Swanton and Parnell (Child support)

[2023] AATA 1643

Swanton and Parnell (Child support) [2023] AATA 1643 (27 April 2023)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2022/BC025240

APPLICANT:  Mr Swanton

OTHER PARTIES:  Child Support Registrar

Ms Parnell

TRIBUNAL:Member J Leonard

DECISION DATE:  27 April 2023

DECISION:

The Tribunal set aside the decision under review and, in substitution, decided that Mr Swanton’s adjusted taxable income for the child support period commencing on 1 September 2022 is $100,000.

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 – additional income was earned not in the ordinary course after separation – an amount should be excluded - 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

BACKGROUND

1. This application for review is about the assessment of child support applying to Mr Swanton and Ms Parnell, who are the parents of three children.

2. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable by one parent to the other. It uses a statutory formula which contains variables such as the parents’ adjusted taxable incomes, the number of children and their percentages of care. 

3. On 12 August 2022, Mr Swanton asked Services Australia – Child Support (Child Support) to exclude additional income earned since separation from his adjusted taxable income. In particular, he sought to have $41,257 of his adjusted taxable income of $138,628 be excluded from the assessment. On 18 August 2022 Child Support considered the matter and decided Mr Swanton’s adjusted taxable income for the child support period commencing 1 September 2022 is $97,371.

4. On 5 October 2022, Ms Parnell objected to the decision to make any change to Mr Swanton’s adjusted taxable income. She lodged an extension of time to object to the decision which was granted by Child Support on 18 October 2022.

5. On 9 December 2022 an objections officer decided to allow Ms Parnell’s objection.

6. On 11 December 2022 Mr Swanton applied to this Tribunal for an independent review of Child Support’s decision. The application was heard on 27 April 2023. Mr Swanton and Ms Parnell both attended the hearing by telephone.

7. The Tribunal had before it relevant documents provided to it by Child Support pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. Copies of these documents (156 pages) were also sent to Mr Swanton and Ms Parnell by Child Support prior to the hearing.

8. Prior to the hearing Ms Parnell provided documents to the Tribunal which were numbered B1 to B33.

ISSUES

1. The statutory provisions relevant to this review are contained in section 44 of the Act, which provides a mechanism for a person to make an application for post-separation income to be excluded from the child support assessment in certain circumstances.

2. Under section 44 of the Act a maximum of 30% of a parent’s adjusted taxable income may be excluded if the following apply:

   ·      The parents of the child lived together on a genuine domestic basis for at least six months (paragraph 44(1)(a));

   ·      The separation of the parents occurred within the last three years and before either parent applied for a child support assessment (paragraph 44(1)(b));

   ·      At the time of the application, the parents remain separated (paragraph 44(1)(c);

   ·      That in the last relevant year of income, or in the application period for an income election, the applicant parent earned, derived or received income:

   • In accordance with a pattern of earnings, derivation or receipt that is established after the applicant and the other parent first separate (subparagraph 44(1)(d)(i)); and
   • 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 (subparagraph 44(1)(d)(ii)).

   The last relevant year of income is defined in the Act as the income for the most recent financial year that ended before a child support period commenced.

3. The central issue for the Tribunal to determine in this case is whether post-separation income can be excluded and, if so, the amount which should be excluded and the date from which it can be excluded.

CONSIDERATION

1. In this instance, there was no dispute that Mr Swanton and Ms Parnell lived together on a genuine domestic basis for more than six months and remain separated. The date of separation is 21 October 2021. Ms Parnell made an application for a child support assessment which was registered on 15 June 2022. The requirements of paragraphs 44(1)(a)(b) and (c) are all satisfied.

2. Mr Swanton made his application under section 44 of the Act on 12 August 2022, during the child support period which commenced on 15 June 2022. A new child support period commenced on 1 September 2022.

3. Mr Swanton’s 2020–21 adjusted taxable income was $58,309. This was used in the assessment for him at the time of his application. This means the last relevant year of income at the time of Mr Swanton’s application is the 2020–21 financial year, being the most recent financial year that ended before the child support period commenced. This is not the financial year for which Mr Swanton seeks an amendment.

4. On 11 August 2022 an amount of $138,628 was substituted as Mr Swanton’s income in the child support assessment in place from 1 September 2022. Following the lodgement of Mr Swanton’s 2021–22 income tax return, adjusted taxable income of $133,061 was used in the assessment for Mr Swanton from 1 September 2022. Mr Swanton is seeking an amendment in respect of the 2021–22 financial year.

5. The objections officer stated that Mr Swanton’s adjusted taxable income was $166,665 in 2018–19, $135,558 in 2019–20 and $58,309 in 2020–21. During these years he was the director of a [Work sector 1] business.

6. The business collapsed after 10 years, and in May 2021 Mr Swanton commenced full-time work for [Employer] in a [Work task 1] role. Mr Swanton stated he was finding it very difficult financially on a contract of $100,000 per annum. A friend alerted him to a new role in a government agency that might be of interest to him. He secured the position, resigned from his previous employment and commenced work in the new role on 10 January 2022 on a contract of $180,000 per year.

Was a pattern of earnings established after Mr Swanton and Ms Parnell separated?

1. As noted above, Mr Swanton and Ms Parnell separated on 21 October 2021. At that time, Mr Swanton was no longer self-employed and he was working for [Employer] earning $100,000 per annum. From 10 January 2022 he commenced a new role with a salary of $180,000.

2. The Tribunal considered the requirements of subparagraph 44(1)(d)(i) of the Act.

3. The Tribunal has also had regard to the relevant policy, although it is not bound by the policy if there are cogent reasons not to apply it: Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634. In the case of G v MIBP [2018] FCA 1229 the Federal Court observed that it is clear from earlier authorities, that in the absence of any statutory indication to the contrary, any lawful executive policy enacted to guide the exercise of a statutory power is a relevant factor for the Tribunal to take into account in performing its review task.

4. The Child Support Guide (the Guide) relevantly states at Chapter 2.5.2:

2.5.2 Additional income earned post separation

Context

A parent can apply to have extra income earned following separation excluded from their child support assessment.

…

A parent can apply to have additional income that was earned after separation excluded from their adjusted taxable income for child support purposes in certain circumstances. A parent may apply to have additional income excluded, regardless of whether they pay or receive child support.

The exclusion of additional income post separation is limited to the first 3 years after the parents last separated before the start of the child support case.

…

Additional income

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…

1. Subparagraph 44(1)(d)(i) of the Act only requires that the increased income received by Mr Swanton be: “…in accordance with the pattern of earnings, derivation or receipt that is established after the applicant and the other parent first separate…” This is not a “but for” test. The Tribunal does not need to be satisfied that Mr Swanton would have been unable to change to his new job prior to separation, it just needs to be satisfied that Mr Swanton did not change to that job prior to separation and that the increase in his earnings postdates the separation.

2. For most of the 2021–21 financial year, and for a number of years prior, Mr Swanton had been a director of a business. The adjusted taxable income for Mr Swanton in the 2020–21 financially year was considerably lower than previous years and the [Work sector 1] business was significantly impacted by the COVID-19 pandemic. Mr Swanton’s income increased when he became a salaried employee in May 2021 in the [Work sector 2]. His earnings changed again following separation when he made a career change to a higher paying job on 10 January 2022.

3. The Tribunal finds that from 10 January 2022 the career change resulting in a higher paying job constitutes a change in the pattern of earnings. The requirement of subparagraph 44(1)(d)(i) of the Act was therefore met.

Is the income of a kind that would not have been derived in the ordinary course of events?

1. Consideration is next given to subparagraph 44(1)(d)(ii) of the Act and in particular the meaning of the term “in the ordinary course of events”. The Tribunal finds that there is no definition of this term in the legislation, and that this phrase in the context of section 44 has not been considered judicially.

2. The Guide provides at Chapter 2.5.2:

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’s emphasis]

1. The Tribunal understands that the Explanatory Memorandum and the Guide reflect the legislative intent to quarantine income from the administrative assessment of child support where the applicant parent takes action to ameliorate the financial effects following separation that would not have been reasonable to expect would have occurred had the parents not separated, that is, in the ordinary course of events. The ordinary course of events is in reference to whether the income would have been earned, derived or received irrespective of whether separation occurred. The implicit reasoning is that had the applicant parent not separated (and so not have experienced a change to their personal and financial circumstances) it would be reasonable to expect they would not have taken the action to secure the additional income. Conversely, if the additional income would still have been earned, derived or received irrespective of whether there was a change to the applicant parent’s relationship status, it is reasonable to find that an increase in income was in the ordinary course of events. 

2. Mr Swanton stated the role he commenced in January 2022 is within the [Public sector]. The nature of the role is in [Work task 2] in [Work sub-sector]. He leads a [Work sector 1] function within that organisation. It is vastly different from his previous experiences while working for over 26 years within [Work sector 1]. Mr Swanton stated his team is responsible for [Work sub-tasks], and managing a relationship with a [Work sector 1]  company. He has never done this work before in a [Public sector] setting.

3. Mr Swanton stated he experienced emotional and financial hurt after losing the business and didn’t want to work in [Work sector 1] again. The work he is undertaking was formulated for the purposes of this agency and is not traditional [Work sector 1] work. Given it was paying significantly more than the work he was undertaking at [Employer] he decided to put himself forward for the role.

4. Ms Parnell stated that in his application to have post-separation income excluded, Mr Swanton identified his occupation as a [Work sector 1] consultant. His employment is consistent with the employment he undertook when he was self-employed. Ms Parnell argued that Mr Swanton’s increase in earnings would have happened in the ordinary course of his career and was not separation related. She views his current employment as a natural progression from his previous employment, drawing together his experience in [Work sector 1] and his qualifications in [Work task 1].

5. Mr Swanton asserted that the increase in his income post-separation did not come about in the ordinary course of events. Mr’s evidence was that following separation he was struggling to meet his expenses on the income earnt from his employment in [Work sector 2].

6. The Tribunal considers that Mr Swanton’s qualifications in [Work task 1] and experience in [Work sector 1] assisted him to secure his current role and further notes that the income he earns is not inconsistent with his adjusted taxable income in the
   pre-COVID-19 years.

7. However, the increase in his income from 10 January 2022 was the result of a change in his employment a few months after he and Ms Parnell separated. It is not reasonable to expect that his salary would have increased by $80,000 per annum had he remained in the position he held at the time of separation, and the Tribunal was not persuaded that the increase would have occurred in the ordinary course of events.

8. The Tribunal is satisfied that the requirement set out in subparagraph 44(1)(d)(ii) of the Act has been met. Consequently, the Tribunal is satisfied that Mr Swanton’s adjusted taxable income for the 2021–22 financial year should be adjusted to take into account post-separation income.

By what amount should the adjusted taxable income be amended?

1. At the commencement of the 2021–22 financial year, Mr Swanton was employed on a salary of $100,000 per annum. From 10 January 2022 he was earning $180,000 per annum. His 2021–22 adjusted taxable income was $133,061. The Tribunal finds that the income earned from the change in the pattern of earnings was $33,061.

2. The amount of post-separation income which can be excluded in accordance with paragraph 44(3)(a) of the Act is limited to a maximum of 30% of a person’s adjusted taxable income.

3. A reduction of $33,061 is approximately 24% of Mr Swanton’s 2021–22 adjusted taxable income. In this case, the Tribunal finds it is appropriate to exclude an amount of $33,061.

From what date should the adjusted taxable income be amended?

1. Subsection 44(2) of the Act provides that the Registrar may make a determination to exclude a specified amount of post-separation income for a day in the child support period. The relevant child support period in this case commenced on 1 September 2022 and will end at the latest on 30 November 2023.

2. The Tribunal determines that an adjusted taxable income of $100,000 be applied to the assessment for the child support period commencing on 1 September 2022.

DECISION

The Tribunal set aside the decision under review and, in substitution, decided that Mr Swanton’s adjusted taxable income for the child support period commencing on 1 September 2022 is $100,000.