Occupation 1] in [Industry 1] for almost six years.  While her regular hours are 25 per week, she picks up additional shifts when she can.  Based on her most recent payslip at 21 February 2021, her year to date gross wages (including allowances) are $36,016, annualising to $55,702.  According to her 2018/2019 and 2019/2020 tax returns, her gross wages and allowances were $54,803 and $55,152 respectively.  Mrs Petralia’s deductible  work-related expenses are unremarkable.  Donations, as a discretionary expense,  are not significant and in any event have no impact on the child support assessment due to Mrs Petralia being attributed with the sole care of the children.  Going forward, there is no expectation of a significant change in the working arrangements of Mrs Petralia and the tribunal is satisfied that her annual returns are an accurate reflection of her income and financial resources.

3. Mrs Petralia is currently in receipt of family tax benefit parts (FTB) A and B in respect of the 2020/2021 year in the amount of $84 per fortnight. Pursuant to subparagraph 117(7)(b)(ii) of the Act, for child support purposes FTB is not considered to be a part of Mrs Petralia’s adjusted taxable income. FTB is an income-tested benefit. FTB is not defined as a tax-free benefit under section 5 of the Act to be included in adjusted taxable income (paragraph 43(1)(e) of the Act). Therefore, as FTB is not required to be included in adjusted taxable income, it is to be disregarded, as clarified at 2.6.17 of the Child Support Guide.

4. The tribunal considered the assets and liabilities of Mrs Petralia.  She resides in the [Address 1] property and shares it with [Child 1] and his girlfriend, [Child 2] and [Child 3].  As a result of the property settlement orders in July 2019, the property is unencumbered and according to the council rates notice is valued at $627,000.  The property has been in the name of Mrs Petralia since mid-2020. According to her Statement of Financial Circumstances and oral evidence, her other assets consist of a bank balance which barely covers her existing credit card debt, two motor vehicles valued at $7,500 and household contents of $2,000. Mrs Petralia’s liabilities consist of $10,000 of outstanding legal fees. Overall, Mrs Petralia has a favourable asset base, albeit this is completely tied up in the equity of her home.

5. Mrs Petralia told the tribunal that [Child 1] is employed full-time with the local Shire and his girlfriend works as a casual cleaner.  [Child 2] is an apprentice [Occupation 2] and puts in full-time hours between work and TAFE studies.  In response to a question from the tribunal, Mrs Petralia stated that none of the children make a financial contribution to the costs of the household.  Instead, they help her around the house with chores and the more physical tasks.

6. Mrs Petralia told the tribunal that she found it difficult to complete the average weekly expenses of the household.  There is no evidence to indicate that the “necessary” costs of Mrs Petralia are “out of the ordinary”, or that they exceed the self-support amount used in the formula in 2021 of $26,319.  If anything, they would be less than the self-support amount as she does not incur any rent or mortgage costs. She told the tribunal that in more recent years she has managed to meet the household expenses by using her savings from property settlement and accessing $10,000 from the COVID-19 early release from super program pre 30 June 2020. Since her savings have been exhausted in recent months, she now has a regular shortfall of funds on a weekly basis.  The tribunal observed that contributing to the costs of the other adults in the home does not assist her in this regard.

7. The issue of earning capacity has not been raised in respect of either parent.  The tribunal is satisfied that it is not applicable in this case.

8. In the period from 1 January 2020, following cessation of the prior departure decision of 8 August 2018,  the administrative assessment reverted to being based on the most recently lodged tax returns of the parties. At 1 January 2020 this was based on the 2018/2019 tax return of Mr Petralia whereby his adjusted taxable income was recorded as $0 and the 2018/2019 adjusted taxable income of Mrs Petralia of $53,042.

9. On 1 August 2020, the administrative assessment was based on a deemed adjusted taxable income for the 2019/2020 year in respect of Mr Petralia of $0 and an adjusted taxable income in respect of Mrs Petralia for the 2019/2020 year of $53,666.

10. Given that Mr Petralia has no care of the children, is not in receipt of any income support payments and his income of $0 is less than the parenting payment (single) maximum basic pension amount in 2020 of $20,298, the administrative assessment would calculate his child support liability in accordance with section 65A of the Act at the annual rate per child of $1,467.  This means that the annual child support liability payable by Mr Petralia from 1 January 2020 until the termination of the child support assessment in respect of [Child 2] would be $2,934, then reducing to $1,467.

11. According to Agency records, Mr Petralia is yet to lodge his 2019/2020 tax return with the ATO.  However, the tax return submitted to the tribunal records an adjusted taxable income of $56,899, after a reduction of prior year tax losses of $60,342.  Upon lodgement of his tax return, the child support assessment will be adjusted retrospectively to reflect an adjusted taxable income of $56,899 from 1 August 2020 in accordance with section 58A of the Act. The tribunal calculates that this would result in a child support liability payable by Mr Petralia in respect of [Child 3] in the amount of $7,093.

12. The tribunal is satisfied that Mr Petralia’s business was negatively impacted by COVID-19, which has affected the overall profits in 2019/2020 and 2020/2021.  However, he was able to recover and adapt his business accordingly.  Based on the evidence discussed above, the tribunal finds that Mr Petralia’s income, benefits and financial resources from 1 January 2020 to 30 June 2020 are estimated to approximate $75,000, being net drawings of almost $61,000 and benefits through running costs for his motor vehicle, telephone and private interest and rates, which results in the annual rate of child support payable by him in respect of [Child 2] and [Child 3] to be more in the vicinity of $14,000. 

13. In respect of the 2020/2021 year, the tribunal notes the reduced net drawings to 31 December 2020 to less than $10,000.  However, going forward it is clear from the accounting software-generated profit and loss statement at 12 March 2021 that the general sales and workshop income has increased since 31 December 2020 by some $100,000 from $318,016 to $413,582.  This points to sales continuing to improve and the likelihood of increased profits, albeit not yet to the position when [other work] contracts were a major part of the business. The tribunal estimates the income, benefits and financial resources available to Mr Petralia in the period to 30 June 2021 will likely approximate $80,000 and finds accordingly. This results in the annual rate of child support payable by him in respect of [Child 3] to be more in the vicinity of $11,000 to $12,000.

14. While the period will be discussed later in these Reasons for Decision, for the reasons outlined above, the tribunal finds that special circumstances do exist in this case, in that the administrative assessment results in an unfair outcome. As such, the tribunal is satisfied that a ground for departure is established in relation to subparagraph 117(2)(c)(ia) of the Act.

Issue 2 – Is it fair or “just and equitable” in relation to Mr Petralia, Mrs Petralia and the children to make a particular departure determination?

1. Section 3 of the Act makes it clear that the parents of a child have the primary duty to maintain the child, and that this duty has priority over all commitments of the parents other than commitments necessary for self-support or the support of another person the parent has a duty to maintain (Ashcroft and Ashcroft (SSAT Appeal) [2008] FMCAfam 1250). In this case Mr Petralia and Mrs Petralia have the primary duty to financially support the children. Neither Mr Petralia or Mrs Petralia have a legal duty to provide for any other person other than [Child 2] and [Child 3] until a terminating event in respect of their respective child support assessments.

2. In determining the proper needs of the children, it is necessary to have regard to the manner in which they are being, and in which the parents expected them to be, cared for, educated or trained, and any special needs (subsection 117(6) of the Act). There is no dispute that [Child 2] and [Child 3] are in good health and have no special needs.Mrs Petralia told the tribunal that there is no reason why the “necessary” costs of the children are not fairly reflected in the Costs of the Children Table. [Child 1] and his girlfriend are also in good health.

3. While the liability of the parents ceased under the Act in respect of [Child 2] in mid-2020, albeit it is yet to be finalised on objection, in the case of Carlson & Acuff & Anor (SSAT Appeal) [2010] FMCAfam 677, Riethmuller FM noted that section 66L of the Family Law Act 1975 regulates the circumstances when a parent’s duty to maintain a child over 18 years of age would be enforced, and opined that where a child is in full-time education they would fall squarely within paragraph 66L(1)(a) of the Family Law Act 1975.  Riethmuller FM further noted the real question became the amount of the obligation, in light of the parents’ expectations about whether the child should contribute to the household expenses.

4. In contrast to [Child 1], [Child 2] is in receipt of apprentice wages which makes it difficult for him to support himself without some form of assistance from the parents. This is not to say that he is not capable of contributing towards his share of the household costs in accordance with his capacity.  Furthermore, there is no evidence in respect of [Child 3] having access to sufficient income, property or financial resources that can be utilised to support himself.

5. As already discussed, Mrs Petralia’s “necessary” costs of self-support are likely less than the amount allowed for in the administrative formula.  Given that it is Mrs Petralia who is meeting the additional costs for [Child 2], the tribunal is satisfied that it is not appropriate to adjust her costs of self-support.

The earning capacity, income, property and financial resources and commitments of each parent

1. As found earlier in these Reasons for Decision, the tribunal is satisfied that Mr Petralia has had access to income, benefits and financial resources in the vicinity of $75,000 per annum in the period commencing 1 January 2020 which likely continued until the business began to recover from COVID-19 at 1 October 2020.  Since then, it is clear that the circumstances of the business are improving as the economy recovers from the impact of COVID-19. However, the tribunal accepts that as time goes on, the possibility of Mr Petralia’s medical condition impacting on his ability to run the business may increase.

2. While Mr Petralia has a significant level of debt, the tribunal considers that it is open to Mr Petralia to rearrange his financial affairs such that he is able to contribute, according to his capacity, to the needs of the children.  He has equity in both properties.  The Court determined the property settlement to be fair, irrespective of whether that required Mr Petralia to sell one or both of his properties.  

3. The tribunal also found earlier that Mrs Petralia’s annual tax returns as lodged with the ATO are a reasonable reflection of her income and financial resources and are likely to continue to be so. Mrs Petralia has a more favourable asset base than Mr Petralia.

4. As both parties accessed their superannuation and used it to meet existing commitments, Mr Petralia contributing additional capital to the business, the tribunal decided not to increase their respective adjusted taxable incomes in the relevant years.

5. As discussed at hearing, the tribunal does not accept the oral evidence of the parties that their financial circumstances are dire.  Both parties choose to support persons to whom they have no legal duty to support.  The tribunal understands the moral obligation that both parties feel.  However, such moral obligations cannot be prioritised over each parent’s responsibility to provide support for [Child 2] (until mid-2019) and [Child 3].

Conclusion

1. [Ms A] submitted that the true nature of Mr Petralia’s financial affairs is difficult to assess, yet it is clear that his income, benefits and financial resources exceed the amount reflected in his annual tax returns.  She further stated that child support has not been prioritised by Mr Petralia, choosing instead to repay his mother in part and purchase new equipment for the business. [Ms A] suggested that $100,000 per annum is within the range determined by the Court.  However, the tribunal is cognisant that the determinations of the Court occurred prior to the onset of COVID-19.

2. Mr Petralia told the tribunal that he considers a reasonable rate of child support for [Child 3] to be $100 per week. Given the income of Mrs Petralia, this would require the adjusted taxable income of Mr Petralia to be less than $50,000 per annum.  The tribunal does not accept that this is so.

3. After consideration of the income and assets together with the commitments and liabilities of Mr Petralia and Mrs Petralia and the “necessary” costs of the children, the tribunal considers it is just and equitable to make a departure determination from the current administrative assessment in accordance with section 98S of the Act. The tribunal may make one of the determinations set out in section 98S of the Act. Section 98S sets out a range of determinations, including varying the annual rate of child support payable, the adjusted taxable income of a parent, or the costs of self-support.

4. The tribunal may not make a determination in respect of any period more than 18 months earlier than the date on which the application for a change in the way the child support liability is calculated was made (subsection 98S(3B)). As noted earlier in these Reasons for Decision, the previous departure decision ended on 31 December 2020. All parties agreed that it was reasonable to commence a departure decision at 1 January 2020.

5. In regard to an end date, [Ms A] expressed Mrs Petralia’s preference for a departure decision to end when a terminating event occurs in respect of the child support assessment of [Child 3], being 2024. The tribunal is cognisant of the preference of the parties for a degree of certainty in relation to the child support liability and to try to avoid the lengthy departure processes into the future.  As such, the tribunal proposes to end the departure decision when a terminating event occurs in respect of the child support assessment for [Child 3].  However, the tribunal also acknowledges the uncertainty going forward in relation to the circumstances of Mr Petralia in respect of his health and any impact that may have on the business operations in the future.  As discussed at hearing; it is open to either party to lodge a further change of assessment application should the future circumstances of either party change significantly from the circumstances upon which this decision is based. In particular, in respect of the future business operations and medical condition of Mr Petralia.  It is noteworthy that Mrs Petralia’s adjusted taxable income will remain based on her most recently lodged tax returns, thereby accounting for any increased hours that may occur going forward.

6. On balance, the tribunal proposes to vary the adjusted taxable income of Mr Petralia to $75,000 in respect of the period 1 January 2020 to 30 September 2020, to $80,000 in respect of the period 1 October 2020 to 30 September 2022 and to $85,000 in respect of the period 1 October 2022 until a terminating event occurs in respect of the child support assessment of [Child 3]. 

7. According to Agency records, Mr Petralia’s outstanding arrears at 9 October 2020 were in excess of $35,000.  At hearing, Mrs Petralia asserted that they currently approximated $40,000. The tribunal calculates that the proposed decision will result in a reduction in the arrears of Mr Petralia at 9 October 2020 by around $1,400 and assuming no payments have been made since, by around $1,700 at 30 April 2021.  Any payments made by Mr Petralia in the meantime will obviously further reduce the arrears.

8. Subsection 117(4) of the Act requires the tribunal to consider whether any departure determination or failure to make a departure will cause any hardship to the children, the carer, the liable parent or any other person the liable parent has a duty to support.

9. Mrs Petralia has received little child support for some time now and told the tribunal that she would suffer further hardship if the ongoing child support were to revert to the annual rate of $1,467. In her view Mr Petralia would not suffer hardship if the child support rate were to increase.  In the past year he has managed to pay $17,000 to his mother, which would have been a significant contribution towards the needs of his children and reduced his outstanding child support arrears.

10. Mr Petralia gave oral evidence that he considers that Mrs Petralia could manage to maintain [Child 3] if his contribution remained at the annual rate of $1,467. He will simply have to manage in regard to whatever the decision is in regard to his child support liability.

11. The tribunal is satisfied that the decision will not cause hardship to either parent or the children.  Mr Petralia has the means to arrange his financial circumstances, albeit that may mean the sale of some other assets and/or [Ms B] meeting her own costs of self-support, to meet the current child support liability in the amount of $227 per week.  The repayment made to his mother in the past year of $17,000 represents almost 75 weeks of child support.  Mr Petralia is required to prioritise the necessary expenses for himself and his child support liability for his children. 

12. Similarly, it is open to Mrs Petralia to prioritise the necessary expenses for herself, [Child 2] and [Child 3], albeit that may well mean that [Child 1] and his girlfriend meet their own costs of self-support and [Child 2], since commencing his apprenticeship, in accordance with his capacity. 

Issue 3 – Is it otherwise proper to make a particular departure determination?

1. The third step is to consider whether it would be otherwise proper to make a particular departure determination in accordance with sub-subparagraph 98C(1)(b)(ii)(B) of the Act. Subsection 117(5) sets out the matters that must be considered when deciding whether it would be “otherwise proper” to make a departure determination.

2. In this case Mrs Petralia is in receipt of FTB Part A and Part B. While the increased child support payable by Mr Petralia to Mrs Petralia may impact on her entitlements to FTB , it would only result in a decrease in her FTB Part A entitlement and a decrease in the cost to the public purse.  As a single parent, the child support liability has no impact on her entitlement to FTB Part B. Therefore, the tribunal is satisfied that it is otherwise proper to make the particular proposed determination.

DECISION

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

• The adjusted taxable income of Mr Petralia is varied to $75,000 in respect of the period 1 January 2020 to 30 September 2020;

• The adjusted taxable income of Mr Petralia is varied to $80,000 in respect of the period 1 October 2020 to 30 September 2022; and

• The adjusted taxable income of Mr Petralia is varied to $85,000 in respect of the period 1 October 2022 until a terminating event occurs in respect of the child support assessment of [Child 3].