Pointing and Pointing (Child support)

[2018] AATA 4578

Pointing and Pointing (Child support) [2018] AATA 4578 (1 November 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/SC014143

APPLICANT:  Mr Pointing

OTHER PARTIES:  Child Support Registrar

Ms Pointing

TRIBUNAL:Member K Dordevic

DECISION DATE:  1 November 2018

DECISION:

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

·     Mr Pointing’s adjusted taxable income is varied to $120,000 for the period 8 November 2017 to 30 June 2018; and

·     Mr Pointing’s adjusted taxable income of $120,000 is to be adjusted annually commencing on 1 July 2018 and each relevant year thereafter by the Consumer Price Index National Weighted Average for the preceding March quarter until a terminating event occurs in relation to one or both of the children.

CATCHWORDS
CHILD SUPPORT – departure determination – income and financial resources of a parent conducting business through a company – payment of wages to associated persons not at arms’ length – costs of child care – 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. Relevant to this application, Mr Pointing and Ms Pointing are the parents of [Child 1] (six years) and [Child 2] (four years). Ms Pointing was recorded as having 72% and Mr Pointing 28% care of the children until 14 August 2018, whereby the care register was amended to reflect that Ms Pointing had 65% and Mr Pointing 35% care of the children from 15 August 2018.

2. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances.

3. On 8 November 2017 Ms Pointing lodged a departure application with the Department of Human Services (the Department).

4. On 31 January 2018 a senior case officer determined that for the period 1 December 2017 to 30 May 2019 Mr Pointing’s adjusted taxable income should be varied to $120,000 per annum and for the period 8 January to 1 July 2018 the annual rate of child support payable by Mr Pointing be increased by a further $2,418 and for the period 2 July to 21 December 2018 his annual rate was increased by $1,300.  

5. Mr Pointing lodged an objection to that decision on 1 December 2017. On 20 April 2018 his objection was partly allowed. It was determined that for the period 1 December 2017 to 30 May 2019 Mr Pointing’s adjusted taxable income should be varied to $120,000 per annum and for the period 8 January to 26 February 2018 the annual rate of child support payable by Mr Pointing be increased by a further $2,418.

6. On 15 May 2018 Ms Pointing sought further review with the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal). Mr Pointing lodged a cross-application with this tribunal on 22 May 2018.

7. A telephone directions hearing was convened on 20 September 2018. Directions were issued with compliance due on 15 October 2018.

8. The tribunal heard the matter on 1 November 2018. Both parties appeared by conference telephone. The Child Support Registrar was not represented at the hearing. In reaching its decision the tribunal has considered the sworn evidence of Ms Pointing and Mr Pointing. The tribunal also considered the documentation provided by the Department (folios 1-434), Ms Pointing (folios A1-A40) and Mr Pointing (folios B1-B78).

ISSUES

1. The statutory provisions relevant to this review are outlined in section 98C of the Act, which states that a decision to depart from the administrative assessment may be made if the following three requirements are met:

   (i)that one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and

   (ii)that it would be:

   (A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   (B)otherwise proper;

   to make a particular determination under this Part …

2. Therefore, the issues which arise in this case are:

   ·     Does a ground exist for departure from the administrative assessment of child support? And, if so

   ·     Would it be just and equitable and otherwise proper to make a particular determination?

CONSIDERATION

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure if the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent because of either party’s income, property and financial resources. The central issue in this matter is whether the administrative assessment accurately reflects Mr Pointing’s income and financial resources.

2. For the period 2 January to 30 September 2017 the annual rate of child support payable is $11,305, based on the parties’ 2016 adjusted taxable incomes of $57,644 (Ms Pointing) and $91,380 (Mr Pointing). For the period 1 October to 17 December 2017 the annual rate of child support payable by Mr Pointing was $9,611, based on the parties’ 2017 adjusted taxable incomes of $76,648 (Ms Pointing) and $88,656 (Mr Pointing). From 18 December 2017 the annual rate reduced to $8,022 as a previous departure decision, whereby Mr Pointing was to contribute to the child care costs, no longer applied. 

3. Ms Pointing’s case can be summarised as follows. Mr Pointing’s taxable income does not reflect the income and financial resources available to him, nor does it reflect his earning capacity. She submits that he resigned from his employment and formed his own company, whereby he subcontracts for his friend, in order to minimise his child support liability. She submits that his income is at least $120,000 per annum and not $65,000 per annum as he has declared to the Department.

4. The tribunal makes the following findings. Mr Pointing’s taxable incomes for the 2015 to 2018 financial years were $91,300, $91,380, $88,656 and $90,556 respectively.

5. At hearing Mr Pointing confirmed that in the 2018 financial year he resigned from his employment with [Company 1] and on 8 August 2017 he formed his own company, [Company 2], which undertakes [specified] work. He exclusively undertakes subcontract work with [a company] which is owned by a former colleague; he denies that they are friends as Ms Pointing asserts. He pays himself a salary of $65,000 per annum. He explained that he formed the company, rather than working as a sole trader, as his accountant told him it will “work out better” for him if he did so.

6. Mr Pointing was unable to provide any direct or unqualified answers in respect of the 2018 company accounts and his payslips in evidence, including whether the business made a profit (which it did) as he stressed that he was not a director and was not privy to this information. He explained that the payslips showing that he is being paid superannuation at a rate of 28% must be an error; he could not comment more as his mother handles all pay matters.

7. Mr Pointing asserts that in May 2018 he resigned as a director of [Company 2] and his mother was appointed director. At the directions hearing he stated that the change was for “financial reasons” as he feared the company would go bankrupt. In his written submissions to the tribunal he stated that he and his mother had agreed, prior to the commencement of the business, that she would take control after a period of six months to one year. His evidence is that no conditions were attached to this agreement and he received no consideration upon the transfer. When asked why he would transfer a profitable business on this basis, he stated that she was “better with it all”. He went on to state that he might change the company structure whereby he would hold 50% of the business. In the tribunal’s view, that he could make such a decision is in conflict with his description of being a mere employee.

8. When questioned in relation to his mother’s contribution to the business, Mr Pointing stated that she works about 30 hours a week at a local club  as well as managing all aspects of [Company 2]. His testimony was in conflict regarding the actual work she does: “she doesn’t do a hell of a lot”  and “I did not need that much help” as opposed to his other testimony that she does all the bookwork, answers all telephone calls, organises all aspects of the work and is increasingly busy. He was unable to estimate how many hours per week she actually worked in the business, nor was he able to state what her salary was. After questioning about the 2018 company expense of “Salaries – Associated persons” he then amended this statement and stated that she was paid a lump sum of $20,000 at the end of the 2018 financial year.

9. The tribunal is not satisfied that Mr Pointing made a full and frank disclosure regarding his ties with [Company 2] and the management of the enterprise. Without further evidence, the tribunal was not persuaded that his mother in fact worked in the business. In any event, even if it was accepted that Mr Pointing’s mother did in fact work in the business, her rate of remuneration is not proportional to Mr Pointing’s contribution, given their respective work histories and that it is Mr Pointing’s personal efforts that forms the basis of [Company 2]’s income. The 2018 financials from [Company 2] indicate that his mother (and possibly others) received $40,000 in salaries ($81,376-$41,376 declared as received by Mr Pointing in his income tax return) as well as $15,485.05 apparently loaned to her. Mr Pointing’s statements regarding her role in the company do not indicate that the rate of remuneration received by his mother is proportional to her actual contribution to the company, nor is it in line with the salary for similar administrative work in a commercial arrangement conducted at arm’s length.

10. The tribunal was not presented with any evidence that Mr Pointing is no longer the director of [Company 2] and that his mother is the current sole director. Thus, the tribunal cannot be satisfied that such a transfer did occur in May 2018. Again, even if such evidence was provided, the tribunal is satisfied that such an arrangement would be a sham and that Mr Pointing remains in charge of the enterprise in all but name.

11. Mr Pointing was questioned as to what personal benefits he received from the business. He replied that he received no personal benefits regarding motor vehicle or telephone usage. Later in the hearing he stated that he started [Company 2] as he would have a vehicle and telephone supplied by the business. When the contradictory evidence was raised, Mr Pointing stated that he must have misunderstood the question and that he rarely used his work vehicle for personal usage. He later confirmed that [Company 2] did pay his motor vehicle expenses in the 2018 financial year, however in the current financial year the business purchased a vehicle which he now uses exclusively for business.

12. The tribunal carefully considered the [Company 2] bank statements in evidence for the period 9 October 2017 to 8 January 2018. The debits evidenced in these accounts appear to exclusively relate to Mr Pointing’s personal expenditure; by way of example, food purchases ($704), iTunes ($629), homewares, alcohol ($416), Netflix, Stan and the purchase of a dog and pet accessories ($1,772). The tribunal calculates that his personal expenses totalled $3,069 ($12,275 per annum), which a PAYG employee would need to earn $16,000 to get the benefit of.  This calculation does not include any motor vehicle or telephone expenses. When questioned about this Mr Pointing stated that this spending occurred when he first started the company and he “did not really think about it”. On reflection he considers using the company account for personal use “pretty silly” and that he would “not mind” reimbursing the business for these expenses.

13. During the period 9 October 2017 to 8 January 2018 the following salary, bonus and loans were paid to Mr Pointing:

Date	Description	Amount
31 October 2017	Loan for business repay	$5,000
4 November 2017	Salary	$2,800
14 November 2017	Salary	$400
16 November 2017	Salary back pay	$2,894
30 November 2017	Salary	$4,200
16 December 2017	Christmas bonus	$1,500
27 December 2017	Salary	$4,200
Total	$20,994

1. A PAYG earner would have to earn approximately $110,000 to receive the above salary and bonus payments. The profit and loss statement for the same year indicates $81,376 was paid in salary, in addition to retained profits of $27,357.96 (totalling $108,734). Taking into account the bank statements and profit and loss statement in evidence the tribunal concludes that Mr Pointing’s 2018 financial year income and financial resources are conservatively reflected in an adjusted taxable income of $120,000.

2. At the time Ms Pointing lodged her departure application Mr Pointing was liable to pay $8,022 in child support per annum based on his 2017 taxable income of $88,656. Application of Mr Pointing’s income and financial resources of $120,000 to the child support assessment would increase his annual child support liability by over $5,000 and, following the change to the care arrangements in August 2018, by $4,656 per annum.

3. As Mr Pointing’s income and financial resources are not properly reflected in the child support assessment, there are special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. The tribunal therefore concludes that the ground provided for in subparagraph 117(2)(c)(ia) of the Act is established.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the child, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. In his Statement of Financial Circumstances Mr Pointing declared gross weekly income of $1,250. He lives with his girlfriend who earns about $800 per [week]. They own a home valued at $800,000, of which his half share of the mortgage is $311,460. He reports savings of $2,000, owns no motor vehicles and estimates household contents of $5,000. He states that he has no interest in a business and he has a superannuation balance of $154,500. He declared personal expenses of $696 per week and household expenses of $973, of which $135 relate to the children. When asked how he makes up the shortfall of $323 per week between his income and expenses, he stated that his partner also contributes to his and the children’s living costs. The tribunal calculates that this would leave Mr Pointing’s partner with $138 per week to meet her own living costs after she had met her half share of the mortgage and his shortfall.  

3. At the time that she completed her Statement of Financial Circumstances Ms Pointing was working three days per week as [an Occupation 1]. She declared a gross weekly salary of $1,153. She owns her own home valued at $850,000, with a mortgage of $494,000. She has savings of about $3,600 and a motor vehicle valued at $10,000 and a superannuation balance of $107,500. She declared personal expenditure of $286 per week. She estimates weekly household expenses of $1,407, of which about $402 relate to the children. She was acting in a higher duties role in 2017 and has now returned to her substantive position. She will be required to reapply for [an Occupation 1] role for 2019 as her position is only temporary. She intends to apply for a full-time role.

4. On 26 June 2018 Ms Pointing lodged an estimate of income of $62,154.28, based on gross fortnightly earnings of $2,384. The income estimate took effect from 1 July 2018. This estimate is consistent with the payslips in evidence which show earnings of $2,306 per fortnight. Her 2018 adjusted taxable income was $74,757.

5. On 15 July 2016, following a departure application, the Department determined that Mr Pointing’s annual rate of child support was increased by $3,523 for the period 17 May to 18 December 2016 and by $1,589 for the period 2 January to 17 December 2017 on the basis of the high child care costs incurred by Ms Pointing.

6. Ms Pointing seeks a contribution by Mr Pointing towards the child care costs she incurs in relation to [Child 2]. Subparagraph 117(2)(b)(ib) of the Act provides a ground for departure:

   (b)  that, in the special circumstances of the case, the costs of maintaining the child are significantly affected: …

   (ib)  because of high child care costs in relation to the child; …

7. Subsection 117(3B) of the Act says that costs can only be considered high if, during the child support period, they total more than 5% of the parent’s adjusted taxable income.

8. It is not in contention and the tribunal so finds that Ms Pointing’s work commitments make it necessary for [Child 2] to attend child care, and that Ms Pointing bears this cost. To ascertain the 5% threshold the law requires the tribunal to calculate Ms Pointing’s administratively assessed adjusted taxable income ($76,648) and then divide it by 365 days per year and then multiply it by 457 (the number of days in the child support period 1 October 2017 to 31 December 2018). It is 5% of Ms Pointing’s adjusted taxable income during the child support period ($95,970) that is used to determine the threshold. In this case, the 5% threshold equates to $4,799.

9. The documentary evidence establishes out-of-pocket child care costs (including child care benefit and rebate) of $93.01 per week for the period 1 October to 24 December 2017 and from 9 January to 30 June 2018. From 1 July 2018 Ms Pointing’s out-of-pocket expenses are $98.12 per fortnight. Therefore, Ms Pointing has and will incur $4,762 in child care costs during the relevant child support period. The costs incurred by Ms Pointing do not exceed the legislatively determined threshold of 5%. The tribunal concludes that this cost does not constitute a special circumstance such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. This will result in an overpayment of about $340. The tribunal is not persuaded that this will place Ms Pointing in hardship.

10. [Child 1] is in Year 1 at a public school. [Child 2] will attend primary school in 2019. [Child 1] [suffers from a medical condition] and attends [therapy] and a clinical psychologist on a fortnightly basis. Ms Pointing does not seek a contribution from Mr Pointing regarding his medical costs. There is no evidence that the children have any other out of the ordinary expenses.

11. It is appropriate that Mr Pointing’s adjusted taxable income is varied to $120,000 from 8 November 2017, the date on which Ms Pointing lodged her departure application. This will create arrears of about $840. The tribunal is satisfied that this will not place Mr Pointing is a situation of hardship.

12. The tribunal is persuaded that it is not likely that Mr Pointing’s income and financial resources will be reflected in his future income tax assessments. Given the desirability of predictability and of avoiding repeated proceedings, the tribunal has decided to extend the period of departure until a terminating event and to index Mr Pointing’s adjusted taxable income by the CPI results. [Child 1] and [Child 2] require continued financial support from both parties. To extend the decision on this basis provides stability and consistency in the case.

39.The tribunal is satisfied that the administrative assessment is unfair given Mr Pointing’s and Ms Pointing’s incomes and financial resources and this results in an unjust and inequitable level of child support given the circumstances of each parent. For all the reasons above, the tribunal finds it just and equitable to depart from the administrative assessment.

Otherwise proper

1. The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. Ms Pointing is in receipt of income-tested benefits. Departing from the administrative assessment by increasing the child support payable by Mr Pointing will result in a more appropriate apportionment of financial responsibility between the parents and the community.

2. The determination is otherwise proper.

DECISION

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

·     Mr Pointing’s adjusted taxable income is varied to $120,000 for the period 8 November 2017 to 30 June 2018; and

·     Mr Pointing’s adjusted taxable income of $120,000 is to be adjusted annually commencing on 1 July 2018 and each relevant year thereafter by the Consumer Price Index National Weighted Average for the preceding March quarter until a terminating event occurs in relation to one or both of the children.