Rachford and Yilmaz (Child support)

[2020] AATA 5572

Rachford and Yilmaz (Child support) [2020] AATA 5572 (24 November 2020)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/PC019079

APPLICANT:  Mr Rachford

OTHER PARTIES:  Child Support Registrar

Ms Yilmaz

TRIBUNAL:Member M Martellotta

DECISION DATE:  24 November 2020

DECISION:

The tribunal sets aside the decision under review so that for the period 1 September 2019 to a terminating event Mr Rachford’s adjusted taxable income is varied to $100,000.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefit derived from capital gain – 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. Mr Rachford and Ms Yilmaz are the parents of a child born [in] June 2006. The child is in the above primary care of Ms Yilmaz and Mr Rachford is the parent liable to pay child support. 

2. On 1 November 2019 Ms Yilmaz lodged a change of assessment application with the Department of Human Services[1] – Child Support. Her application was on the grounds of Reason 8A. Reason 8A requires Ms Yilmaz to demonstrate that the parent’s income, property and financial resources make the assessment unfair.

   [1] Now known as Services Australia.

3. At the time of Ms Yilmaz’s change of assessment application, according to Child Support the relevant assessments had been in place:

   ·     For the period 1 July 2019 to 31 August 2019 Mr Rachford to pay an annual rate of $9,749 based on his 2017/2018 adjusted taxable income (ATI) of $75,675 and Ms Yilmaz’s 2017/2018 ATI of $27,474.

   ·     For the period 1 September 2019 to 30 June 2020 Mr Rachford to pay an annual rate of child support of $7,645 based on Mr Rachford’s estimated 2019/2020 income of $65,025 and Ms Yilmaz’s 2018/19 ATO of $24,392

1. A Child Support decision maker varied the assessment on 5 February 2020 in the following terms:

   ·For the period 1 September 2019 to 30 November 2020 Mr Rachford’s ATI was varied to $168,214

2. Mr Rachford objected to the decision.  On that objection Child Support decided to make a different determination:

   ·For the period 1 September 2019 until a terminating event Mr Rachford’s ATI was varied to $168,214.

   ·The income to be adjusted on 1 July by the Consumer Price Index using the weighted national average for the preceding March quarter commencing 1 July 2021

3. According to Child Support, the impact of these decisions was to increase Mr Rachford’s annual child support liability to $22,501 for the period 1 September 2019 to 30 November 2020.

4. Mr Rachford lodged an application seeking independent review by the tribunal. The tribunal convened a telephone direction hearing and issued directions.  On 14 October 2020 Mr Rachford and Ms Yilmaz participated in a hearing by conference telephone and each gave their evidence on affirmation.  The tribunal deferred making a decision as it issued further directions requiring Mr Rachford to provide financial information that was not provided prior to hearing and to allow Ms Yilmaz to make further written submissions. Documents relevant to the issues to be determined had been provided by Child Support (414 pages); Mr Rachford (A1–A319) and Ms Yilmaz (B1–B63).

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 Child Support 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.[2]

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

3. The issues for the tribunal to determine in this case are:

   ·     Does a ground for departure exist? if so,

   ·     Would it be just and equitable as regards the children, the liable parent, and the carer entitled to child support determination to depart from the administrative assessment of child support?

   ·     Is it otherwise proper to make a particular departure determination?

CONSIDERATION

Issue 1 – is there a ground to depart from the administrative assessment?

1. The rate of child support payable by a liable parent is usually based on an administrative assessment calculated using the relevant formula under Part 5 of the Act. This involves the application of a statutory formula, which takes into account factors such as the number of children, the age of each child, the level of care provided and the income of each parent. The income used in the calculation has a number of components making up the adjusted taxable income, which is worked out using section 43 of the Act.  The general approach is that the Child Support Registrar (the Registrar) will utilise a parent’s ATI as assessed by the Australian Taxation Office (ATO) for the last relevant year of income.

2. Part 6A of the Act allows for a departure from an administrative assessment (a process commonly known as a change of assessment). The liable parent or a carer may apply to the Registrar for a determination to depart from the child support administrative assessment under Part 6A of the Act (section 98B).  Section 98C of the Act provides that the Registrar may make a determination to depart from the formula assessment and as noted, establishes a three-step process.

3. The grounds for departure from the administrative assessment are set out in subsection 117(2) of the Act.  Only one ground is required in the special circumstances of the case to depart from the administrative assessment and thereby satisfy the requirements of subsection 117(2) of the Act.[3]  In this matter the only ground contested at hearing was whether a ground for departure is established pursuant to reason 8A.

Reason 8A – income, property and financial resources of the parties

Mr Rachford

[3] The phrase “special circumstances of the case” is not defined in the Act. However, the Family Court has held that “it is intended to emphasise that the facts of the case must establish something special or out of the ordinary” (Gyselman and Gyselman (1992) FLC92-279). Likewise, in Phillippe and Phillippe (1978) FLC 90-433 the Court held that “special circumstances” are “facts peculiar to the particular case which set it apart from other cases”. 

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, application of the provisions of the Act relating to the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of the income, property and financial resources of either parent.

2. At the outset the tribunal acknowledges that at hearing both parties made oral and written submissions about a range of issues predominately relating to the care of and contact with the child. The tribunal understands that these are matters of significant importance to the parties however ultimately those matters were not relevant to the issues to be determined by the tribunal. 

3. At hearing Mr Rachford stated that he does not deny that he can afford to pay child support at the rate determined by Child Support in their departure decisions however he does not consider the terms of the departure equitable because it, fails to properly consider Ms Yilmaz’s circumstances and that it is unfair that Child Support will utilise an estimate of income for Ms Yilmaz but not for himself. In particular the assessment reflects and maintains a one off capital gain event and this is unfair.

4. As noted in these matters the decision maker can look beyond the parent’s taxable income when considering an application for a change of assessment. Income, earning capacity, property and financial resources, which do not necessarily form part of a parent’s taxable income, can be added to or excluded from a child support assessment and as such form part of the legitimate and necessary inquiry.

5. Mr Rachford provided the following evidence:

   a)    He works as a consultant in [a specified] sector. He operates through PAYE employment contracts secured through labour hire companies.

   b)    He also receives income from various financial investments and rental property.

   c)    His financial investments essentially arise from the sale proceeds of a property sold in March 2019 for about $1.5 million.  The profit was shared equally between himself and his wife. He made a significant capital gain from the property because he had owned the property for some years.

   d)    He was diagnosed with [a medical condition] in 2015 and this impacted his earning capacity. Since then due to health reasons he has reduced his work arrangements, and this has been reflected in a taxable income of about $51,000 over the 2016–2018 financial years.

   e)    In the 2019 financial year, the one-off capital gain event arising from the sale of the property resulted in his taxable income increasing to $168,000.  He availed himself of the child support estimate provisions to counter this one-off event.

   f)     He has previously generously made financial provision for the child and Ms Yilmaz also has significant financial resources (savings exceeding $224,000) which has not been factored in.

   g)    If the capital gain made from the sale of his property is to be taken into account, it should be spread over the remaining five years of the assessment as income.

6. Mr Rachford provided a summary of the various term deposits and accounts in which he has invested his share of the income generated from the sale of the property. Mr Rachford explained that he moves the money between the accounts on a regular basis in order to try and get the best interest rate.  According to his evidence the total amount of financial assets held by him are $784,010.

7. The tribunal noted personal tax returns provided by Mr Rachford and finds that his taxable income has generally been derived from his consultancy (PAYE), rental income and interest from his financial investments and some dividends.  In 2016/17 this resulted in a taxable income of $52,050, and in 2017/18 a taxable income of $75,675. The 2018/19 tax return reflected the capital gain made from the sale of the property and a taxable income of $168,214 was ultimately recorded. According to information provided by the Agency, ATO records show that Mr Rachford received capital gains of $275,160 during the 2018/19 financial year of which $137,580 were reportable. At the time of hearing Mr Rachford’s 2019/20 tax return had not yet been prepared and was not available.

8. Other tax returns provided by Mr Rachford were those that relate to the [named] Family Trust.  Mr Rachford explained that these trusts in effect held the rental properties and collects the rent; his wife is the trustee. Consistent with Mr Rachford’s written submissions and evidence those returns reflect that there were some capital gains recorded in the 2016/17 and 2017/18 financial years, which were allocated to his wife for tax purposes. Currently there is a capital loss sitting within the family trust.

9. As noted, Mr Rachford had not yet lodged his 2019/20 return.  On the basis of the presented evidence the tribunal is satisfied that it will again be comprised of consultancy and PAYE earnings, rental income and income from his financial investments. In the absence of a tax return the tribunal concluded that based upon previous returns and considering a return on an investment of $780,500 (at 0.6% over 12 months)[4], Mr Rachford’s 2019/20 return would have income of about $76,800 made up as follows:

   ·Consultancy/PAYE - $64,200 (based upon averaging his earnings and his income estimate from the previous three financial years)

   ·Rental loss - $8,000[5]

   ·Interest - $4,683

Ms Yilmaz

[4] - provides comparison of term deposit rates

[5] A parent’s ATI for child support purposes includes total net investment loss see the Guide at 2.2.2.10

1. Ms Yilmaz told the tribunal that her main source of income is family assistance and social security payments (parenting payment and family assistance). She also works one night a week in a [business] for which she is paid in cash. She also receives some financial assistance from her grandfather, which is for the benefit of the children.

2. According to tax returns provided by Ms Yilmaz the tribunal finds that in the 2017/18 financial year she had a taxable income of $27,474, in 2018/19 a taxable income of $24,392 and in 2019/20 her taxable income was $37,268. According to her returns her other source of income is from interest derived from financial investments. Her progress savings account had an opening balance of $182,941 as of 28 January 2020 and by 30 June 2020 the balance was $204,642.

3. A letter from [her employer] dated 6 September 2020 states that Ms Yilmaz receives $58.50 per week for her work there as her year to date earnings at that point in time was $585.

Conclusions

1. In this matter both parties have access to financial resources in addition to their income (which as noted are derived from a range of sources).  In Mr Rachford’s case, he has access  to financial investments arising from the sale of his and his current partner’s property in the 2018/19 financial year.  In Ms Yilmaz’s case, she has accumulated financial resources of about $200,000,and has received financial assistance from her grandfather.

2. According to the law, a financial resource refers to something that is not property but from which a financial benefit is or may be gained.  The term is to be broadly defined and refers to any financial benefit that would enhance the capacity of a parent to provide a proper level of support for their children.  

3. As noted in the Guide at 2.6.14:

Additional income, property or financial resources

Each application will be determined according to the individual circumstances of the case.

However, there is a range of circumstances that may form the basis of an application under this reason. It may be that a parent:

• has substantial property but a small child support income amount
• has legitimately arranged their financial affairs to minimise tax
• receives income which is not assessable or is exempt from tax, or
• received a lump sum payment that is not included in the child support income amount.

In some cases a parent might have substantial property and assets but a low income used in the child support assessment. The Registrar may consider the parent's property and assets, as well as any income, in deciding the appropriate rate of child support to be paid (Abela and Abela (1995) FLC 92-568 and Bendeich and Bendeich (1993) FLC 92-355).

1. In this matter it is apparent that Mr Rachford has access to additional financial resources arising from the sale of the property that he and his wife jointly owned.   The tribunal is satisfied that for the purposes of child support that is a relevant financial resource.  The question is how this should be reflected? 

2. The tribunal concluded that in this matter that an amount of $100,000 would represent a reasonable reflection of the income, property and financial resources available to Mr Rachford in 2019/20. This figure is reached by taking into account the components of employment income, interest and rental losses and allowing about $20,000[6] to reflect the additional financial resources available to Mr Rachford.

   [6] This is based upon taking the capital gain allocation in the 2018/19 financial year and allocating it across the remaining period of the assessment

3. Utilising a figure of $100,000 in the assessment in substitution for the ATI and the estimate being utilised in the administrative assessment in place at the time of the change of assessment application, results in an annual child support liability of about $16,700 per annum (or $321 per week). This is an increase from the annual child support assessment of between $7,645–$9,749 in the administrative assessment ($147–$187 per week)

4. In this matter, the tribunal was satisfied that a ground for departure existed because the administrative assessment in place at the time of Ms Yilmaz’s change of assessment application utilised an ATI for Mr Rachford.

5. For this reason, the tribunal concludes that a ground for departure exists because in the special circumstances of the case, application of the provisions of the Act relating to the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the children because of the income, property and financial resources of Mr Rachford and Ms Yilmaz.

Issue 2 – Is it just and equitable to make a particular departure determination?

1. As the tribunal is satisfied that there is a ground to depart from the assessment of child support as set out above, the next step for the tribunal is to consider whether it is just and equitable as regards the children and the parental parties to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act.  This in turn requires the tribunal to consider the matters set out in subsection 117(4) of the Act: which is discussed in the following paragraphs.[7]

Proper needs of the children

[7] The tribunal notes the Federal Magistrates Court case of Tyagi & Meares [2008] FMCAfam 886 which directs that in considering the matters set out in subsection 117(4) the section need not be ‘slavishly followed, each of the relevant factors listed in … should be considered’.

1. In determining the proper needs of the children it is necessary to have regard at a broad level to the manner in which the children are being, and in which the parents expect the children to be, cared for, educated or trained, and also any other needs of the children.

Income, earning capacity, property and financial resources of the children

1. In having regard to the income, earning capacity, property and financial resources of the children the tribunal must disregard any entitlement of the children or the carer entitled to child support to an income tested pension, allowance or benefit (subparagraph 117(7)(b)(ii) of the Act).

2. There was no evidence presented to the tribunal that the children have any income or unused earning capacity that needs to be taken into account in the child support assessment and as such the tribunal concludes that there is no basis for any adjustment pursuant to this consideration.

Other party receiving money, goods and property for the benefit of the children

1. Neither party made submissions in this regard and as such the tribunal concludes there is no basis for any adjustment pursuant to this consideration.

The income, property and financial resources of each parent who is a party to the proceeding

1. In this matter the tribunal has concluded Mr Rachford in the 2019/20 financial year had access to income, property and financial resources of about $100,000. Ms Yilmaz says her income is derived predominately from family assistance and parenting payments.  There was also some evidence that her household receives some financial support from her grandfather.

2. The Statement of Financial Circumstances provided by Mr Rachford identifies that his 50% in his place of residence is valued at $650,000 (the property is unencumbered).  He also has a 50% interest in an investment property (also unencumbered), his share valued at about $385,000.  He holds financial investments in various funds and accounts to the value of $780,555. He estimates his costs of household expenses (personally) to be about $386 per week.

3. Ms Yilmaz provided a Statement of Financial Circumstances in which she states that her average weekly income is $1,078 per week (annualised to about $56,000) She owns a property (100%) valued at $700,000, which is unencumbered. Ms Yilmaz did not articulate in her statement any funds held in saving accounts. As noted she provided bank statements which include an access advantage account,  which by the end of June 2020 had a closing balance of $13,460; an online saver account with a 30 June 2020 balance of $3,057 and a progress saver account, which had a closing balance of $204,642 by 30 June 2020. As noted in the six months January–June 2020 Ms Yilmaz was able to save about $20,000 in that particular account.

1. It is also apparent that Ms Yilmaz receives what she describes as cash income from her work in a [business]. There was some evidence put forward at hearing that suggests that she receives some financial support (or at least the household does) from her grandfather.

2. In her Statement of Financial Circumstances Ms Yilmaz says that she declined to complete all the details in that document on the advice of her therapist as she is reluctant to disclose information that Mr Rachford would be able to access. She notes however that her weekly household expenses are about $990 per week ($51,480). She has not provided a breakdown of that figure to indicate what her share of that would be.

Earning capacity

1. A ground for departure exists if, in the special circumstances of the case, the administrative assessment of child support would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of the earning capacity of either parent (subparagraph 117(2)(c)(ib)). 

2. Subsection 117(7B) of the Act provides:

   (7B)         In having regard to the earning capacity of a parent of the child, the court may determine that the parent's earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied that:

   (a) one or more of the following applies:

   (i)  the parent does not work despite ample opportunity to do so;

   (ii) the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full-time work for the occupation or industry in which the parent is employed or otherwise engaged;

   (iii) the parent has changed his or her occupation, industry or working pattern; and

   (b) the parent's decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern, is not justified on the basis of:

   (i)  the parent's caring responsibilities; or

   (ii) the parent's state of health; and

   (c) the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child

3. The tribunal was satisfied that there was no basis to consider earning capacity in any proposed departure.

The commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support himself or herself, or any other child or another person that the person has a duty to maintain

1. Whilst this was a ground raised by Mr Rachford as part of his change of assessment application, no specific submissions were made at hearing. The tribunal is satisfied taking into account the relevant costs of self-support utilised in the assessments and based upon evidence provided at hearing that neither party has extraordinary costs of self-support that are relevant to the assessment.

Any hardship that would be caused

1. Mr Rachford told the tribunal that he disagreed with the change of assessment put in place by Child Support which in effect maintained his capital gain for the remaining period of the assessment. He says that whilst he does not deny that based on his asset situation he can afford to pay the resultant child support liability, the approach taken by Child Support is neither just nor equitable.  As noted his reasons for this include:

   ·Ms Yilmaz is in a reasonable financial situation, despite not working on a full-time basis she owns an unencumbered property valued at $700,000 and has been able to steadily accumulate savings of more than $200,000.

   ·It is reasonable to take an approach which acknowledges his asset situation however which balances this against the proper needs of the child and Ms Yilmaz’s own circumstances.

2. Ms Yilmaz in written submissions in effect stated that her savings were irrelevant and that she has single handed raised their son.  She made a number of assertions that Mr Rachford has hidden income, property, and assets and has lied in various proceedings. The tribunal was not satisfied that evidence presented as part of this review supports any such conclusion. She says that she is a single mother to [number] children

3. In this matter both parties have not insignificant financial assets. Both parties own their principal places unencumbered. It appears that despite not working Ms Yilmaz has been able to save at least $20,000 over a 12-month period.  Mr Rachford is in a secure financial situation with employment income, an investment property and significant financial savings. A rough comparison of the parties’ positions shows that Mr Rachford holds assets (unencumbered of about $1.8 million) and Ms Yilmaz holds assets (unencumbered) of about $920,000.

4. In this matter it appears to the tribunal that a fair and equitable approach which takes into account the relative financial positions of the parties would be to make a determination which varies Mr Rachford’s ATI to $100,000 whilst utilising Ms Yilmaz’s last relevant income tax return in the assessment. This will result in an annual child support liability of about $16,700 per annum (or about $320 per week). The tribunal proposes setting the period for this variation to commence from 1 September 2019 until a terminating event (which in this case will most likely be 2024 when the child turns 18).

5. This proposed variation will have the effect of increasing the child support payable by Mr Rachford from that as originally set out in the administrative assessment but will also result in some downward re-adjustment in the amount payable as a result of the Child Support change of assessment decision on objection.

6. The tribunal is satisfied that on the available evidence Mr Rachford has the capacity to meet this level of child support. Setting the assessment for this period recognises the change in Mr Rachford’s financial circumstances following the sale of the property and the significant financial gain he made in that transaction. At the same time, it strikes, in the tribunal’s view, a balance which reflects that Ms Yilmaz whilst not in full-time employment has access to not insignificant financial resources and has demonstrated an ability to make not insignificant contributions to her savings and is in a comfortable financial position.

7. The tribunal concluded that for all of the above reasons, in the special circumstances of this case, it is just and equitable to make a departure determination from the administrative assessment issued in accordance with the Act so that for the period 1 September 2019 to a terminating event Mr Rachford’s adjusted taxable income is varied to $100,000. The assessment should continue to utilise Ms Yilmaz’s ATI as assessed by the ATO for the last relevant year of income.

8. As always should there be any future significant changes in circumstances it will be open to either party to initiate a change of assessment application.

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

1. The final step is for the tribunal to determine whether it is ‘otherwise proper’ to make a particular departure determination.  Subsection 117(5) requires the tribunal to take into account whether the proposed departure is proper in the context of the public interest and welfare expenditure of the community.  A prime objective of the legislation is that parents are obliged to support their own children to the extent of their real capacity and such an obligation should be unnecessarily abrogated to the public welfare system.

2. According to her Statement of Financial Circumstances, Ms Yilmaz is in receipt of family tax benefit and the proposed departure from the administrative assessment may result in some changes to the rate of her entitlement to government assistance.  In this case the tribunal finds that the requirements under paragraph 117(5)(a) of the Act are met.  The tribunal concludes that it is otherwise proper to depart from the administrative assessment.

DECISION

The tribunal sets aside the decision under review so that for the period 1 September 2019 to a terminating event Mr Rachford’s adjusted taxable income is varied to $100,000.