Smart and McCouch (Child support)

[2024] AATA 382

Smart and McCouch (Child support) [2024] AATA 382 (6 February 2024)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2023/BC026609

APPLICANT:  Mr Smart

OTHER PARTIES:  Child Support Registrar

Ms McCouch

TRIBUNAL:  Member P Jensen

DECISION DATE:  6 February 2024

DECISION:

The decision under review is set aside and, in substitution, Mr Smart’s adjusted taxable income is varied to $159,250 per annum from 1 March 2023 to 28 February 2025.

CATCHWORDS

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

Introduction

1. Mr Smart and Ms McCouch are the parents of [the child] who was born in 2018. A child support case was registered with Services Australia – Child Support (Child Support) in 2021. In October 2022, Mr Smart’s recorded care of [the child] changed from 28% to 35%. Ms McCouch’s recorded care changed from 72% to 65%.

2. 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 for the child. From 2 November 2022 the administrative assessment was based on Mr Smart’s estimate of income of $87,085 per annum and Ms McCouch’s estimate of $53,891 per annum. Mr Smart was assessed to pay $6,029 per annum in child support.

3. The Act also provides for a departure from the administrative assessment in certain circumstances. Ms McCouch lodged a departure application on 4 March 2023. An original decision-maker granted the application and varied Mr Smart’s adjusted taxable income to $197,577 per annum from 1 March 2023 to 28 February 2025. He was assessed to pay $14,964 per annum in child support from 1 March 2023 (which was subsequently reduced slightly when Child Support reconciled Ms McCouch’s estimate of income against her 2020–21 adjusted taxable income of $61,833).

4. Mr Smart objected to that departure decision. An objections officer disallowed the objection. He applied to the Tribunal for further review. I conducted a directions hearing on 17 November 2023 and a substantive hearing on 2 February 2024. Mr Smart and Ms McCouch gave sworn evidence via MS Teams.

5. 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

1. 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; …

2. Mr Smart is the director and shareholder of two companies: [Company 1] and [Company 2]. Mr Smart explained that the companies are related. They collectively provide a [service]. [Company 1] deals with day-to-day business. [Company] “holds the [Equipment]”.

3. On 27 June 2023, Child Support noted:

   Mr Smart said that he thinks the company will have about $100k profit in the 22/23 year and he will have paid himself $80-$90k in salary.

4. Given that evidence, it is hardly surprising that the objections officer disallowed Mr Smart’s objection to the decision to vary his adjusted taxable income to $197,577 per annum. Mr Smart submitted that it would be irresponsible of him to distribute the companies’ entire profits to himself, but Child Support’s decision did not require him to make those distributions. The decision simply reflected an assessment of the income and financial resources that were available to him.

5. The companies’ 2022–23 financial statements have been completed and their tax returns have been lodged. It is now known that [Company 1] made a profit of $80,539 after paying various expenses including Mr Smart’s wage of $80,352, and [Company 2] made a loss of $1,641. That simple analysis suggests that during 2022–23, Mr Smart’s income and financial resources would be fairly reflected for child support purposes in an adjusted taxable income of $159,250 per annum. Mr Smart’s adjusted taxable incomes as assessed by the Australian Taxation Office (ATO) do not fairly reflect the financial resources that are available to him via his involvement in the companies. Those circumstances constitute special circumstances that cause the administrative assessment of child support to be unjust and inequitable. Reason 8 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 children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. Mr Smart completed a Statement of Financial Circumstances in October 2023. He lives in the ex-matrimonial home and pays the associated costs, including the repayments in respect of the associated home loan. The parents are currently involved in legal proceedings with a view to reaching a property settlement.

3. Mr Smart noted that the companies provide him with a vehicle and phone for personal use. He estimated their value to be $120 per week, which I consider to be a fair estimate. If Ms McCouch’s circumstances were straightforward, it would be appropriate to add $6,240 per annum to Mr Smart’s adjusted taxable income for child support purposes.

4. Mr Smart owns an investment property. According to his 2022–23 individual tax return, he received rent of $28,104, incurred expenses of $28,118 and made a loss of $14. He said that over the years the investment property’s profit has varied from $0 to approximately $6,000 per annum. Ms McCouch said the rent had recently increased. Mr Smart said he had recently replaced an air-conditioner. He said the property had been untenanted for three weeks during 2023–24. The evidence as a whole suggests that it is unlikely to make a significant profit in the near future.

5. Ms McCouch works as [Occupations 1 and 2]. Her 2021–22 and 2022–23 adjusted taxable incomes were $71,981 and $55,526 respectively. She completed a Statement of Financial Circumstances in December 2023. She receives parenting payment and family tax benefit. I suggested, and Mr Smart did not dispute, that Ms McCouch’s employment income would be correctly reflected in her adjusted taxable incomes as assessed by the ATO. However, he submitted that she receives unreported income by selling [Products].

6. During the directions hearing, Ms McCouch said she has some chronic medical conditions and she incurs some costs in respect of those conditions. She said those costs do not warrant a change to the otherwise appropriate rate of child support payable, but the costs might increase in the future. The matter was left on that basis. She subsequently provided a quote for a separate medical procedure. She explained that she had previously undergone cosmetic surgery; a complication had arisen in respect of that surgery; and she expected the remedial surgery to cost approximately $15,000. I asked her how she would pay for the surgery. She said she would use her savings. I noted that when she completed her Statement of Financial Circumstances in December 2023 she had listed savings of approximately $6,500. She said that since then, she had sold some [Products]. On her account of events there would still be a shortfall. She said she would pay for that shortfall via her credit card.

7. On 27 April 2023, Ms McCouch wrote the following in respect of a previous [Batch of products]:

   … I only sold 6 of those [Products] and have already disclosed the cost to produce that [Batch] to child support with supporting evidence of this. The money that was made by the sale of the [Products] paid for my rent. If it wasn’t for this my son and I would be homeless.

8. The following day, Child Support spoke to Ms McCouch and noted:

   Ms McCouch said:

   - She is not a [Producer], instead she decided to [Produce a batch of products] so she could keep a [Product] for herself.

   - [The batch was produced] in July/August 2022.

   - She kept one [Product], sold five for $4,000 each and gave four away to friends and [a Supplier].

   - Against the $20,000 she received from the sale of the [Products], she had associated costs of around $6,700.

   …

   - She had no intention to [Produce another batch] at this time.

9. More recently, Mr Smart provided undated phone screenshots which presumably relate to Ms McCouch selling more [Products]. That documentation appears to have prompted her to provide a spreadsheet on 29 January 2024. It lists the receipt of four deposits for the purchase of [Products] and the sale of another six [Products]. According to the spreadsheet, she has received revenue of $18,000 and incurred costs of $10,104, leaving a profit of $7,896. During the hearing on 2 February 2024, Ms McCouch said the spreadsheet did not include all of the relevant expenses and her overall profit from the sale of the [Products] was considerably less. I am not persuaded that Ms McCouch has provided reliable evidence concerning the profit that she makes from the sale of [Products]. Indeed, she stated that the spreadsheet that she had recently provided was incomplete. Her tax returns do not assist. She did not include the profit from the July/August 2022 [batch] in her 2022–23 tax return. She does not intend to include the profit from the more recent [batch] in her 2023–24 tax return.

10. After the hearing, Ms McCouch applied to provide post-hearing evidence: another spreadsheet with additional expenses. Such applications are usually refused, but each application must be assessed on its particular merits: section 30 of the Child Support Review Directions. Ms McCouch’s income from the sale of [Products] has been an ongoing issue. It was referred to by the original decision-maker in May 2023 and by the objections officer in August 2023. Ms McCouch had ample time prior to the substantive hearing to provide evidence of the income that she receives from the sale of [Products]. The hearing is an opportunity for the Tribunal to question a parent about their evidence and for the other parent to raise issues in respect of that evidence. I decided to refuse Ms McCouch’s application to provide post-hearing evidence.

11. A question arises as to whether to make adjustments to the rate of child support payable on the basis of Mr Smart’s personal use of a company car and phone, Ms McCouch’s receipt of income from the sale of [Products] and the costs that she expects to incur in respect of planned surgery. [Company 1] and [Company 2] had a combined revenue of almost $670,000 during 2022–23. The revenue, and consequently the profit, will fluctuate from year to year. Ms McCouch’s employment includes casual work and her earnings fluctuate, and that is reflected in her last two adjusted taxable incomes. Notwithstanding her statement in April 2023 that she had no intention of [Producing] another [Batch  of products], she [Produced another batch] later that year. She stated that she does not intend to include that income in her tax return. The parents’ personal expenses will also fluctuate. Meanwhile, they are working towards a property settlement which involves the division of roughly $1.2m to $1.5m net. In my opinion, the better approach is to vary Mr Smart’s adjusted taxable income to $159,250 per annum and not make further adjustments on the basis of those other matters.

12. Ms McCouch lodged her departure application on 4 March 2023. Child Support made a departure decision with effect from 1 March 2023. During the hearing, neither parent took issue with that aspect of the decision under review. I will also make a departure decision with effect from 1 March 2023.

13. Child Support made a departure decision with effect until 28 February 2025. Mr Smart submitted that the decision was too prospective. However, he has not provided any evidence of the companies’ profits since 2022–23. I consider it appropriate to also make a departure decision with effect until 28 February 2025, by which time the parents will have hopefully completed their property settlement, Mr Smart’s companies will have lodged their 2023–24 tax returns and Mr Smart and Ms McCouch will have lodged their individual tax returns.  

14. When Ms McCouch lodged her departure application she submitted that Mr Smart’s rate of child support payable should be varied to $10,000 per annum. Varying his adjusted taxable income to $159,250 per annum will produce a current rate of child support of approximately $12,600 per annum. The proposed decision will fairly reflect Mr Smart’s income and financial resources and, more generally, it will produce a just and equitable result over the course of its two-year duration. It is not necessary to calculate the parents’ precise incomes and financial resources over shorter consecutive periods to achieve that just and equitable result.

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.

2. Ms McCouch receives family tax benefit in respect of her care of [the child]. Changing the child support payable by Mr Smart will result in a more appropriate apportionment of financial responsibility between the parents and the community. The proposed decision will be otherwise proper.

DECISION

The decision under review is set aside and, in substitution, Mr Smart’s adjusted taxable income is varied to $159,250 per annum from 1 March 2023 to 28 February 2025.