Small and Catleugh (Child support)

[2023] AATA 1644

Small and Catleugh (Child support) [2023] AATA 1644 (4 May 2023)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2022/MC025171

APPLICANT:  Mr Small

OTHER PARTIES:  Child Support Registrar

Ms Catleugh

TRIBUNAL:Member S Letch

DECISION DATE:  4 May 2023

DECISION:

The decision under review is set aside and the matter is sent back to the Child Support Registrar for reconsideration in accordance with the direction that Mr Small’s application pursuant to section 44 of the Child Support (Assessment) Act 1989 be reconsidered in accordance with paragraphs 10 to 15 of these reasons.

CATCHWORDS

CHILD SUPPORT – particulars of the administrative assessment – whether post separation costs should be excluded from the adjusted taxable income for the last relevant year – decision under review set aside and sent back for reconsideration

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

1. This matter concerns a decision by Services Australia – Child Support to refuse an application by Mr Small for “post separation income” to be excluded from his adjusted taxable income.

2. It is convenient by way of background to set out some extracts from the objections officer’s decision dated 31 October 2022:

   SUMMARY OF OBJECTION DECISION

   We have made the decision to refuse Mr Small's application to exclude his additional income earned after separation as we have determined the additional income was earned in the ordinary course of events.

   Impact on assessment: We have revoked Mr Small's post separation income of$164,902 from the assessment and replaced it with his 2020/2021 Australian Taxation Office (ATO) assessed adjusted taxable income of $ 196,748 for the period from 21 December 2021.

   …

   REASONS FOR THE DECISION

   In order to make a decision to exclude a parent's additional income under section 44 of the Child Support (Assessment) Act 1989 ( the Act'), we must be satisfied that these facts have been established:

   1. The parents must have lived together on a genuine domestic basis for at least six months.

   2. The last separation of the parents occurred within the last three years.

   3. The last separation of the parents occurred before the application for administrative assessment was made.

   4. At the time of the application, the parents remain separated.

   5. (a) the income must have been earned, derived or received in accordance with a pattern of earnings that was established after separation with the other parent, and

   (b) the income must be of a kind it is reasonable to expect would not have been earned, derived, or received by the parent in the ordinary course of events.

   6. We determine the period the excluded income applies in a child support period.

   7. We can make the determination only if the excluded income reduces the parent's income in the child support period by 30% or less, and

   8. We can make the determination only if the excluded income applies on a day that is less than three years after the parent's last separation.

   1. Did the parties live together for at least six months?

   According to our records, the parties married on [date] March 2012 and separated on [date] September 2020. On 21 September 2020, Ms Catleugh applied for a child support assessment advising that parents separated on [date] September 2020. On 29 September 2020, Ms Catleugh confirmed that she and Mr Small separated on [date] September 2020. On 4 May 2020, Mr Small confirmed that he and Ms Catleugh separated on [date] September 2020. We are satisfied the parties lived together on a genuine domestic basis for longer than six months.

   2. Did this separation of the parents occur within the last three years?

   As a parent's post separation costs diminish over time, exclusion of additional income post separation is limited to the first three years after the parents last separated before the start of the child support case.

   Mr Small made his application on 11 August 2022. This is within three years of his and Ms Catleugh’s separation on [date] September 2020. We are satisfied the parties’ separation occurred within the last three years.

   3. Did the last separation occur before the application for administrative assessment was made?

   Ms Catleugh made her application for a child support assessment on 21 September 2020, which was subsequently accepted. The parties separated on [date] September 2020. We find the separation occurred before the application for administrative assessment was made.

   4. At the time of the application did the parents remain separated?

   There have not been any claims by either parent, nor is there any available evidence to show the parents reconciled at any time after [date] September 2020. For this reason we are satisfied at the time of the application the parties remained separated.

   5. (a) Has the income been earned in accordance with a pattern of earnings established after separation?

   Parents may earn additional income from a variety of sources, including for example, from overtime, a second job, a career change to a higher paying job, or from investment income. The parent must be able to show that the change that resulted in the additional income being earned happened after separation.

   Mr Small explained he received additional income, as he had to cash in his leave entitlements to pay for the full mortgage on the home where Ms Catleugh was staying with the children. Mr Small advised he had to re-establish himself after separation. Ms Catleugh states Mr Small has for the last eight years regularly cashed in his leave entitlements for extra earnings.

   Mr Small has provided information from his employer showing he cashed in leave total, for the 2018/2019, 2019/2020 financial year, as well as for the periods 1 December 2020 to 8 November 2021 and 20 November 2021 to 31 July 2022.

   Mr Small’s evidence shows he cashed in his annual leave entitlements as follows:

   - 2018/2019 financial year for a total of six weeks,
   - 2019/2020 financial year for a total of eight weeks,
   - Between 1 December 2020 to 8 November 2021 for a total of twenty weeks,

   - Between 20 November 2021 to 31 July 2022 for a total of four weeks.

   We can be satisfied, there was an increase to the entitlements Mr Small cashed in after separation compared to earlier years. However, due to his history of doing so, we do not consider this occurred outside the ordinary course of events.

   In conclusion, we are satisfied Mr Small’s extra income would have been earned in the ordinary course of events and that his application for post-separation income exclusion from 21 December 2021 to the remainder of the child support period is refused.

3. Mr Small’s case is consistent with his written application to the Tribunal:

   The objection is about post separation income. CSA told me I could get a 30% discount on post separation income which I applied for and was granted but the Payee lodged an objection .

   The facts are at the time I was paying Child support, I was paying the mortgage for the house that the Payee, her mother and the 3 children were living in, along with the rental on my own accommodation. The mortgage payments alone were $2749.00 per month and I paid these from the time of separation September 2020 until the property was sold in December 2021 with settlement March 2022. This is 17 .5 months which is $48107 .00 I have received no CSA benefit or credit for this . I had to cash in my annual leave to help pay the mortgage, rent, child support.

   If I am not even living in the house, I am getting no benefit and I have been excluded from claiming any portion as a payment towards child support. I don’t know what else the mortgage payments could possibly be, other than child support. If they are not classed as child support then if I have had to cash in annual leave then I should be a owed to get the post separation 30% deduction.

4. Ms Catleugh told the Tribunal that she agrees with the Child Support objection decision. Mr Small works in a family business, and has multiple ways to fund his “luxury lifestyle”. She said she does agree that he cashed out extra leave to pay for his rent after he “moved out” to live with another person. She said that Mr Small “got a very good (property) settlement” (Mr Small told the Tribunal he disputed Ms Catleugh’s characterisation of the property settlement). She does not understand why he is attempting to reduce his income and his resulting child support liability; she said she is struggling to meet the needs of the children, and only wants the children to receive the support they need.

5. Section 44 of the Child Support (Assessment) Act 1989 (the Act) provides the following:

   Post-separation costs

   Application for post-separation income to be excluded

   (1)   A parent (the applicant ) of a child may apply to the Registrar to amend an administrative assessment of child support payable by or to the parent for the child for part of a child support period if:

   (a)the applicant and the other parent of the child lived together on a genuine domestic basis for at least 6 months; and

   (b)the separation, following that 6 month period, of the applicant from the other parent occurred:

   (i)within the last 3 years; and

   (ii)before the application for administrative assessment of child support for the child was made under section 25 or 25A; and

   (c)at the time of the application under this section, the applicant and the other parent remain separated; and

   (d)in the last relevant year of income, or in the application period for an income election (if such an election has been made by the parent), the applicant earns, derives or receives income:

   (i)in accordance with a pattern of earnings, derivation or receipt that is established after the applicant and the other parent first separate; and

(ii)that is of a kind that it is reasonable to expect would not have been earned, derived or received in the ordinary course of events.

(2)   If the applicant makes an application under this section, the Registrar may determine that the applicant's adjusted taxable income for the child for a day in the child support period is a specified amount that excludes the income referred to in paragraph (1)(d).

(3)   However, the Registrar may make a determination under subsection (2) only if the determination:

(a)reduces the applicant's adjusted taxable income for the child for a day in the child support period by 30% or less; and

(b)applies in respect of a day in the child support period, being a day that is less than 3 years after the last separation referred to in paragraph (1)(b).

1. Child Support originally decided to accept Mr Small’s application, excluding $31,846 for the period 21 December 2021 to 20 March 2023. On objection, that decision was reversed; the objections officer decided that the extra income received by Mr Small (in the form of “cashed-in” leave) would have been “earned in the ordinary course of events”, and that the requirements of subparagraph 44(1)(d)(ii) were not satisfied.

2. In this case, it appears Mr Small established a pattern in previous years of “cashing in” annual leave. However, it is also clear that the scale of leave taken in that way was much higher in the 2020/21 financial year. I have no reason to doubt Mr Small’s evidence as to the extent of his financial commitments following separation in September 2020, including meeting mortgage repayments and paying rent.

3. The Child Support Guide, at 2.5.2, provides the following guidance:

Additional income

Parents may earn additional income from a variety of sources, including from overtime, a second job, a career change to a higher paying job, or from investment income. For a self-employed person, additional income may be earned, derived or received through extending the opening hours of their business, increasing production or developing new markets or new products (to a greater extent than before separation). The parent must be able to show that the change that resulted in the additional income being earned happened after separation (section 44(1)(d)(i)).

The ordinary course of events

Not all additional income that is earned, derived or received after separation will qualify for exclusion from a parent's adjusted taxable income. The new pattern of earnings must have been established after separation and would not have been reasonable to expect that income in the ordinary course of events (section 44(1)(d)(ii)).

Income that parents would have been reasonably expected to earn in the ordinary course of events cannot be excluded from their adjusted taxable income. For example, it is within the ordinary course of events that parents will earn additional income through regular pay rises, or seasonal variations in income.

However, income that parents earn outside the ordinary course of events is able to be excluded from their adjusted taxable income. This could include, for example, income from overtime or second jobs taken on after separation, a cashing out of leave entitlements, promotions or a shift to a higher paying job. However, moving from an unemployment benefit to employment is considered to be within the ordinary course of events. Any income to be excluded must have been earned, derived or received in a pattern established after separation. (Tribunal emphasis).

…

1. The approach of Child Support appears to have been that because Mr Small had cashed out leave in prior years, he could not be given the benefit of a section 44 determination.

2. I do not agree with that approach. I do not think it was intended, for example, that if a person cashed in a day or two leave in one year, and cashed in several weeks or more in the following year (following separation), that they were to be excluded from accessing section 44. Similarly, I do not think that a small amount of overtime in one year, followed by a year of significant overtime, is intended to be exclusive. I consider it is not the character of the payment, but its scale, which is determinative.

3. Here, I consider Mr Small’s circumstances to be the type of scenario intended to benefit from a section 44 determination. He cashed out a much greater amount of leave than he would have in the ordinary course of events at a time he was meeting the challenging financial circumstances which often occur upon separation.

4. Accordingly, I consider that Mr Small’s application satisfies the requirements of subparagraphs 44(1)(d)(i) and (ii) of the Act.

5. As Child Support concluded Mr Small failed to meet the requirements of subparagraph 44(1)(d)(ii), it did not give consideration to the date from which his application should be given effect (nor the amount by which Mr Small’s adjusted taxable income was to be reduced, which I observe was not specifically disputed by either party).  

6. The Child Support Guide, at 2.5.2, provides the following:

When does a determination to exclude additional income apply?

If the Registrar accepts an application to exclude additional income earned, derived or received after separation this will ordinarily apply from the date the application was made. However, it can apply from the start of the child support period in which the application is lodged if there are special circumstances.

Special circumstances

Whether there are special circumstances to justify backdating the exclusion of additional income will depend on the facts in each particular case. Generally the Registrar will be satisfied special circumstances exist where the parent was prevented from applying earlier but did apply in a timely way once they were able to, generally within 28 days.

The following are the circumstances in which a parent will be considered to have been prevented from applying earlier:

·The income was not yet used in the assessment.

·The parent was not aware of the existence of the child support assessment.

·The parent was not aware of the existence of the provision because it was not discussed in their initial contact with Services Australia after the application for administrative assessment was accepted.

·The parent was a victim of family violence.

·The parent (or a family member) was ill or had an accident that stopped the parent from applying.

·The parent suffered a personal trauma such as a death in the family, or a natural disaster that caused damage to their property.

·The parent had communication difficulties because of, or including, isolation, illiteracy or poor English-language skills.

·The parents were involved in negotiations over child support and/or other matters and applying may have compromised those negotiations.

·There are other exceptional circumstances.

The exclusion will remain in place until the end of the child support period in which the application is lodged. However, it will end sooner if the 3 year time limit (since separation) expires within that child support period.

A new application can be lodged for the next child support period if the other requirements are met and the 3 year time limit has not expired.

…

1. In the circumstances, I consider it appropriate to remit the matter to Child Support with a direction that Mr Small’s application pursuant to section 44 of the Act be reconsidered on the basis that he satisfied subparagraphs 44(1)(d)(i) and (ii).

2. As I have reached a different conclusion to the objections officer, the decision under review will be set aside.

DECISION

The decision under review is set aside and the matter is sent back to the Child Support Registrar for reconsideration in accordance with the direction that Mr Small’s application pursuant to section 44 of the Child Support (Assessment) Act 1989 be reconsidered in accordance with paragraphs 10 to 15 of these reasons.