Rolland and Quealy (Child support)

[2022] AATA 2097

Rolland and Quealy (Child support) [2022] AATA 2097 (24 May 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/MC022860

APPLICANT:  Mr Rolland

OTHER PARTIES:  Child Support Registrar

Ms Quealy

TRIBUNAL:Member C Breheny

DECISION DATE:  24 May 2022

DECISION:

The decision under review is affirmed.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from business – decision under review affirmed

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. Ms Quealy and Mr Rolland are the separated parents of [Child 1], born [August] 2009 and [Child 2], born [July] 2010. A child support case has been registered with the (then) Department of Human Services – Child Support (Child Support) since 21 March 2006 and registered for collection from 16 July 2020. Child support is payable on the basis that Ms Quealy has 100% care of the children and Mr Rolland is assessed as liable to pay child support to Ms Quealy.

2. For the period 16 July 2020 to 31 December 2020 Mr Rolland was assessed to pay child support at the rate of $2,488 per annum, based on his 2018/19 adjusted taxable income of $37,525 and Ms Quealy’s 2018/19 adjusted taxable income of $6,111. For the period 1 January 2021 to 31 March 2022 child support liability was assessed as being $2,954 per annum[1]on the basis of a 2019/20 adjusted taxable income of $18,934 for Mr Rolland and a provisional income of $0 for Ms Quealy.

   [1] The fixed annual rate for two children

3. On 8 June 2021 Ms Quealy lodged a change of assessment application, stating that the administrative assessment did not correctly reflect Mr Rolland’s income and financial resources and on 5 August 2021 COA decision-maker (DM) [name] determined that Mr Rolland’s adjusted taxable income was set at $78,957[2] from 1 June 2021 to 31 May 2024, including annual indexation. DM [name] noted that Mr Rolland did not provide the requested financial information and referred to average annual incomes for [occupation 1s] ($70,564) and [occupation 2s] ($75,816) in reaching the conclusion. This resulted in an increase of Mr Rolland’s child support liability to $10,504 per annum.

   [2] Annual income amount based on Male Total Average Weekly Earnings (MTAWE)

4. On 31 August 2021, Mr Rolland objected to the decision and on 6 November 2021, a Child Support objections officer decided to disallow the objection. The objections officer noted that Mr Rolland did not provide sufficient information about his personal financial position and business operations.

5. On 2 December 2021, Mr Rolland applied to the Social Services and Child Support Division of the Administrative Appeals Tribunal (the Tribunal) for an independent review of Child Support’s decision. A hearing into Mr Rolland’s application for review was held on 24 May 2022. Both Ms Quealy and Mr Rolland attended the hearing by conference telephone and gave evidence on affirmation. 

6. I had before me the statement and documents provided by Child Support pursuant to subsection 37(1) and section 38AA of the Administrative Appeals Tribunal Act 1975, received on 22 December 2021 and 10 May 2022 respectively and numbered 1–315. I also considered additional documents provided by Mr Rolland (marked A1–A91) and Ms Quealy (marked B1–B27) as a result of written directions issued on 15 March 2022.

LEGISLATIVE FRAMEWORK AND ISSUES

1. The legislation relevant to this review is contained in the child support law, in particular the Child Support (Assessment) Act 1989 (the Act) and the Child Support (Registration and Collection) Act 1988.

2. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. This requires the application of a statutory formula, which takes into account factors such as the number of children, the level of care provided and the income of each parent. Either the liable parent or the carer entitled to child support 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 provides that the Registrar may make a determination to depart from the formula assessment and establishes a three-step process. The registrar, and the Tribunal standing in place of the Registrar, must be satisfied that a ground for departure exists and that it is just and equitable and otherwise proper to make a departure determination.

3. The grounds for departure from an administrative assessment of child support are those set out in subsection 117(2) of the Act. If satisfied that a ground or grounds exist, and that it would be just and equitable and otherwise proper to make a particular determination, the Tribunal may make one of the determinations prescribed in section 98S of the Act.

4. In the legislation, each ground for departure is prefaced by the words, “in the special circumstances of the case”. Therefore, when considering whether one (or more) grounds exists, the Tribunal must be satisfied that there are “special circumstances” in the case. The phrase “special circumstances of the case” is not defined in the Act. The Full Family Court, in the case of Gyselman and Gyselman (1992) FLC 92-279 stated that:

   It is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. That is, the intention of the Legislature is that the court will not interfere with the administrative formula result in the ordinary run of cases.

5. Subsection 98C(3) of the Act provides that subsections 117(4) to (9) of the Act apply and the Tribunal must consider these when deciding whether it would be just and equitable or otherwise proper to make the departure decision.

CONSIDERATION

1. Ms Quealy asked for a departure from the administrative assessment on the basis that the assessment does not correctly reflect the parties’ respective income, property and financial resources (also known as “Reason 8A”).

2. Neither party submitted that the other had greater earning capacity for the purposes of this review and I have thus not considered this issue further.

Income, property, financial resources and earning capacity of both parties

1. Subparagraph 117(2)(c)(ia) of the Act provides that, in the special circumstances of the case, a ground for departure may be established if application of the legislative provisions relating to an administrative assessment results in an “unjust and inequitable determination of the level of financial support to be provided by the liable parent” due to the income, property and financial resources of either parent.

Mr Rolland – income, property and financial resources

1. Ms Quealy lodged her application on 8 June 2021, asking for a change to the administrative assessment from 16 July 2020.

2. Ms Quealy submitted that Mr Rolland has access to the financial resources of a business, [Business 2], and he also operates his own sole trader business. His income and financial resources are thus far greater than the income declared in his tax returns.

Mr Rolland’s submissions

1. Mr Rolland stated that he is a qualified [occupation 1], but he has also done [other related] work in the past. He operates [an occupation 1] business ([Business 1]) as a sole trader. Mr Rolland said that he works full-time in his business, but he is not earning much from the business.

2. Mr Rolland submitted that his father-in-law ([Mr A]) is the sole director of a [company], [Business 3]. In January 2020 [Business 3] bought [a machine 1]. Mr Rolland said the [machine 1] was bought to help increase his (Mr Rolland’s) earnings from his [business 1], as he is the sole income earner in his family.

3. Mr Rolland said that he is able to borrow the [machine 1] for use in his own business and, in exchange, he operates the [machine 1] for his father-in law’s company. Any work he does in that capacity is billed to “[Business 2]”, which is a “subsidiary” to [Business 3]. He does not get paid for the work he does for [Business 2] and he works about one or two days per week for [Business 2].

4. Mr Rolland provided a letter from [Mr A] (folio 49). It states that [Business 3] is the holder of the business name “[Business 2]”. [Business 3] bills clients for the work done by [Business 2] and renders invoices under the name “[Business 3] ”. [Mr A] states that all transactions are done via the company bank accounts and the company lodges tax returns, where the small income earned by [Business 2] is taxed to the company. [Mr A] states that Mr Rolland is not a director, does not own shares and is not paid by [Business 3].

5. Ms Quealy submitted copies from the [Business 2] Facebook page (folios 28/29) showing Mr Rolland’s contact details (phone and email) and indicating “over 25 years [experience]”. She provided a Facebook page for [Ms B] who identified herself as “[occupation] for [Business 2]” from 15 September 2019 to present (folio 172).

6. Further Facebook pages from [Business 2] (folios B8 -B12) indicate:

   Welcome to our new page and new business [Business 2]….[Alias A][3] (posted 2 December 2019)

   …For those that didn’t know [Alias A] is a talented [occupation 1] and together with [Mr C, Business 4]    [specified services]…make sure to contact [Alias A] for any of your project ideas (posted 17 November 2021)

   [Alias A], [Ms B] and family would like to wish our [Business 2] friends a safe and Merry      Christmas and Happy New Year. We are looking forward to a break and seeing you all again in      2022. (posted [in] December 2021)

   [3] This is Mr Rolland

7. Mr Rolland suggested that one “should not believe everything on Facebook” but also submitted that he “represented [Business 2]” and this was reflected on the Facebook pages.

Documentary evidence

1. Child Support obtained 2018/19 and 2019/20 personal tax returns for Mr Rolland from the Australian Taxation Office (ATO). The 2018/19 tax return (folios 123–127) shows a business income (from the sole trader business) of $56,894 and business expenses of $19,366 for a taxable income of $37,528. The 2019/20 tax return (folios 131–138) shows business income of $71,630 and business expenses of $52,696 for a taxable income of $18,934. Business expenses include depreciation of $40,250.

2. I asked Mr Rolland to provide his 2020/21 personal income tax return. He did not do so. He said that he was unable to retrieve a copy from his “MyGov” account. Instead Mr Rolland provided typewritten pages, with handwritten notes (folios A4–A5) purported to contain the information from his tax return. It shows a total business income of $71,680 and business expenses of $41,927 for a taxable income of $29,753. Business expenses included $18,399 depreciation expenses.

3. In relation to depreciation expenses, the notes to the “tax return” (folio A5) indicate that this amount is claimed for a [Vehicle 1] which was purchased in December 2020 for a total cost of $73,597, paid partly by a “trade-in” van, which was never depreciated and partly financed ($42,200).

4. Mr Rolland provided information from [Finance Company 1] (folios A43–A52) showing that finance for the [Vehicle 1] was obtained by [Business 3] on 30 April 2020. The loan amount was $42,236 with monthly repayments of $774.39 over 60 months. [Mr A] and [Ms A] acted as guarantors for the loan.

5. Bank statements for [Business 3] (acc.no.xxxx2324) indicate that loan repayments are deducted every month (e.g. folios A57, A61) from the company account. Mr Rolland agreed that the [Vehicle 1] was his vehicle, which he used for work purposes. He said that he was repaying the loan by transferring money from his own account back to the company bank account. I note that there is no evidence of such transfers. Mr Rolland later said that the repayments were a loan from his father-in-law, which he would have to repay at some point.

6. The complete bank statements for [Business 3] for the 2020/21 financial year (folios A57-A69) indicate total deposits of $144,866.73 of which $40,750 are attributed to [Business 2]. It is impossible to discern how this attribution was made, as most of the entries have been redacted.

7. Regular deposits attributed to [Business 2] are made by “[Business 5]”, “[Business 4]”, “[Business 6]”. I note deposits from these businesses are also credited to Mr Rolland’s personal bank account with [Bank 1] which he uses for his sole trader business (acc. no. xxxx9088).

8. The main withdrawals attributed to [Business 2] are repayments for the [Vehicle 1] to [Finance Company 1], registration for that vehicle and insurance payments. There are also several transfers from this account marked “[Business 2] Rolland” [and variations of Mr Rolland’s name, including], “[Alias A]” (e.g. folios A65, A67, A68). They appear to be made to Mr Rolland, however they appear not to be made into his personal bank account with [Bank 1], as there are no corresponding credits to this effect.

9. Other transfers out of the [Business 3] account appear to be made by Mr Rolland, for example “transfer to [Business 4]…inv… Mr Rolland” and “transfer to [Ms D]…refund from Mr Rolland” (folios A71) and “Transfer to [Mr E]…. Mr Rolland deposit” (folios A72).

10. In his letter of 11 July 2021 [Mr A] stated that [Business 3] owns the business name “[Business 2]”, renders invoices in that name and submits a company tax return, which includes the income earned by [Business 2]. Mr Rolland was asked to provide the tax returns for “[Business 2]/[Business 3]” for 2020/21. He did not do so. Instead he submitted typewritten pages entitled “[Business 3] Tax Return to 30 June 2020” (folio 53), “[Business 3] Tax Return 1 July 2020 to 30 June 2021” (folio A54) and two further pages purporting to be the “Statement of Assets and Liabilities” for [Business 3] as at June 2020 and as at June 2021 (folios A55 and A 56).

11. The “tax return” to 30 June 2020 indicates that [Business 2][4] commenced business on 3 January 2020, that business income was $10,120, business expenses were $6,148.30 for a net profit of $3,971.70. The “tax return” to 30 June 2021 indicates that [Business 2] business income was $41,100 and business expenses were $11,665 for a net profit of $29,435. Assets and Liabilities for [Business 3]/[Business 2] are the [specified machine 1], purchased for $38,500 and the [Vehicle 1], which is subject to finance.   

    [4] Apparently incorrectly identified as “[a variant of Business 2]”

12. Child Support obtained the 2019/20 income tax return for [Business 3] from the ATO (folios 142 to 144). The company’s main business activity is identified as “Trustee”, the industry code is [specified], being “[specified services]”. [Business 3] declared a total income of $0 for a taxable income of $0.  

Conclusion: income, property and financial resources for Mr Rolland

1. As noted above Ms Quealy submitted that Mr Rolland operates [Business 2], as well as his own sole trader business and his declared taxable income is thus not an accurate reflection of his income and financial resources.

2. It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott v Scott [1994] FLC 92-457; Carey v Carey [1994] FLC 92-489). The Court has observed that the Tribunal is not required to undertake a “forensic audit” or major investigation of the financial circumstances of a party (Podmore & Pillai [2011] FMCAfam 952 and Frost and Frost [2011] FMCAfam 1311). Rather, the Tribunal must be satisfied on the balance of probabilities as to the party’s income, property and financial resources available to the parties for child support purposes, such that a fair decision can be made in respect of the child support liability. (Shearer & Benson (SSAT Appeal) [2011] FMCAfam 623).

3. Mr Rolland’s evidence to me was that his taxable income was accurate and should be used in calculating his child support liability. He stated that his only income was the sole trader business and that he did not receive any income or other financial support from [Business 2]/[Business 3]. He agreed that he worked for [Business 2] about one or two days per week, but his only recompense was the ability to use the [machine 1] owned by [Business 3] in his own (sole trader) business.

4. When asked, Mr Rolland declared that he would be willing to work for any business for free, if he was allowed access to a vehicle or plant owned by that business for use in his own enterprise. I find such a statement difficult to believe. I also find it difficult to believe that a person would act as the main contact point and generate business for a company without adequate compensation for their work.

5. Mr Rolland was asked to provide properly prepared tax returns and financial statements for [Business 2]/[Business 3]. He did not do so and the limited evidence he did provide appears to contradict information obtained from the ATO.

6. Bank statements before me indicate a very strong interconnection between Mr Rolland’s sole trader business and [Business 2]. The client base for both businesses is very similar. Several transfers out of the [Business 2] account are made in Mr Rolland’s name or apparently directly to Mr Rolland. [Business 2] also pays for Mr Rolland’s work vehicle, for which he claims depreciation in his sole trader business.

7. Mr Rolland declared to Child Support (as part of his objection) that he purchased a [vehicle] for work in the 2019/20 tax year. He stated that “with guarantees from family members I was able to purchase a new [vehicle]. I was able to claim accelerated depreciation for this vehicle. I am paying off this [vehicle]” (folio 154).

8. The evidence provided indicates that the [vehicle] was purchased by [Business 3] in April 2020 and repayments are being made by [Business 2]. There is no evidence that Mr Rolland is paying for the vehicle from his personal account.

9. I have significant concerns that the information provided by Mr Rolland does not give an accurate picture of his financial situation. Mr Rolland has an obligation to make full and frank disclosure of his financial affairs to assist me to come to the correct or preferable decision.[5]  The onus is on Mr Rolland to present his financial affairs and records in a manner that is both transparent and readily understandable.[6]

   [5] Humphries and Berry [2008] FMCAfam 409

   [6] Morse and Potts [2010] FMCAfam 1305

10. The evidence before me leads to a conclusion that Mr Rolland has access to the financial resources of [Business 2], indeed that effective control of [Business 2] rests with Mr Rolland. There is no evidence that Mr Rolland’s father-in-law ([Mr A], Director [Business 3]) has any involvement in the operation of [Business 2].

11. In 2020/21 income from [Business 2] purportedly amounted to $41,100 (folio A54) and income from Mr Rolland’s sole trader business apparently amounted to $71,680 (folio A4), a total of $112,780. Business expenses for the companies are less clear. Mr Rolland claimed depreciation expenses for the [Vehicle 1] on his sole trader business, however that business did not purchase the vehicle and is not meeting any of the repayments. [Business 2] ([Business 3]) purchased the vehicle and is making repayments yet it does not claim depreciation.

12. I also consider that “depreciation” is not necessarily an expense amount that is actually incurred by a business. In this case there is no evidence before me that Mr Rolland allocates this amount into a separate “capital replacement fund” for future costs. Both businesses (sole trader and [Business 2]) appear to meet other listed business expenses and appear to return a profit. There is no evidence that the depreciation amount is used for other business debts.

1. In 2020/21 Mr Rolland’s sole trader business income was $29,753 and the [Business 2] net profit for 2020/21 was $29,435 and depreciation costs claimed by Mr Rolland amounted to $18,399. I consider all of these amounts to be income and financial resources available to Mr Rolland. I therefore find that Mr Rolland’s income and financial resources amount to about $77,587 in the 2020/21 financial year.

Ms Quealy – income, property and financial resources

1. Ms Quealy is reliant on Centrelink payments. She provided a Centrelink Income Statement (folios B1–B3) indicating that she receives parenting payment (partnered) of about $574.06 per fortnight, supplements and allowances of pf $22.24 per fortnight, rent assistance of $170.52 per fortnight and family tax benefit payments of about $752.66 per fortnight, a total of about $1,519.48 per fortnight or $759.74 per week.

2. Her 2020/21 taxable income was $21,031 made up of Centrelink payments (folio B5).

3. The Centrelink statement indicates that Ms Quealy has been in receipt of parenting payment (partnered) since April 2020. I have no evidence that Ms Quealy has any other source of income, and I am therefore satisfied that Ms Quealy’s income, property and financial resources are adequately represented by her annual income tax returns.

Conclusion – income, property and financial resources of both parties

1. Ms Quealy asked for a departure determination on 8 June 2021 (the 2020/21 financial year), when the rate of child support was $2,954 per annum based on Mr Rolland’s 2019/20 adjusted taxable income of $18,934 and a provisional income of $0 for Ms Quealy.

2. I have found that Mr Rolland’s actual income and financial resources in 2020/21 amounted to $77,587 and I have estimated that Mr Rolland’s child support liability for the children, if calculated on the basis of his actual financial resources, would be $10,236 per year at the time Ms Quealy lodged her application. Ms Quealy’s adjusted taxable income is below the self-support amount and thus does not affect the assessment.

3. I find that the difference between an annual child support liability of $10,236 and the annual rate of child support ($2,954) based on Mr Rolland’s 2019/20 adjusted taxable income, is so great that it gives rise to special circumstances in this particular case.

4. I am therefore satisfied that the ground for departure set out in subparagraph 117(2)(c)(ia) of the Act has been made out in respect of Mr Rolland’s income, property and financial resources.

5. Subparagraph 98C(1)(b)(i) of the Act is satisfied if “one, or more than one” of the grounds for departure are established. Having found one ground for departure established, I will now consider whether it is just and equitable to make a departure determination.

Just and equitable

1. The requirement to consider whether a departure would be just and equitable directs that my attention is turned to what is fair to the parents and their children. To do so I must have regard to a number of factors set out in subsection 117(4) of the Act, such as the needs of the children, the parents’ commitments and any hardships that would be caused by departing, or not departing, from the statutory formula.

Mr Rolland

1. Mr Rolland’s income, property and financial resources have been discussed in some detail above. He provided a Statement of Financial Circumstances (folios A81–A90), but he noted that some of the information had since changed.

2. Mr Rolland said in the hearing that the net income from his sole trader business is about $952 per week ($49,504 per year). He stated that he has been separated from Mrs Rolland since January 2022 and has moved out of the family home. He was living in rental accommodation on a cousin’s farm and is paying $250 per week rent (including utilities). Mr Rolland stated that he spends $350 per week on food for himself and his other expenses amounted to $380 per week (including $67 per week for entertainment, books and gifts which are considered non-essential expenses[7]).  He said that he has made an arrangement with Mrs Rolland to pay $100 per week child support for their son, [named]. Based on Mr Rolland’s evidence at the hearing, his current expenses amount to $1,013 per week (excluding non-essential expenses).

   [7] The Family Court (in Mee and Ferguson (1986) FLC 91–716) has been prescriptive about the types of expenses that can be considered “necessary” expenses and that there are only a few expenses which can be considered to take priority over the parents’ primary duty to support their children. This includes expenses such as a reasonable amount for rent or mortgage payments, food, utilities, and some loans.

3. As previously discussed, I have found that that Mr Rolland also has effective control of the business [Business 2], which returned a profit of $29,435 in 2020/21 and provides an additional financial resource for Mr Rolland. I therefore find that Mr Rolland is able to meet all of his financial commitments.

Ms Quealy

1. Ms Quealy stated on her Statement of Financial Circumstances (folios B20–B27) that her income is about $765 per week (excluding child support payments from Mr Rolland). The Centrelink notice provided by Ms Quealy shows that she receives a total of about $1,519.48 per fortnight or $759.74 per week. She noted that her husband received about $314 per week from Centrelink (under the New Enterprise Incentive Scheme) until December 2021. He is trying to establish a small business.

2. Ms Quealy noted total household expenses of $1,292.90 per week for herself, her partner and [number] children. Ms Quealy did not differentiate expenses for the children and did not list any out of the ordinary expenses for them. [Child 2] and [Child 1] are now 11 and 12 years old respectively. They have no income, property or financial resources relevant to my determination. Overall it appears that Ms Quealy is managing her family’s expenses on their limited income.

Otherwise proper  

1. The requirement to consider whether it is “otherwise proper” to depart from the administrative assessment 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 or benefits (subsection 117(5) of the Act).

2. It is a prime objective of the child support legislation that parents should be obliged to support their own children to the extent of their real capacity, and that that obligation should not be unnecessarily abrogated to the public welfare system when the parents themselves have the capacity to maintain their children.

3. Ms Quealy is in receipt of family assistance payments, which are affected by maintenance payments such as child support. Any increase to child support payable would result in an appropriate decrease in these payments. Such a result would be otherwise proper.

Conclusion

1. Section 98S of the Act describes the determinations that the Registrar, and the Tribunal standing in the shoes of the Registrar, may make if it decides to depart from the administrative assessment. It is open to the Tribunal to set a rate of child support payable or set some of the variables used in the administrative assessment formula (for example, vary one or both parents’ adjusted taxable income).

2. In this case Ms Quealy contended that Mr Rolland has access to greater financial resources than indicated on his tax return, due to his involvement in [Business 2]. She noted that she accepted the objections officer decision

3. Mr Rolland submitted that whilst he was working for [Business 2], he did not get paid by the business. He obtained no financial advantage from the business, other than being allowed to use [a machine 1] (belonging to [Business 2]) in his own business free of charge. Mr Rolland stated that his tax return accurately represented his income and financial resources.

4. I note the objections officer based their decision on bank account statements obtained by Child Support, as Mr Rolland did not provide any detailed information about his business operations. The objections officer found discretionary personal expenses in two bank accounts amounted to approximately $65,000 per year, which would equate to an annual gross income of about $80,000. The objections officer decided not to change the initial change of assessment decision, as it appropriately reflected Mr Rolland’s financial position.

5. Mr Rolland did provide some additional information for the purposes of this review. I have expressed my concerns about the evidence provided elsewhere in these Reasons. I am not satisfied that Mr Rolland provided a full and frank disclosure of his financial situation.

6. Based on the very limited evidence before me it appears that Mr Rolland’s income and financial resources amounted to about $77,587 in 2020/21. Using this income amount would result in a child support liability of $10,236 per annum for Mr Rolland. This is not significantly different from the child support liability ($10,504 per annum) based on the income used by the objections officer ($78,957).

7. I have therefore decided not to disturb the objections officer’s decision. I am not persuaded that either party will in financial hardship as a result of my decision and I therefore affirm the decision under review.

DECISION

The decision under review is affirmed.