Rood and Rood (Child support)

[2023] AATA 3409

Rood and Rood (Child support) [2023] AATA 3409 (8 September 2023)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2023/SC025812

APPLICANT:  Mr Rood

OTHER PARTIES:  Child Support Registrar

Ms Rood

TRIBUNAL:Senior Member D Benk

DECISION DATE:  08 September 2023

DECISION:

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

·      From 1 October 2021 to 31 December 2022, Mr Rood’s annual rate of child support  is to be assessed at $4,662 per annum.

·      From 1 January 2023 to 30 September 2024, Mr Rood’s annual rate of child support is to be assessed at $5,200 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision to depart - 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 Rood and Ms Rood are the parents of [the child], born on 6 September 2010.  Mr Rood has 27% care of [the child] and at the time of this decision his child support liability was up to date.

2. This matter has a long and unnecessarily complicated history.  To make the complex simple, as the Tribunal understands it, child support liability had been set by a previous departure application which assessed Mr Rood as having an adjusted taxable income of $88,690 between 1 October 2021 and 31 December 2022.  Simply put, that decision imposed a liability on Mr Rood to pay child support of $4,662 per annum.

3. Once that departure expired, liability was assessed with reference to the ordinary administrative assessment, that is a formula that takes into account the adjusted taxable income as reported to the Australian Taxation Office (ATO), the level of care, the age of the child, and any other relevant dependent children amongst other variables.  In this case, the administrative assessment applied a default income of $84,140 for Mr Rood, resulting in an annual rate of $4,144.

4. Then as the Tribunal understands it, Ms Rood applied for an extension of time to object to the previous departure application.  That extension of time was granted and following multiple internal reviews, the original departure was set aside on 25 February 2023 and an adjusted taxable income of $110,000 was set for Mr Rood commencing from 1 October 2021 to 31 December 2024.  This resulted in a new annual rate of $6,654 and arrears of $2,740.

5. Mr Rood now seeks a review of that decision maintaining that he has never earned $110,000 per annum and the decision to depart and further backdate the assessment is unfair and unjust in the circumstances of his case.  The matter was listed for a telephone directions hearing at which time a case management strategy was timetabled.  Both parties complied with directions resulting in hearing proper on 8 September 2023 when sworn evidence was given via conference telephone. 

ISSUES AND CONSIDERATION

1. The process of departure was explained at the hearing. The parties are no strangers to it. For the sake of completeness and background the Tribunal will summarise the law.

2. Before making an order for departure from an administrative assessment under section 116 of the Child Support (Assessment) Act 1989 (the Act), subsection 117(1) requires the Tribunal to be satisfied that a ground for departure exists under subsection 117(2); that it would be just and equitable as regards the child, the carer parent, and the liable parent to make such an order; and that it would be otherwise proper to make the order.

3. Subsection 117(2) of the Act sets out the grounds upon which such an order might be made. Relevantly, paragraph (c) states as follows:

   That, in the special circumstances of the case,[1] application in relation to the child of the provisions of this Act relating to 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:

   (i)    because of the income, earning capacity, property and financial resources of the child; or

   (ia)   because of the income, property or financial resources of either parent; or

   (ib)  because of the earning capacity of either parent; or

   (ii) because of any payments, and any transfer or settlement of property, made or to be made (whether under this Act, the Family Law Act 1975 or otherwise) by the liable parent to the child, to the carer entitled to child support or to any other person for the benefit of the child.

   [1] 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.

4. When submitting the change of assessment application, Ms Rood requested the Agency to consider subparagraph 117(2)(c)(ia).

5. To establish this ground to depart, the Tribunal would need to establish that the previous grounds of departure and the administrative formula which set an adjusted taxable income for Mr Rood ranging between $84,140 and $88,690 does not reflect Mr Rood’s income, property or financial resources.

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

Mr Rood’s evidence

1. Mr Rood confirmed that he had been employed as a [contractor] but has recently lost that contract for a number of reasons. He sought to impress that his employer was irritated with the constant interference of the child support agency and therefore decided to let him go.  Be that as it may, he is continues to work as [an Occupation] but his work is now sourced largely through word of mouth and [Social media].  It is not as stable as his previous contract was.  He has supplemented his income with [Service provider work].

2. He has no employees.  He works by himself.  He may contract works if he can’t do them to finish a job but now only intends to do work that he can undertake independently.  He has been [an Occupation] since finishing his apprenticeship and has a good reputation having been in the game for 26 years.

3. The Tribunal enquired why he could not work as a PAYG employee.  Mr Rood said that he would find this difficult as he does not want to distort the care schedule in place for [the child].  In any event, he has been his own boss for many years and would find it difficult.  He said that he needs the flexibility in his employment to accommodate his care arrangements.  The Tribunal indicated that many parents juggle full-time work and care commitments.  Mr Rood accepted this but also highlighted that even if he was a PAYG employee his income would range between $75,000 and $85,000 per annum without flexibility.

4. Mr Rood was asked to explain his income sources from [Company], [Business 1] and [Business 2].

[Company]

1. Mr Rood explained that he has a simple company structure.  He was for the last financial year solely undertaking work as a subcontractor for one [contractor].  That work has now finished.  He continues to work in the [Work sector].  Work is slow.  He is supplementing his income by being [a Service provider] but this is not profitable because of the high [costs] and requirements to be met as a [provider]. He said that his taxation returns properly reflect his income.  He admits that he has only one vehicle used for both business and domestic purposes and receives some offsets for depreciation (which replaces tools) and has the benefit of other perks that a PAYG employee does not have such as telephone and motor vehicle offsets, etc. 

2. Mr Rood said that running a business is hard.  Now that he does not have regular contract work he is at the mercy of consumer demand.  No two weeks are the same.  Some weeks are a feast and others a famine, this coupled with business red tape, taxes, insurances and time out required for ongoing legal matters all affect the bottom line.

3. Mr Rood said that it is wrong to assess his income at $110,000 per annum and that such figure is a work of fiction.  He has provided his company taxation return and profit and loss sheets which clearly show that his taxable income was $69,998 for the 2022 financial year and $55,000 for the 2023 financial year.  The company tax returns confirm the income which align in the bank statements provided and also show that approximately $15,000 to $20,000 per annum in depreciation, motor vehicle expenses and telephone expenses, laptop expenses have been claimed.  Mr Rood confirmed he is the sole director and shareholder.  His new partner has no knowledge of his business and no involvement.  She has her own independent income and properties.  Their finances are not shared.  Mr Rood accepts that he obtains non cash benefits from his self employment which are all entirely legal according to the ATO.

[Business 1]

1. This was a joint venture with his partner.  The oral evidence and the partnership taxation returns confirm losses.  Mr Rood said that COVID quickly brought an end to that venture.  The [Vehicle] and equipment are still owned by Mr Rood and his partner but the venture, which was a portable [business] servicing events and sporting facilities, has largely been inactive. 

[Business 2]

1. The evidence confirmed that this was initially thought to be a good investment, a pyramid scheme selling [products].  The evidence was that this was a lot of effort for little return.  Mr Rood’s partner still uses the products but there is no selling involved and certainly no profit from which child support could be paid from.

2. In summary, Mr Rood believes the administrative assessment is correct and any child support assessment should be assessed with reference to his taxable income.

3. Mr Rood also indicated that he does not dispute Ms Rood’s taxable income figure and said that he would like an assessment set into the future to avoid the stress associated with the child support and Tribunal process.

Ms Rood’s evidence

1. Ms Rood said that Mr Rood’s evidence should be taken with a grain of salt.  Particularly his written submissions stated that he never mixed personal expenses with his business expenses however careful analysis of his company bank accounts reveals that he has paid legal fees for the family court proceedings (over $16,000) out of his company account, paid various ‘entertainment costs’ and these should be added back as this increases his cash flow.  She also testified that by running his own business he has benefits that she as a PAYG employee does not have.

2. In short, Ms Rood asked for careful review of Mr Rood’s accounts as his lifestyle including holidays and expenditure for their daughter is out of kilter with his alleged taxable income.  She maintained that the decision of the objections officer is appropriate and should not be changed. 

Assessment of the evidence

1. 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 and Scott (1994) FLC 92-457; Carey and Carey (1994) FLC 92-489). As discussed with the parties, the role of the Tribunal is not to conduct a forensic audit (Podmore & Pillai [2011] FMCAfam 952 and Frost & Frost [2011] FMCAfam 1311). Rather, it is to determine from the available evidence before it, the 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.

2. The previous departure and administrative assessment assessed the adjusted taxable income to vary between $84,000 and $86,000 approximately.  This is consistent with the 2022 taxation return but not the 2023 taxation return where the income significantly reduced.  The personal taxable income does not factor non-cash benefits such as depreciation, personal use of the company vehicle and various other legal taxation deductions which increase Mr Rood’s case flow, conservatively increasing his income and financial resources to more than $90,000 per annum at least for the 2022 financial year.  The Tribunal also cannot ignore that Mr Rood has paid legal expenses out of his company account.  He testified in reply that these were adjusted in the company accounts against his personal drawings but this is not evident on the information before the Tribunal. To not apply the full extent of financial resources from his self-employment venture would result in an inaccurate representation of the total level of funds available to Mr Rood. The add back of depreciation, retained profits and other business and non business expenses results in a greater level of financial resources than that reflected in the administrative assessment which results in a significant difference in child support liability to approximately $90,000 over each financial year.  The Tribunal acknowledges that the taxable income in 2023 was less but it cannot ignore that the company has paid much of the personal legal fees. The Tribunal finds that these circumstances are special (as they are not available to PAYG employees) and due to their impact on any child support liability (more than $1,000 to $1,500 per annum) the ground for departure set out in subparagraph 117(2)(c)(ia) of the Act has been made out in respect of Mr Rood’s income, property and financial resources. However, such departure is not automatic.

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

1. As the Tribunal is satisfied that there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable as regards the child, the liable parent and the carer entitled to child support 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 a range of factors, set out in subsection 117(4) of the Act. In addition to the education costs of the child, already considered above, the Tribunal also took the following matters into consideration.

The nature of the duty of a parent to maintain a child and the income, earning capacity, property and financial resources of the child

1. [The child] is the only child of the assessment.  The parties are not in dispute about the level of care.  Mr Rood follows the court orders.  [The child] has no independent income and relies on both parents for support. The Tribunal so finds. 

The proper needs of the child

1. Subsection 117(6) of the Act states that in having regard to the proper needs of the child, the Tribunal must have regard to the manner in which the child is being, and in which the parents expected the child to be, cared for, educated or trained; and any special needs of the child/ren.

2. The parties agreed in this area. [The child] attends public school.  Mr Rood indicated that he is willing to contribute to ad hoc fees.  Ms Rood said that whilst there is no real term school fees (such as the private school system) that some subjects have a fee and if not paid, [the child] will be excluded, this mainly pertained to the creative arts subjects which to date have cost more than $1,000. 

3. [The child] does suffer from a genetic condition, hereditary [Condition] which causes some [Symptom]. She is being managed in the children’s hospital and there are no large out-of-pocket medical expenses associated with the management of this condition at this time.  She may have extra monthly costs associated with hygiene management but apart from this condition she is a healthy and bright young girl.  

The income, property and financial resources of Mr Rood

1. This has largely been dealt with above. Ms Rood asked the Tribunal to carefully review the bank records and taxation records as they show that the business pays for many private expenses. This was understood and acknowledged, the Tribunal has dealt with this above, perhaps not in the detail requested by Ms Rood, but with caution and globally.

2. The Tribunal assessed the income and financial resources made available to Mr Rood arising out of his self-employment arrangement and finds that he will have access to income and financial resources of between $85,000 and $95,000. This is a conservative figure. The Tribunal so finds. Mr Rood submits and has previously obtained legal advice that he should solely be assessed on his taxable income only. This is not possible given the findings that he has greater financial resources both by way of self-employment perks but also the ability to access retained profits which are properly considered a financial resource.

The income, property and financial resources of Ms Rood

1. The Tribunal finds that the administrative assessment correctly reflects Ms Rood’s circumstances. She works as a PAYG employee. Her taxable income has been consistent over the years. 

The earning capacity of Mr Rood

1. On the basis of the evidence before it, the Tribunal finds Mr Rood is working and has not reduced his weekly hours of work or otherwise changed his occupation, industry or working pattern. He has remained in the same industry. He no longer subcontracts, having lost that arrangement and his clients are now largely domestic. He has also supplemented his income via [Service provider] whilst waiting for jobs.  The Tribunal finds it is not open to make an earning capacity determination in respect of Mr Rood’s circumstances.

The earning capacity of Ms Rood

1. On the basis of the evidence before it, the Tribunal finds Ms Rood is working and has not reduced her weekly hours of work or otherwise changed her occupation, industry or working pattern in the main. The Tribunal finds that it is not open to make an earning capacity determination in respect of Ms Rood’s circumstances.

The necessary commitments of Mr Rood

1. Mr Rood is in good health and his testimony confirmed he is not subject to any unusual out-of-pocket expenses relating to the management of his welfare at this time.  He had surgery a few years ago.

2. He has no legal obligation to support other children.

3. The Tribunal accepts the record of income and expenditure in the Statement of Financial Circumstances which was in part inconsistent with Mr Rood’s evidence of weekly earnings but is largely reflective of financial resources that he has available to him by virtue of his self-employment arrangement.  In the main his accommodation costs are met by his partner.  The Tribunal accepts that do not share income, wealth or assets.

The necessary commitments of Ms Rood

1. Ms Rood testified she has no significant expenses relating to her welfare that impact her ability to support [the child] or [Child 2] (who is not Mr Rood’s child).  She has suffered a significant back injury and will require treatment, hopefully subsidised by insurance. Ms Rood said that she has recently had to refinance due to financial pressure.

2. The Tribunal accepts the record of income and expenditure in the Statement of Financial Circumstances which was entirely consistent with Ms Rood’s evidence.

3. The Tribunal has had regard to/considered the commitments of each parent that is necessary to enable the parent to support himself or herself or any other child or another person they have a duty to maintain and could not find any self-support commitments that take priority over any child support liability and further, each parent’s budget is sufficient to cater for such needs.

The direct and indirect costs incurred by Mr Rood in providing care for [the child]

1. Mr Rood testified there are no significant direct or indirect costs in maintaining contact or providing care. Ms Rood agreed.

Hardship

1. Paragraph 117(4)(g) of the Act requires the Tribunal to consider any hardship that would be caused to the children or Ms Rood by the making of, or refusal to make, a departure determination; and also, to consider any hardship that would be caused to Mr Rood or any other child or person that Mr Rood has a duty to support, by the making of, or the refusal to make, a departure determination.

2. Mr Rood testified the departure should not be backdated as this would burden him with arrears which is unfair given Ms Rood was aware of the process and especially as there was a previous departure in place. There was a general claim for hardship, which overall the Tribunal finds could not be sustained given its analysis of the financial material.

3. No specific financial hardship was claimed by Ms Rood. She reinforced that [the child] deserves to have the support of both parents and that it should not be forgotten that she has the lion’s share of the responsibility as the children are predominantly in her care.

What is the proposed departure determination in this case?

1. There is no outcome that will satisfy both parents. This is not the goal/purpose of the review process but is said as an acknowledgement. The lack of communication has caused a failure to appreciate each other’s position.

2. There are a number of ways that the assessment can be made. One common view is to apply adjusted taxable incomes, but in circumstances where there have been periods of self-employment, this can never be done with the greatest degree of accuracy.

3. Another option allowed by the Act is to set an annual rate of child support. The Tribunal considered this to be the best option in this matter as it allows for the parties to budget with certainty.

4. Once a special circumstance is established under subsection 117(2), the formula no longer governs the outcome. Rather, consideration must be given to the actual income and financial resources of the parties and the actual costs of the children in order to determine the amount of child support that should be paid.[2]

   [2] Carlson & Acuff & Anor (SSAT Appeal) [2010] FMCAfam 677.

5. The Tribunal opted to set an annual rate on the basis that it provides certainty and will allow each party to budget.

6. Overall, the Tribunal finds that it is just and equitable to depart from the administrative assessment as follows:

   ·      From 1 October 2021 to 31 December 2022, Mr Rood’s annual rate of child support be assessed as previously, that is $4,662 per annum.

   ·      From 1 January 2023 to 30 September 2024, Mr Rood’s annual rate of child support be assessed at $5,200 per annum.

7. The departure from 1 October 2021 to 31 December 2022 adopts the previous departure of the agency and the Tribunal finds it would be inappropriate to tamper with this figure, given that the liability has been met and the adjusted taxable income on which this income is based is consistent with the financial records before it.

8. Moving forward, however, the Tribunal considers that with an income estimate of between $85,000 to $95,000 (very conservative), that Mr Rood’s child support liability should be set at $100 per week, largely consistent with the formula given that [the child] is shortly to turn 13.  This also takes into account the care percentage. The Tribunal once again reinforces that it was difficult to quantify the income/expenses of both parents but is overall satisfied that the above reflects the income and financial resources available to both of them. The figure is in line with the Child Support Calculator generally relating to the range of income assessed by the Tribunal and considering the care levels. On assessment of the evidence before it, cannot be said to realistically result in hardship to Mr Rood.

9. The Tribunal declined to extend the departure beyond 30 September 2024 as it is highly likely that the financial positions of the parents and the needs of [the child] will change.   This period does give the parties some certainty and will allow for both to lodge their taxation returns for the next financial year, allowing a clearer indication of their financial positions.

Issue 3 – Is it otherwise proper to depart from the administrative assessment?

1. The last issue to be considered is whether it is otherwise proper to depart from the administrative assessment. When doing so, subsection 117(5) sets out what the Tribunal must have regard to when deciding whether it would be otherwise proper to make a particular order. Subsection 117(5) states:

   In determining whether it would be otherwise proper to make a particular order under this Division, the court must have regard to:

   (a) the nature of the duty of the parent to maintain a child (as stated in section 3) and, in particular, the fact that it is the parents of a child themselves who have the primary duty to maintain the child; and

   (b) the effect that the making of any order would have on:

   (i) any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or

   (ii) the rate of any income tested pension , allowance or benefit payable to eth child or the carer entitled to child support.

2. Ms Rood does not receive family tax benefit at this time as her combined income exceeds the threshold for family tax benefit.  Overall, the Tribunal therefore finds that it is ‘otherwise proper’ to depart from the administrative assessment.

Conclusion

1. Section 4 of the Act sets out the objectives of the Act. These objectives include:

   ·      Parents of a child have a primary duty to maintain that child;

   ·      That duty has a priority over all commitments of the parent other than commitments necessary for self-support;

   ·      The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards; and

   ·      The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts. The Tribunal could not identify on the basis of the evidence before it any hardship to either parent or child arising from this decision.

2. The Tribunal has found that there is a ground for departure in this case, and it would be just and equitable and otherwise proper to make a departure determination in accordance with its findings above.

DECISION

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

·      From 1 October 2021 to 31 December 2022, Mr Rood’s annual rate of child support is to be assessed at $4,662 per annum.

·      From 1 January 2023 to 30 September 2024, Mr Rood’s annual rate of child support is to be assessed at $5,200 per annum.