Sterling and Sterling (Child support)

[2018] AATA 3060

Sterling and Sterling (Child support) [2018] AATA 3060 (13 June 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/HC012765

APPLICANT:  Mr Sterling

OTHER PARTIES:  Child Support Registrar

Miss Sterling

TRIBUNAL:Member A Schiwy

DECISION DATE:  13 June 2018

DECISION:

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

·         for the period 29 November 2016 to 29 November 2020 Mr Sterling’s adjusted taxable income be varied to $100,000; and

·         for the period 1 May 2018 to 30 September 2019 Miss Sterling’s adjusted table income be varied to $68,040.

CATCHWORDS

Child support - Departure determination - Income, property and financial resources of parents - Business income - A ground for departure established - Adjusted taxable incomes of both parents varied - 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 Sterling and Miss Sterling are the separated parents of three children; a daughter aged 11 years and twins aged 8 years.

2. This review is about the child support payable by Mr Sterling to Miss Sterling for the children. The child support case was registered in 2011 and The Department of Human Services (Child Support) have determined that Miss Sterling has 100% care of the children.

3. Mr Sterling has submitted that he has been residing permanently in [Country 1] (a non-reciprocating country for child support purposes) since 14 March 2015. Child Support decided in January 2017 that Mr Sterling was living in [Country 1] but was a resident of Australia for child support purposes. Mr Sterling was granted an extension of time on 17 April 2018 to lodge an objection against the decision. It is not clear if Mr Sterling has objected to this decision but as at the date of the hearing for this application there was no objection decision made by Child Support about the matter for the tribunal to consider.

4. A departure determination was made by Child Support on 25 June 2014 and it varied Mr Sterling’s adjusted taxable income to $193,895 for the period 29 November 2013 to 28 November 2016. Neither party objected to this decision however Mr Sterling applied for a departure determination in June 2015. His application was refused and his subsequent objection disallowed in November 2015. Mr Sterling applied to this tribunal, differently constituted, for a review of the objection decision and it was affirmed by the tribunal on 18 March 2016.

5. The following administrative assessments were made:

   ·         for the period 29 November 2016 to 31 December 2016 Mr Sterling’s child support liability was assessed at $408 based on 2014-2015 adjusted taxable income of $20,027 and Miss Sterling’s 2015-2016 provisional income of $19,220; and

   ·         for the period 1 January 2017 to 31 March 2018 Mr Sterling’s child support liability was assessed at $420 based on 2015-2016 provisional income $20,027 and Miss Sterling’s 2015-2016 provisional income of $19,220.

6. On 17 October 2016 Miss Sterling lodged a departure application with Child Support on the basis that the rate of child support payable under the administrative assessment was unfair because of Mr Sterling’s income, property and financial resources and his earning capacity (reason 8).

7. On 18 January 2017 a Child Support case officer decided to make a departure determination on the basis that reason 8 had been established. The following departure determination was made:

   ·         For the period 29 November 2016 to 31 October 2018 Mr Sterling’s adjusted taxable income is varied to $81,276.

8. On 22 August 2017 Mr Sterling objected to the decision. (An extension of time to lodge the objection was granted.)

9. On 20 October 2017 a Child Support objection’s officer disallowed the objection.

10. On 25 October 2017 Mr Sterling lodged an application with this tribunal for an independent review of the objection officer’s decision.

11. A hearing was held on 13 June 2018. Both Mr Sterling and Miss Sterling attended the hearing and gave evidence on affirmation by conference telephone.

12. In considering this matter the tribunal took into account the oral evidence of Mr Sterling and Miss Sterling; the relevant documentation provided by the Child Support Registrar (numbered 1 to 473); Mr Sterling (numbered A1 to A146); and Miss Sterling (numbered B1 to B117). Copies of all of the numbered documents were provided to all parties. Mr Sterling stated that he did not get the Child Support papers numbered 394 to 473 or the A and B documents. Mr Sterling said he never receives any documentation from Child Support. However he then conceded that he had received the first bundle of papers that were issued (numbered 1 to 393). The tribunal was satisfied that the Child Support papers and the A and B papers had been posted to the address notified by Mr Sterling.

ISSUES

1. The statutory provisions relevant to this review are set out in the Child Support (Assessment) Act 1989 (the Assessment Act) and in the Child Support (Registration and Collection) Act 1989.

2. The Assessment Act provides for an administrative assessment of the child support payable. It uses a formula that contains variables including the parents' adjusted taxable incomes; their percentages of care for the children; and costs of the children. The Assessment Act also makes provision for a departure from the administrative assessment in certain circumstances.

3. The issues which arise in this case are:

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

   ·         is it just and equitable to make a particular determination? And

   ·         is it otherwise proper to make a particular determination?

CONSIDERATION

Issue 1 – Does a ground for departure from the administrative assessment for child support exist?

Mr Sterling’s income, property and financial resources

1. Subparagraph 117(2)(c)(ia) and 117(2)(c)(ib) of the Assessment Act provides that a ground for departure exists where, in the special circumstances of the case, application of the provisions of the Assessment Act relating to the 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 children because of the income, property and financial resources and earning capacity of either parent.

2. Mr Sterling’s taxable incomes in recent years were:

   2011-12               $112,800

   2012-13               $7,573

   2013-14               $29,695

   2014-15               $20,027

3. The departure determination made in 2014 was based on his taxable income of $112,800 and cash deposits to Mr Sterling’s bank accounts (or accounts controlled by him) of $81,095.

4. Mr Sterling’s 2014-2015 tax return (no returns have been lodged since 2014-15) indicate that his income was earned from directors’ fees from two related companies ([Company 1] and [Company 2]) and consultancy fees from [Company 3] and [Company 4].

Mr Sterling’s evidence

1. It was difficult to obtain a clear picture of Mr Sterling’s employment and business dealings over the last ten years from Mr Sterling as he had difficulty remembering his work history with any clarity. He described himself as unskilled with no education or qualifications and said he worked in [a certain] industry as an [an occupation]. At some point he worked for the industry fabricating ‘[items]’.

2. Mr Sterling started up [Company 3] in 2011 and ceased being a director in December 2012. Mr Sterling said one of his friends took it over as it was waste of time but he could not recall his friend’s name. Mr Sterling received a small amount of consulting fees from the company in 2014-15.

3. Mr Sterling said he ran a [shop], [Company 4]in [City 1] for about four to five years. He ran the business through [Company 1] (trustee of the Sterling Family Trust). The company was deregistered in October 2015. He said he ran [a] restaurant in [State 1] from about 2013 to 2015. The [restaurant] is run through[Company 5]; which was registered in March 2014. The business has apparently been closed as Mr Sterling said he could not afford to pay wages to keep it running when he left Australia. Mr Sterling said his businesses ran at a loss and he was forced to leave Australia due to the unreasonable child support assessments that have been made.

4. Mr Sterling was directed to provide financial accounts for the two businesses for the 2015-2016 and 2016-2017 but he stated that there were no accounts (or active bank accounts). He stated that he has no access to any bank accounts.

5. Another café, [Company 4] Lounge in [City 1], was run through [Company 4] Lounge Pty Ltd. Mr Sterling stated that this is his sister’s business and he has nothing to do with it other than a minor consultancy role, despite being a signatory to the bank account. He said he applied to be a director of the company in December 2015 as his sister wanted to retire as she was not making enough earnings. Mr Sterling’s accountant said the application was cancelled in December 2015 and the company is being deregistered.

6. Mr Sterling, who is 42 years old, said he has been looking for work ‘all over the world’ but to date has been unsuccessful in obtaining any employment. He said he has earned nothing since March 2015 and has been supported by his partner and charity.

7. In a statement of financial circumstances dated 13 November 2017 Mr Sterling stated that his partner, Ms [A], earned $200 per week. At hearing Mr Sterling confirmed that this was correct and that Ms [A] worked in a [workplace].

8. To prove that he was residing in [Country 1], Mr Sterling provided a copy of a residential lease agreement for a property in [City 2]. According to the lease agreement Mr Sterling and his partner have rented the property at a cost of [amounts] per month (approximately AUD1,150 per month which according to information on is average rent in an expensive area of [City 2]). Mr Sterling listed his personal expenses (other than property expenses) at $125 per week and this was made up of food, utilities and $10 for entertainment. He lives with Ms [A] and their six-year-old daughter but he did not provide details of their expenses.

9. Mr Sterling told Child Support that his daughter attended an international school in [City 2] and said the costs were not out of the ordinary. He was directed by the tribunal to provide evidence of fee payments. In response to the directions Mr Sterling stated that his daughter did not attend a fee paying school. At hearing he told the tribunal that she attended an English speaking school at a cost of around $1,000 per year. The tribunal noted that there are a number of private schools in [City 2] that speak English and also a number of international schools. The average cost of international schools, according to is [amounts] (approximately AUD13,000).

10. Australian Taxation Office records indicate that Mr Sterling earned interest income of $1,742 in 2015-2016. Mr Sterling was directed to provide statements for all accounts he holds from 1 January 2016 to 31 March 2018 but he stated he had no access to his accounts.

11. At one point during the hearing Mr Sterling said he lived on bread and water and later said his food cost $50 per week which was more than his partner’s costs because he weighed 120 kg.

12. When asked how his partner afforded their living expenses given that they were well over $200 per week, Mr Sterling then said his partner sometimes earned more than $200 per week and that she had inherited some money some years ago and would have been using some of these funds.

13. Mr Sterling stated that he currently owns two residential properties and one of these is rented out. His income tax return for 2014-15 declared rent from three properties for 52 weeks each and it is unclear when the third property was sold. Mr Sterling was asked to provide details of all property sales since 30 June 2015 however he stated that he had not sold any properties since 2015. Presumably he has therefore sold a property between 1 July 2015 and the end of 2015 but it is unknown where the proceeds of this property were banked and Mr Sterling has apparently not complied with the directions. One of the properties is rented out for $515 per week (Mr Sterling did not know the last name of his tenant nor was he aware of how much the tenant was paying; he thought it was $500 per week). This amount of rent basically covers the interest charges on the mortgage.

14. On 14 September 2017 after action taken by the ANZ, a writ of summons was issued for Mr Sterling to appear in the Supreme Court [in] relation to non-payment of amounts owing under a mortgage on [an address] and a business loan. Mr Sterling failed to appear and has not made any payments on either loan. Apparently the ANZ has not taken possession of the property (Mr Sterling was unclear as to why) and the property has been vacant for over a year. Mr Sterling said he was not going to rent it out as the bank was going to take the property off him.

15. In the previous tribunal review Mr Sterling stated that his brother was lending him USD10,000 every couple of months. That tribunal concluded that he had access to over $150,000 that was received in cash and transferred when Ms [A] visited Mr Sterling in [Country 1]. At the hearing for the current matter Mr Sterling said he had not received a loan from his brother in years.

16. Child Support obtained information from Austrac that showed Mr Sterling made two transfers of money to Australia in March 2017 via Western Union. He transferred $1,267 and AUD3,825 to Australia to a Mr [B] (surname was redacted). Mr Sterling was asked about the transfers but could not recall them. The Austrac records stated that the purpose of the transfers was ‘family expense’. Mr Sterling then said it was possibly something to do with Ms [A]’s family but he could not say who the person was that received the transfers. The tribunal noted that Mr Sterling had probably not seen the Austrac documents prior to the hearing however it was peculiar that he could not easily recall the name of his partner’s relative that he sent money to in Australia.

Miss Sterling’s evidence

1. Miss Sterling stated the following about Mr Sterling’s income:

   ·         They met in 2004 and Mr Sterling was working five weeks on/five weeks off [in a certain industry] and earning $10,000+ per week.

   ·         Soon after they met they commenced the [Company 4] business and Mr Sterling continued to work [in the certain industry]. He also purchased a number of properties around [City 1].

   ·         They moved to [City 3] in 2010-11 and Mr Sterling worked for [a company] in an office position.

   ·         Soon after they moved to [City 3] they separated.

   ·         He commenced running the [Company 4] Lounge in [City 1].

   ·         He commenced running the [restaurant] [in City 4] and then moved to [Country 1].

   ·         He is running [a] Café in [City 2]. His partner ‘boasted’ on [social media] that she was the boss of the business and she posted photos of the business on [social media]. When Miss Sterling was in [City 2] with her partner in late 2016 they bumped into Mr Sterling and his partner at the restaurant.

   ·         Ms [A] comes to Australia regularly to courier cash back to [Country 1].

2. Mr Sterling denies running any business in [City 2] and said the Café [is] a huge beach side resort and he knows it well as he goes there a lot. Mr Sterling said he did run into Miss Sterling but it was in a shopping centre.

3. When asked how he could afford to frequent the [Café], given he stated that he lives on bread and water, Mr Sterling said he never has to pay for anything as he is well known around the place and knows influential people. He said they pay for him.

Discussion

1. Miss Sterling made a number of allegations but did not have any supporting evidence and little weight was placed on her evidence other than her evidence about Mr Sterling’s employment/business history when they were together.

2. The tribunal did not accept that Mr Sterling has not earned any income since March 2015. He lives in a rental property that is relatively expensive by [City 2] standards and costs more than the amount he declared his partner to be earning. It was alleged by Miss Sterling that his daughter attended an international school and he confirmed this was correct with Child Support. He was directed to provide evidence of payment of the school fees but failed to do this. He and his partner would obviously have other living expenses on top of the rent and school fees. He was directed to provide full details of Ms [A]’s income, together with supporting evidence, and he stated she earned $200 per week only. He did not mention any inheritance or savings until it was pointed out at hearing that his rent was more than $200 per week.

3. Mr Sterling is only 42 years old and has been capable of earning significant income in the past. His own evidence is that he has looked for employment ‘all over the world’ but has been unable to obtain employment. The tribunal did not accept this as being credible.

4. The tribunal noted that Mr Sterling has not been making loan payments on two of his ANZ loans that are secured against one property. His evidence is that the properties have lost value since he purchased them which is credible given the downturn in real estate in [City 1] in recent years. The tribunal did not consider his failure to pay the loans as evidence to support a finding that he is not earning any income; Mr Sterling has walked away from an investment that has lost money.

5. After considering the evidence the tribunal decided that it was more likely than not that Mr Sterling left Australia to run a new business in [Country 1] and/or continues to run a cash business in Australia. It is not possible to ascertain the amount of income earned from the evidence obtained. Mr Sterling is apparently not using any bank accounts and is therefore only dealing in cash. In 2014 Mr Sterling was assessed as earning an income of $193,895 based on declared earnings and unexplained cash deposits. It is not known if the taxable income in his 2011-12 return included salary and wages from employment that has now ceased. Given that Mr Sterling has been able to earn well in excess of the ‘Male Total Average Weekly Earnings’ (currently $73,606) in the past; the tribunal decided that a conservative estimate of his current income is $100,000 per annum.

6. The tribunal also noted that if it had been found that Mr Sterling had stopped working/running a business then it is most likely it would be found that he has the capacity to earn a significant income. One of the reasons to make a departure determination is earning capacity and given Mr Sterling has stated that he was forced to leave Australia (to go to a non-reciprocating country) because of an unfair child support assessment, if Mr Sterling ceased his business in Australia, he did so to affect the administration of child support.

Miss Sterling’s income, property and financial resources

1. Mr Sterling has alleged that Miss Sterling is earning a significant income from an online clothing retail business and his basis for stating she is earning a significant income is because she said on [social media] that the business was doing well.

2. Miss Sterling stated that a friend in Melbourne was designing clothing and she decided to retail the clothing online. She paid $5,500 up-front for the stock and was also required to create a website. She operated the business from late 2017 for about four months and only made $300 profit. She then sold the business for $5,000 in April 2018.

3. The tribunal reviewed the [social media] site for the business and it appeared to have commenced in August 2017. Miss Sterling’s credit card shows a debit of $2,362 in August 2017 for ‘[a clothing store]’ (clothing retail based in Melbourne). The [social media] site was active until 9 April 2017. As it was an online based store the earnings were unlikely to be from cash and therefore traceable. There was no evidence to show that Miss Sterling earned any significant income from the business and given the nature of the business it is unlikely that a significant income was earned.

1. The tribunal concluded that whilst it is likely Miss Sterling made some income from the business it was unlikely that her taxable income would be over the self-support rate (and other dependent child amount for three children) for child support purposes. (The tribunal also noted that because Miss Sterling has three other dependent children, one over 13 years, that any increase in her child support income has negligible effect on the total amount payable by Mr Sterling under the child support formula.)

2. Miss Sterling stated that she has recently commenced employment with [Company 6] in [City 1]. Her partner suffered a [medical condition] recently and stopped working in March. They decided to move from [City 3] to [City 1] so Miss Sterling could take up the position. She works two weeks on and one week off earning $4,536 over three weeks. She will be required to have seven weeks unpaid leave in December. She commenced around the beginning of May 2018.

3. The tribunal decided that from 1 May 2018 Miss Sterling was likely to earn $68,040 per annum.

Conclusion

1. The administrative assessments have been based on incomes of $20,027 for Mr Sterling and $19,220 for Miss Sterling. The amount of child support payable on these incomes in 2017 is $420 per annum.

2. The child support payable on incomes of $100,000 and $68,040 would be around $16,514 ($16,869 when Miss Sterling was not working). As this is a significant difference in the amount of child support payable the tribunal decided that there are grounds to depart from the assessment due to the income of Mr Sterling.

Issue 2 – Is it just and equitable to make a particular determination?

1. As the tribunal is satisfied that a ground to depart from the administrative assessment exists the tribunal must consider whether it is just and equitable as regards the children, the liable parent and the carer entitled to child support to make a particular determination (subparagraph 98C(1)(b)(ii) of the Assessment Act). Subsection 117(4) of the Assessment Act sets out a variety of factors that must be considered in deciding whether it would be ‘just and equitable’ to make a particular determination. These factors include the proper needs and costs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

2. Section 3 of the Assessment Act makes it clear that the parents have the primary duty to maintain their children and that this duty has priority over all commitments of the parents, other than commitments necessary for self-support or for the support of another person they have a duty to maintain. In this case Mr Sterling and Miss Sterling have the primary duty to support their children.

Mr Sterling

1. Mr Sterling’s income has been discussed at length and the tribunal estimated that Mr Sterling is earning around $100,000 per annum.

2. Mr Sterling is partnered and has a six-year-old child and if his income was varied by a departure determination approximately $12,000 would be taken off his income to account for the fact that he has a dependent child.

3. Mr Sterling has two residential properties (as stated above it is not clear what happened to the third property owned as at 30 June 2015). He values them at $400,000 and $525,000. The first property is the one that is likely to be the subject of a forced sale and there is over $427,000 owing on the mortgage and another business loan secured on the property of $105,000. The second property has a mortgage of around $523,000.

4. Mr Sterling stated that he owed the tax office $30,000 but he was not sure of the actual amount owing. He said there was no payment plan in place.

5. As Mr Sterling is apparently not paying any tax on his income and living in a relatively low cost of living country, the tribunal did not consider he would suffer any financial hardship if his adjusted taxable income was varied to $100,000.

6. The tribunal noted that Mr Sterling has significant child support arrears ($73,220 as at October 2017 which includes approximately $8,000 in late payment penalties). Varying his income to $100,000 would increase these arrears but, given his income and low cost of living, the tribunal decided he would have no difficulty in addressing these arrears through some sort of payment plan.

Miss Sterling

1. Miss Sterling’s income has been discussed. Prior to obtaining her new employment she was in receipt of parenting payment but presumably has ceased receiving this payment with her new employment.

2. Miss Sterling has a fourteen year old daughter living with her (from another relationship) and does not receive any child support from the father. She has two children with her current partner.

3. Her partner was earning $750 net per week but is no longer working.

4. Miss Sterling has no significant assets and owes around $8,500 on her credit cards. She received, after legal fees, $120,000 from her property settlement with Mr Sterling. She has used this money to pay off debts, buy a car and for living expenses.

5. Miss Sterling listed weekly expenses for the family of $1,040 per week including rent of $550 per week. There was nothing extraordinary about the expenses listed and they included $80 per week for entertainment, holidays and gifts (considered by the tribunal to be discretionary expenses).

6. Miss Sterling is on a relatively low income given she has care of six children and the tribunal decided that if a departure determination is not made she will suffer, and is currently suffering, from financial hardship.

Children

1. There is no evidence to suggest that the children have any income or significant financial resources of their own.

2. The tribunal noted that the costs of children data used in the statutory formula for a child support period in 2018 indicates that the costs of caring for the children, where the parent’s current income is as found by the tribunal, is approximately $16,500 per annum. Miss Sterling would meet the majority of these costs.

Summary – just and equitable

1. In deciding whether or not making a departure determination would be just and equitable the tribunal has taken into account a number of factors including the following:

   ·         Both parents have the primary duty to support their children;

   ·         Miss Sterling has 100% care of the children;

   ·         Miss Sterling’s income is currently $68,040 per annum;

   ·         Mr Sterling’s income is estimated to be $100,000 per annum;

   ·         Neither parent has any significant assets (after taking into account mortgages);

   ·         The costs of the children under the statutory formula in 2017 are approximately $16,500 per annum;

   ·         Neither parent has any remarkable expenses (other than the possibility of Mr Sterling paying private school fees for his daughter in [Country 1]).

Issue 3 – Is it otherwise proper to make a particular determination?

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 children. Miss Sterling is in receipt of family tax benefit. An increase in child support payments from Mr Sterling will reduce the amount of Government payments made to Miss Sterling.

Conclusion

1. It is open to the tribunal to vary the annual rate of child support payable, adjusted taxable income or the other variables such as costs of self-support used in the statutory administrative assessment formula.

2. The tribunal has taken all of the factors set out above into account and proposes to make a departure determination that:

   ·         Varies Mr Sterling’s adjusted taxable income to $100,000 per annum;

   ·         Varies Miss Sterling’s adjusted taxable income to $68,040 from 1 May 2018.

3. The proposed departure determination would more equitably match up both parties’ incomes.

4. The tribunal then considered what an appropriate start date for the departure determination would be; noting the maximum allowable is 18 months prior to the application being lodged. The tribunal noted that Miss Sterling applied for a departure determination on 17 October 2016 and the previous determination ended on 28 November 2016. The tribunal therefore decided that the departure determination should commence on 29 November 2016.

5. The tribunal then considered what an appropriate end date for the departure determination would be. Mr Sterling is not likely to lodge an Australian tax return that would fairly reflect his actual level of income in the near future. Miss Sterling’s new employment income will not be fully recognised until she lodges her 2018-19 income tax return. The tribunal decided to vary Mr Sterling’s income for a period of four years to give Miss Sterling some certainty, and to vary Miss Sterling’s income until 30 September 2019 to allow for her new income to be reflected in her 2018-2019 income tax return.

DECISION

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

·         for the period 29 November 2016 to 29 November 2020 Mr Sterling’s adjusted taxable income be varied to $100,000; and

·         for the period 1 May 2018 to 30 September 2019 Miss Sterling’s adjusted table income be varied to $68,040.