Phelps and Phelps (Child support)

[2020] AATA 1027

Phelps and Phelps (Child support) [2020] AATA 1027 (4 March 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2019/MC018125

APPLICANT:  Ms Phelps

OTHER PARTIES:  Child Support Registrar

Mr Phelps

TRIBUNAL:Member M Martellotta

DECISION DATE:  04 March 2020

DECISION:

The tribunal sets aside the decision under review and substitutes it with a new decision that the income estimate of $38,298 provided on 26 July 2019 is to be refused.

CATCHWORDS

CHILD SUPPORT – particulars of the administrative assessment – estimate of income - whether the estimate should have been refused - decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted from this decision and replaced with generic information 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. This review is about a decision made by the Department of Human Services – Child Support (the Department) to accept and apply an estimate of income.

2. On 2 August 2018 the Department decided to apply an annualised estimate of $38,298 relating to Ms Phelps’ adjusted taxable income to the assessment.  Ms Phelps objected to that decision.  The Department disallowed the objection on 20 December 2019. Ms Phelps made application to the tribunal seeking independent review on 27 December 2019.

3. The tribunal convened a hearing on 4 March 2020.  Ms Phelps and Mr Phelps attended the hearing by conference telephone.  Ms Phelps gave evidence under affirmation.  Mr Phelps told the tribunal that he did not intend to participate in the hearing, he stated that he had no evidence or submissions to make and he did not have any interest in the outcome which he said he understood could result in arrears being payable. On this basis Mr Phelps did not participate in the hearing.

4. The Department provided documents relevant to their decision (213 pages).

ISSUES

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act).

2. Child support legislation is interpreted by the Department with the aid of the Child Support Guide (the Guide). The tribunal is not bound by law to apply the policy as set out in the Guide but, provided the policy is consistent with the legislation, it is required to have regard to it and in the ordinary course follow it.[1]

   [1] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634

3. The issue which arises in this case is whether there is any reason for the Department to refuse the income election.

CONSIDERATION

1. A person may make an estimate of income for a financial year, or part of a year, if the provisions in section 60 of the Act are met. In conjunction with other requirements such an estimate may be accepted if the Department is satisfied that the declaration amount made by a parent is correct.[2]

   [2] Subparagraph 60(1)(b)(i) of the Act

2. According to the Department:

   a)On 21 May 2018 Ms Phelps lodged an income estimate of $15,173 for the financial year 1 July 2018 to 30 June 2019. The administrative assessment to that end date of 30 June 2019 reflected this income estimate.

   b)On 17 July 2019 the Department wrote to Ms Phelps advising of a new child support period. That correspondence noted that the current assessment for the period 1 July 2019 to 31 August 2019 was based upon Ms Phelps’ 2017/18 taxable income of $25,882 but for the period 1 September 2019 to 19 July 2020 it would be based upon a 2018/19 provisional income of $12,464.

   c)On 26 July 2019 Ms Phelps lodged an income estimate of $15,634 which was annualised to $38,298 for the period 2 February 2019 to 30 June 2019. This amount replaced the estimated income of $15,173 previously being used and resulted in a reduction in the child support payable in the period of $863.89.

   d)On 2 August 2019 Ms Phelps objected to the Department’s decision to apply this annualised amount to the assessment.

3. Ms Phelps’ evidence was that:

   a)She was studying and on social security payments and this has generally been the basis of her income.  Her usual annual income generally was in the vicinity of around $20,000.

   b)In March 2019 she contacted the Department (having already contacted Centrelink) to let them know that she had started some employment.  In that conversation the officer she spoke to asked her to provide income information.  She said that because she had not long started she was unable to do so with any accuracy particularly given that she was also in receipt of newstart and that payment varied each fortnight. 

   c)In that discussion it was suggested that she call back towards the end of the financial year and provide an update of income which would then be more accurate.

   d)For personal and sensitive reasons she was unable to make contact with the Department until 26 July 2019.  On that occasion she spoke to a Department officer on two occasions and it was a convoluted and confusing discussion.  She said that she again was calling to provide an update on her income but by this stage she was no longer working. At that point in time Ms Phelps said she was recovering from a significant personal event which had impacted upon her wellbeing and ability to interact and understand the detail of matters being discussed with the Department.

   e)She told the officer what she had earned for the period that she had worked and what her social security payments had totalled. She said on this basis her annual income was about $24,000. However, the officer took this information and converted it to an annual amount which resulted in an income estimate of $38,298 being applied.  This resulted in her being assessed as having an $800 overpayment.

   f)She found this interaction and subsequent contacts with the Department about this issue confusing and frustrating as no-one seemed to understand that the estimate they had applied was wrong as she never had earned an income anywhere approximating the estimate the Department had applied.

4. The Department provided transcripts of the discussions Ms Phelps had with the Department on 26 March 2019 and then two subsequent discussions that she had with an officer on 26 July 2019. The discussion held on 26 March 2019 confirms that:

   a)Ms Phelps had contacted the Department in order to provide them with an update of income.

   b)She advised that she had commenced casual employment and was still in receipt of newstart allowance.

   c)Ms Phelps was concerned about providing an estimate of income that the Department would annualise resulting in an annual amount being ‘far more than I’m going to be earning in the projected future’.[3]

   d)Ms Phelps wanted to provide an annual income amount for the year to reflect what she believed would be her actual income of about $23,600 as she was concerned about being penalised or having an over-estimated amount utilised.

   e)On this basis it was discussed that she could delay providing an update until anytime up to 30 June 2019 which would then be a more accurate advice to avoid an overestimate being applied to her detriment.

   [3] Department document p 135

5. The subsequent contact on 26 July 2019 reflects that:

   a)Ms Phelps advised she was calling because she had received a number of assessment letters and was trying to understand what her child support payments would be.

   b)She was no longer working and had not yet done her tax return.

   c)The Department advised that they could assist by ‘setting up an estimate’ for her which would ‘match’ her tax return once it was lodged.[4]

   d)The Department noted that Ms Phelps had received social security (newstart) payments of $12,256 in the 2018/19 financial year and that she had received $10,627 in employment income resulting in a total of $22,883.

   e)The Department was going to amend her estimate and add the income from her employment.

   f)A subsequent contact made by the Department on the same date advises that the record would be update to reflect her employment income of $10,627 and her newstart payments of $12,256 (2018/19).

   g)Ms Phelps was then advised that because she had provided an estimate that these amounts were being annualised resulting in a figure of $38,298: “its annualised for the formula but when you lodge your tax return it would be expecting for the tax return to be about $24,613”.[5]

   h)The advice goes on to note that if the officer inputs the full employment amount then “that brings it to the $24,613 if you were to lodge your tax return”.

   [4] Department document p 141

   [5] Department document p 151

6. In the tribunal’s view the transcripts of the discussion held on 26 July 2019 demonstrate that Ms Phelps was confused and unclear about the situation and that due to personal circumstances she was having difficulty dealing with details. This is particularly the case in the second conversation that took place on that date.

7. The Department says that on 26 July 2019 Ms Phelps estimated her income for a period which was other than for a full financial year and because of this they were required to convert the estimate provided to an annual income amount.

8. Ms Phelps told the tribunal that it was never her intention to lodge an estimate.  She said that she was simply updating the Department about her changed employment situation as she thought she was required to do this as she does with Centrelink.  No one at the Department told her that she did not need to provide an estimate or what that meant, it was only subsequently that this was explained to her. She said that in any event she only wanted to update the Department of her actual annual amount of income and the Department have made an error by annualising it.  Her actual adjusted taxable income for the 2018/19 year was that she earned $22,096.

9. A parent may estimate their income for a part year of income (subsection 60(3) and (4) of the Act).  The parent is required to use the following method to work out the amount and also estimate each income component amount for the period that starts on the first day of the year of income and ends at the end of the day before the start day for the election:

   Method statement

   Step 1.   Estimate each income component amount for the parent for the period (the remaining period):

   (a)     starting on the start day for the election; and

   (b)     ending at the end of the last day of the year of income.

   Step 2.   Add up those amounts. The result is the partial year income amount

   Step 3.   Divide the partial year income amount by the number of days in the remaining period.

   Step 4.   Multiply the quotient by 365

10. The Department can refuse to accept an income election if satisfied that the parents partial year income amount is less than what the Registrar considers is likely to be the parent’s actual adjusted taxable income for the year of income to which the income election relates[6] or the total of the income component amounts for the year to date income amount is more than the amount that the Registrar considers is likely to be the total of the actual income component amounts.[7]

    [6] Subsection 63AA(2)(a) of the Act

    [7] Subsection 63AA(2)(b) of the Act

11. The Guide provides at 2.5.1 that the Registrar will consider all the circumstances to assist in determining whether or not to accept an estimate as being accurate.  As the tribunal understands it this may also include looking at a person’s history or record of previous estimates or income.

12. It appears from the discussions that Ms Phelps had with the Department and in particular it was apparent in the last discussion that Ms Phelps had with the Department on 26 July 2019 that whilst the Department appears to acknowledge that the components of Ms Phelps’ actual income were likely to be in the vicinity of $24,000 in total[8] a decision was made to apply an estimate of $38,298 an amount likely to be more that the amount likely to be total of Ms Phelps’ actual income component amounts.

    [8] Which is a figure consistent with past adjusted taxable income amounts

13. The tribunal concluded that at the time of the acceptance of the estimate on 26 July 2019 the evidence available  demonstrated that the total of Ms Phelps’ income components for the year to date income amount was more than the amount likely to be the total of the actual income amount.  For this reason the tribunal concluded that the estimate ought to have been refused.

DECISION

The tribunal sets aside the decision under review and substitutes it with a new decision that the income estimate of $38,298 provided on 26 July 2019 is to be refused.