Talfourd and Talfourd (Child support)

[2022] AATA 5013

Talfourd and Talfourd (Child support) [2022] AATA 5013 (24 August 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2022/SC023122

APPLICANT:  Mr Talfourd

OTHER PARTIES:  Child Support Registrar

Mrs Talfourd

TRIBUNAL:Senior Member K Dordevic

Member D Tucker

DECISION DATE:  24 August 2022

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that for the period 1 January 2021 to 30 November 2024, Mr Talfourd’s adjusted taxable income is varied to $263,270 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision to depart - 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. The Child Support (Assessment) Act 1989 (the Act) provides for an administrative assessment of the child support payable in a child support case. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances.

2. Mrs Talfourd (the mother) and Mr Talfourd (the father) are the parents of two children.  This case was first registered with Services Australia – Child Support (the Agency) on 9 December 2015 and registered for collection from that date. The care record reflects that the children are in the mother’s 68% care and the father’s 32% care.

3. The mother lodged a departure application on 16 June 2021. On 26 August 2021 a senior case officer varied the father’s adjusted taxable income to $247,582 for the period 16 June 2021 to 31 October 2023. 

4. On 23 September 2021 both the father and mother lodged objections to that decision. On 13 December 2021 an objections officer partly allowed the objections, determining that the father’s adjusted taxable income is to be varied to $223,712 for the period 16 June 2021 to 15 June 2024.

5. On 13 January 2022 the father sought further review with the Social Services and Child Support Division of the Administrative Appeals Tribunal (the tribunal).

6. A directions hearing was held on 28 June 2022. Directions were issued on the same day requiring compliance by 3 August 2022.

7. The hearing took place on 24 August 2022. Both the father and mother appeared in person. The tribunal also considered the documentation provided by the Agency (folios 1 to 932), the father (folios A1 to A216) and the mother (folios B1 to B79).

ISSUES

1. The statutory provisions relevant to this review are outlined in section 98C of the Act, which states that a decision to depart from the administrative assessment may be made if the following three 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 …

2. Therefore, the issues which arise in this case are:

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

   ·     Would it be just and equitable and otherwise proper to make a particular determination?

CONSIDERATION

A ground for departure

1. Subparagraph 117(2)(c)(ia) of the Act provides a ground for departure if the administrative assessment would result in an unjust and inequitable determination of the level of financial support to be provided by the liable parent because of either party’s income, property or financial resources. The central issue in this matter is whether the administrative assessment accurately reflects the father’s income and financial resources.

2. At the time the mother lodged the departure application under review the father was liable to pay an annual rate of child support of $7,700 for the period 16 June to 29 June 2021 based on the father’s 2020 adjusted taxable income of $64,551 and the mother’s 2020 provisional income of $13,997.  His annual rate remained the same for the period 30 June 2021 to 10 February 2022 after application of the mother’s 2020 adjusted taxable income of $13,204.

3. The father’s position can be summarised as follows. The manner by which the Agency has calculated his income and financial resources was based on unreasonable and unfair assumptions and no allowance was made for his business’s tax liability. He simply cannot understand how that was not taken into account. The business’s 2022 profit and loss statement clearly shows that the operating profit has significantly reduced, and this must also be taken into consideration. He must also make provision to meet his staff’s leave entitlements as well as other incidentals, including the replacement of machinery. Further, in order to meet his expenses, he must borrow money from the business, which is why there is a substantial shareholder loan account.

4. The tribunal understands that the mother’s position is that the father’s income is accurately reflected by the variation made by the objections officer.

5. It is not in dispute that the father is the sole director and shareholder of [Company 1] (the business), which is a [specialised] enterprise with about eight staff members. At hearing he explained that he established the business about 30 years ago with three business partners. Over the years there were various changes to the partnership arrangements and then about seven years ago he bought the last remaining partner out.

6. It is apparent that in the 2020 to 2021 financial years, the business paid the father gross wages of $52,936 and $53,242 respectively. He also received franked dividends and franking credits of $30,023 and $40,746 respectively. The payslips in evidence for the period 30 May to 5 June 2022 (at A36) indicate that the father is currently paid a wage of  $1,000 per week from the busines. At hearing he explained that his wages are determined by what he feels is “best” for the business and what he needs to “survive”.

7. The business’s 2019 to 2022 financial year profit and loss statements and balance sheets indicate the following:

Financial Year	2019	2020	2021	2022 (draft)
Gross income	$1,109,563	$1,477,098	$1,457,412	$1,409,716
Gross Expenses	$974,193	$683,294	$486,513	$746,153
Profit/Loss	$135,370	$238,661	$233,465	$32,650
Shareholder Loan	$51,960.79	$68,686	$143,939	$121,783

1. In response to questioning about the decrease in gross income and the significant increase in gross expenses, the father explained that at least $250,000 of the increase in expenses is due to the increased cost of materials. He stressed that business profits are generally modest, and they only increased in the 2021 and 2022 financial years as a consequence of assistance he received “in hard times”. When asked to elaborate, the father stated that in 2019 he had some good business contacts.

2. At hearing, the father did not dispute that the shareholder loans reflect the funds that were available to him for his personal use during the relevant periods. In fact, this has been a long-standing arrangement, the father explaining that he (and his former business partners) had shareholder loans for at least 15 years. However, he stressed that he must refund these loans to the business and pay tax on them in the future; he believes that he may need to reimburse the business within two or three years but given his limited income, it is unlikely that he will be able to do so. He has given some consideration to increasing his wage rather than drawing from the business; however, he had thought that shareholder loans “would be a good thing”.

3. The Family Court has established the principle that in the case of self-employed parents, their taxable income may not be an accurate reflection of their earning capacity and financial resources. Several cases have examined this issue closely, including Scott and Scott (1994) FLC 92-457 and Carey and Carey (1994) FLC 92-489. The Courts consider that self-employed people can derive additional benefits from their business in addition to wages. They also have greater control over the structure of their finances than an employee receiving salary or wages, and so may be able to use the income of the business in ways other than paying wages. Expenses and deductions which may be legitimate for tax purposes may not be considered to take precedence over child support obligations. Under child support law, other than the basic expenses necessary for self-support, there are very few expenses which take precedence over the support of children. There is considerable divergence between the taxation system, which is intended to provide general support for many, and the child support system, which is intended to provide specific support for the children of relationships.

4. In his Statement of Financial Circumstances form dated 1 February 2022, the father reports that he works on a full-time basis as the marketing director of the business. He declares a gross salary of $1,000 per week. He reports that his assets include a home valued at $1,200,000, savings of $4,205, his interest in the business valued at $100,000, household contents valued at $10,000 and superannuation valued at about $183,546. His liabilities include a mortgage of $843,845, weekly personal expenses of $1,076 and weekly household expenses of $2,468, of which $645 relates to his care of the children (though this does not take into account the provision of accommodation). To meet his declared expenses, the father would require a net income of $184,288 ($263,269 gross). It is noted that the father does not declare any expenses relating to a motor vehicle. At hearing the father confirmed that the business meets all his private motor vehicle costs. Thus, the actual benefits the father receives from the business are greater than his declared expenses suggest.

5. Close examination of the father’s bank statements in evidence clearly demonstrate that his necessary and discretionary spending are generally consistent with that declared in his Statement of Financial Circumstances form. It is apparent that in addition to his wage, his costs are indeed met from regular transfers from the business to his personal accounts, including his Mastercard (more than $100,000 in the 2022 financial year). The father states that these transfers, except for a portion of payments made to his mortgage, are reflected in the shareholder loan. The father went on to explain that, as he increased his mortgage to meet business expenses (including buying out partners and some bad debts) a portion of his mortgage expenses are legitimately met by the business and are not included in the shareholder loan. The mother disputed his evidence on this point, stating that the increase in the mortgage was as result of the marital property settlement and was unrelated to the dissolution of business partnerships. Later in the hearing the father stated that he also borrowed money from his brother, which also requires repayment, and is not reflected in his Statement of Financial Circumstances.

6. The tribunal finds that the business’s financial statements and payslips indicate the income and financial resources available to the father. It follows that the father’s adjusted taxable income, and his assertions regarding current income as outlined in the payslips in evidence, do not reflect his actual income and financial resources. Whilst the tribunal understands that the father’s evidence is that he must repay the shareholder loans, this is not strictly correct. The shareholder loans evidence drawings made by the father from the business. Whilst there are tax implications, it is possible that the business may forgive the loans.  Nevertheless, the shareholder loans represent a financial resource available to the father for the support of the children. In any event, a determination of one’s adjusted taxable income is on the basis that a portion of that is payable in tax.

7. The father asserts that his income is consistent with his taxable income. The payslips in evidence indicate that the father’s annual salary in the 2022 financial year was $52,000. Allowing for similar dividends and franking credits, as well as deductions, from the 2021 financial year would suggest that the father’s 2022 adjusted taxable income will be in the vicinity of $76,850. Application of this to the administrative assessment would result in the father being liable to pay $10,902 per annum in child support. At the time the father lodged his application to this tribunal he was liable to contribute $31,506 per annum towards the children’s costs. The tribunal has formed the view that the father’s 2022 financial year income and financial resources are conservatively estimated to be in the vicinity of $263,269. Application of this income and financial resource to the current administrative assessment would require the father to contribute about $35,480 per annum towards the costs of the children, some $3,974 more than the amount determined by the objections officer.

8. As the father’s income and financial resources are not properly reflected in the child support assessment, there are special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. The tribunal therefore concludes that the ground provided for in subparagraph 117(2)(c)(ia) of the Act 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 child, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula assessment.

2. The tribunal finds that the mother’s 2021 and 2022 adjusted taxable incomes are $21,662 and $0 respectively. The mother provided a Statement of Financial Circumstances dated 1 February 2022, declaring net income from her workplace and [business] of both nil and, in contradiction to that declaration, $250 (net). She lives with her partner with whom she jointly owns a property; her share is valued at $427,000 and her portion of the mortgage is $172,000.  She reports savings of $194,312, a motor vehicle valued at $5,000, household contents valued at $10,000, her interest in her business as nil and superannuation of $39,283. She reports $50 in personal expenses and household expenses of $1,638 per week, of which $423 relates to her expenses and $912 in respect of the children. At hearing the mother explained that her savings were the proceeds from the parents’ property settlement, and this is what she is using to meet her own and the children’s costs.

3. The mother was questioned about her earning capacity. She testified that the last time she was in an arm’s length employee relationship was before her marriage to the father. After the children were born, she worked as a bookkeeper in the business, the flexibility of the arrangement allowing her to continue to be the children’s primary carer. She also worked as a self-employed [Occupation 1] for a food manufacturer, earning about $240 per week. She explained that as she suffers from eczema she was limited [in the work she can perform], which she testified limited her to working in the corporate sector. However, she then developed repetitive-strain injury and so took on a co-ordinating rather than direct [role]. After COVID-19 lockdowns she has had no [Occupation 1] work at all. She now finds herself at a crossroad; she does not know what to do. Recently she did some volunteer work, which has helped her determine that she does not want to work in the community sector. She now believes that bookkeeping is the most viable work option available to her, though she will require some TAFE training.

4. For a person to be assessed in accordance with their earning capacity rather than their actual income, the three tests set out in subsection 117(7B) of the Act must be satisfied:

   In having regard to the earning capacity of a parent of the child, the court may determine that the parent‘s earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied that:

   (a)one or more of the following applies:

   (i)the parent does not work despite ample opportunity to do so;

   (ii)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;

   (iii)the parent has changed his or her occupation, industry or working pattern; and

   (b)the parent‘s decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern, is not justified on the basis of:

   (i)the parent‘s caring responsibilities; or

   (ii)the parent‘s state of health; and

   (c)the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child.

5. By the mother’s own evidence, she does not work despite ample opportunity to do so. Subparagraph 117(7B)(a)(i) of the Act is satisfied.

6. The mother submits that her decision not to work is a result of her caring responsibilities. Given the children’s ages the tribunal is not satisfied that her caring responsibilities justify her decision not to work. Further, there is no medical evidence before the tribunal to suggest that her health justifies her decision not to work. Thus, paragraph 117(7B)(b) of the Act is satisfied.

7. The tribunal has already noted that the child support case was registered and collectable since December 2015. The child support record demonstrates that the mother’s 2017 to 2022 adjusted taxable incomes were $18,735, $15,949, $13,636, $13,204, $21,662 and $0 respectively. The father did not contest the mother’s evidence regarding her work history, being that she has engaged in only minimal paid work outside the home whilst the parents were married and since separation. This then changed in about July 2021 when the mother no longer engaged in any paid work. The tribunal considered that even when the mother was working, her adjusted taxable incomes were below the relevant self-support amounts; that is, even if the tribunal were satisfied that it was indeed a major purpose of her decision to affect the administrative assessment, if her earning capacity was applied to the administrative assessment, it would have no impact on the assessment. In such a context, the tribunal is not persuaded that her decision to no longer work from July 2021 was to affect the administrative assessment. Paragraph 117(7B)(c) of the Act is not satisfied. The tribunal concludes that the mother does not have an unexercised earning capacity for the purposes of the child support assessment.

8. The father submits that the older child’s earnings result in an unfair assessment of his child support liability. At hearing the parents’ consistent testimony is that the older child works on weekends on a casual basis, earning about $100 per week. As a general rule, minimal earnings do not provide a basis for amending an administrative assessment: Mee and Ferguson (1986) FLC 91-716. The Child Support Guide states at Chapter 2.6.10 that the Child Support Registrar will not be satisfied that a child’s income is sufficient to amend the assessment unless it is regular and exceeds the maximum rate of youth allowance (being $382.90 per week as at 1 January 2022). Furthermore, consideration must be given to the context of the income and assets of both parents. Considering these established principles and policies, the tribunal is not persuaded that the older child’s part-time employment income results in an unjust or inequitable determination of child support payable by the father.

1. The parents do not dispute that the children are generally in good health and the tribunal finds accordingly. The tribunal also finds that the father is generally in good health. The medical evidence provided by the mother indicates that she requires ongoing psychological support but is otherwise in reasonable physical health.

2. Both children attend a public high school. The tribunal also accepts that historically the father has met orthodontic costs, as well as registration costs associated with the children’s participation in elite sport. In particular, the evidence provided by both parents indicates that the younger child’s elite sporting costs are significant. The mother’s testimony is that the father agreed to meet the child’s elite [sport] coaching costs, but given the care arrangements, she incurs significant costs in travelling with the child to sporting events and coaching sessions, as well as regular allied health appointments. She estimates her out of pocket costs from 16 June 2021 to 2 August 2022 to be $5,879, including over $4,000 in transport costs (at B64). The mother submits that the father met the child’s registration costs of about $3,100. She also testified that recently the father has sent her SMS messages stating that he will no longer contribute to these costs (at folio 814). The tribunal accepts that apart from these costs, there is no evidence to suggest that the children’s necessary costs are out of the ordinary.

3. The tribunal concludes that the father’s income and financial resources are most accurately reflected by an adjusted taxable income of $263,270. In the tribunal’s view, varying the father’s adjusted taxable income on this basis reflects the most reasonable conclusion to be drawn on the available evidence regarding his income and financial resources. Whilst it is possible that this may underestimate the father’s true financial position, any further increase in his adjusted taxable income would have a minimal impact on his assessed liability. This aspect of the decision will create arrears of about $4,980. In view of the findings regarding the father’s income and financial resources, the tribunal is not persuaded that this will put him in a position of undue hardship. To find otherwise would result in a disproportionate amount of the children’s costs being borne by the mother.

4. The mother asks that the administrative assessment be departed from on this basis from about January 2020. She submits, and has provided corroborating SMS messages (folios 805 to 811 and 811 to 816), that she has attempted to negotiate a higher rate of child support from the father from 3 May 2019. At hearing she stated that she then consulted a lawyer who advised that she would be better off lodging a change of assessment application.  The father’s position is that he simply could not afford to have his liability increased and backdated. However, he did concede that in about January 2021 he thought that he and the mother would come to a private arrangement whereby he would pay a higher rate of child support than dictated under the assessment. However, the mother disregarded his offers and went directly to the Agency instead. 

5. On balance, the tribunal is satisfied that it is appropriate to vary the father’s income and financial resources from 1 January 2021, some five months before the mother lodged her change of assessment application. Clearly the father was aware from before this time that the mother sought a greater contribution from him towards the children’s costs, and the basis on which she disagreed with the administrative assessment. The variation to the child support assessment on this basis will create arrears of about $14,000. The tribunal is satisfied that the father can meet this liability and his ongoing necessary expenses. Furthermore, these funds are necessary for the mother to adequately provide for the children.

6. In light of the above findings, the tribunal is not persuaded that the mother’s costs associated with the child’s elite sporting activities render the administrative assessment unfair or unjust. In reaching this conclusion, the tribunal took into account the mother’s significant savings, the father’s child support liability and the father’s contribution to those costs (in addition to his child support liability). 

7. The tribunal is of the view that the father’s income and financial resources will not be accurately reflected by his adjusted taxable income into the foreseeable future. The mother has requested that the tribunal depart from the administrative assessment for a further two years. Given that the older child will turn 18 years of age in 2024 and is likely to complete her Year 12 studies that year, the tribunal is satisfied that it is appropriate to depart from the administrative assessment on this basis until 30 November 2024. This determination will provide certainty to the parties and minimise the need for repeat proceedings.

8. The tribunal is satisfied that the administrative assessment is unfair given the father’s income and financial resources. This results in an unjust and inequitable level of child support given the circumstances of each parent. For all these reasons it is just and equitable to depart from the administrative assessment.

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. The mother is in receipt of income-tested benefits. Departing from the administrative assessment will result in a more appropriate apportionment of financial responsibility between the parents and the community.

2. The determination is otherwise proper.

DECISION

The tribunal sets aside the decision under review and, in substitution, decides that for the period 1 January 2021 to 30 November 2024, Mr Talfourd’s adjusted taxable income is varied to $263,270 per annum.