Strickland and Strickland (Child support)

[2024] AATA 3589

Strickland and Strickland (Child support) [2024] AATA 3589 (14 August 2024)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2024/SC027545

APPLICANT:  Mr Strickland

OTHER PARTIES:  Child Support Registrar

Ms Strickland

TRIBUNAL:Member I Sheck

DECISION DATE:  14 August 2024

DECISION:

The decision under review is affirmed.

CATCHWORDS
CHILD SUPPORT – departure determination – ground for departure – income, property and financial resources – self-employment – benefits derived from business – parent’s earning capacity – change in working pattern – decision under review affirmed

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 Strickland and Ms Strickland are the separated parents of [Child 1] (now aged 6) and [Child 2] (aged 4).  The records of Services Australia – Child Support (Child Support) indicate that the child support assessment was registered on 23 March 2022 and Child Support has been responsible for the collection of child support from Mr Strickland since that date.  The children are in the shared care of both of their parents.

2. Since the case was registered with Child Support, the rate has been based on the administrative assessment.  As at August 2023 the annual rate payable by Mr Strickland was $7,672.  Mr Strickland applied to Child Support for a departure from the administrative assessment on 17 August 2023 on the basis that, in the special circumstances of the case, the assessment was unfair because of the income, financial resources or earning capacity of one or both parents.  Mr Strickland proposed that the annual rate of child support be reduced but did not specify an amount.  Ms Strickland was contacted by Child Support on 26 October 2023 and agreed she may receive a small benefit from her business.

3. On 29 November 2023, Child Support decided not to depart from the administrative assessment on the basis that grounds for departure were not met.  On 10 December 2023, Mr Strickland objected to the decision.  An objections officer of Child Support considered the reasons for departure and on 17 February 2024 affirmed the decision to not depart from the administrative assessment of child support.  The parties were notified of the objections officer’s decision by letters dated 17 February 2024.

4. On 21 February 2024, Mr Strickland lodged an application to the Tribunal for review of the objections officer’s decision. The Tribunal received documents 1 to 314 from Child Support in accordance with subsection 95(3) of the Child Support (Registration and Collection) Act 1988 (the Collection Act). Both parties confirmed receipt of these documents. Further documents A1 to A141 and B1 to B84 were provided by Mr Strickland and Ms Strickland respectively during the course of the appeal process. These documents were provided to both parties. On 14 August 2024, the Tribunal conducted a hearing at which Mr Strickland and Ms Strickland gave evidence by MS Teams audio.

CONSIDERATION

The legislative framework and issues for the Tribunal to determine

1. The rate of child support payable by a liable parent is usually based on an administrative assessment under Part 5 of the Child Support (Assessment) Act 1989 (the Act). This involves the application of a statutory formula, which takes into account factors such as the number of children, the age of each child, the level of care provided and the income of each parent.  The income used in the calculation has a number of components making up the adjusted taxable income, which is worked out using section 43 of the Act. The general approach is that the Child Support Registrar will utilise a parent’s adjusted taxable income as assessed by the Australian Taxation Office for the last relevant year of income.

2. The liable parent or a carer may apply for a determination departing from the administrative assessment under Part 6A of the Act. Section 98C establishes a three‑step process to be satisfied prior to a departure determination being made: that there is a ground for a departure from the administrative assessment; that it is just and equitable to depart; and that it is otherwise proper to do so. Once satisfied as to these three issues, the Tribunal may make one of the determinations prescribed in section 98S of the Act.

Reason 8A: A parent’s income, property or financial resources

1. A ground for departing from the administrative assessment of child support may exist if, in the special circumstances of the case, the administrative assessment of child support results in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of either parent’s income, property or financial resources, per subparagraph 117(2)(c)(ia) of the Act.  This ground for departure is commonly referred to by Child Support as Reason 8 or Reason 8A.

2. It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources for child support purposes (DJM and JLM [1988] FamCA 97; Scott and Scott (1994) FLC 92-457; Carey and Carey (1994) FLC 92-489). When summarised, these cases establish that a ground for departure is established as self-employed people are able to derive additional benefits from their businesses and also have greater control over the structure of their finances than a PAYG employee. While expenses and deductions claimed may be quite legitimate for taxation purposes, this does not automatically extend to child support. It is accepted that there is a divergence between the taxation system and the child support system in this area. Expenses accepted for child support purposes must not only be legitimate; they must also be essential and have a greater priority than the support of children. It is in this legal context that the Tribunal considered the evidence in this case.

3. Ms Strickland is the principal of the company [Company 1], under which the business “[Business 1]”, a [specified] shop, is run.  Mr Strickland told the Tribunal that Ms Strickland had been an employee of [Business 1] and in 2018 (while still married) they purchased the business from the then owners.  Ms Strickland was the manager of the business from day one; Mr Strickland never drew a wage from it.  They decided to do this as their plan was to have children and owning the business would afford Ms Strickland the flexibility of work arrangements that she would not have as a salaried employee.  Ms Strickland had worked full-time until [Child 1]’s birth in 2018; their intention was that once the children were old enough she would resume full-time work.

4. Ms Strickland told the Tribunal that the business is open 5 days a week: Tuesday to Saturday.  When the boys started going to child care in 2022 she was working in the business on Fridays and Saturdays, which are the busiest days.  She employs two full‑time staff and also covers for the staff when they are off sick.  The business has a combination of booked appointments and “walk-in” clients.  The business was thriving when they bought it in 2018, but they did lose some regular clients who left when the previous owners left.  Also the business was doing well during the COVID-19 times; the jobkeeper payments came in useful.  Ms Strickland was able to save some money then.  Over the last couple of years however the business has not been doing as well.  There are now seven [shops] in [City 1] and customer numbers are down as a result.  The Tribunal noted that the income tax returns for both the 2021–22 and the 2022–23 years show that the company ran at a loss and asked Ms Strickland how she maintained that.  Ms Strickland replied that she still has to pay her staff and purchase equipment, so she pays herself less.

5. Mr Strickland states that Ms Strickland receives a financial advantage from the business in that it pays for her personal expenses and provided a spreadsheet of purchases made from the business account #6924.[1]  Ms Strickland denied that the listed purchases were for personal use.  Ms Strickland told the Tribunal that she has a card for her personal account and another for the business account.  She keeps business and personal expenses quite separate.  Turning to the purchases listed by Mr Strickland in the spreadsheet for early 2023,[2] the purchases at 7-Eleven were petrol for her work vehicle, and purchases from Coles, Kmart and Big W would have included cleaning products, bleach, hand sanitiser and wipes and other necessary items for the shop such as a mop.  The purchase at Liquorland would have been beer, as they offer customers a free beer [on] Fridays.  With regard to the psychology appointments at “[specified health care provider]”, she had talked to her accountant about this and they had told her that as she was receiving treatment for work-related stress it was acceptable to claim this as a business expense.

   [1] Hearing papers, pages 144 to 147

   [2] Hearing papers, page 144

6. The Tribunal accepted Ms Strickland’s evidence regarding the purchases and was satisfied that she regularly separates business and personal expenses.  Ms Strickland does not run her business from home so is not able to defray her rent/mortgage or utilities costs.  In the year from 1 April 2022 to 31 March 2023, Ms Strickland has paid for 14 psychology appointments through the business, a total of $1,960.  The Tribunal asked Ms Strickland whether these items were included in the entry “Staff expenses” on the Profit and Loss statement for [Company 1] [3] and she responded that she thought that was likely.  This entry (which was $4,153 in the 2022–23 year) also included tea and coffee that the business supplies for staff and a birthday cake or a lunch on the staff members’ birthdays.  The Tribunal concludes that Ms Strickland receives a benefit that would not be available to most PAYG employees (unless perhaps they were to lodge a compensation claim) as the business pays for these appointments.

   [3] Hearing papers, page B84

7. Ms Strickland also receives a benefit by way of the use of a work vehicle, which is her only vehicle so is used for both work and private purposes.  Mr Strickland noted that the lease payments on her car were $600 per calendar month, and Ms Strickland responded that there is no longer a lease, and this was paid out during the parties’ property settlement last year.  The Tribunal noted that the Profit and Loss statement for [Company 1] lists motor vehicle expenses of $4,648.08 in the 2022–23 year.  If this included lease payments it is likely that this amount will have reduced in the 2023–24 year.  Ms Strickland also claimed personal tax deductions of $3,896 for work-related car expenses in the 2022–23 year[4] and $2,792 in the 2023–24 year.[5]  In her submissions to the Tribunal Ms Strickland states that she has claimed a kilometre allowance as she uses the car to pick up supplies and have the business laundry done.  The Tribunal accepts that this is accurately recorded.  Ms Strickland said that the car is owned by the business therefore the Tribunal concludes that the business also pays the registration and for vehicle maintenance.  A proportion of this would be a benefit incurred by Ms Strickland (dependent on the percentage private use of the vehicle), say another $1,000 per annum.

   [4] Hearing papers, page B16

   [5] Hearing papers, page B12

8. Ms Strickland is the principal of a business and is entitled to receive any profits of the business.  It can be seen from the financial records of the business that it made a loss of $8,162 in the 2021–22 financial year and $15,843 in the 2022–23 year.  The financial records for the 2023–24 year are not before the Tribunal.  Businesses may also make a “loss on paper” by way of depreciating assets, particularly motor vehicles or high value plant and equipment.  This does not appear to be the case here, with the depreciation claimed over the relevant 2 years being $676 and then $2,435.  The Tribunal concludes that Ms Strickland does not presently receive additional funds from the business due to her role as director.  Ms Strickland is also a salaried employee of the business.  Her salary was $24,688 in the 2022–23 year and $11,870 in the 2023–24 year.  In summary, Ms Strickland receives benefits due to her being a business owner by way of having psychological treatment paid by her business and having the use of a motor vehicle owned by the business.  The Tribunal was of the view that the value of these additional benefits is approximately $3,000 per annum.

9. In order to depart from the administrative assessment of child support on this ground, it must be shown that the assessment, if based only on Ms Strickland’s taxable income, would result in an unjust or inequitable rate of child support.  At the time of Mr Strickland’s application for departure (17 August 2023), the annual rate of child support he was liable to pay was $7,672.  This was based on Ms Strickland’s 2021–22 taxable income of $35,550 and Mr Strickland’s post-separation income of $100,994 (reduction of adjusted taxable income due to post-separation income is an amendment that can be made under the administrative assessment).  Should Ms Strickland’s assessable income be increased by $3,000 (to $38,550) to reflect the financial benefits she receives due to her business, the annual rate of child support payable by Mr Strickland would be reduced to $7,282, a reduction of some $7 a week.

10. The Tribunal was not of the view that the rate of child support calculated under the administrative assessment results in an unjust or inequitable level of support to be provided by Mr Strickland or that there are special circumstances that warrant a departure.  This means that this ground for departure is not met.

Reason 8B: A parent’s earning capacity

1. A further ground for departing from the administrative assessment of child support may exist if, in the special circumstances of the case, the administrative assessment of child support results in an unjust and inequitable determination of the level of financial support to be provided by the liable parent for the child because of either parent’s earning capacity, per subparagraph 117(2)(c)(ib) of the Act.

2. Mr Strickland contends that the assessment of child support should be based on an income amount of $52,000 for Ms Strickland, as she has the capacity to earn this amount and could do so by laying off a member of her staff and working additional hours in the business herself.  Ms Strickland agrees that the current award wage for a full‑time [employee] (38 hours a week) is $51,850 per annum however submits that she is not able to work full‑time due to the care requirements of [Child 1] and [Child 2], who are with her for 7 nights of each fortnight and with Mr Strickland the remaining 7 nights.

3. In determining whether this ground for departure is established, it is not enough to assert that a parent could be working more and consequently earning more.  Subsection 117(7B) provides that when considering the earning capacity of a parent, a decision maker is first required to consider whether one or more of the following applies:

   ·the parent does not work despite ample opportunity to do so;

   ·the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full‑time work for the occupation or industry in which the parent is employed or otherwise engaged;

   ·the parent has changed his or her occupation, industry or working pattern.

4. It is common ground that Ms Strickland has not worked on a full-time basis since before [Child 1] and [Child 2] were born.  She now works on a part-time basis and has done so since before the commencement of the child support assessment.  It is clear from this that neither of the first two requirements of subsection 117(7B) are met.  In considering whether Ms Strickland has changed her working pattern, as discussed above, her salary from employment reduced from $24,688 in the 2022–23 year to $11,870 in the 2023–24 year.  In her submissions to the Tribunal Ms Strickland however noted that in August 2023, she increased the days that she works at the [specified] shop: she now works Thursdays to Saturdays.  Ms Strickland submitted that the reason for the reduction in her salary was that the business could not afford to pay her more.  The Tribunal notes that as a salaried employee, Ms Strickland’s Centrelink income support payments are based on her declared earnings (as opposed to a quarterly Profit and Loss assessment), therefore neither her in hand or her taxable income has halved, as the parenting payment increases with the reduction in earnings. 

5. The Tribunal concludes that Ms Strickland has changed her working pattern in the 2023–24 year but this change was to increase, rather than decrease, her working hours.  The intention of this section of the legislation is explained in plain English in the Child Support Guide, at section 2.6.14 as follows:

   Changed industry, occupation, or working pattern

   This sub-criterion may apply when the parent is still employed, but has changed jobs, or rearranged their hours of work, or pattern of work. It is implicit that this change in industry, occupation or working arrangements has resulted in a lower income.

6. The Tribunal concludes that Ms Strickland’s change in working pattern to increase her hours in the [specified] shop did not result in her lower income.  Grounds for departure from the administrative assessment of child support on this basis are therefore not met.

7. As the Tribunal has determined that no grounds exist to depart from the administrative assessment provisions, the departure application cannot succeed and the Tribunal did not go on to consider whether it is just and equitable and otherwise proper to make a departure determination.  This means that the rate of child support in respect of [Child 1] and [Child 2] is to be assessed in accordance with the administrative assessment.

DECISION

The decision under review is affirmed.