Sami and Halsey (Child support)

Sami and Halsey (Child support) [2019] AATA 2186 (4 June 2019)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER: 2018/BC015218
APPLICANT: Mr Sami

OTHER PARTIES: Ms Halsey

Child Support Registrar

TRIBUNAL: Member P Jensen

DECISION DATE: 4 June 2019

DECISION:

The decision under review is set aside and, in substitution:

from 14 May 2018 to 31 December 2022, Mr Sami’s adjusted taxable income is varied to $170,000 per annum;
from 14 May 2018 to 31 December 2018, Mr Sami’s rate of child support payable is reduced by $2,181 per annum;
from 1 January 2019 to 31 December 2019, Mr Sami’s rate of child support payable is reduced by $2,442 per annum;
from 1 January 2020 to 31 December 2020, Mr Sami’s rate of child support payable is reduced by $2,515 per annum;
from 1 January 2021 to 31 December 2021, Mr Sami’s rate of child support payable is reduced by $2,590 per annum; and
from 1 January 2022 to 31 December 2022, Mr Sami’s rate of child support payable is reduced by $2,668 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from businesses – 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 removed 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

Introduction

Mr Sami and Ms Halsey are the parents of [Child 1] and [Child 2]. A child support case was most recently registered with the Department of Human Services – Child Support (“the CSA”) in July 2016. The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. From 7 April 2018 the administrative assessment was based on Mr Sami’s 2016-17 adjusted taxable income of $51,786, Ms Halsey’s 2016-17 adjusted taxable income of $64,069, and each parent’s 50% care of both children. Ms Halsey was required to pay $1,598 per annum in child support to Mr Sami.
The Act also provides for a departure from the administrative assessment in certain circumstances. Ms Halsey lodged a departure application on 14 May 2018. An original decision-maker decided to vary Mr Sami’s adjusted taxable income to $130,000 per annum from 1 June 2018 to 31 December 2020, and reduced his rate of child support payable during that period by a portion of the children’s school fees. He objected to that decision. An objections officer allowed his objection and made the following decision:
·    from 23 May 2018 to 31 December 2020, Mr Sami’s adjusted taxable income is varied to $153,314 per annum;
·    from 1 June 2018 to 31 December 2018, Mr Sami’s rate of child support payable is reduced by $3,724;
·    from 1 January 2019 to 31 December 2019, Mr Sami’s rate of child support payable is reduced by $1,762 per annum; and
·    from 1 January 2020 to 31 December 2020, Mr Sami’s rate of child support payable is reduced by $1,850 per annum.
Mr Sami sought further review by the Tribunal. I conducted a directions hearing on 18 April 2019 and a full hearing on 4 June 2019. Mr Sami and Ms Halsey participated in the hearings by conference phone.
Paragraph 98C(1)(b) of the Act relevantly provides that a departure decision may be made in respect of a departure application if:
(i)... one, or more than one, of the grounds for departure referred to in [subsection 117(2)] exists; and
(ii)... it would be:
(A)just and equitable as regards the child, the liable parent, and the carer entitled to child support; and
(B)otherwise proper;
to make a particular determination under this Part; …

A ground for departure

Subparagraph 117(2)(c)(ia) of the Act, commonly referred to as Reason 8, provides as a ground for departure:
that, in the special circumstances of the case, 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:
…
(ia)because of the income, property and financial resources of either parent; …
Mr Sami is the sole director and shareholder of (“[Company 1]”). In 2017-18 it received revenue of $453,907. It incurred expenses of $295,497, which included wages to Mrs Sami that Mr Sami was unable to quantify during the hearing. It made a profit of $158,409. (The various financial statements that Mr Sami provided include cents, but I will only refer to dollars, hence the slight discrepancies in the calculations.)
Mr Sami and his wife, Mrs Sami, are the directors and equal shareholders of (“[Company 2]”). In 2017-18 it received revenue of $176,050 and incurred expenses of $116,074, leaving a profit of $59,975.
[Company 1] and [Company 2] operate out of the same premises. Those premises are owned by [Business 1] as trustee for [Business 2], which is primarily Mr Sami’s and Mrs Sami’s superannuation fund. According to an RP Data Professional search, [Company 1] and Mr Sami sold the premises to [Business 1] in 2015. During 2017-18, [Business 1’s] primary revenue was rent of $69,963 from [Company 1] and [Company 2], and its primary expenses were “property / real estate expenses” of $23,722; the premises produced a profit of $46,241.
[Business 3] is the trustee of [another business], which has two unit holders: [Business 1] as trustee for [Business 2]; and Mr Sami as trustee for [Business 4]. [Business 3] owns an investment property. In 2017-18 it made a profit of $14,432. Half the profit was distributed to [Business 2] and half the profit was distributed to [Business 4]. [Business 4] appears to have received additional income from another source, and its revenue was $13,086. After expenses, it made a profit of $12,624, which was distributed to Mr Sami.
Mr Sami owns two investment properties. In 2017-18 they collectively produced revenue of $39,000 and incurred expenses of $21,437, leaving a profit of $17,563.
That bare evidence suggests that Mr Sami’s income and financial resources would be fairly reflected for child support purposes in an adjusted taxable income of at least $158,409 + ($59,975 / 2) + $12,624 + $17,563 = $218,583 per annum.
Mr Sami’s evidence concerning [Company 1’s] profit, and the extent to which it should be a considered one of his financial resources, can be summarised as follows. He started [another business] in “early 2006 or 2007” as a sole trader and operated the business with Ms Halsey. They subsequently separated. By 2010, he was employing a full-time [employee] and another casual employee, and he retained the services of [a professional] for approximately four hours per fortnight. He then decided to also employ Mrs Sami (who was [under another name] at the time). She was initially employed on a part-time basis, and was later employed on a full-time basis. [Company 1] was registered in June 2011. Mr Sami has always been the sole director and shareholder of that company.
[Company 2] was registered in June 2012. Mr Sami and Mrs Sami have always been the directors and equal shareholders of that company. Mrs Sami stated in a recent undated statement:
It was agreed at the time of forming [Company 2], I would also become a partner in the business [Company 1]. I work full time hours and it was agreed that all profits from the Business would be on a 50 / 50 share.
At the hearing, Mr Sami confirmed that when, on his and Mrs Sami’s current account of events, they agreed that he would share [Company 1’s] profits equally Mrs Sami, she did not make a financial investment in [Company 1], i.e. she did not purchase a 50% share in the company. Nevertheless, they both maintain that they have equal claims to both companies’ profits. Mrs Sami’s statement included the following:
It would be fair to state that in summary my role in the business is to carry out all commercial business requirements to ensure that both companies are financially viable and compliant with the Australian Taxation Office and other Statutory and Licensing bodies.
…
Our business [Company 1] is run equally by [Mr Sami] and myself. We both have strengths in different areas and without one or the other both businesses would not have achieved the demonstrated level of growth over the past nine years.
Mr Sami stated that his role in the businesses is establishing new clients, meeting with existing clients, sending technicians to clients, and “getting [Mrs Sami] to do … [Mrs Sami] does … [Task 1].” (Mr Sami initially said his role was to “get” Mrs Sami to do [Task 1], which implied that he managed her, but he corrected himself and implied she did them independently.)
I accept that Mrs Sami has an integral role in the businesses, but I do not accept that Mr Sami’s legitimate claim to the companies’ profits is confined to 50%. When Mr Sami decided to employ Mrs Sami on a part-time basis in 2010, he had been operating his business for some years, and was already employing a full-time employee and a part-time employee in addition to remunerating himself from the business. Mr Sami and Mrs Sami now state that two years later they agreed that they would share [Company 1’s] profits equally, but I consider the more probative evidence to be the fact that Mr Sami retained his sole shareholding in [Company 1], which continues to be the more profitable business, and they registered another company in order to operate a similar business as co-directors and co-shareholders. Nevertheless, I accept that Mr Sami and Mrs Sami have continued to operate the businesses together for many years. The history of the matter suggests that Mr Sami has a greater claim against the businesses’ profits, but Mrs Sami has a significant claim against the businesses’ profits. Viewing the matter as a whole, and notwithstanding Mr Sami’s legal entitlements to the companies’ profits pursuant to his shareholdings, it is appropriate to attribute 60% of the companies’ profits to Mr Sami for the purposes of quantifying that aspect of his financial resources for child support purposes. ($158,409 + $59,975) x 0.6 = $131,030.
Mr Sami’s financial resources also include the distribution of $12,624 from the [Business 4] and the $17,563 from his investment properties. $131,030 + $12,624 + $17,563 = $161,217.
If Mr Sami were earning $161,217 as an employee of an unrelated third party in 2017-18, he would have also received a 9.5% superannuation payment from his employer, which would have equated to $161,217 x 0.095 = $15,315. [Business 2] made a profit of $52,620 in 2017-18, of which $46,241 was referrable to [Company 1’s] and [Company 2’s] rental of the premises that [Company 1] and Mr Sami sold to the fund. Mr Sami, as a member of the super fund, received a distribution of $32,815 into his superannuation account, which is 20% of $161,217.
Mr Sami stated that the two companies paid commercial rates of rent. Nevertheless, it would be open to Mr Sami and Mrs Sami to reduce the companies’ rents, and increase their (and in particular, Mr Sami’s) immediately available financial resources. Instead, as Mrs Sami stated:
At the time of forming [Company 2] and [Company 1] we set up our businesses and Superannuation to maximize capital gain and retirement planning.
At the hearing, Mr Sami agreed with that statement, and he also agreed that they have continued to focus on maximising capital gain and retirement planning. Of course, he is free to do so, but he has the capacity to reduce the companies’ rents and effectively reapportion the distribution of funds in favour of his immediately available financial resources. That capacity is an additional financial resource that is available to Mr Sami.
Viewing Mr Sami’s circumstances as a whole, his income and financial resources are fairly reflected for child support purposes in an adjusted taxable income of at least $170,000 per annum. I consider that to be a very conservative figure. There is scope to add further funds that are being channelled to Mr Sami’s superannuation account. I have not added back [Company 1’s] wages to Mrs Sami. I have not added back depreciation, which is an expense in many of the financial documents that Mr Sami has provided, but which is not a cash expense, and therefore does not reduce his capacity to contribute to the children’s costs. I have not added back the personal benefits that he appears to derive from his involvement in the companies. For example, he stated that he and his wife’s combined personal car expenses consist of $20 per week for petrol, $0 per week for maintenance and $0 per week for registration. The obvious inference is that the vast majority of their (and in particular, Mr Sami’s) car expenses are paid for by the companies. I have not grossed up Mr Sami’s adjusted taxable income to take account of the fact that the financial resources that remain available to him have not been taxed at the corresponding individual income tax rates.
When Ms Halsey lodged her departure application the administrative assessment used Mr Sami’s 2016-17 adjusted taxable income of $51,786. More recently, in the absence of a departure decision, it would use his 2017-18 adjusted taxable income of $35,203. The discrepancy between those adjusted taxable incomes and his actual income and financial resources, which are fairly reflected for child support purposes in an adjusted taxable income of at least $170,000 per annum, and the consequential discrepancies in the applicable rates of child support payable between the parents, constitute special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. Reason 8 is established.

Just and equitable

The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.
Mr Sami’s household consists of himself, Mrs Sami, [Child 1] and [Child 2]. Mr Sami owns their unencumbered home. He has no debt. He claimed that he, and the household, incur minimal personal expenses.
Ms Halsey is employed on a full-time basis [in an occupation]. Her 2016-17 and 2017-18 adjusted taxable incomes were $64,069 and $64,598 respectively. Her household consists of herself, [Child 1] and [Child 2]. She owns her home and has an associated home loan. Her household expenses are unremarkable. Her income and financial resources are fairly reflected in her adjusted taxable incomes as assessed by the Australian Taxation Office.
The children receive private school educations. In 2018, [Child 1] was in Year 8 at [School 1] and [Child 2] was in Year 6 at [another school]. This year, [Child 1] is in Year 9 and [Child 2] is in Year 7 at [School 1].
In the past, the parents have effectively each paid half the children’s school fees. At the hearing, Ms Halsey submitted that that arrangement should continue. She acknowledged that Mr Sami made the school fee payments (apart from an excursion fee) to the school, and she submitted that it would be appropriate to reduce his rate of child support payable by half the school fees. Ms Halsey’s submission appears generous given the significant difference in the parents’ incomes and financial resources, but in light of her submission, I consider it appropriate to continue to implement their arrangement.
Both parents agreed that the school fees in 2018 were ($610.50 + $480.00) x 4 terms = $4,362. Half that figure is $2,181.
Both parents agreed that the school fees in 2019 are ($610.50 + $610.50) x 4 terms = $4,884. Half that figure is $2,442.
Both parents agreed that the school fees are likely to increase by approximately 3% per year. Half the fees for 2020 are likely to be $2,515, and half the fees for 2021 are likely to be $2,590, and half the fees for 2022 are likely to be $2,668.
Mr Sami stated that he purchases private health insurance for his family, including [Child 1] and [Child 2]. He calculated that it cost an additional $4,586 - $3,660 = $926 to include the children in the insurance policy. He acknowledged that the children are in good health. His election to purchase private health insurance for his family, including the children, does not warrant an adjustment to the otherwise just and equitable rate of child support payable.
Ms Halsey lodged her departure application on 14 May 2018. That was the day she formally disputed the administrative assessment. It is appropriate to make a departure decision with effect from that date.
Mr Sami is likely to remain involved in [Company 1] and [Company 2]. Ms Halsey is likely to remain in her current employment. The children are likely to remain in their current school. [Child 1] is likely to complete Year 12 in 2022. He will turn 18, and will probably cease to be a child of the child support case, in April 2023. It is appropriate to make a departure decision with effect until 31 December 2022.
It is likely that [Company 1’s] and [Company 2’s] profits will fluctuate from year to year. However, it is unlikely that the value of Mr Sami’s income and financial resources for child support purposes will fall below $170,000 per annum. As noted earlier, that is a very conservative calculation. It is also worth noting that Ms Halsey did not seek review of the original decision or the objections officer’s decision.
The proposed decision will increase Mr Sami’s child support arrears by approximately $2,100 and will require him to pay a current rate of child support of $11,156 - $2,442 = $8,714 per annum. He has abundant financial resources from which to pay those arrears and that rate of child support. It is appropriate that he make those contributions towards the costs that Ms Halsey incurs in respect of the children. The proposed decision will be just and equitable.

Otherwise proper

The requirement to consider whether a departure would be otherwise proper 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 and benefits. Parents rather than the community have the primary duty to maintain a child. Ms Halsey receives family tax benefit in respect of [Child 1] and [Child 2]. Changing the child support payable by Mr Sami will result in a more appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.

DECISION

The decision under review is set aside and, in substitution:

from 14 May 2018 to 31 December 2022, Mr Sami’s adjusted taxable income is varied to $170,000 per annum;
from 14 May 2018 to 31 December 2018, Mr Sami’s rate of child support payable is reduced by $2,181 per annum;
from 1 January 2019 to 31 December 2019, Mr Sami’s rate of child support payable is reduced by $2,442 per annum;
from 1 January 2020 to 31 December 2020, Mr Sami’s rate of child support payable is reduced by $2,515 per annum;
from 1 January 2021 to 31 December 2021, Mr Sami’s rate of child support payable is reduced by $2,590 per annum; and
from 1 January 2022 to 31 December 2022, Mr Sami’s rate of child support payable is reduced by $2,668 per annum.

[2019] AATA 2186

4 June 2019

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Judicial Review

Statutory Construction

Remedies