Satterly and Folwell (Child support)

[2021] AATA 2296

Satterly and Folwell (Child support) [2021] AATA 2296 (10 May 2021)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/SC020244

APPLICANT:  Mr Satterly

OTHER PARTIES:  Child Support Registrar

Ms Folwell

TRIBUNAL:Member K Dordevic

DECISION DATE:  10 May 2021

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that from:

·     11 February 2020 to 30 June 2020 the father’s adjusted taxable income is varied to $218,841;

·     1 July 2020 to 30 June 2023 the father’s adjusted taxable income is varied to $230,924; and

·     23 March 2020 to 31 December 2022 the father’s annual rate of child support is reduced by $1,500.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits and income derived from business - 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. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the 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. The Act also provides for a departure from the administrative assessment in certain circumstances.

2. This case was registered with Services Australia – Child Support on 29 June 2004 and has been collectable since 4 January 2020. There are three children subject to the assessment, who were recorded as being in the mother’s 100% care from the date of registration until 25 September 2020, when the care record was amended to reflect that the mother has 74% care and the father has 26% care.

3. After an application was lodged by the mother on 23 March 2020 a senior case officer determined on 20 July 2020 that for the period 21 April 2020 to 20 April 2022 the father’s adjusted taxable income is varied to $161,753. The father sought a review of that decision on 24 August 2020.  On 6 November 2020 an objections officer disallowed the objection. 

4. On 16 November 2020 the father sought further review with the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal). A directions hearing was held on 17 February 2021 and directions were issued, requiring compliance by 14 April 2021.

5. Following the directions hearing the tribunal issued an order, pursuant to subsection 95H(1) of the Child Support (Registration and Collection) Act 1988, to Mr Satterly Senior, the sole director and shareholder of [Business 1], to provide the tribunal with the following information:

   ·     A statement regarding what, if any, capital he invested in [Business 1];

   ·     A statement regarding his work arrangements at [Business 1] (including hours/days worked and a summary of relevant work experience);

   ·     A summary and evidence of all direct and indirect benefits, including (but not limited to) salary and other benefits, including the provision of motor vehicle/s and telephone/s provided to Mr Satterly during the period 1 October 2019 to 28 February 2021;

   ·     The 2020 financial year statements (including income tax returns, balance sheets and profit and loss statements) for [Business 1]; and

   ·     Statements for the period commencing 1 October 2019 to 28 February 2021 for all accounts (including savings, cheque, credit cards, store credit cards and loans) held by [Business 1].

6. The tribunal was scheduled to hear the matter on 5 May 2021. On 4 May 2021 the matter was rescheduled to 10 May 2021 at the tribunal’s request. The tribunal heard the matter on 10 May 2021. The father and mother appeared by conference telephone. The Child Support Registrar was not represented at the hearing. The tribunal has considered the sworn evidence of the mother and father. The tribunal also considered the documentation provided by Child Support (folios 1–328), the father (folios A1–A160) and the mother (folios B1–B71). No response was received from Mr Satterly Senior. However, it is noted that the father provided a partial response to the above subsection 95H(1) order.

ISSUES

1. The statutory provisions relevant to this review are outlined in section 98C of the Act, which states that a decision to depart from the administrative assessment may be made if the following three requirements are met:

   (i)that one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and

   (ii)that 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 …

2. Therefore, the issues which arise in this case are:

   ·     Does a ground exist for departure from the administrative assessment of child support? And if so,

   ·     Would it be just and equitable and otherwise proper to make a particular determination?

CONSIDERATION               

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure if the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent because of either party’s income, property and financial resources.

2. At the time that the mother lodged the departure application under review the father was liable to pay $13,020 per annum based on his 2020 income estimate of $75,111 and the mother’s 2019 adjusted taxable income of $65,675. From 1 July 2020 the father was liable to pay $16,608 based on his 2019 adjusted taxable income of $89,184. 

3. The father does not dispute that for some years prior to separation he had worked in his own company, [Business 2]. He states that he and the mother were joint directors and shareholders. On 11 February 2020 he contacted Child Support and advised that he was unemployed for the period July to December 2019, but he had just secured work with a new employer, [Business 1]. He advised that his year to date income was $6,636 (for the period 1 July 2019 to 10 February 2020) and that for the remainder of the financial year it would be $29,015.78. 

4. The mother then lodged her departure application on 23 March 2020. In response Child Support contacted the father, who reported that due to “financial drama” [Business 2] may be liquidated and now he is employed on a full-time basis by [Business 1]. He confirmed that he is employed by Mr Satterly Snr, who is his father. In response to further questioning he stated that he and his father source the work and that his salary is determined in agreement with his father. He stressed he was a mere employee.

5. Child Support conducted its own enquiries. It was advised by the Australian Taxation Office that [Business 1] had only one employee. Child Support also contacted Mr Satterly Snr directly, who apparently declared that the father was a contractor, was not drawing a wage, and was not a PAYG employee. Data provided by the Australian Securities and Investment Commission revealed that the father was the director and secretary of [Business 1] from 28 October to 5 December 2019 and that Mr Satterly Snr was the director and secretary from 25 September 2019 and was its sole shareholder. The father does not dispute the mother’s submissions to Child Support and at hearing that Mr Satterly Snr worked as an [occupation 1] until his retirement at least a decade ago and has no relevant work experience in the [his business’s] industry. 

6. The father has provided different explanations as to the reason that [Business 2] ceased trading and [Business 1] was formed. As outlined above, it was apparently due to [Business 2’s] parlous financial state. In a statutory declaration dated 12 April 2021, provided in compliance with the directions issued by this tribunal, the father stated that as the mother was an “equal partner and shareholder” of [Business 2] it was “no longer tenable for me to remain an employee of that company” post separation. At hearing he stated that, given the mother was a shareholder and director of [Business 2] and they were in the process of property settlement, he was advised to form a new company. He did so by creating [Business 1], of which his father is the (now) sole director and shareholder. In response to questioning as to why Mr Satterly Snr had not responded to the subsection 95H(1) order, the father stated that Mr Satterly Snr “didn’t want to get involved if he doesn’t have to”. The father also confirmed that whilst Mr Satterly Snr provided the start-up capital ($5,000), he has no role in the company’s day-to-day management or income generation.  

7. After having the benefit of the father’s oral and documentary evidence the tribunal formed the view that the arrangement whereby the father submits he is a mere employee of [Business 1] is a sham. Given the father’s description of the enterprise, and taking into account Mr Satterly Snr’s lack of relevant work experience and long period of retirement, the tribunal concludes that the father has simply replicated [Business 2] under a new company structure. The effect of this action has led to an artificial reduction of the father’s taxable income, so has significantly reduced his child support liability. Such arrangements are not isolated in the child support jurisdiction. However, [Business 1] particular arrangement is so unsophisticated that the only conclusion that can be drawn on the evidence is that Mr Satterly Snr’s involvement is in name only and the arrangement is a vehicle to reduce the father’s child support liability.

8. The tribunal finds that all income generated by [Business 1] is through the father’s efforts and coordination and all the income is properly attributable to him when the sham is removed.  Given that the current employment arrangement is part of a sham it follows that the taxable income applied in the administrative formula does not reflect the father’s income and financial resources.

9. The tribunal first examined [Business 2’s] 2019 financial documents. The 2019 profit and loss statement indicates that a salary of $90,000 was paid to the father and the gross profit was $71,753. There is no evidence that the amount declared in depreciation ($27,356) was used or set aside for equipment replacement and the tribunal so finds that this is a financial resource available to the father. A PAYG income earner would need to earn $128,841 in order to receive a benefit of $99,109 ($71,753 + $27,356). The tribunal recognises that other expenses, such as motor vehicle and internet and telephone expenses) likely provided the father with a personal benefit, but determined that these were minimal given the nature of his work. The tribunal concludes that in the 2019 financial year the father had income and financial resources in the vicinity of $218,841. This is more than double his 2019 taxable income of $89,184.

10. The tribunal next considered the 2020 financial documents in evidence. The 2020 [Business 2] financial documents indicate that total income was $32,907 and, after application of relevant expenses (noting that no salary was paid to the father), a profit of $25,708 was declared. The [Business 1] 2020 financial documents indicate that income totalled $177,223 and expenses were $180,297. The father received a salary of $93,574. Of note, there is no depreciation expense, but two expenses that were not listed in [Business 2] profit and loss statement were claimed: consultant services ($39,000) and legal services ($14,409). In light of possible start-up expenses, the tribunal will allow $4,409 in legal expenses, noting that this is in excess of the mother’s evidence to Child Support that incorporation of [Business 1] was $1,650 (as per the letter from [an accounting firm] dated 12 September 2019 and invoice dated 26 September 2019). The tribunal is not satisfied that consultant expense of $39,000 was incurred and so determines that this is a financial resource available to the father. The balance sheet indicates that a loan of $30,946 was made to the father in the 2020 financial year, noting that an unsigned loan facility agreement and resolution dated 24 February 2021 in evidence states that the loan was made in the 2018 financial year apparently some 14 months before the company was incorporated on 25 September 2019. Putting aside this discrepancy, the tribunal is satisfied that the director loan was made to the father, and so is income available to him in the 2020 financial year.

11. The tribunal reached the conclusion that the father has access to income and financial resources not reflected in his salary with greater certainty after reviewing the [Business 1] bank statements in evidence. These suggest that the business met the father’s personal expenses including groceries, alcohol, clothing, purchasing household appliances as well as significant expenditure relating to takeaway and restaurants. That [Business 1] meets these expenses is consistent with the tribunal’s observation that there is minimal personal expenditure evident in the father’s personal bank statements. The tribunal concludes that in the 2020 financial year the father had income and financial resources in the vicinity of $230,924. His 2020 income estimate was $75,111. The father’s 2020 taxable income was $92,761.

12. The tribunal concludes that the father has a greater capacity to meet the children’s costs than his income estimate and taxable income suggests. At the time the mother lodged her application the father was assessed to pay $13,020 in child support per annum. If the income and financial resources of $218,841 were applied to the assessment, the father’s liability would increase to $39,333 per annum and to $39,840 when applying the father’s 2020 income to the assessment. The father’s annual liability would decrease to $28,470 from 25 September 2020, due to the change to the children’s care arrangements. As the father’s income and financial resources are not properly reflected in the child support assessment, there are special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. The tribunal therefore concludes that the ground provided for in subparagraph 117(2)(c)(ia) of the Act is established.

Just and equitable

1. 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 child, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. In her Statement of Financial Circumstances dated 2 December 2020 the mother declares that she is employed on a permanent part-time basis as [an occupation 2], though was currently on leave without pay. In her written submissions she stated that this was due to stress following domestic violence and the issuing of a family violence order. She declares nil weekly income and income support payments of $514. She estimates her share of the proceeds from the sale of the family home at about $330,000, but notes that these are held in trust until such time as the parents’ property matter is finalised. She reports savings of $330, a motor vehicle valued at $2,500 and household contents valued at $10,000. Her superannuation balance is $141,871. Her liabilities total $32,227 made up of a personal loan ($3,635), outstanding legal fees ($25,000), credit card liability ($1,135) and [another credit service] ($2,457).  Her personal expenditure is $32 per week and average household expenses are $1,371. The tribunal calculates that her necessary expenses in relation to the children of the assessment are in the vicinity of $936 per week.  Her 2020 adjusted taxable income was $64,304.

3. At hearing the mother reported that she is no longer in receipt of income support payments and is participating in a gradual return to work program. She has accessed her income protection payments, and this, in conjunction with her salary, means that her salary will return to its pre-leave level of about $65,000 per annum. She has no out of the ordinary costs associated with her health.

4. In his Statement of Financial Circumstances dated 1 December 2020 the father declared weekly income of $1,253, savings of $2,869, a motor vehicle valued at about $20,000, household contents of $1,000 and superannuation valued at $650,000. He reported no liabilities, weekly personal expenditure of $381 (excluding child support), and household expenditure of $940, of which the tribunal estimates about $265 relates to his care of the children (including $125 per week relating to their private education). The bank statements in evidence suggest that the father’s declaration of household expenses underrepresents his discretionary spending.

5. The father submits that he is now unemployed, as [Business 1’s] most recent contract was completed in November 2020. He is supporting himself from his savings and is actively seeking work.  He did not provide any documentary evidence to support his contention that [Business 1] has no current contracts. The tribunal proceeded to consider his earning capacity. In order for a person to be assessed in accordance with their earning capacity rather than their actual income, the three tests set out in subsection 117(7B) of the Act must be satisfied:

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

   (a)   one or more of the following applies:

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

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

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

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

   (i)the parent's caring responsibilities; or

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

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

6. It is not in dispute that the father does not work despite ample opportunity to do so. The tribunal finds accordingly. Subparagraph 117(7B)(a)(i) of the Act is satisfied.

7. There is no evidence before the tribunal to suggest that the father’s caring responsibilities or health support a finding that justifies his decision to change his working pattern. Paragraph 117(7B)(b) of the Act is satisfied.

8. The tribunal next considered whether the father has not demonstrated that it was not a major purpose of his decision to not work, despite ample opportunity, not to affect the administrative assessment.

9. The father attempted to lodge an income estimate on 16 November 2020, stating that he was no longer employed. This was a mere 10 days following the decision made by the objections officer. The tribunal placed particular weight on the evidence that his potential unemployment was not raised during the objection process. In any event, the tribunal has already determined that the father is not an employee, rather he operates his own company. Whilst it is possible that the father has not yet secured another work contract, this does not mean that he is “unemployed” nor that he will not secure another soon (as historically appears to be the case). This, together with the conclusions the tribunal has already reached regarding the sham arrangement with [Business 1], cause the tribunal to be satisfied that the father’s statements about the reasons behind his “unemployment” demonstrate that the effect on the administrative assessment of child support was indeed a major purpose behind his decision. Thus, the third criteria in subsection 117(7B) of the Act is met.

1. The parents agree that the children are in good health and have no out of the ordinary expenses, with the exception of the costs associated with them attending private school. The tribunal concludes that the children are being educated in the manner intended by their parents. The parents agree that the father has met the 2019 and 2020 school fees in full. The father submits that he should continue to remain responsible for the school fees and receive a reduction in his child support liability to reflect the mother contributing to 50% of the school costs. The mother submits that the father’s child support liability should be increased to reflect his share of the private school fees, based on their respective income percentages, and that she will assume responsibility for the payment of school fees on this basis.

2. The tribunal accepts that the father has met the 2019 and 2020 school fees in full. There is no evidence before the tribunal regarding these school fees, but the tribunal understands that they are in the vicinity of $6,800 per annum. The father provided a statement from the children’s school that indicates that the total fees for the 2021 calendar year are $6,956.  The tribunal is satisfied that the costs of maintaining the children are significantly affected by their private education costs, and this renders the administrative assessment unfair, as this cost is being borne by the father. The tribunal calculates that, expressed as a percentage, the mother’s income makes up about 22% of the parents’ combined income. Thus, it is appropriate that she meet 22% of the children’s school fees, or about $1,500 per annum. Whilst the tribunal acknowledges that the mother’s income reduced during the 2021 financial year as a consequence of a period of unpaid leave, it is not persuaded that it would be appropriate in the circumstances that she does not contribute to the private school fees during that same period. To find otherwise would result in the father being solely responsible for this cost.

3. Given that historically the father has met the private schooling expense, the tribunal is satisfied that it is appropriate that he continue to do so. It is both just and equitable that his child support liability will be reduced by $1,500 from the date that the mother lodged her departure application, being 23 March 2020. Thus, the practical implication of this aspect of the decision is that the responsibility to meet the private education costs will shift to the father, but the mother’s share of the school fees will be deducted from his child support liability. The tribunal understands the oldest child will complete his primary schooling in December 2022. It is appropriate to depart from the administrative assessment on this basis until that date. It is of course open for either parent to lodge a future change of assessment application on the basis of the two younger children’s private education costs.  

4. The tribunal is not satisfied that it is either just or equitable that the father’s child support liability be calculated on the basis of his taxable income alone; certainly, his income and financial resources are greater than his 2019 and 2020 taxable incomes suggest. Furthermore, the tribunal is satisfied that his current earning capacity is consistent with its findings regarding his income and financial resources in the 2019 and 2020 financial years. To find otherwise would result in a disproportionate amount of the children’s costs being borne by the mother.

5. The tribunal is satisfied that it is appropriate to vary the father’s adjusted taxable income on the basis of his income, financial resources and earning capacity from the date that he lodged his income estimate, being 11 February 2020. It is improbable that the father’s income, financial resources and earning capacity will be reflected in his taxable income into the future. Thus, the tribunal considered it appropriate to depart from the administrative assessment on this basis until 30 June 2023. This aspect of the decision will provide certainty to the parents’ and minimise the need for repeat proceedings. The tribunal’s decision will place the father in arrears of about $9,450. The tribunal is satisfied that this will not place him in a position of undue hardship given his income and financial resources.

6. The tribunal is satisfied that the administrative assessment is unfair given the father’s income, financial resources and earning capacity. This results in an unjust and inequitable level of child support given the circumstances of each parent. For all these reasons it is just and equitable to depart from the administrative assessment.

Otherwise proper

1. 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. The mother is in receipt of income-tested benefits. Departing from the administrative assessment will result in a more appropriate apportionment of financial responsibility between the parents and the community.

2. The determination is otherwise proper.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that from:

·     11 February 2020 to 30 June 2020 the father’s adjusted taxable income is varied to $218,841;

·     1 July 2020 to 30 June 2023 the father’s adjusted taxable income is varied to $230,924; and

·     23 March 2020 to 31 December 2022 the father’s annual rate of child support is reduced by $1,500.