Smith and Smith (Child support)

[2015] AATA 2002

Smith and Smith (Child support) [2015] AATA 2002 (2 November 2015)

DIVISION  Social Services & Child Support Division

APPLICANT  Mr Smith

OTHER PARTIES  Ms Smith

Child Support Registrar

DECISION DATE  2 November 2015

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that for the period 13 January 2015 to 31 October 2016, Mr Smith’s adjusted taxable income be varied to $295,849.

CATCHWORDS
Child Support - Departure determination - Income and financial resources of a parent - Business income - 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

1. Mr Smith and Ms Smith are the parents of four children aged six, eight, 10 and 11. Ms Smith has been recorded as having 66% care of the children.   

2. 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 child.

3. From 1 July 2014 to 30 June 2015, Mr Smith was assessed to pay $11,332 per annum in child support based on his 2014/15 estimated adjusted taxable income of $79,517 and Ms Smith’s 2014/15 estimated adjusted taxable income of $15,017.

4. The Act also provides for a departure from the administrative assessment in certain circumstances.

5. Ms Smith lodged a departure application on 13 January 2015. On 12 February 2015, a senior case officer decided to set Mr Smith’s adjusted taxable income at $150,000 for the period 13 January 2015 to 31 December 2015.

6. Mr Smith objected to the change of assessment decision.  On 1 May 2015, an objections officer disallowed the objection.

7. Mr Smith sought further review and the tribunal heard the matter on 1 October 2015. Mr and Ms Smith gave their evidence by conference telephone.

8. In reaching its decision the tribunal has considered the sworn evidence from Mr and Ms Smith as well as the documentation provided by the Child Support Agency (exhibit 1), Mr Smith (exhibit A) and Ms Smith (exhibit B). 

9. Pursuant to section 98C of the Act, a decision to depart from the administrative assessment may be made if the following 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 …

CONSIDERATION

Grounds for departure

Income and financial resources of a parent

1. Subparagraph 117(2)(c)(ia) of the Act, commonly referred to as Reason 8, provides as a ground for departure:

   (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; …

2. Mr Smith is a [occupation].  He is the sole director of [a company] (the Business).  The shares in the Business are owned by [Company 1] an entity in which Mr Smith holds 50% of the shares and his wife Mrs Smith holds the other 50%. Mr and Mrs Smith are the joint directors of[Company 1].  [Company 1] acquired all of Mr Smith’s shares without material consideration on 24 July 2014.  Mr Smith told the tribunal that the transfer of ownership was part of a plan to divest the Business for asset protection purposes which was not completed (in that the associated trust was never formed).  Mr Smith accepts that for child support purposes, the Business is entirely owned and controlled by him.

3. Mr Smith says the Business is his only source of income.  He is paid a before tax wage of $909 per week.  Mrs Smith works for the Business part-time as an [occupation].  According to Mr Smith she does [details deleted].  He pays her a wage of $326 per week before tax.  He says this is the commercial rate for the 10 hours per week work that she performs.  Mrs Smith is also employed full-time by another business not associated with Mr Smith.  She earns $1,050 per week from that employment.

4. Mrs Smith partnered with Mr Smith in November 2012 and commenced her current employment with the Business in November 2013.  Prior to that Mr Smith had not employed anyone to perform the duties she took on.  He continues to employ a book-keeper.

5. Mr Smith reduced his wage from $1,654 per week to $909 per week in December 2014 due to ongoing reduction in availability of work.

6. Mr Smith produced draft financial statements for the Business for the hearing.  At the hearing he was directed to produce final statements as the draft did not include information as to wages paid to Mr Smith or Mrs Smith, loan account movements or non-cash expenses (such as depreciation).  He did not produce the documents within the time-frame agreed.  The draft financial statements from the Business reveal:

2013/14	2014/15
Revenue	$1,318,328	$912,547
Legal Fees	$10,724	$nil
Bookkeeping	$4,560	$4,320
Depreciation	$77,229
Non-deductible entertainment	$17,996	$24,274
Travel and Accommodation Allowance	$15,369	$22,108
Motor Vehicle Expenses (6 vehicles)	$44,786	$55,793
Profit or (Loss)	$141,029	($53,469)
Franked Dividend paid	$81,300
Payments to Associated Persons	$95,525
Loans to Shareholders	$155,628

1. In addition to this Mr Smith and Mrs Smith both have access to fully serviced vehicles and phones,2 both of which preclude Mr Smith having to expend income in the acquisition and maintenance of such assets. The tribunal estimates the grossed up value of these benefits (including depreciation) to be approximately $15,000 total (each) per annum. 

   2 Neither Mr nor Mrs Smith privately own another vehicle or phone. Mr Smith owns a [certain type of car] but it is a collector’s vehicle and is not used regularly for transport.

2. The tribunal does not accept that Mrs Smith performs any real work in the Business.  She has a full-time job outside the Business and her role was not filled by anyone when the Business had more work on hand than it does today.  The tribunal finds that the wage paid to Mrs Smith (and the car and phone provided to her by the Business) are financial resources of Mr Smith.

3. The tribunal makes the following calculations of his financial resources available to Mr Smith in 2013/14.  Because Mr Smith failed to provide the financial information directed for 2014/15, the tribunal was unable to reliably update its calculations for that period.

2013/2014
Wages	$54,202[1]
Dividend	$40,650[2]
Benefits derived from Motor Vehicles and Phones[3]	$30,000
Non-deductible entertainment expense	$15,369
Loans	$155,628
Total	$295,849

[1] $41,323 of the $95,525 wages in this year were paid to Ms Smith

[2] $40,650 of the $81,300 dividend in this year was allocated to Ms Smith

[3] This item would have been divided with Ms Smith in the 2013/14 year but the tribunal has left it unadjusted so as to more closely reflect the current circumstances.

1. When Ms Smith lodged her departure application on 13 January 2015 the administrative assessment used a 2013/14 estimated adjusted taxable income of $79,517 for Mr Smith. The tribunal has calculated however that Mr Smith’s income for child support purposes for the 2013/14 year was $295,849.  Mr Smith’s declared taxable income in 2012/13 was $230,972.

2. An assessment based on $79,517 produced a requirement that he pay child support of $11,332 per annum.  An assessment based on $295,849 would require that he pay child support of $32,180. The significant disparity between the income figures constitutes special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable.  As a result, the tribunal concludes that a ground for departure exists.

Just and equitable

1. The tribunal will now consider whether it would be just and equitable to make a particular departure determination having regard to the matters in subsection 117(4) of the Act.

2. 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 Smith

1. Mr Smith completed a statement of financial circumstances.  He continues to work and believes he is capable of continuing to earn. Mr Smith lives with Mrs Smith in a home they own jointly and value at $620,000.  It is encumbered with a mortgage of $495,000.  They also own an investment property which they value at $260,000 and which is encumbered by a $260,000 mortgage.  It is not currently returning a positive income. An analysis of Mr Smith’s living expenses reveals there is nothing unusual about them which the tribunal should take into account.

2. Mr Smith continues to operate his business and it is clear there is ample capacity from which he can meet his own personal financial needs and contribute to the children’s financial needs.

Ms Smith

1. Ms Smith is a[occupation].  Until recently (1 August 2015) she has been unemployed and in receipt of a Centrelink pension.  She has however now started a [business] which she operates from her home.  It is not currently returning a profit but she expects it to grow quickly.  She continues to receive her full Centrelink pension. 

2. All of her income is declared taxable income.  She lives in a home purchased with the proceeds of the recent matrimonial property settlement.  She values it at $360,000 and it is encumbered by a $248,000 mortgage.  She also owes approximately $10,000 on various credit cards. She shares the home with the children of the assessment when they are with her.  Her mother also lives with her and is in receipt of the age pension.  She pays appropriate rent to assist in defraying the mortgage payment and looks after her own living expenses.

3. Ms Smith also owns a caravan on-site which she keeps unrented to use as a holiday home.  It is worth $18,500 and the yearly site rental is $5,500.  Aside from this, Ms Smith’s household expenses are not unusual.  She calculates that they more than consume the available income.  The deficit is currently being made up seeking hardship deferments on her mortgage and credit card payments.

The children

1. There is nothing in evidence to suggest that any adjustments are necessary to the administrative formula to take account of the children’s needs. 

Conclusion

1. The tribunal can vary the rate of child support payable or it can vary some of the variables that are used in the administrative formula. Neither parent submitted that the tribunal should set the rate of child support payable and the tribunal considers it preferable in this case to adjust some of the variables that are used in the administrative formula.

2. Ms Smith lodged her application for change to the assessment on 13 January 2015.  There is nothing in evidence to suggest that any date other than the date of application represents the earliest (and most practical) date from which the tribunal should make a determination. 

3. The tribunal has calculated that Mr Smith’s declared taxable income understates his actual income.  Accordingly the tribunal proposes to increase his adjusted taxable income by an amount which takes account of its calculations (set out above).

4. There is no suggestion that Ms Smith receives income which is different to the amounts recorded by the Australian Taxation Office and so the tribunal will not make any adjustment to the taxable incomes recorded for her.

5. Both parents asked the tribunal to consider a shorter departure as they both regard their financial lives as being in a state of flux.  Especially given the lack of updated financial disclosure from Mr Smith, the tribunal agrees that a shorter duration is appropriate.  Accordingly the tribunal will end its assessment at the end of October 2016. 

6. This decision will increase the child support liability. This decision will result in the child support payable increasing by approximately $8,000 per annum. As at 2 September 2015, the CSA advised that arrears of child support were approximately $16,000.  This decision will result in an increase of those arrears by approximately $6,000 due to differences between the Department’s decision and this decision.  The tribunal has determined that Mr Smith has the financial resources from which to make up any arrears balance by way of part payment and continue to pay the assessed rate of child support. For those reasons, the tribunal considers that aspect of the proposed decision to be just and equitable.

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 their child.

2. Ms Smith receives family tax benefit in respect of the children. Changing the child support payable by Mr Smith may result in a more appropriate apportionment of financial responsibility between the parents and the community. Such a result is otherwise proper.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that for the period 13 January 2015 to 31 October 2016, Mr Smith’s adjusted taxable income be varied to $295,849.