Tompson and Tompson (Child support)

[2022] AATA 2141

Tompson and Tompson (Child support) [2022] AATA 2141 (31 May 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBERS:  2022/BC023344; 2022/BC023500; 2022/BC023518; 2022/BC023519 and 2022/BC023520

APPLICANT:  Mr Tompson

OTHER PARTIES:  Child Support Registrar

Mrs Tompson

TRIBUNAL:Member P Jensen

DATE OF DECISIONS:                   31 May 2022

DECISIONS:

The decisions to not amend the administrative assessment on the basis of Mr Tompson’s amended 2015-16 adjusted taxable income of $81,667, his amended 2016-17 adjusted taxable income of $47,815, his amended 2017-18 adjusted taxable income of $48,291, his amended 2018-19 adjusted taxable income of $58,131 and his amended 2019-20 adjusted taxable income of $49,537 are affirmed.

The decision to amend the administrative assessment on the basis of Mr Tompson’s amended 2016-17 adjusted taxable income of $57,147 is set aside and, in substitution, a decision is made to not amend the administrative assessment on the basis of that adjusted taxable income.

CATCHWORDS

CHILD SUPPORT – particulars of the administrative assessment – whether the adjusted taxable incomes for past periods for the liable parent should be changed – decision not to amend - decisions under review affirmed

CHILD SUPPORT – particulars of the administrative assessment – whether the adjusted taxable incomes for past period for the liable parent should be changed – 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 DECISIONS

1. Mr Tompson and Mrs Tompson are the parents of two children. A child support case is registered with the Child Support Agency (“the CSA”). The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes. Mr Tompson’s applications for review concern the CSA’s decisions in late 2021 to use one of his amended adjusted taxable incomes, as assessed by the Australian Taxation Office (“the ATO”), but not others. The amended adjusted taxable incomes are for 2015-16 to 2019-20. It is convenient to initially focus on 2015-16. The relevant facts are not in dispute.

2. Mr Tompson was discharged from [Employer] in 2015. He was granted invalidity benefits. He has lodged his tax returns for the financial years from at least 2015‑16 onwards within a few months of the end of the relevant financial year.

3. A child support case was registered from 7 March 2017. The administrative assessment of Mr Tompson’s rate of child support payable from 7 March 2017 was based on his 2015‑16 adjusted taxable income of $95,181. The CSA’s use of that adjusted taxable income was unremarkable.

4. In December 2020 the Full Court of the Federal Court delivered its decision in a number of test cases: Commissioner of Taxation v Douglas [2020] FCAFC 220 (“Douglas”). The principal issue was whether invalidity benefits were superannuation lump sums or superannuation income stream benefits. Superannuation lump sums attract a greater tax concession than superannuation income stream benefits. The ATO had previously classified invalidity benefits as superannuation income stream benefits. The Court concluded that they were superannuation lump sums.

5. In September 2021 the ATO amended Mr Tompson’s 2015-16 adjusted taxable income to $81,667 on the basis of Douglas. The CSA decided to not amend the administrative assessment from 7 March 2017 on the basis of his amended 2015-16 adjusted taxable income. Mr Tompson objected to that decision and other decisions in respect of his amended adjusted taxable incomes for 2016‑17 to 2019-20. An objections officer disallowed his objections. Mr Tompson applied to the Tribunal for further review. I heard the matters on 31 May 2022. Mr Tompson attended the hearing in person. Mrs Tompson did not attend the hearing.

6. Section 56 of the Act relevantly states:

   Taxable income is as assessed under Income Tax Assessment Act

   Meaning of taxable income

   (1) For the purposes of assessing a parent in respect of the costs of a child in relation to a child support period, if the parent's taxable income has been assessed under an Income Tax Assessment Act for the last relevant year of income in relation to the child support period, the parent's taxable income for that year is the amount as so assessed.

   Note:Sections 34A and 57 are also relevant to a person's taxable income.

   When amended tax assessment may be taken into account

   (2) If, after an administrative assessment of child support is made, the assessment (the tax assessment) of a parent's taxable income is amended (whether or not because of an objection, appeal or review), the Registrar may amend the administrative assessment to take account of the amendment to the tax assessment.

   Retrospective determinations

   (2A) An amendment of the administrative assessment under subsection (2) must be on the basis that the parent's adjusted taxable income for that year of income is, and has always been, the amount worked out as a result of the amended tax assessment if:

   (a)the parent's adjusted taxable income worked out as a result of the amended tax assessment is higher than the parent's previous adjusted taxable income; or

   (b)the parent applied for the amendment of the tax assessment on or before:

   (i)…; or

   (ii) …; or

   (iii)the end of 28 days after the parent becomes aware that the tax assessment is not correct if the parent did not apply for the amendment on or before a day referred to in subparagraph (i) or (ii) because of circumstances beyond the knowledge or control of the parent; or

   (c)the parent did not apply for the amendment of the tax assessment on or before any of the days referred to in paragraph (b), but the Registrar is satisfied that special circumstances exist.

   …

7. The evidence does not disclose whether Mr Tompson applied for amendments to his tax assessments within the period stated in subparagraph 56(2A)(b)(iii), but, if he did not, the fact that the amendments were the result of test cases before the Full Court of the Federal Court which involved the interpretation of an esoteric area of the law constitutes special circumstances. Either way, subsection 56(2A) is satisfied. Subsection 56(2) grants a discretion to amend the administrative assessment which was based on Mr Tompson’s 2015‑16 adjusted taxable income of $95,181, and if that discretion is exercised, the amendment to the administrative assessment must be based on Mr Tompson’s amended 2015-16 adjusted taxable income of $81,667. The issue is whether that discretion should be exercised.

8. As noted earlier, the administrative assessment of child support payable is calculated pursuant to a formula. The formula includes some variables that are specific to the parents and the children of the child support case, such as the parents’ adjusted taxable incomes and their percentages of care of the children, but the formula is otherwise based on the average or ordinary costs of maintaining children, and related matters, and the formula effectively assumes that the circumstances of each child support case are ordinary. If that assumption is incorrect and the administrative assessment consequently produces an unfair result, a person can apply for a departure from the administrative assessment (commonly referred to as a Change of Assessment): Part 6A of the Act. Importantly for present purposes, the formula assumes that each parent’s income is ordinary taxable income that is subject to the ordinary rates of income tax.

9. At the hearing, Mr Tompson acknowledged that prior to Douglas his invalidity benefits were taxed at a lower rate than ordinary taxable income. It follows that, all other things being equal, his post-tax income was greater than his adjusted taxable income suggested and his capacity to contribute to the costs of the children was greater than his adjusted taxable income suggested. If the CSA’s use of Mr Tompson’s 2015-16 adjusted taxable income of $95,181 produced any unfairness, it was unfairness to Mrs Tompson and not Mr Tompson. Either parent could have promptly lodged a departure application with a view to having the CSA determine whether the administrative assessment was in fact unfair, but neither parent did so.

10. After Douglas, Mr Tompson’s invalidity benefits were taxed at an even lower rate and he received a tax refund in respect of 2015-16. It is in that context that the question arises as to whether to exercise the discretion to amend the administrative assessment on the basis of Mr Tompson’s amended 2015-16 adjusted taxable income of $81,667. Making such an amendment would retrospectively reduce Mr Tompson’s financial contribution towards the children’s costs even though the implementation of Douglas increased his capacity to contribute to those costs. The preferable decision is to not amend the administrative assessment.

11. It is worth noting that if the ATO had correctly assessed Mr Tompson’s 2015-16 adjusted taxable income shortly after he lodged his 2015-16 tax return, the administrative assessment from 7 March 2017 would have been based on Mr Tompson’s 2015-16 adjusted taxable income of $81,667. Mrs Tompson could have applied for a departure from that administrative assessment. If it was established that, in the special circumstances of the case, the administrative assessment resulted in an unjust and inequitable determination of child support payable because of the income, property and financial resources of Mr Tompson, the CSA could have varied the administrative assessment to ensure that the administrative assessment was just and equitable: section 98B and subparagraph 117(2)(c)(ia) of the Act. However, given how much time has now passed, that option would no longer automatically be available to Mrs Tompson if the administrative assessment were now amended on the basis of Mr Tompson’s amended 2015-16 adjusted taxable income. In the absence of a court order, the earliest date from which the CSA can make a departure decision is 18 months prior to the date on which the departure application is lodged: section 98B of the Act. Mrs Tompson could apply for such a court order. A court would then consider whether to make such an order. It is sufficient for present purposes to note that embarking on that process would require significant time and effort. As noted earlier, if the CSA’s use of Mr Tompson’s 2015-16 adjusted taxable income of $95,181 produced any unfairness, it was unfairness to Mrs Tompson and not Mr Tompson, and amending the administrative assessment on the basis of Mr Tompson’s amended 2015-16 adjusted taxable income of $81,667 would increase the likelihood that the resultant administrative assessment would be unfair to Mrs Tompson. Those observations reinforce the view that the preferable decision is to decline to amend the administrative assessment. Mr Tompson has the option of lodging a departure application and an application for a court order that would allow the CSA to make a departure decision with effect from a date prior to 18 months prior to the date of the departure application. It is preferable for that option to fall primarily to Mr Tompson rather than Mrs Tompson.

12. The CSA made similar decisions in respect of Mr Tompson’s adjusted taxable incomes and amended adjusted taxable incomes for 2017-18, 2018-19 and 2019-20. His adjusted taxable incomes for those years were $72,799, $83,106 and $74,876 respectively. In September 2021 they were amended to $48,291, $58,131 and $49,537 respectively. The CSA decided to not amend the administrative assessments on the basis of the amended adjusted taxable incomes. The CSA’s decisions were the preferable decisions for the reasons stated above.

13. Mr Tompson’s 2016-17 adjusted taxable income was $55,652 and the administrative assessment from 1 September 2017 to 31 August 2018 was based on that adjusted taxable income. In September 2021, Mr Tompson’s 2016-17 adjusted taxable income was amended to $57,147. The CSA decided to amend the administrative assessment accordingly. In November 2021, Mr Tompson’s 2016-17 adjusted taxable income was amended to $47,815. The CSA decided to not amend the administrative assessment accordingly. At the hearing, Mr Tompson stated, and I accept, that the ATO’s first amendment was simply incorrect, hence the second amendment. With the benefit of hindsight, the preferable decisions were to not amend the administrative assessment on the basis of Mr Tompson’s amended 2016-17 adjusted taxable income of $57,147 (because that was not his correct adjusted taxable income) and not amend the administrative assessment on the basis of Mr Tompson’s amended 2016-17 adjusted taxable income of $47,815 (for the reasons stated above).

14. Finally, I note that Mrs Tompson lodged a departure application in July 2019. The CSA made a departure decision which increased Mr Tompson’s rate of child support payable on account of the costs of the children’s orthodontic treatments. The reasons for the departure decision include a brief note that Mr Tompson’s 2018-19 adjusted taxable income was $83,106. Neither parent objected to the departure decision.

DECISIONS

The decisions to not amend the administrative assessment on the basis of Mr Tompson’s amended 2015-16 adjusted taxable income of $81,667, his amended 2016-17 adjusted taxable income of $47,815, his amended 2017-18 adjusted taxable income of $48,291, his amended 2018-19 adjusted taxable income of $58,131 and his amended 2019-20 adjusted taxable income of $49,537 are affirmed.

The decision to amend the administrative assessment on the basis of Mr Tompson’s amended 2016-17 adjusted taxable income of $57,147 is set aside and, in substitution, a decision is made to not amend the administrative assessment on the basis of that adjusted taxable income.