Sewall and Rodgers (Child support)

Sewall and Rodgers (Child support) [2018] AATA 4425 (16 October 2018)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2018/SC014290
APPLICANT:  Mr Sewall
OTHER PARTIES:  Child Support Registrar
Ms Rodgers

TRIBUNAL:Member W Kennedy
DECISION DATE: 16 October 2018
DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides to set Mr Sewall’s adjusted taxable income at $165,000.00 for the period from 18 October 2017 until a terminating event, and to increase the assessment by $1,913.00 for the period from 1 January 2018 to 31 December 2018 and by $1,912.00 for the period from 1 January 2019 to 31 December 2019.

CATCHWORDS
CHILD SUPPORT – Departure determination – Income, property and financial resources of a parent from a company – Special needs of the child – 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

BACKGROUND

This decision concerns an application for a departure from the formula assessment of child support. Mr Sewall and Ms Rodgers are the parents of [Child 1] who was born in August 2003. There has been a child support assessment in place for the child made by the Child Support Agency of the Department of Human Services (the Department) since 18 December 2003. The assessment is based on Mr Sewall having a care percentage of 0% and Ms Rodgers having a care percentage of 100%.
Mr Sewall was assessed to pay $8,946.00 in child support to Ms Rodgers, based on Mr Sewall’s adjusted taxable income (ATI) of $75,736.00 and Ms Richie’s ATI of $105,799.00.
On 18 October 2017 Ms Rodgers applied to the Department for a departure from the formula assessment of child support based on Reason 2 (the special needs of [Child 1]) and Reason 8A (the income, property and financial resources of one or both of the parents). Mr Sewall did not cross-apply for a departure from the formula assessment.
On 13 January 2018 a delegate of the Child Support Registrar considered the departure application and decided that Reason 2 and Reason 8A had been established. The delegate set Mr Sewall’s ATI at:
·     $121,000.00 for the period from 18 October 2017 to 30 November 2018, and at
·     $124,000.00 for the period from 1 December 2018 to 29 February 2020, and at
·     $127,000.00 for the period from 1 March 2020 until a terminating event;
and increased the assessment by:
·     $1,913.00 for the period from 1 January 2018 to 31 December 2018, and by
·     $1,912.00 for the period from 1 January 2019 to 31 December 2019.
On 21 February 2018 Mr Sewall lodged an objection to that decision. On 2 May 2018 a Department objections officer partly allowed Mr Sewall’s objection. The objections officer found that Reason 2 and Reason 8A had been established. The objections officer set Mr Sewall’s ATI at $134,156.00 for the period from 18 October 2017 to the end of the assessment and increased the assessment by $1,913.00 for the period from 1 January 2018 to 31 December 2018 and by $1,912.00 for the period from 1 January 2019 to 31 December 2019.
On 8 June 2018 Mr Sewall lodged an application for a review of the Department’s decision with the Tribunal. The Tribunal had access to the statement and documents provided by the Department. The documents are at folios 1 to 315 of the hearing papers and were provided to the parents in advance of the hearing.
Before the hearing the Tribunal directed Mr Sewall and Ms Rodgers to provide further documentation. Mr Sewall did not comply with the Tribunal’s directions, providing no documentation and not responding to the Tribunal’s request that he show cause as to why his application should not be dismissed. Although Ms Rodgers provided documentation the Tribunal decided to not exchange that documentation with Mr Sewall and to not take it into evidence. The matter was heard and determined [on] 16 October 2018. Although the time and date of the hearing had been set with Mr Sewall’s concurrence he did not make himself available for the hearing. Ms Rodgers attended the hearing by telephone and gave her oral evidence under an affirmation. The Child Support Registrar was not present and was not represented at the hearing.
Mr Sewall has disputed that the decision before the Tribunal is a valid decision because the signing line on the Details of Objection Decision (folios 13 to 21) was “[occupation]”. Mr Sewall asserts that the Child Support (Assessment) Act 1989 (the Act) states that only the Registrar can make amendments to the taxable income used in the child support assessment. Section 149 of the Act permits the Registrar to delegate all or any of his powers or functions under the Act to an officer or employee of the Department. While the Tribunal has not sighted the instrument of delegation, in accordance with the objectives set out in section 2A of the Administrative Appeals Tribunal Act 1975 the Tribunal has decided that it is unnecessary to delay the matter to allow the Department to provide written evidence of the delegation.

CONSIDERATION
The legislative framework and issues for the Tribunal to determine

The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Act. This requires the application of a statutory formula which takes into account factors such as the number and ages of the children, the level of care provided and the income of each parent.
The liable parent or a carer may apply to the Child Support Registrar for a determination to depart from the child support administrative assessment under Part 6A of the Act. Section 98C of the Act provides that the Registrar may make a determination to depart from the formula assessment and establishes a three step process for considering applications to do so. The Registrar, and the Tribunal standing in place of the Registrar, must be satisfied:
·     that one, or more than one, of the grounds for departure referred to in subsection 117(2) of the Act exists; and
·     that it would be just and equitable as regards the child, the liable parent, and the carer entitled to child support; and
·     that it would be otherwise proper to make a particular determination
The grounds for departure from the administrative assessment are set out in subsection 117(2) of the Act. Each of the grounds, which for administrative purposes are referred to as reasons, require that special circumstances be established. The term ‘special circumstances’ is not defined in the Act. In Gyselman v Gyselman [1992] FLC 92-279 the Full Court of the Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.
If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the Tribunal must make one of the determinations prescribed in section 98S of the Act. These include varying the annual rate of child support payable or a parent’s adjusted taxable income.

Issue one – Does a ground exist to depart from the administrative assessment?

The Tribunal’s first task is to determine whether a ground for departure from the administrative assessment can be established. In her application to the Department Ms Rodgers asserted that there are two grounds (or reasons) for a departure from the administrative assessment. The Tribunal considered each of these in turn.

Does a ground exist to depart from the administrative assessment under Reason 2?

Ms Rodgers has sought a departure from the administrative assessment on the ground that [Child 1] has special needs. This ground for departure, which is known as reason 2 for administrative purposes, is found in subparagraph 117(2)(b)(ia) of the Act:
(2) For the purposes of subparagraph (1)(b)(i), the grounds for departure are as follows:
. . .
(b) that, in the special circumstances of the case, the costs of maintaining the child are significantly affected:
. . .
(ia) because of special needs of the child; or
. . .
Ms Rodgers said that [Child 1] requires orthodontic treatment and has provided an orthodontic opinion, quote and receipts (folios 52 to 55). Mr Sewall has acknowledged that it would be appropriate for him to meet 50% of the cost of [Child 1]’s orthodontic treatment (folio 74).
The Tribunal finds that there are special circumstances relating to [Child 1]’s orthodontic needs that would allow a departure from the formula assessment of child support under subparagraph 117(2)(b)(ia) of the Act.

Does a ground exist to depart from the administrative assessment under Reason 8A?

Ms Rodgers sought a departure from the administrative assessment on the ground that Mr Sewall’s income, property and financial resources are greater than is reflected in the ATI used for him in the child support assessment in effect at the time of his application. This ground for departure, which is known as reason 8A for administrative purposes, is found in subparagraph 117(2)(c)(ia) of the Act:
(c)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; or
…
Following a telephone directions hearing conducted on 21 August 2018 the Tribunal directed Mr Sewall to provide:
·     Income tax return for [Company 1] Unit Trust for 2016/17
·     Statements for all bank accounts which Mr Sewall is authorised to use for the period from 1 January 2018 to 31 March 2018
·     Statements for all credit cards which Mr Sewall is authorised to use for the period from 1 January 2018 to 31 March 2018
·
Mr Sewall did not respond to the directions.
Mr Sewall is a [occupation]. He operates a business together with two other parties. It appears that the business operates through [Company 1] and an associated company, [Company 2]. Those entities are owned equally by the three parties. [Company 3] appears to be Mr Sewall’s private company. He is also associated with the [Company 1] Trust and the Mr Sewall Family Trust. At the directions hearing Mr Sewall said that the latter trust is a beneficiary of the former trust. He said that each of the other two parties in the [business] have a family trust that is a beneficiary of the [Company 1] Trust.
The Department has obtained income tax return (ITR)s for 2016/17 for the following entities:
Entity  Taxable Income
·Mr Sewall  $44,409.00     (folios 196 to 205)
·[Company 1] $47,551.00     (folios 220 to 224)
·[Company 2]              $0                   (folios 252 to 256)
·[Company 3]  $0                   (folios 230 to 234)
Mr Sewall’s tax return shows reportable superannuation contributions of $12,400.00, which for the purpose of establishing an ATI is added to his taxable income for 2016/17. At the directions hearing Mr Sewall said that he owns one-third of [Company 1]. Accordingly the Tribunal attributes one-third of the taxable income of $47,551.00 of that entity ($15,850.33) to Mr Sewall for the purpose of establishing an ATI.
It is well established that the taxable income of a person who is self-employed may not be an accurate reflection of their financial resources. For instance, in Carey v Carey (1994) FLC 92-489 (Carey) the Family Court observed:
The legislation however realises that, whilst the simplest method of calculating child support is to use existing taxation records, the use of taxable income as the sole basis for child support could lead to some inequities and injustices. For a start, the financial position of many members of the community is not accurately reflected in their taxable income; either they manage to evade or avoid their taxation liabilities or they can so structure their affairs so that they are capital rich and income poor.
This and other cases establish that a ground for departure from the administrative assessment may be established because self-employed persons are able to derive additional personal benefits through their business structures, and also have greater control over the structure of their finances than does a salaried employee.
Unfortunately the Tribunal does not have available financial statements for the business entities. The Tribunal had intended to use Mr Sewall’s bank and credit card records to establish his financial circumstances and directed Mr Sewall to provide those documents. However Mr Sewall has declined to respond to the Department’s directions and also failed to make himself available for the hearing. As a result the Tribunal has somewhat limited documentation and has not had the benefit of Mr Sewall’s oral evidence, other than the unsworn statements made in the course of the directions hearing.
In Humphries & Berry [2008] FMCAfam 409 Federal Magistrate Slack dealt with the issue of the disclosure of financial information in matters before the Tribunal. His Honour stated that the principle of full and frank disclosure applicable to proceedings in the Family Court was also applicable to proceedings before the Social Security Appeals Tribunal, the predecessor to the Social Services and Child Support Division of this Tribunal. His Honour stated as follows at paragraphs 26 and 27:
Although the SSAT has the power to obtain information (s.103K) and the power to require the Child Support Registrar to exercise powers under the Assessment Act and the Child Support Registration and Collection Act for the purposes of gaining information relevant to a review (s.103L), there nevertheless remains a primary duty and obligation on the parties to the review to make a full and complete disclosure of their financial affairs relevant to the matter before the hearing and a duty to assist the Tribunal to come to its determination in the application. The obligation to disclose information and documents extends to the presentation of that material in a way that the true nature of their financial affairs can be readily understood. The obligation extends not just to providing financial records but also includes presenting the information in a way that can be reasonably and readily understood and examined.
His Honour stated as follows at paragraphs 30 and 31:
In circumstances where a party (in this case the appellant) places before the SSAT inconsistent, confusing and incomplete financial information, the fact that the SSAT can and may exercise its powers to obtain further information that might clarify the financial circumstances of a party does not relieve a party of their primary obligation to disclose their financial affairs in a manner that can readily be understood. The extent to which the SSAT should exercise its powers of information gathering and testing of evidence in each case will depend on the circumstances of the matter but the exercise of such power or the failure to exercise such power does not in any way derogate from the immutable obligation and duty of both parties throughout the proceedings before the SSAT to make full, frank and cogent disclosure of all relevant information pertaining to their financial affairs in order that the Tribunal can make a proper assessment of their respective capacities to provide for the needs of their children.

In financial proceedings under the Family Law Act, the authorities make it clear that a Court should not be unduly cautious about making findings in favour of the other party if it is not satisfied that proper disclosure has been made (see Chang & Su (2002) FLC93- 117). Such principles, in my consideration, have similar application to these matters before the SSAT.
The Tribunal can only rely on the documentation in evidence before it. The information available to the Tribunal relates most relevantly to [Company 1]. The Tribunal does not have before it balance sheets or profit and loss statements and it must therefore make do with the 2016/17 ITR for the entity. Unfortunately the ITR aggregates the financial information and in order to apply it to Mr Sewall the Tribunal is forced to disaggregate the information as best it can under the circumstances. It would have been preferable for Mr Sewall to attend the hearing so as to assist the Tribunal to make the fairest possible finding. However Mr Sewall chose to not make himself available.
The Tribunal notes that the Trust distributed $197,331.00 to associated persons (folio 222). As Mr Sewall is a one-third owner of the entity the Tribunal attributes one-third of this amount ($65,777.00) to Mr Sewall. The Tribunal notes that the entity reported “all other expenses” of $817,734.00 (folio 221). The Tribunal removes the salary and wage expense of $178,124.00 (folio 222) from this figure, producing an “other expenses” figure of $639,520.00. Following the precedent in Carey and many other cases the Tribunal has decided that it would be fair to attribute 5% of this amount as a benefit made available to Mr Sewall as a result of being part-owner of the company. This amounts to $31,976.00.
The Tribunal finds that in 2016/17 Mr Sewall had available financial resources of:
·     Taxable income  $44,409.00
·     Reportable superannuation           $12,400.00
·     Profit share  $15,850.33
·     Company distributions                  $65,777.00
·     Self-employed benefits                  $31,976.00
This produces a total financial resource of $170,412.33. As not all of these amounts have been subject to income tax it is possible that a simple aggregation of the figures will understate the amount that is intended to represent the taxable income of Mr Sewall. The Tribunal considered grossing up the constituent amounts for income tax, but because of the technical issues and the possibility of unfairness to Mr Sewall it decided that it would not be safe to further increase the amount attributed to him.
The ATI used for Mr Sewall in the assessment at the time that Ms Rodgers applied for a departure from the formula assessment was $75,736.00. The Tribunal finds that the fact that Mr Sewall’s financial resources are not taken fully into account in the assessment constitutes a special circumstance that makes the assessment unfair and allows a departure from the formula assessment of child support under subparagraph 117(2)(c)(ia) of the Act.

Issue two – Would departure from the administrative assessment be just and equitable?

Relevant law and evidence

As the Tribunal is satisfied that there are grounds to depart from the administrative assessment of child support the next step is to consider whether it is just and equitable to depart from the assessment. In deciding whether it is just and equitable the Tribunal had regard to the following matters set out in subsection 117(4) of the Act:
(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:
(a) the nature of the duty of a parent to maintain a child (as stated in section 3); and
(b) the proper needs of the child; and
(c) the income, earning capacity, property and financial resources of the child; and
(d) the income, property and financial resources of each parent who is a party to the proceeding; and
(da) the earning capacity of each parent who is a party to the proceeding; and
(e) the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support:
(i)himself or herself; or
(ii) any other child or another person that the person has a duty to maintain; and
(f) the direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and
(g) any hardship that would be caused:
(i) to:
(A) the child; or
(B) the carer entitled to child support;
by the making of, or the refusal to make, the order; and
(ii) to:
(A) the liable parent; or
(B) 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; and
(iii) to any resident child of the parent (see subsection (10)) by the making of, or the refusal to make, the order.

The Tribunal carefully considered the oral evidence provided by Ms Rodgers as well as the documents provided by the Department.

Assessment of evidence, findings of fact and application of the law

Section 3 of the Act states that it is the duty of both parents to financially support their children. [Child 1] should receive a proper amount of financial support from her parents in accordance with their capacity to contribute.

[Child 1]’s needs

Paragraph 117(4)(b) of the Act requires the Tribunal to consider the proper needs of [Child 1]. The Tribunal has done this in accordance with the legislation under which this determination is made. [Child 1]’s orthodontic needs are discussed above. The Tribunal is considering increasing the assessment by $1,913.00 for two years in order to ensure that Mr Sewall meets half of the cost of the orthodontic quote. At the hearing Ms Rodgers said that [Child 1] has [a medical condition]. She said that most of the expenses related to her care are met by the National Disability Insurance Scheme (NDIS) or by charities and that she does not wish to make a claim for any other costs in relation to [Child 1]’s special needs. Although the Tribunal would be prepared to consider other costs, as Ms Rodgers has not provided evidence the Tribunal is unable to find that there are other special needs or extraordinary costs that need to be taken into account by the Tribunal.

The child’s income and earning capacity

[Child 1] is a full-time student and has no independent income or earning capacity.

The income, property, financial resources and earning capacity of Mr Sewall and his necessary commitments

Mr Sewall’s financial circumstances were examined by the Tribunal to the extent possible, given that Mr Sewall declined to cooperate with the Tribunal. Mr Sewall did not identify any commitments that are unusual or out of the ordinary. The Tribunal is satisfied that Mr Sewall has sufficient financial resources to meet his necessary commitments.

The income, property, financial resources and earning capacity of Ms Rodgers and her necessary commitments

Ms Rodgers’s financial circumstances were examined by the Tribunal to the extent possible, given that the information provided by Ms Rodgers in response to the Tribunal’s directions has not been taken into evidence. The most relevant evidence before the Tribunal is a payslip provided by Ms Rodgers (folio 51). The information contained therein is consistent with the ATI used in the assessment.
In his application to the Tribunal Mr Sewall stated that he believed that the NDIS payments received by Ms Rodgers should be taken into account in the assessment. In making this assertion Mr Sewall relied on subsection 43(1)(e) of the Act. That subsection states:
Working out parent's adjusted taxable income
(1)     Subject to this Part, a parent's adjusted taxable income for a child for a day in a   child support period is the total of the following components:
. . .
(e)     the total of the tax free pensions or benefits received by that parent in   that year of income;
  . . .
The phrase “tax free pensions or benefits” is defined in section 5 of the Act. Payments made under the National Disability Insurance Scheme Act 2013 are not included in the definition. This means that NDIS payments are not one of the components used in determining a parent’s ATI for the purposes of the child support assessment.
The Tribunal found Ms Rodgers to be a credible witness and it concludes that the documentary evidence available to the Tribunal together with her oral evidence provides an accurate picture of the financial resources available to her. The Tribunal is satisfied that Ms Rodgers has sufficient financial resources to meet her necessary commitments.

The parents’ duty to support others

At the hearing Ms Rodgers said that she has no legal duty to support any person other than [Child 1]. There is no evidence before the Tribunal that Mr Sewall has any legal duty support any person other than [Child 1].

Hardship

The Tribunal has found that both parents have access to financial resources that are sufficient to meet their necessary commitments. With regard to Mr Sewall the Tribunal is satisfied that he has a very healthy business and significant financial resources. The departure contemplated by the Tribunal will increase his child support assessment to some $17,700.00 compared to the $8,946.00 that applied at the time that Ms Rodgers originally applied to the Department. The assessment that results from the Tribunal’s decision is also greater than the decision of the delegate and the decision of the objections officer, but the Tribunal is satisfied that it is manageable within the financial resources available to Mr Sewall.
With regard to Ms Rodgers, her income is sufficient to meet her needs. The decision contemplated by the Tribunal will help ensure that she has sufficient resources to meet [Child 1]’s necessary needs. The Tribunal finds that the decision contemplated by it will not cause hardship to either of the parents.

Terms and period of departure

The Tribunal has decided that it would be appropriate to depart from the formula assessment by setting Mr Sewall’s ATI at $165,000.00, being the figure established above and allowing a reasonable amount for normal deductions. The Tribunal will also increase the assessment in order to take into account [Child 1]’s orthodontic needs.
The application for departure that is currently before the Tribunal was lodged by Ms Rodgers on 18 October 2017. Having regard to the matters in subsection 117(4) of the Act, the Tribunal finds that it would be just and equitable for the departure to commence from the date that Ms Rodgers lodged her application.
Taking into account the desirability of keeping the assessment predictable and minimising the burden on the parents in responding to changes of assessment and also the fact that the assessment is likely to end in 2021, when [Child 1] turns 18 and completes Year 12, the Tribunal has decided that it would be appropriate to extend the departure until there is a terminating event.

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

The final step for the Tribunal to undertake is to determine whether it is ‘otherwise proper’ to depart from the administrative assessment. Subsection 117(5) of the Act requires the Tribunal to take into consideration the following matters:
(a)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
(b)the effect that the making of the order would have on:
(i)any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or
(ii)the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.
The child support law recognises that each parent has a primary duty to maintain their children. In this case Ms Rodgers receives a modest amount of carer payment. As a result of the Tribunal’s decision this is unlikely to change. The Tribunal finds that it is appropriate that Ms Rodgers continue to receive the benefit and is satisfied that it is otherwise proper to depart from the administrative assessment in this matter.

DECISION

[2018] AATA 4425

16 October 2018

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Judicial Review

Jurisdiction

Statutory Construction

Remedies