S and B
[2003] FMCAfam 265
•11 July 2003
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| S & B | [2003] FMCAfam 265 |
| CHILD SUPPORT – Where the applicant seeks departure for six child support periods – where CSA unable to come to a decision due to complexity – where parties are in dispute as to which are the appropriate years of income to form the basis of the assessment – where the father is a director and shareholder of private company – where dividends could be declared but are not – treatment of funds used to repay directors loans – consideration of tax minimisation arrangements – where father purchases raffle tickets – where mother previously held down responsible and well paid position – whether special circumstances can be found – whether court should make assessment for future periods. |
Child Support (Assessment) Act 1989
Savery and Savery (1990) FLC 92-131
In the Marriage of Gyselman (1992) 15 FLR 219
Hides v Hatton (1997) FLC 92-759
Mee v Ferguson (1986) FLC 91-716
Lightfoot and Hampson (1996) FLC 92-663
Wild v Ballard (1997) FLC 92 771
Bassingthwaite & Leane (1993) FLC 92-410
| Applicant: | GAS |
| Respondent: | TJB |
| File No: | DGM 1082 of 2002 |
| Delivered on: | 11 July 2003 |
| Delivered at: | Sydney via telephone conference to Melbourne |
| Hearing dates: | 8 & 14 May 2003 Last submissions received 28 June 2003 |
| Judgment of: | Raphael FM |
REPRESENTATION
| Counsel for the Applicant: | Eilish Cooke |
| Solicitors for the Applicant: | Westminster Lawyers |
| Counsel for the Respondent: | Sharon Moore |
| Solicitors for the Respondent: | Wollerman Shacklock |
ORDERS
For the periods 1 July 1998 to 30 June 1999; 1 July 1999 to
15 November 1999; 16 November 1999 to 30 April 2000; 1 May 2000 to 20 April 2001; 1 May 2001 to 30 August 2002; 1 April 2002 to 30 June 2003 I order that a departure from the provisions of Administrative Assessment of Child Support payable by the liable parent TJB for the child H born 18 November 1994 as follows:For the undermentioned periods the child support to be paid by the liable parent TJB shall be based on the undermentioned figures representing his annual child support assessment income.
Period Child Support Assessment Income
1.7.98
30.6.99$31,414
1.7.99
15.11.99$38,296
16.11.99
30.4.00
$38,2961.5.00
30.4.01
$46,2961.5.01
30.4.02
$39,6431.5.02
30.6.03
$55,968
That the child support Registrar be requested to make the necessary calculations and to amend the child support register accordingly
That the application filed on 17 May 2002 be otherwise dismissed.
That the father pay one half of the costs of the mother assessed in accordance with Part 21 and Schedule 1 of the Federal Magistrates Court Rules.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
DGM 1082 of 2002
| GAS |
Applicant
And
| TJB |
Respondent
REASONS FOR JUDGMENT
Introduction
This matter involves an application by a mother for a departure order in respect of certain child support assessments made against the father in respect of the parent’s infant son for a series of child support periods commencing on 1 July 1998. The mother also seeks an order providing for child support for a period of three years from 1 July 2003. The father opposes this application, maintaining that the mother has not established the matters required to be established before any departure can be made and that in respect of the future his obligation for child support should be assessed by the agency.
This matter was heard over two days in Melbourne. At the end of the hearing I requested written submissions from the legal representatives of the parties. These have been provided. They are extremely thorough and of considerable assistance. To the extent that one or other of the submissions set out narrative or argument with which I agree, I have utilised their wording in this judgment without specific acknowledgment or indentation. This has not been done to claim their words as my own, but to provide the parties with a speedy decision as required by the objects of the Federal Magistrates Act 1999 (Cth).
The application
On 17 May 2002 the applicant mother filed a Form 63 in the Family Court of Australia at Dandenong. The application was subsequently transferred to this Court at Melbourne.
The application is made under Division 4 of Part 7 of the Child Support (Assessment) Act 1989 (“the Act”) for orders for departure from administrative assessments of child support by the Child Support Agency (“the CSA”) in relation to payments for the support of the child born 18 November 1994 for six different child support periods.
The mother’s application is supported by an affidavit sworn 15 May 2002 filed 17 May 2002 (“the mother’s first affidavit”), a Form 17 Financial Statement sworn 15 May 2002 filed 17 May 2002 and a further affidavit sworn and filed 4 February 2003 (“the mother’s second affidavit”).
The documents filed on behalf of the father in response to the Form 63 are an affidavit sworn 16 October 2002 filed 18 October 2002 (“the father’s first affidavit”), a further affidavit sworn 27 February filed
28 February 2003 (“the father’s second affidavit”) and a Form 17 Financial Statement sworn 3 December 2002.
The applicant relies on three of grounds of departure provided for by s.117(2) of the Act namely that in the special circumstances of the case:
a)The costs of maintaining the child are significantly affected because of special needs of the child (s.117(2)(b)(i)(B)); and
b)The costs of maintaining the child are significantly affected because the child is being cared for, education or trained in the manner that was expected by his or her parents (s.117(2)(b)(ii)); and
c)Application in relation to the child of the provisions of the 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 because of the income, earning capacity, property and financial resources of either parent or this child (s.117(2)(c)(i)).
Background
The parties commenced cohabitation in 1988 and separated in December 1997. During the relationship the parties resided in a property at 62 Y Street A (“the A property”) which was owned by the mother and was purchased in 1989, one year into cohabitation.
In 1992, the parties purchased an investment Unit at 27/9 S Street, E (“the E property”).
The parties settled de facto property issues between them which included a payment by the father to the mother of $35,000, the mother retaining the A property and the father retaining the E property.
Neither party is currently re-partnered. The father has no other children or any other person he has a legal duty to maintain although he has two adult children from a previous relationship.
The child is now eight years of age and is currently in Grade 4 at CH Primary School. He skipped a year at school by being promoted a grade. The mother claims that the child is “a gifted child”, that he suffers from asthma and has unusually narrow feet which oblige him to wear special orthotic shoes. The child wears spectacles. He is being brought up in the Catholic faith by his mother.
The mother was born on 5 May 1955 and is now 48 years of age.
The mother ceased work in June 1994. On the evidence there is dispute over the reason for her ceasing to work and the attitude of the parties to her returning to work when the child was born. The father claims that she was retrenched prior to becoming pregnant with the child while the mother claims that she stopped work due to being pregnant with him.
At the time she ceased working the mother was employed full time as the State Manager for IG. Under cross examination the mother gave evidence that in that role she was in charge of 21 staff and sales and operations for Victoria and Tasmania and earned a gross salary of $50,000 to $55,000 plus payment of her mobile phone expenses per annum.
The mother claims to have suffered from physical and mental illnesses during periods covered by the application which has limited her capacity to work.
The mother gave evidence during cross examination that she had recently applied for a job working 18 hours at $13 per hour (i.e.$234.00 per week). But she did not obtain the position.
The mother’s Form 17 states that, save for the child support payments, her income is solely from government payments of $344.00 per week ($1,490.66 per month).
The mother owns the property at 62 Y Street A in which she and the child reside. At the time of swearing her Form 17 she stated that its estimated value was $280,000. She estimated that she had a $42,368.00 mortgage over the home. Therefore she has an estimated $237,632.00 of equity in her home.
The father was born on 6 March 1955 and is now 48 years of age.
He lives in an unrenovated one bedroom flat at 7/120 C Road, M (“the M property”) which was purchased after separation.
During the relationship, and currently, the father conducts a carpet retail business at 101 C Road, M. He is the sole director and shareholder of C (“C”) trading as CCC. The father bought out a previous co-director, Mr LS, in June 2002.
The father is also one of seven directors and the secretary of ABCL (“A”) which is a carpet buying group made up of about 100 members, including C, who purchase through it. It is the entity that controls the CC brand. The father is paid director’s fees for attending Board meetings. He receives no share of profits nor dividends or superannuation.
The father was also a shareholder and director of S (“S”) trading as “CHCC”. S was voluntarily deregistered and no longer trades. S had the licence to operate the CC name. C was S’s sole supplier of goods. At the time S was deregistered it owed C approximately $58,000.00.
At the time of swearing his Form 17 the father claimed that the M property was valued at $130,000.00 and was subject to a mortgage to the AMP Banking in the sum of $57,600.00. Therefore the father has equity in the M property of $72,400.00. The mother did not challenge or dispute these figures.
The father also owns the investment property at 27/9 S Street, E which is leased for $157.00 per week. At the time of swearing his Form 17 the father claimed that the E property was valued at $190,000.00 and subject to a mortgage to AMP Banking in the sum of $76,700.00. Therefore the father has equity in the E property of $113,300.00.
The E property is also security for an AMP Banking Flexi loan account (796 187 706) which at the time of swearing his Form 17 was in the sum of $47,000.00 debit. This account was commenced in January 2001 for $10,000 and was extended in January 2002 by $50,000.00 to $60,000.00 to cover, inter alia, the father’s loan of $20,000.00 to C in April 2002, the payment of $6,500.00 to Mr S in June 2002 and a further loan of $10,000.00 to C in August 2002. The father’s cheque book operates through this account.
The father’s net equity in real estate is $138,700.00.
The child support assessments
In 1997 the mother applied to the CSA for an administrative assessment of child support. There was no application for the payments to be collected by the CSA. The parties made their own arrangements for the father to pay moneys directly to the mother. The commencement date for payments was 31 December 1997. On
3 December 1999 the mother requested the CSA to collect the child support payments. The matter became registered for collection through the CSA from 16 November 1999.
On 30 October 2000 the CSA received an application by the mother for a departure from the father’s child support as assessed by the CSA from 1997. On or about 2 March 2001 the father lodged a response to the application with the CSA. On 9 March and 26 March 2001 conferences were held by the CSA with the parties.
On 30 March 2001 the CSA Senior Case Officer issued a Notice of Decision under Part 6A of the Act in which she determined that the issues raised by the mother’s application were too complex to be dealt with by her and she refused to make a determination (see Annexure “A” to the mother’s first affidavit). Section 98(E) of the Act provides the power to make such a decision. On or about 18 April 2001 the mother lodged an objection to the Senior Case Officer’s decision (see Annexure “B” to the mother’s first affidavit). On 12 June 2001 the Regional Registrar of the CSA re-examined the decision of the Senior Case Officer and decided that he was not satisfied that the mother’s objection demonstrated that there was an error in the decision such that it should be changed (see Annexure “C” to the mother’s first affidavit).
The law
The provisions of section 117 of the Child Support (Assessment) Act empower a Court to make an order for departure from administrative assessment in special circumstances.
Section 117(i) provides as follows:
“i)That in the special circumstances of the case one or more of the grounds for departure outlined in section 117(2) exist before a Court can make an order for departure;
ii)that under section 117(1)(b)(ii) it would be just and equitable, as regards the child, the carer entitled to the support and the liable parent; and
iii)that it would be otherwise proper to make a particular departure order.”
If these three conditions are satisfied then the Court should make the departure order sought.
In Savery and Savery (1990) FLC 92-131 Kay J said that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases.”
In the Marriage of Gyselman (1992) 15 FLR 219 at 225, the Full Court of the Family Court said as follows of the phrase “special circumstances”:
“Whilst it is not possible to find with precision the meaning of that term, as a generality it is intended to emphasise that the facts of the case must establish something that 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.”
Section 117(2) of the Act sets out the various grounds for departure. After considering these various bases for departure and whether or not in the special circumstances of the case it is appropriate for a departure order to be made, the Court must then consider section 117(4) of the Act which deals with the circumstances in which it is just and equitable to make the departure order sought.
Section 117(4) of the Act reads as follows:
“117(4) In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order under this Division, the court must have regard to:
–the nature of the duty of a parent to maintain a child (as stated in section 3); and
–the proper needs of the child; and
–the income, earning capacity, property and financial resources of the child; and
–the income, earning capacity, property and financial resources of each parent who is a party to the proceedings; and
–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; and
–direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and
–any hardship that would be caused:
to:
the child; or
the carer entitled to child support;
by the making of, or the refusal to make, the order; and
to:
the liable parent; or
any other child or another person that the liable parent has a duty to support;
by the making of, or the refusal to make, the order.”
Finally, it is necessary for the Court to consider section 117(5) and determine whether or not it is proper to make the departure order.
Section 117(5) reads as follows:
“117(5) In determining whether it would be otherwise proper to make a particular order under this Division, the court must have regard to:
–the nature of the duty of a 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
–the effect that the making of the order would have on:
any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or
the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.”
In Gyselman (supra) the Full Court of the Family Court said at page 240 as follows:
“As we have already indicated, the exercise under section 117 involves three steps. The first, which we have already examined, is whether one or more of the grounds in subsection 2 has been made out. The legislation then requires the court to consider whether any proposed order is “just and equitable” and “otherwise proper”.
It is clear therefore that each of these three steps must be addressed by the court as a separate issue, namely:
a)whether one or more of the grounds of departure in section 117 is established; if so:
b)whether it is just and equitable within the meaning of section 117(4) to make a particular order;
c)whether it is otherwise proper within the meaning of section 117(5) to make a particular order.
Further, from a consideration of the case of Hides v Hatton (1997) FLC 92-759 it is clear that the court must follow this three-step process in respect of each year for which a departure order is sought.
The submissions, which are made by the mother in support of her application for departure, can be divided between those which relate to the alleged discrepancy between the father’s real income and the income utilised by the CSA in its calculation and those which relate to the particular needs of the child in respect of his health and education. I will deal first with the latter.
Special needs of the child
The mother asserts that the child has special needs because:
b)he is gifted;
c)he has requirements in respect of his feet and eyes;
d)he is asthmatic.
The evidence that the son is a gifted child was contained in Annexure “D” to the mother’s first affidavit. These are the results of a Weschler Intelligence Scale Test performed on the child by La Trobe University. The report indicates that the test was carried out four months before the age for which the norms for this test had been developed and that therefore the results might slightly understate his performance. The results indicate that in the seven areas tested the child performed better than over 90% of six year olds which indicated superior performance in all areas but that there were variations in performance. Some results are only average. The summary of the report is in the following form:
“These findings indicate that the boy is a highly intelligent child who is likely to benefit from extension programs beyond the normal classroom situation.”
The mother gave evidence of a selection of opportunities available to the child and from which she claimed he would benefit. Examples are chess, after school and holiday programs, tennis lessons, Indonesian, music and drama, golf lessons, swimming lessons, Tai Kwon Do, Cubs and Kelly Sport. Regrettably, aside from the report and the fact that the child has skipped a year in his primary education there was no other evidence to indicate a need for these extension activities arising out of the child’s particular intellectual abilities. Most children would benefit from the type of programs suggested by the mother. There was equally little evidence of the cost of the these programs and I am not satisfied that any special need has been made out in respect of the child’s intellectual level.
The evidence relating to the child’s foot and eye problems was minimal. The child is alleged by the mother to need a new pair of glasses every year and a new set of shoes. I note that the father pays for full private medical cover on behalf of the child and I am prepared to take judicial notice of the fact that most schemes of this nature cover the reasonable costs of frames and lenses and orthotic boots where necessary. I am not satisfied that any grounds have been shown in this regard.
Although there was some evidence provided by the mother in regard to the child’s past problems with asthma these indicated that mostly they were dealt with in the public hospital system. The mother agreed that the child’s symptoms were now reducing and there was very little evidence of any extra costs which might be involved. Given the requirement that the costs of maintaining the child are to be significantly affected because of the special needs I am not satisfied that this submission has been made out by the mother. I have made these remarks concerning the alleged special needs individually, however, even if they are considered cumulatively I do not believe the evidence allows for a conclusion that the requirements of s.117(2)(b)(i)(B) have been made out.
The next ground alleges that the costs of maintaining the child will be significantly affected because he is being educated in the manner that was expected by his parents. The evidence concerning this centres around an agreement alleged to have been made between the father and the mother that the child should attend XC, a private school in the Jesuit tradition located near to the home of the mother. I am not satisfied that a conversation in the form deposed to by the mother took place. I prefer the evidence of the father on this point which was that when the question of schools for the boy was discussed (he was a very young child at the time) XC was mentioned and he indicated that he would not object if the child went there. I formed the impression of the parties that the Catholic tradition was stronger in the mother than in the father. I do not think there was any agreement made between them that the child would definitely attend XC such as to bring the case within the ambit of such decisions as Mee v Ferguson (1986) FLC 91-716; Lightfoot and Hampson (1996) FLC 92-663 or Wild v Ballard (1997) FLC 92 771. I am also not satisfied that I have sufficient evidence concerning the cost of the education in any event. The mother gave an estimate of the fees likely to be charged by the school but there was nothing in writing to indicate that the child’s name had been put down for the school or that a place was available or what the cost might be.
I am not satisfied that the mother has made out this ground.
I have previously referred to the requirement to find special circumstances. To the extent that this is a threshold question I would accept that there are special circumstances in this case which would entitle me to look into whether or not the matters set out in s.117(2)(c)(i) had been made out. The special circumstances being that the Child Support Agency was itself unable to deal with the mother’s applications because of the complexity of the father’s financial affairs. It seems to me axiomatic that if a reference to the court on this basis is allowed then any requirement for special circumstances to exist before an investigation takes place will have been met.
Much of the evidence and cross-examination of the parties was directed to discovering the true income of the father. The mother had subpoenaed a considerable quantity of documents. Regrettably, she did not have the assistance of a forensic accountant. She was legally aided. Between herself and her solicitor she made as detailed an investigation as possible of the papers provided. Unfortunately, she drew a number of incorrect conclusions from those papers and it was in an attempt to get her to admit that such occurred that much time was expended. Only slightly less time was expended in trying to establish from the father that his affairs were not all that they seemed.
Having seen the father give evidence and be the subject of detailed cross examination and having looked at many of the documents myself I have come to the view that the father’s accounts were, by and large, accurate and true. He did not run his private life out of his business as I felt the mother wished to prove. There was only one major instance in which I felt that he had taken advantage of the tax system to produce a situation where a tax treatment provided him with an advantage. This occurred in relation to the company known as S which the father controlled. This company had made a loss over a period of time and had been supported by director’s loans. Eventually it was decided to wind it up or deregister it. Arrangements were made whereby S charged C, another company owned by the father, a royalty. Payment of the royalty reduced the profits of C. No tax was paid on the royalties because of S’s past losses. S used this untaxed income to repay the director’s loans. The father recovered approximately $16,300.00 in this way. There is nothing improper in this.
In other regards the mother was unable to show that the father had not acted properly. He did not pay excessive superannuation to himself and his car expenses appeared to be based upon a reasonable 70% of the use of the vehicle for business purposes. The transcript will show the misunderstandings under which the mother laboured in respect of many of the items in the father’s accounts.
Notwithstanding the positive comments which I have made above concerning the father’s evidence there are matters which bear investigation within the context of the assessments made by the agency. I am therefore required to look at each of the assessment periods in turn. Before I do so I must have regard to what is the application of the basis formula in respect of each period because the submissions made by the mother’s Counsel appear to be based upon an application of present income for the individual periods.
When applying the formula the liable parent’s income is not his/her present income. Section 38 of the Act provides that the liable parent’s child support income amount in relation to the days in the child support period is, subject to s.38A and to Division 3, the total of the amount of the liable parent’s taxable income under the Income Tax Assessment Act 1936 and the liable parent’s supplementary income for the liable parent’s last relevant year of income in relation to the child support period.
Section 5 defines the phrase “last relevant year of income” as used in s.38. It refers to the most recent financial year which ended before the start of the “child support period”. Therefore the starting point when applying the administrative assessment is the most recent financial year. The father argues that by way of example, a child support period that ended on 15 November 1999 would require input into the formula of the liable parent’s taxable income of the financial year ending
30 June 1998. This is the approach applied by the CSA in each of the child support periods which are relevant to this application. But it seems to me that this is not correct. The most recent financial year for a support period which starts on 1 July 1999 is the year 1998/1999 ending on 30 June 1999. The father argues that the same approach should be taken when the court is working through the figures in this departure application. He says it becomes particularly important if a departure is to be made that the correct figures are used to calculate any amount to be ordered to be paid as back pay. He says this approach has not been adopted by the mother in her affidavit or her submissions. The difficulty that this presents is that the figures addressed by her in the court documents under each of the child support periods are invariably not the ones which the CSA considered for that particular period.
The father’s Counsel has provided in tabular form a summary of each of the child support periods being challenged by the mother along with the child support income amount as defined in s.5 used by the CSA, the actual taxable income and supplementary amounts for the claimed last relevant year of income and finally the monthly child support payment assessed by the CSA. I reproduce, with gratitude, that table which I have modified to include the mother’s submitted income base.
| PERIOD | FATHER’S ASSESSED CHILD SUPPORT INCOME AMOUNT | FATHER’S CLAIMED ACTUAL TAXABLE INCOME FOR THE LAST RELEVANT YEAR OF INCOME | MONTHLY CHILD SUPPORT PAYMENT | MOTHER’S CLAIMED ACTUAL TAXABLE INCOME FOR THE LAST RELEVANT YEAR OF INCOME |
| 1 July 1998 to 30 June 1999 | $22,545 Based on 1997 taxable income plus adjusted for 4.00% | $21,678 1997 taxable income + 4% | $202.50 | $31,414 Tax Return Y/E 30 June 1998 |
| 1 July 1999 to 15 November 1999 | $32,671 Based on 1998 taxable income plus any supplementary amounts. | $31,414 1998 taxable income No supplementary amounts | $336.75 | $36,296 Notice of assessment issued Y/E 30 June 1999 |
| 16 November 1999 to 30 April 2000 | $32,671 | $31,414 1998 taxable income | $336.75 | $36,295 Notice of assessment Y/E 30 June 1999 |
| 1 May 2000 to 30 April 2001 | $36,295 Based on 1999 taxable income plus any supplementary amounts | $36,295 1999 taxable income No supplementary amounts | $367.00 | $34,643 Income Tax Return Y/E 30 June 2000 |
| 1 May 2001 to 30 April 2002 | $34,645 Based on 2000 taxable income plus any supplementary amounts | $34,643 2000 taxable income No supplementary amounts | $500.58 | $33,222 Tax return Y/E 30 June 2001 |
| 1 May 2002 to 30 June 2003 | $34,835 Based on 2001 taxable income plus any supplementary amounts. | $33,222 2001 taxable income Supplementary income of rental property loss | $346.42 | $58,812 Estimate from Form 17 |
The child support periods
Whilst I believe it is an open question as to whether a court when deciding on a departure order application is obliged to utilise financial information concerning the previous year of income, I feel that in a case such as this where there are several periods to consider that approach has the merit of consistency. Any discrepancies in one year should be picked up in the subsequent year. On this basis I will look at each of the child support periods.
I am of the view that the correct base figure to have been used by the CSA in assessing the father’s child support payments for the various periods are the figures which I have given in the table below subject to any adjustments which I find should be made.
Period Assessment Base
[without adjustments]
1.7.98
30.6.99$31,414
1.7.99
15.11.99$36,296
16.11.99
30.4.00
$36,2961.5.00
30.4.01
$36,2961.5.01
30.4.02
$34,6431.5.02
30.6.03
$33,222 + $1,613
= $34,835
Child Support Period 1 July 1998 to 30 June 1999
The mother acknowledges that from July 1997 to December 1997 the father income split with the mother by paying her a salary of $730 per month. During this period the father transferred $4,380 to the mother which would otherwise have been added to his income for the purposes of his child support liability. The mother concedes that as she had the use of those funds it would not be fair and equitable to add back the full sum in determining the father’s income capacity. She argues that 50% of the money should be added back making the father’s taxable income for the income period as $33,331. I do not believe this to be correct. If the calculation of child support is to be based on what was the husband’s true taxable income for the nearest previous year then no account should be taken of this figure. No tax was paid on this income because the father did not receive it. It was received by the mother. The situation would have been different if she had not received money but that had been the tax treatment of it.
The mother argues that certain loans totalling $36,000 odd made to
C and S were repayable on demand and were therefore an immediate financial resource of the father. She then notes the profit made by C of $5,111. She then talks about loans to be repaid in the sum of $7,087.66 during July 1998 and March 1999. I do not think these are relevant for this particular child support period. If they are relevant at all they come into the next period.
Period of 1 July 1999 to 15 November 1999 and 16 November 1999 to 30 April 2000
The child support assessment for this period was based on a child support income of $32,671. The father’s taxable income for the period up to June 30 1999 was $36,295. The mother argues generally that there should be taken into account the fact that the father lent monies both to C and S. The suggestion would appear to be that these were monies available for him to expend on child support. She also refers to the repayment of some shareholders loans and made the following submission:
“4.7 The father put in place an arrangement by which he lent money to his business entities which recorded them as liabilities and thereby reduced the profits and hence taxation liability of the business. He was then repaid the “loans” which were not income. The arrangement provided significant taxation advantages to both the father and his businesses. By the use of these taxation minimisation devices the father’s taxable income was significantly less than his actual earning capacity.”
I believe that the mother has misunderstood the situation. Firstly, I am satisfied from the evidence that almost all of the loans made by the father for his businesses were made utilising monies borrowed by the father personally from AMP. Secondly, the existence of a loan does not reduce the profits or taxable income of a business. Thirdly, repayment of loans did not produce any taxation advantage for the father. I do not believe that the father’s child support assessment should be increased as a result of any of these matters.
In the year ending 30 June 1999 which is relevant to these two child support periods the mother submits that S made a profit of $14,869 which included royalties of $3,989.21 paid by C to that company.
I have given consideration to the treatment of profits in a trading company fully owned by a parent. C made a profit of $3,079 in that year. The profits of S are not relevant as they were covered by past losses. I have no doubt that in certain circumstances a case could be made out that non distributed profits of a private company should be considered to be part of a parent’s income for child support purposes. They would add to his notional earning capacity. But not all companies are in a position to pay dividends. In order to keep a company healthy, profits must be used for other purposes such as investment in new plant, repayment of loans or other working capital needs. I would not consider the small profit made by C in the relevant year to be excess to the company’s requirements and therefore constitute notional income of the father. However, the same cannot be said of the royalty payment made by C to S. I have already explained that these royalty payments were used to absorb otherwise taxable profits of C and enable S to repay loans to the father. This is money not needed by C and therefore capable as being paid as a dividend. I think it would be appropriate to add to the father’s assessed child support income for this period the sum of $2,000. This one half of the royalty and in coming to this figure I have taken into account that most of the loans to the company were made by the father utilising monies which he borrowed from AMP (and had to repay to it) and the probable tax treatment of the royalties if they had constituted profits of C.
Evidence was given that during this period the father commenced making regular payments to the Multiple Sclerosis Society of QLD and the Sydney Maritime Museum. The father would purchase raffle tickets to the value of approximately $1,000.p.a from each of these charities. The mother argues that these sums should be added to his child support income. I do not agree. The father’s accountant did not use these payments to effect a tax deduction on the part of the father. Child support assessments are made on the basis of an assessed income.
A parent is free to spend the money which is not so assessed any way he/she likes. Just because the father chose to spend his available money in a way which appeared to the mother to be frivolous does not mean that the father should be made to pay this money to her by way of child support instead.
Child support period 1 May 2000 to 30 April 2001
In respect of this period the mother argues that the father’s taxable income should be increased by $1,155 because he had reduced the rent on his rental property by that amount and therefore he did not maximise his income earning capacity. But under cross-examination the father gave an explanation of why the rent had been reduced. It was due to outstanding repairs that had not been addressed by the body corporate and in an attempt to keep his tenant. The father’s submissions indicate that the mother might have been alleging that he took some of the rent in cash and did not declare it. I do not believe this occurred. It was not put specifically to the father in any event. I would not add back the sum of $1,155.
The mother makes submissions about a loan of $10,500 repaid by S to the father and notes that in the taxation year ending 30 June 2000
C made a profit of $18,699 and S made a net profit of $26,960. She argues that the father was entitled to one half of the net profits of C and the whole of the profits from S. The profits from S were not distributed because they were absorbed in previous years losses. The profits from C were not distributed. The father received repayment of the $10,500 from S. After taking into account the needs of C for working capital, the previous losses of S, the need for the father to repay his loans from AMP and the tax treatment of potential dividends I believe that an appropriate amount to add to his earning capacity for that year would be $10,000.
Child support period 1 May 2001 to 30 April 2002
In respect of this period both parties agree that under the authority of Bassingthwaite & Leane (1993) FLC 92-410 rental property losses of $1,613 should be added back. The mother argues that in the taxation year ending 30 June 2001 S received $11,506 in royalties which, she argues, was a financial resource available to the father that should be taken into account. The money was paid by C. It was obviously money which was available to C over and above its working capital requirements and might otherwise have been utilised to pay dividends to the father. I accept that a proportion of this sum which I estimate at $5,000 should be added to the father’s assessable income. The difference between that figure and the total figure takes into the account the need of the father to make some repayment to AMP and the tax treatment of the notional dividend.
The mother makes much of a loan application made to AMP on
21 January 2002 in which the father recorded his income at $4,329 per month or $51,948.p.a. In his Form 17 sworn on 3 December 2002 the father recorded his annual income for the taxation year ending 30 June 2001 as $58,812. In the course of the hearing the father’s tax return for the year ending 30 June 2002 was produced showing a taxable income of $38,905. However, I believe that the appropriate figure to be taken as the father’s assessable income for child support should be the year ending 30 June 2000. The mother’s submissions deal with the application to AMP and then make the point that whilst the father was spending $38 per week on raffle tickets the mother was supporting the child on the sole parent’s pension. I have made the point about the raffle tickets. It does not bare iteration. I would alter the child assessment figure to take into account the S royalty.
Child support period 1 May 2002 to 30 June 2003
The appropriate taxable income figure to take for this period would be that for the year ending 30 June 2001. That figure is $33,222 plus the addition. The mother makes the point that no taxation estimates for
C or S have been provided. So far as I can recall S was by that time deregistered.
The mother’s submissions then go into some considerable detail about monies received from C during the course of the year and makes an assumption about the monies to be received during that part of the current year which had not quite ended when the case was heard. If I adopted the consistent approach which I have taken in regard to this assessment period and utilised the year ending 30 June 2001 taxable income without making any adjustments for actual increases in the father’s earnings during the period, the mother would be prejudiced. This is because the period covers two financial years. Utilising the 30 June 2001 base would be acceptable for the period 1 May 2002 to 30 June 2002 but not for the period 1 July 2002 to 30 June 2003. This covers the whole of a financial year. If some adjustment was not made then the increase in the father’s taxable income for the year ended 30 June 2002 would never flow through to the mother. The father’s tax return for the year ended 30 June 2002 indicated a taxable income of $38,905.00.
The mother makes the point that on 25 April 2002 the father lent C $20,000 and on 9 August 2002 a further $10,000. She refers again to the income the father claimed to be earning in his Form 17 of $58,812 and to the loan application to AMP.
The whole purpose of the AMP application was to borrow money from that company in order to fund the applicant’s businesses. I do not accept that the $30,000 loaned to those businesses was therefore income available to the father. In absence of any evidence about the profits of C during that year I would not be disposed to make a guess about the amount which could be considered to be available for distribution. What I think is fair and reasonable so far as both parties are concerned is to assess the father’s earning capacity for the purposes of calculating his child support income on the figure which he admitted to in his Form 17 adjusted to take into account the additional two months that fell outside that financial year in a financial year in which the father estimated his taxable income at $38,905.00.
Future child support
The mother’s seeks an assessment by me of future child support on the basis of an income of $58,812.p.a. plus CPI. I do not propose to make any assessment for the future. I think that assessment should be made by the CSA. The CSA will gather from this judgment that I believe that the father’s accounts and tax returns are true and fair. The mother did not succeed in establishing that any of the areas of concern which she raised indicated the contrary. The only additional matters which the child support agency would have to consider are, to my mind, the amount available by way of a notional dividend from C if no dividend is declared and the mother’s earning capacity.
I am now obliged to decide whether in respect of each of the periods an adjustment by way of departure should be made. I have to do that on the basis of the legal propositions previously adumbrated. I also have to take into account, when considering the responsibility of each parent to provide for the child, the earning capacity of the mother. I know that the mother claims to have had health and emotional problems since the breakdown of the relationship. I note that the child is only young, although now eight years of age. I note that the mother’s last job was a very responsible one earning a substantial salary. I do not believe that the type of job for which the mother is currently applying is commensurate with her abilities or her earning capacities. If I had decided to make a ruling in respect of future years this matter would have loomed large in my consideration. I am, however, not disposed to make any deduction for the periods in question bearing in mind the problems about which the mother has given evidence and the need for a parent to have been on hand during those years when the child was suffering from severe asthma attacks.
The only ground upon which I might be minded to order departure is that under s.117(2)(c)(i). I have already expressed the views that there are special circumstances in this case because of the difficulties the CSA faced in making any calculations. The evidence has indicated that the calculations which were made needed to be adjusted. I am therefore satisfied that the ground outlined in this subsection exists.
I am also satisfied that it would be just and equitable as regard to the child, the carer entitled to support and the liable parent to make the adjustments which I am about to make and it would be otherwise proper to make a particular departure order, which might have the effect of reducing the burden placed upon the State to support the mother and the child. The father argues that I should only make an order back dated one year. He says this is because of the time it took the mother to get around to making the application. The amounts which I propose to by way of departure are not large. They will constitute an arrears payment which I would hope the father could pay within a reasonably short period of time.
For the periods 1 July 1998 to 30 June 1999; 1 July 1999 to 15 November 1999; 16 November 1999 to 30 April 2000; 1 May 2000 to 20 April 2001; 1 May 2001 to 30 August 2002; 1 April 2002 to 30 June 2003: I order that there shall be:
(1)A departure from the provisions of administrative assessment of child support payable by the liable parent TJB for the child H born on 18 November for 1994 as follows:
For the undermentioned periods the child support to be paid by the liable parent TJB shall be based on the undermentioned figures representing his annual child support assessment income.
Period Child Support Assessment Income
1.7.98
30.6.99
$31,4141.7.99
15.11.99
$38,29616.11.99
30.4.00
$38,296
1.5.00
30.4.01
$46,2961.5.01
30.4.02
$39,6431.5.02
30.6.03
$55,968(2)That the child support Registrar be requested to make the necessary calculations and to amend the child support register accordingly.
(3)That the application filed on 17 May 2002 be otherwise dismissed.
(4)That the father pay one half of the costs of the mother assessed in accordance with Part 21 and Schedule 1 of the Federal Magistrates Court Rules.
In regard to costs, whilst I believe they should follow the event, I am concerned that a considerable amount of time was taken up in the cross-examination of the parties because of the mother’s conviction that the father’s accounts were not in order. This did not prove to be a correct assumption. For this reason I do not believe that it is appropriate for the father to pay all the costs of the mother. I certify that this is a case which was suitable for the employment of an advocate pursuant to Part 21 Rule 21.15 of the Federal Magistrates Court Rules.
I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
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