Potter & Burbage (SSAT Appeal)

[2010] FMCAfam 1009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

POTTER & BURBAGE (SSAT APPEAL) [2010] FMCAfam 1009

CHILD SUPPORT – Appeals regarding child support – SSAT.

Child Support (Assessment) Act 1989, ss.43, 98(3), 98C, 98S, 117

Hendy& Deputy Child Support Registrar & Webb [2001] FamCA 632; (2001) 27 Fam LR 641; (2001) 164 FLR 236
PJ & Child Support  Registrar (SSAT Appeal) [2007] FMCAfam 829; (2007) 38 Fam LR 31
PVO & RMO [2005] FamCA 1196

Applicant: MR POTTER

Respondent: MS BURBAGE

File Number: MLC 7340 of 2007

Judgment of: Riethmuller FM

Hearing date: 2 February 2010

Date of Last Submission: 28 June 2010

Delivered at: Melbourne

Delivered on: 7 October 2010

REPRESENTATION

Counsel for the Appellant: The Appellant appearing in person

Counsel for the Respondent: The Respondent appearing in person

ORDERS

(1)The decision of the Social Security Appeals Tribunal, appeal MC228972 be set aside.

(2)The matter be remitted to a differently constituted Social Security Appeals Tribunal to hear and determine according to law.

IT IS NOTED that publication of this judgment under the pseudonym Potter & Burbage (SSAT Appeal) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLC 7340 of 2007

MR POTTER

Applicant

And

MS BURBAGE

Respondent

REASONS FOR JUDGMENT

1.This is an appeal from a decision of the Social Security Appeals Tribunal (‘SSAT’), dated 17 June 2009, with respect to the appellant’s child support assessment.

2.The precise orders the appellant seeks are set out in his Notice of Appeal filed 28 July 2009 in the following terms:

1. That the decision of SSAT be set aside and the court reinstate the original CSA decision; or

2. That the court apply the correct taxation years to the correct CSP [child support period] using the SSAT’s Calculations.

3.The appellant, on 20 September 2007, applied for a departure from an administrative assessment, requesting a decrease from 7 July 2006. His reasons for the departure included reduced income and the respondent’s earning capacity. The senior case officer made a decision in the appellant’s favour and departed from the administrative assessment on 19 March 2008. However, the respondent objected to the decision and the objections officer partially allowed her objection on 15 July 2008. The appellant lodged an appeal from the decision to the SSAT.

4.On the hearing of the appeal the appellant argued four main issues:

a)That the SSAT erred in using his taxable income from the current tax year for the child support period;

b)That payments for a machinery lease connected to his business should not have been added to his income for the purposes of child support;

c)That the SSAT erred in finding that the respondent was not working due to health reasons; and

d)That the SSAT failed to have regard to financial benefits received by the respondent from her rental property.

5.Further issues were also raised which are deal with below.

6.The respondent filed a Notice of Cross-Appeal, claiming that the SSAT failed to deal with the issue of school fees according to the law.

7.The parties have two children the subject of the child support assessment: J born in 1996 and E in 1999. The children’s care is shared between both parents.

8.The substantive findings of the Tribunal are as follows:

‘[59] [The respondent] has indicated that part of her recent change in employment was in relation to her health issues. The Tribunal therefore concludes that the reason for [the respondent] not working was justified by the state of her health…the Tribunal is satisfied that [the respondent] has demonstrated that her decision to stop work was not substantially motivated by the effect it would have on the child support assessment.

…

[117] …The Tribunal has noted that a prepayment of a lease occurred on 26 June 2008, prior to the end of the financial year. Whilst the motivation for this prepayment, as stated by [the appellant] was for the reduction of the Company profit and whilst this prepayment may be permissible under taxation law, the Tribunal must determine whether this payment was a necessary payment for the purpose of assessing [the respondent’s]child support liability. The Tribunal has determined that it is not a necessary expense…’

9.The Tribunal fixed the child support rate for the period 1 July 2006 to 31 December 2009. In fixing the period to apply to its departure from the administrative assessment, the SSAT had extended the departure period that the objections officer had set by three months. The SSAT was satisfied that the longer period would offer greater certainty for the parties in respect of the payable amount. Thereafter, the assessment reverted to the statutory formula based on the parties’ 2008/09 taxable incomes.

10.The SSAT remitted the matter to the Registrar to recalculate the appellant’s child support liability on the basis that:

a)For the period 1 July 2006 to 30 June 2007 the appellant’s child support income is set at $73,157.

b)For the period 1 July 2007 to 30 June 2008 the appellant’s child support income is set at the relevant income cap as at 1 July 2007.

c)For the period 1 July 2008 to 31 December 2009 the appellant’s adjusted taxable income is set at $112,868.

d)For the period 1 July 2006 to 30 June 2007 the respondent’s child support income is set at $36,772.

e)For the period 1 July 2007 to 30 June 2008 the respondent’s child support income is set at $38,264.

f)For the period 1 July 2008 to 31 December 2009 the respondent’s adjusted taxable income is set at $29,560.

Grounds of Appeal

Departure from Part 5 Division 3 of the Act

11.The appellant argues that the SSAT erred by using the current tax year’s income for the current child support period and extending the departure period by three months. He says that when neither party applied for a ‘departure’ under Part 5 Division 3 of the Child Support (Assessment) Act 1989.

12.The SSAT has the power to fix the appropriate period of departure from the administrative assessment, which is found in s.98S(3) of the Act.

98S [Determinations that may be made under Part]

…

(3) A determination under this Division may make different provision in relation to different child support periods and in relation to different parts of a child support period.

…

13.The appellant argues that the Act does not allow the use of the current year’s income to determine the child support. He relies significantly on the structure of the legislation, to support his interpretation. In particular, he referred to s.43 of the Act which provides:

PART 5--ADMINISTRATIVE ASSESSMENT OF CHILD SUPPORT

…

Division 3--Child support income

43 [Working out parent's adjusted taxable income]

(1)  Subject to subsection (2), a parent's adjusted taxable income for a child for a day in a child support period is the total of the following components:

(a)  the parent's taxable income for the last relevant year of income in relation to the child support period;

(b)  the parent's reportable fringe benefits total for that year of income;

(c)  the parent's target foreign income for that year of income;

(d)  the parent's total net investment loss (within the meaning of the Income Tax Assessment Act 1997 ) for that year of income;

(e)  the total of the tax free pensions or benefits received by that parent in that year of income;

(f)  the parent's reportable superannuation contributions (within the meaning of the Income Tax Assessment Act 1997) for that year of income. (emphasis added)

Note 1:      Other provisions that relate to a person's adjusted taxable income are section 34A and Subdivisions B and C of Division 7.

Note 2:      The components of the definition of adjusted taxable income are defined in section 5.

(2)  If the Registrar amends an assessment under section 44, then for the purposes of the assessment, the person's adjusted taxable income for a child to whom the assessment relates, for a day in the child support period, is the amount determined by the Registrar.

14.The appellant contends that the SSAT were bound to act in accord with s.43.

15.Part 5 of the Act provides for a formula method of calculating child support. The assessment calculation using the formula may be departed from the Registrar exercising the powers under Part 6A of the Act. In this respect, s.98S provides a wide range of ‘determinations’ the Registrar can make under Part 6A, which include varying the child support income amounts: see ss.98S(1)(c) and 98(3). Before making a determination the Registrar must be satisfied of the matters in s.98C which provides:

98C [Matters as to which Registrar must be satisfied before making determination]

(1)  Subject to this Part, if:

(a)  an application is made to the Registrar under section 98B; and

(b)  the Registrar is satisfied:

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

the Registrar may make the determination.

(2)  For the purposes of subparagraph (1)(b)(i):

(a)  the grounds for departure from the provisions of this Act relating to administrative assessment of child support in relation to the child are the same as the grounds for departure set out in subsection 117(2); and

(b)  subparagraph 117(2)(b)(ib) has effect subject to subsections 117(3A) to (3C).

(3)  Subsections 117(4) to (9) (inclusive) apply to the Registrar in the exercise of his or her powers under this Division as if:

(a)  any reference in those subsections to the court were a reference to the Registrar; and

(b)  any reference to an order were a reference to a determination.

16.Importantly, s.98C refers to s.117, thus requiring the Registrar to apply the same principles as the Court when considering a departure from the assessment. These provisions are designed to give a broad discretion. This is particularly apparent from the requirement that the outcome be ‘just and equitable': see s.98S(1)(b)(ii)(A) and its extended definition in s.117(4) to (9).

17.I see no basis for concluding that the departure provisions should be limited by the formula provisions of Part 5: to impose such a limit would defeat the purpose of Part 6A which is designed to allow the Registrar to make a decision outside the strictures of the formula in Part 5.

18.In the Notice of Appeal the appellant also complained that the Tribunal ought not to have made a decision beyond the child support period that it was asked to review. The case law does not support the appellant’s narrow reading of the provision. In Hendy& Deputy Child Support Registrar & Webb [2001] FamCA 632; (2001) 27 Fam LR 641; (2001) 164 FLR 236 the Full Court of the Family Court made the following comments:

‘[70] We agree with the trial Judge that s 98S(3) prescribes that the Child Support Registrar may make determinations in relation to multiple child support periods, and that there is nothing contained in that or any other provision that would lead to a conclusion that such references must be construed as only applying to current or previous child support periods. The first part of s 98S(3) would be meaningless if it only applied to the child support assessment period under review.’ (emphasis added)

19.In any event, the respondent requested that the charge cover a greater period (see court book page B273: email of 25/03/2009).  There is no evidence that the applicant was denied procedural fairness in this respect: see PJ & Child Support Registrar (SSAT Appeal) [2007] FMCAfam 829; (2007) 38 Fam LR 31. In the circumstances this ground of appeal must be dismissed.

Machinery lease

20.The appellant argues that the SSAT erred in finding that payments of a machinery lease were not a necessary business expense and consequently including this amount in his income for the purposes of calculating child support.

21.The appellant is a director of a company. On 26 June 2008 his company prepaid six months of lease payments, amounting to $103,361.70, for the 2008/09 financial year.

22.The SSAT found that the lease payment for 2008/2009 was not a necessary expense in 2007/2008, saying:

‘[117] …Whilst the motivation for this prepayment, as stated by [the appellant], was for the reduction of the Company profit and whilst this prepayment may be permissible under taxation law, the Tribunal must determine whether this payment was a necessary payment for the purpose of assessing [the appellant’s] child support liability. The Tribunal has determined that it is not a necessary expense. The net profit of the Company for the financial year 2007/2008 was $251,830. By adding the lease prepayment of $103,362 to this total, the Company’s profit was $351,192. Tax on this amount would equate to $106,558, which would leave a net income after tax for the Company of $248,634. The Tribunal has determined that his income should be reduced by the amount of $38,882,75, which was the remainder of the purchase price outstanding an payable during this financial year. The income, less this expense, for the period was $209,751 for the Company.’ (emphasis added)

23.The appellant chose to pay 6 months of lease payments on 26 June 2008, reducing his taxable income for the 2007/08 year. This artificially lowered his taxable income in 2007/08 and would raise the taxable income in 2008/09 unless a prepayment was made in June 2009 for the 2009/2010 year. The SSAT have looked at the income as though he paid his lease each month over the period, ignoring the lease expenses relating to the following financial year. Where assessing actual earnings for a year it is ordinarily appropriate to adjust for prepayments of expenses that have not yet been incurred.  There are no circumstances in this case that would indicate that the Tribunal adopted an inappropriate method.

24.For the following year the Tribunal were not satisfied the evidence given was complete or accurate. As a result the Tribunal used the income for 2007/08 as the best evidence of the likely income in 2008/09: see paragraph 120 of the SSAT’s decision. This was open to the Tribunal and appropriate in this case. Importantly it shows there was no double counting of the lease expenses.

25.I therefore find that this ground must be dismissed.

The Respondent not working

26.The appellant argues that the SSAT erred in finding that the mother was not working due to health reasons. At the hearing the appellant argued that the respondent did not work despite having ample opportunity to do so. He pointed out that the respondent resumed employment shortly after giving birth to the first child of their relationship.

27.In its decision the Tribunal noted the respondent was diagnosed with a blood clot disorder as well as another condition which contributed to miscarriages that she suffered in February and March 2008. Importantly, the Tribunal made the following findings:

‘[59] [The respondent] has indicated that part of her recent change in employment was in relation to her health issues. The Tribunal therefore concludes that the reason for [the respondent] not working was justified by her state of health. Further, [the respondent] has indicated that she does not intend to return to work after the birth of their child due to caring responsibilities. Notwithstanding this change, the Tribunal is satisfied that [the respondent] has demonstrated that her decision to stop work was not substantially motivated by the effect it would have on the child support assessment.’ (emphasis added)

28.The reason for the cessation of the respondent’s employment is a finding of fact by the SSAT. There was evidence before the Tribunal to support this finding. The findings address s.117(7B)(b)(ii) of the Act.

29.The Tribunal has considered s.117(7B)(c) at paragraphs 58-59, concluding that the decision of the respondent not to work “was not substantially motivated by the effect it would have on child support.” Whilst this is not the precise wording used in the Act, the context of the decision in this case makes it clear that the Tribunal was addressing s.117(7B)(c). The infelicitous language should not be a basis for finding an error of law.

30.The appellant is not able to demonstrate an error of law by the Tribunal in this respect. It is not open to this court to review the Tribunal’s findings of fact if they are open on the evidence.

The Respondent’s rental property

31.The appellant argues that the SSAT erred in failing to consider the financial benefit, namely rent, that the respondent received from the EA property.

32.At the time of the SSAT hearing the EA property was held jointly by the respondent and her current partner. The rent payments from the property have been included in the taxable income of the respondent’s partner given that the respondent did not contribute towards the property’s expenses nor receive rent. The respondent’s partner receives all of the rent in relation to the EA property.

33.In relation to the EA property, the Tribunal made the following comments:

‘[110]…The Tribunal also notes that [the respondent] also has a legal interest in the [EA] property. At the time of the hearing [the respondent] still held this interest but stated that she intended to transfer her interest to [the respondent] as he paid for the outgoings on the property. It is unclear why this is the arrangement in place and the rationale for these decisions. The Tribunal however is concerned with the legal duty of a parent to maintain their children.’

34.The property interests of the respondent and her current spouse were complex and involved 3 properties. Taken in isolation, the Tribunal’s comments about the EA property appear to overlook the respondent’s interest. However, the Tribunal carefully reviewed the property at paragraphs [108] to [112], finding that the respondent had a financial resource equivalent to interest earned at 5% on assets of $89,000. This appears to have been open to the Tribunal on the material. As the Tribunal have had regard to the property interests of the respondent, and taken into account earnings on her share of the equity, as if it were invested in a safe investment, they have clearly addressed this issue.

35.There is no error of law by the Tribunal in taking the approach they did in the complex facts of this case.

The respondent’s redundancy payments

36.In his affidavit and at the hearing, the appellant raised the issue of the respondent’s redundancy payments. He asserts the SSAT was incorrect to find that the respondent took a forced rather than a voluntary redundancy.

37.The respondent’s evidence was reviewed at paragraphs [55] to [57] of the SSAT decision. She was previously employed in an administration position and was made redundant in May 2008. The respondent did not pay any tax on the redundancy payment of $25,053.04 because it was a redundancy payment. She believed the redundancy payment was offered because of her health issues. At paragraph [59] the Tribunal found that the reason for the respondent not working was justified by her state of health.

38.The findings of the Tribunal were open on the evidence before it.

The respondent’s income amount

39.The appellant also argued that the Tribunal had miscalculated the income of the respondent.  At paragraph [102] the Tribunal identifies her gross income as $40,242 in 2007/2008 and that she claimed rental losses of $3,072.  At paragraph [112] they identify an imputed income of $3,560.  The final determination sets her income at $38,264.  The figures, on the face of the decision do not add up.  However, if one turns to the tax return (court book B40), it appears that the taxable income after other deductions is $31,632.  If the rental loss and imputed amounts are added, it appears that the SSAT did reach the correct figure in their decision.

School fees

40.The respondent sought an increase in special circumstances as a result of the school fees paid by her for a modest catholic school.  The Tribunal found that this was an expense of $1691 per annum, but that it was not a special circumstance on the basis that it did not ‘significantly’ affect the costs of maintaining the children.

41.In this case, the Tribunal accepted that the respondent mother was not working.  In the context of the year where the respondent mother has no income (see [121]), and that the reasonable costs of the children are assessed by the Tribunal to be $16,692 (see [130]), yet child support is assessed at $11,582 in one year (see [133]), there is a significant shortfall, in a case where the respondent mother has no income sufficient to make up that shortfall.  In this context, it is difficult to see how the expense is not significant.  The circumstances highlight that in order to determine if an expense is significant, one must consider not only the rate of child support but also the income of the parties.  This is in accordance with the statutory principles (although without a specific percentage) that apply to costs of contact and childcare (which are assessed by reference to 5% of the parent’s income amount).

42.As the Tribunal did not consider this issue in the context of actual income amounts it appears that the Tribunal has failed to take a relevant consideration into account.

43.However, in considering a just and equitable determination, the Tribunal appears to have relied upon the respondent’s financial statement at B10 of the Court Book, which includes $31 per week for ‘education expenses, including fees and levies.’ Thus, the expense was properly taken into account in the expenses of the children, even thought it was not found to be an independent basis for departure. This is in accordance with the requirements of s.117: once any special circumstance has been established, a just and equitable rate must be set and s.117(4) requires consideration of all of the circumstances of the case, including circumstances that are not, of themselves, a special circumstance.

Costs of Children

44.In this case the Tribunal concluded that the costs of the children were two thirds of the respondent’s expenses of $481 per week; that is $321 per week or $16,692 per annum: see paragraphs [125] and [130].

45.At paragraph [133] the Tribunal said that the child support assessment that will flow from their decision will be $25,512 for 2007/2008 and that this would be just and equitable.

46.The difficulty with this finding is that the rate of child support set for 2007/2008 represents more than 150% of the costs of the children as found by the Tribunal.  In PVO & RMO [2005] FamCA 1196, Finn, Coleman and Benjamin JJ said, at [65], that they had ‘difficulty seeing on what basis the husband could,… have been obliged to make child support payments in excess of [the child’s reasonable weekly needs].’

47.In this respect the appellant has established an error of law with respect to the 2007/2008 year.  However, it appears that this problem arises as a result of a failure by the Tribunal to take into account the actual costs of the children.  At paragraph [107] the Tribunal found that it preferred the evidence of the respondent mother, as to expenses, as set out in her information of 24 November 2008.  That document appears at page B10 of the Court Book and provides:

ITEM	TOTAL	FOR YOU	FOR CHILDREN (If Applicable)	OTHER ADULTS (if Applicable)
Food	$200	$	$	$
Rent/Mortgage	$385/392	$	$	$
Household supplies	$30	$	$	$
House repairs	$E5	$	$	$
Gas	$E5	$	$	$
Electricity	$E20	$	$	$
Heating fuel	$	$	$	$
Water charges	$E7	$	$	$
Telephone	$30	$	$	$
Council rates & levies	$E20	$	$	$
Motor vehicle - petrol	$40	$40	$	$
- maintenance	$7	$7	$	$
- registration	$8	$8	$	$
Fares/car parking – grandma v-line	$10	$	$	$
Clothing and shoes	$75	$20	$40	$15
Children’s activities – gymnastics, tennis lesson, dancing	$65	$	$65	$
Child minding	$NIL	$	$	$
Medical, dental and optical (not including health insurance premiums)	$80	$	$	$
Insurance (excluding health/life)	$E20	$	$	$
Entertainment/hobbies	$E50	$	$	$
Holidays	$E20	$	$	$
Education expenses, including fees and levies	$31	$	$	$
Chemist/pharmaceutical	$35	$	$	$
Gardening/lawn mowing	$NIL	$	$	$
Cleaning (house/pool)	$NIL	$	$	$
Repairs – furnishings and appliances	$E7	$	$	$
Dry cleaning	$	$	$	$
Books and magazines	$8	$4	$4	$
Gifts	$40	$10	$20	$10
Hairdressing, toiletries	$20	$10	$5	$5
Other necessary expenses (specify) Pet Expenses (dog & cat)	$40	$	$	$
TOTAL	$1258	$99	$134	$30

$1258

Total Household expenditure 

48.The Tribunal conclude:

[107]…In the circumstances, the Tribunal is satisfied with the information provided by [the respondent] that household expenses of $481.00, which are the expenses of her and the children less the mortgage and rental expenses, are the average weekly expenses.

49.The difficulty is that the Tribunal have found the mother’s expenses by calculating:

$1258   (total)

less   $385     (first rent/mortgage figure)

less   $392      (alternate rent/mortgage figure)

$481

50.However, it is obvious from the list that expenses other than rent or mortgage exceeded $481. The total of $1258 does not include the alternative rent/mortgage expense of $392 per week. Thus the expenses claimed by the respondent mother (excluding rent/mortgage) were $873, not $481 per week. Whether the Tribunal would have uncritically accepted $873 per week as it did $481 is a matter of conjecture. Ultimately, it is clear that the Tribunal erred in approaching the task under s.117(4) either in the way described in the case of PVO & RMO [2005] FamCA 1196 or in failing to have regard to the relevant evidence of the costs of the children.

2008/2009 taxable income of $112,868

51.The Court invited the parties to make further submissions with respect to how the SSAT reached the figure for the appellant’s income in the 2008/2009 year of $112,868.

52.At para [120] the Tribunal was not satisfied with the information provided in relation to the company for the 2008/2009 financial year. As the Tribunal had ‘considered that a significant amount of the Company profit should be retained for exigencies of creditor accounts and other working capital expenditure’, it was satisfied that the amounts used for the 2007/2008 financial year should also apply to the 2008/2009 year. This figure was $71,500: see para [121].

53.Added to this figure was $56,976, representing the appellant’s additional financial resources as a result of his interest in the company: see para [121].

54.The Tribunal found the appellant’s income for child support purposes should be reduced by $10,608 at para [128]. The figure reflects the appellant’s commitment to self support which was above the norm because he had to operate two households to maintain contact with the children on a fortnightly basis.

55.As the respondent pointed out in her submission, the calculation leads to a final total of $117,868, which is $5,000 more than the SSAT’s figure of $112,868. At para [120] the decision refers to the appellant’s indication that the directors (presumably including himself) had reduced their salary to $66,000. If this figure was to replace what the Tribunal had considered to be the 2008/2009 income the $5,000 discrepancy is explained. However, the Tribunal stated it was not satisfied with the information provided in relation to the company for the 2008/2009 year. The information was incomplete and did not provide an accurate picture of the company’s financial position. The respondent argues that this is a calculation error and that the Tribunal’s actual intention was for the appellant’s taxable income of 2008/2009 to be set at $117,868.

56.I accept the respondent’s submissions.  The Tribunal made an error in calculating the appellant’s taxable income for 2008/2009 as $112,868. This was an error that worked in the appellant’s favour as it incorrectly assessed the appellant at a lower taxable income for the purposes of child support.  In the circumstances, this is not a ground for the appellant, as it is an arithmetic error in his favour.

Conclusion

57.There are significant errors by the Tribunal in assessing the costs of the children.  If the Tribunal’s findings on the costs of the children were accepted, they erred in assessing child support at 150% of those costs.  However, the Tribunal appear to have failed to consider the costs of the children as claimed by the Respondent mother.

58.There is also an error in the reasons as to the income of the appellant, and there are significant complaints as to the Tribunal’s fact finding and exercise of discretion as to the extent that the business of the appellant can provide financial resources and income to the appellant, which may not be errors of law, but remain areas of real dispute.

59.I have carefully considered whether the matter should be remitted.  Having regard to the circumstances of the case overall, I am satisfied that it is appropriate for the decision to be set aside and re-heard by a differently constituted Tribunal.

I certify that the preceding fifty-nine (59) paragraphs are a true copy of the reasons for judgment of Riethmuller FM

Date:  16 September 2010