Vartanian and Solvej (Child support)

[2019] AATA 1695

Vartanian and Solvej (Child support) [2019] AATA 1695 (8 May 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/MC015429 and 2018/MC015475

APPLICANT:  Ms Vartanian

Mr Solvej

OTHER PARTIES:  Child Support Registrar

Mr Solvej

Ms Vartanian

TRIBUNAL:Member A Schiwy

DECISION DATE:  8 May 2019

DECISION:

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

·       For the period 14 March 2018 until the child support case ends, Mr Solvej’s adjusted taxable income is varied to $180,000.

·       For the period 1 March 2019 to 8 May 2019 Ms Vartanian’s adjusted taxable income is varied to nil.

·       For the period 9 May 2019 to 30 September 2020 Ms Vartanian’s adjusted taxable income is varied to $73,000.

·       For the period 14 March 2018 until the case ends, the cost of each child is increased by $4,545 per annum.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – benefits derived from business – real estate properties owned by family trust – 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. This application for review is about the amount of child support payable by Mr Solvej to Ms Vartanian and whether a departure should be made from the child support formula assessment.

2. Mr Solvej and Ms Vartanian are the parents of [Child 1] (born in December 2003) and [Child 2] (born in May 2005).  A child support case was registered in 2008.

3. The Department of Human Services (Child Support) has recorded that Ms Vartanian has 100% care of the children and Mr Solvej is the parent liable to pay child support. 

4. Since the case was registered there have been three applications for a departure determination (change of assessment) to be made.  The most recent decision was in August 2016 when the parents’ incomes were varied until 31 December 2017.

5. The following administrative assessment was made:

   ·For the period 19 May 2018 to 28 February 2019 Mr Solvej has a child support liability of $2,780 which is the fixed annual rate for two children.  This is based on his 2016–17 taxable income of $18,315.

6. On 14 March 2018, Ms Vartanian applied to Child Support for an increase to the assessed rate of child support on the ground that in the special circumstances of this case, the administrative assessment results in an unjust and inequitable level of child support because of Mr Solvej’s income, property and financial resources; and due to the high costs of education. 

7. On 14 June 2018, a Child Support case officer, delegate of the Child Support Registrar, considered the departure application and decided that there was a ground to depart from the administrative assessment.  The officer decided that:

   ·for the period 13 March 2018 until a terminating event for [Child 2] Mr Solvej’s adjusted taxable income is varied to $93,600;

   ·for the period 18 April 2018 to 31 October 2019 Ms Vartanian’s adjusted taxable income is varied to $84,000;

   ·for each calendar year (commencing 1 January 2018) the child support liability is increased to reflect half of the school fees ($4,545 in 2018).

8. On 20 July 2018, Mr Solvej objected to this decision.  On 17 October 2018, the objections officer decided that for the period 1 January 2018 to 31 December 2019 the adjusted taxable income of Mr Solvej is varied to $51,018 (increased for inflation on 1 January 2019); and for each calendar year (commencing 1 January 2018 until 30 April 2023) the child support liability is increased to reflect half of the school fees ($4,545 in 2018).

9. On 14 November 2018, Ms Vartanian lodged an application with the Administrative Appeals Tribunal (the tribunal) seeking a review of the Child Support objection decision.  On 23 November 2018 Mr Solvej also lodged an application for a review.

10. Prior to the hearing of the application for review, directions were issued to both Mr Solvej and Ms Vartanian to provide the tribunal with specified documents. Ms Vartanian provided the tribunal with documents (folios A1 to A58). Mr Solvej provided the tribunal with documents (folios B1 to B313). Both parties were provided with a copy of the papers prior to the hearing.  (The document referencing refers to case MC015429.)

11. The tribunal and the parties also had access to the statement and documents provided by Child Support (pages 1 to 533). 

12. The matter was heard on 19 March 2019. Both Mr Solvej and Ms Vartanian attended the hearing by conference telephone and gave evidence on affirmation.  Mr Solvej’s [accountant] also gave evidence to the tribunal.

13. The decision was deferred as Mr Solvej was directed to provide further documents.  These were received on 19 March 2019 (B314–B342).  Ms Vartanian was then given an opportunity to see the documents and provide a submission about them.  She provided a written submission on 1 April 2019 (A59–A60) and a further submission about her employment (A61). 

14. The tribunal then decided to obtain further evidence from a third party – bank statements for [Bank 1] accounts held by Mr Solvej’s parents.  The statements were received on 1 May 2019 and emailed to the parties on 3 May 2019 (together with A59–A61).  The parties were allowed until 7 May 2019 to provide any comments about the documents.  The tribunal officer rang Mr Solvej on 3 May 2019 to obtain permission to email the documents to him and informed him that the documents would be emailed to him that day and that he had until close of business 7 May 2019 to respond.  At 3.00 pm on 7 May 2019 Mr Solvej contacted the tribunal to say that he had only just looked at the documents and wanted until 17 May 2019 to respond.  He did not give a reason as to why he waited until two hours before the deadline to look at the documents.  The tribunal did not grant an extension.

15. Ms Vartanian provided a response on 7 May 2019 (A62).  This is attached to the decision for information.

COMPLIANCE WITH DIRECTIONS

1. On 31 January 2019 a ‘directions hearing’ was held.  During the hearing Mr Solvej was told he would be directed to provide statements for all of his bank accounts (among other things).  He was also advised that this includes loan accounts.  Written directions issued on 31 January 2019 requested that he provide:

   ·Bank statements for all accounts (including loan and credit card accounts) held in his name or jointly with another party for the period 1 July 2016 to 31 December 2018.

   ·Bank statements for all accounts (including loan and credit card accounts) held in the name of Solvej Family Trust for the period 1 July 2016 to 31 December 2018.

   ·Evidence to show that Mr Solvej’s father was guarantor for a bank loan obtained through [Money Lender 1].

   ·A statement setting out details of the $90,000 loan from his mother including the date of the loan, the purpose of the loan and the method of payment.

2. Mr Solvej did not provide statements for his [Money Lender 1] home loan.  At hearing he said he did not consider that a loan was a bank account. 

3. Mr Solvej did not provide full details of the loan from his mother.

4. It would also appear that Mr Solvej did not disclose a [Bank 1] account (account number [D]).  Mr Solvej disclosed two accounts: [Bank 1 account A] (in the name of the trustee of his family trust) and [Bank 1 account B].  He stated at hearing that apart from the [Money Lender 1] loan, these were his only accounts.  The tribunal obtained copies of a bank account in the name of Mr Solvej’s parents (account number [C]).  This has transfers in and out from another [Bank 1] account [D]).  The [Bank 1] were directed to provide details of all accounts held in Mr Solvej’s parents’ names and they stated that account [C] was the only account.  The tribunal concluded that account [D] was in Mr Solvej’s name and Mr Solvej has failed to disclose this account to the tribunal.

ISSUES

1. The statutory provisions relevant to this review are found in the Child Support (Assessment) Act 1989 (the Assessment Act). The rate of child support payable by the liable parent is usually based on an administrative assessment under Part 5 of the Assessment Act. This requires the application of a statutory formula, which takes into account such factors as the number of children, the level of care provided, the income of each parent and the costs of the children.

2. The liable parent or carer may apply to the Child Support Registrar for a determination to depart from the administrative assessment under Part 6A of the Assessment Act (section 98B). Section 98C provides that the Registrar may make a determination to depart from the formula assessment and establishes a three-step process. In the first instance, a ground for departure from an administrative assessment must be established. The grounds are set out in subsection 117(2) of the Assessment Act. If satisfied that:

   ·a ground or grounds exist (step one); and

   ·that it would be just and equitable (step two); and

   ·otherwise proper to make a particular determination (step three);

   the tribunal may make one of the determinations prescribed in section 98S of the Assessment Act. Section 98S permits a range of determinations, including varying the annual rate of child support payable and/or the adjusted taxable income of a parent.

CONSIDERATION

Issue 1 – Does a ground exist to depart from the administrative assessment?

1. Subparagraph 117(2)(c)(ia) 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. The term ‘special circumstances’ is not defined in the Assessment Act. In Gyselman and Gyselman (1992) FLC 92-279 (Gyselman) the Full Family Court indicated that for there to be special circumstances, the facts of the case must establish something which is special or out of the ordinary.

Mr Solvej’s income

1. Mr Solvej has been running a [business] since around 1993.  He runs the business as a sole trader and it trades as [Business Name 1].  In addition to his [Business Name 1], Mr Solvej rents out a property in [Street 1] and he also owns three [locations] through a trust: the Solvej Family Trust (the Trust). The Trust rents the studios to Mr Solvej to run his business and distributes net rent to Mr Solvej and his parents. 

2. Mr Solvej’s taxable incomes in recent years have been:

   ·2014–15   $674

   ·2015–16   $46,673

   ·2016–17   $18,315

   ·2017–18   $15,180

3. The last two tax returns for Mr Solvej contain the following information:

2016–17	2017–18
Loss from [Business Name 1]	($17,753)	($33,200)
[Street 1] net rent	$33,291	$32,700
Trust Distribution	$4,000	$15,700

1. The Trust tax returns contain the following information:

2016–17	2017–18
Gross rent	$16,700	$16,700
Net rent	$16,580	$15,700
Distributions – Mr Solvej	$4,000	$15,700
Mr Solvej’s father	$2,580
Mr Solvej’s mother	$10,000

1. The business has been run from three [locations for 10 to 15 years].  These are the three [locations] owned by the Trust and rented out to the business.  The rent is not actually paid to the Trust; it is treated as ‘capital contributed’ to the business.  Three new [locations] have been opened over the last five years.  ([One] is located in Mr Solvej’s residence.)  The business also offers online lessons with payments received through PayPal.

2. Mr Solvej was asked if his business had ever made a profit.  He responded that it had but he could not recall when.  He thought that any profits would have been less than $20,000 per annum.

3. The following information was contained in the profit and loss statement for the business:

2016–17	2017–18
Gross income	$176,550	$181,782
Subcontractors	$93,799	$119,003

1. Mr Solvej said he hired up to six contractors (four currently) and they were paid according to their experience.  The rate of pay varied from $10 to $17 for a half-hour lesson.  [Lessons] are charged out at $40 per half-hour for lessons taken by subcontractors and $50 for lessons taken by Mr Solvej.

2. If the average subcontractor rate was $13.50 per lesson then based on the amount claimed as a subcontractor expense in 2018, the business charged for 8,815 lessons taken by subcontractors.  This would equate to a gross income of $352,601; $320,055 net of GST ($252,657 in 2017).  The gross income for the business, including Mr Solvej’s lessons and online lessons, was only $181,782.  (The tribunal noted that if all subcontractors were paid $17 per lesson the gross income after GST should have been $254,551 plus Mr Solvej’s fees.)  This anomaly was put to Mr Solvej during the hearing but he said he did not understand the question.  He stated that the business takes no cash and all income is banked to [account B]. 

3. Mr Solvej runs the business income and expenses through one account.  After examining the ‘capital contributed’ to the account in 2017–18 the tribunal noted that just over $40,000 was deposited to the account.  These appear all to be transfers from an account held in the parents’ name.  This same account was listed on his income tax return for payment of any refunds.  When asked why he uses his parents’ bank account, Mr Solvej said he needed a safety buffer.  The account is also used to pay his mortgage and child support payments.  His [Street 1] rent payments go into the account.

4. Mr Solvej had been living with his parents since separation however he purchased his own home for $715,000 in May 2017.  The property was financed with a loan through [Money Lender 1] of $452,000.  Mr Solvej was directed to provide statements for all accounts held (including loans) however he failed to provide them.  He stated at hearing he did not consider that a loan was a bank account.  Child Support obtained statements for the period 11 May 2017 to 21 May 2018.  Mr Solvej was directed to provide statements until the end of 2018.  From 11 May 2017 to 31 December 2018 the loan had been reduced to $328,369.  A net amount of approximately $174,000 was paid off on the loan in just over 18 months.  The payments came from the parents’ account.

5. Child Support obtained a copy of the loan application Mr Solvej made to [Money Lender 1].  Mr Solvej signed the application and stated that he had $305,000 in the bank and made a net profit before tax of $115,334. 

6. In a letter dated 20 July 2018 Mr Solvej stated to Child Support that the $115,334 included financial support from his parents ($2,452 per month repayments).  The tribunal noted that this would still leave income of $85,910.

7. At hearing Mr Solvej denies stating that he earned this amount.  He said the mortgage broker told him that is the figure he would need to put in order to secure the loan.  Regardless of this advice, Mr Solvej still signed a document to obtain a loan stating that he earned this amount.  The tribunal concluded he either was earning this amount of income or he lied to the financial institution in order to obtain a loan.  Mr Solvej said the funds of $305,000 were actually referring to his parents’ bank account.  Mr Solvej provided a statutory declaration signed by his father on 3 March 2017 stating that he would be gifting his son $305,000 to assist him with the purchase of a home.

8. After considering the anomalies in Mr Solvej’s evidence the tribunal obtained details of the parents’ account [C]. 

9. The deposits included rent from [Street 1], rent from various [locations] (not included as Trust income), PayPal deposits and deposits that are clearly for [lessons] (the deposits include references such as “[name] 5 sessions, [name] fees, Half payment - ten lessons, [other] lessons).  Over the period 1 January 2017 to 31 March 2019 $828,405 was deposited to the account made up of:

   ·Transfers from other [Bank 1] account   $361,000 (includes $236,000 and $72,000 for the house purchase)

   ·Rent [Street 1]  $  87,418

   ·Third parties non income (e.g. ATO, Insurance) $  17,220

   ·Other   $362,767

10. The tribunal was satisfied that the other deposits were income; the majority being for the [business].  The undisclosed income annualises to $161,230 per annum; a significant amount.  The deposits also include some cash deposits and Mr Solvej denied receiving any cash income.  The tribunal concluded that it is more likely than not that in addition to the above income he has also taken cash from the business.

11. This undisclosed income explains the discrepancy between the gross income and contractor fees in the accounts.  It also shows that Mr Solvej has not been supported by his parents and how he has managed to fund the purchase of a $715,000 residence and pay off significant amounts off the mortgage in a short period of time.

12. The tribunal did not have access to account [C].  In May 2017 a total of $308,000 was deposited to this account to pay the deposit on Mr Solvej’s new house.  $53,000 was transferred in smaller amounts over the period reviewed.  It would appear that Mr Solvej uses this account to transfer excess funds from [account C] and the tribunal concluded that Mr Solvej does not deposit other business income into this account.

13. The tribunal concluded that Mr Solvej earned the following income in 2017–18:

    ·Net rent [Street 1]            $  32,700

    ·Net rent [locations]  $  15,700

    ·Net profit business          $128,030 (declared loss of $33,200 + $161,230)

    Total  $176,430.

    This is the minimum earned given it is likely Mr Solvej has also earned undisclosed cash income.

14. After considering the evidence the tribunal decided that Mr Solvej’s annual income is $180,000 (allowing for some cash income) and there is no evidence to suggest that this income will reduce.

15. Mr Solvej is currently assessed to pay $2,780 per annum in child support.  The tribunal has decided that his income is $180,000.  The annual child support liability based on this amount (including Ms Vartanian’s adjusted taxable income of $81,681) is $31,628.  The tribunal was therefore satisfied that there are special circumstances in this case and finds that the ground for departure in subparagraph 117(2)(c)(ia) does exist in relation to the income and financial resources of Mr Solvej.  (The tribunal noted that adjusting Mr Solvej’s income by plus or minus $20,000 would only make a small difference to the amount of child support payable ($2,200 difference in annual liability between incomes of $160,000 and $200,000.)

16. As a ground for departure has been established, the tribunal then considered whether or not it would be just and equitable to make a departure determination.

Issue 2 – Would it be just and equitable to make a particular departure determination?

1. As the tribunal is satisfied that there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to make a particular departure determination. In doing so, the tribunal must have regard to a number of matters in subsections 117(4) to (9) of the Assessment Act. In summary, this requires consideration of the parents’ duty to support the children, the income, assets and financial resources of the children and of the parents, the children’s proper needs and the self-support costs of either parent. The tribunal is not limited to exploring these parameters and is required to consider the global circumstances (Gyselman).

1. The tribunal had regard to the evidence which was presented, including the evidence which has been discussed above.

The duty to maintain the children

1. Ms Vartanian and Mr Solvej each have a duty to maintain the children. Further, the tribunal notes the statements contained in sections 3 and 4 of the Assessment Act to the following effect:

   ·Parents of a child have a primary duty to maintain the child and this has a priority over all commitments of the parent other than commitments necessary for self-support;

   ·The level of financial support to be provided by parents to their children should be determined in accordance with the legislatively fixed standards;

   ·The level of financial support is to be determined according to the capacity to provide financial support and noting that parents with a like capacity to provide financial support should provide like amounts.

Proper needs of the children and the income, property, financial resources and earning capacity of the child

1. There was no evidence presented to the tribunal that the children have anything other than the usual expenses and needs of children their age, apart from school fees.  These expenses are dealt with in the administrative assessment and addressed in the Costs of the Children Table.

2. There was no evidence that the children currently have significant independent income or resources.

School fees

1. Both parents agree that they have agreed to educate the children at a private school.  Ms Vartanian is currently paying the fees.  The annual fees for the school in 2018 were $9,090.  This is a significant expense that is not allowed for in the child support formula.

Income, property, financial resources and earning capacity of each parent

Mr Solvej’s income, property, financial resources and earning capacity

1. Mr Solvej’s income has been discussed above.  The tribunal decided that he is earning $180,000 per annum.

2. It is difficult to know Mr Solvej’s actual level of assets given that there is an undisclosed bank account that Mr Solvej has been using to save money in the past.  However it is likely that the majority of his savings were used to fund the purchase of his house and since the purchase he has used spare funds to reduce his home loan further.

3. Mr Solvej owns his residence, which he purchased for $715,000 and owes, as at 11 March 2019 $314,198 on the mortgage.  He therefore has significant equity in his residence.

4. In addition to the residence Mr Solvej owns the [Street 1] property and three properties used in the business.  In his statement of financial circumstances he values the [Street 1] property at $1,170,000.  The studios are valued at cost in the Trust accounts at $290,000.  Given they have been owned for many years the tribunal was satisfied that they would be worth considerably more now.  According to [an online source] the value of [Street 2 property] is $744,000 and the value of [Street 3 property] is $610,000.  No value was available for the third location] but a unit at the same address was valued at $505,000. 

5. The tribunal was satisfied that all together Mr Solvej has real estate worth in excess of $3.5m with a loan of $314,198, giving him net equity of over $3m.  Mr Solvej stated that he owed his mother $90,000 for a loan he made several years ago. 

6. Mr Solvej stated in his Statement of Financial Circumstances that he spends $771 per week on household expenses and he pays $300 per week for tax.  The expenses he listed were unremarkable other than they appeared too low (for example, he listed $70 per week for food).

7. The tribunal was satisfied that Mr Solvej has significant capacity to pay an increased rate of child support.  He pays very little income tax on his income as he does not declare around $130,000 of his income in his tax return.  He also has around $3m net equity in real estate and this combined with his income would mean he would find it relatively easy to finance a loan to pay any significant arrears of child support.  He has been able to make additional home loan repayments (above the required minimum monthly payments) of around $130,000 in less than two years and he would be able to easily redraw some of this amount to pay arrears. 

Ms Vartanian’s circumstances

1. Ms Vartanian’s taxable incomes in recent years have been:

   ·2015–16   $42,228

   ·2016–17   $76,422

   ·2017–18   $81,681

2. Ms Vartanian was working as [an occupation] for a [workplace].  Her year to date earnings as at 3 February 2019 were $42,759 (annualises to $71,921).  She stated at hearing (on 19 March 2019) that she left her job recently due to being in a ‘horrific environment’.  She has since gained new employment, commencing on 9 May 2019, and earning $1,405 per week ($73,060 per annum).  Ms Vartanian’s income for 2018–19 will therefore be lower than in 2017–18, with nil income for around two months (approximately 1 March 2019 to 8 May 2019 and then $73,000 thereafter.

3. Ms Vartanian is partnered and her partner earns around $1,400 per week.  She lives with her partner and the two children.  Her weekly household expenses were listed at $1,622 which includes $198 per week for school costs and discretionary spending of $200 on holidays, gifts and entertainment.  The other expenses listed were unremarkable. 

4. Ms Vartanian and her partner own a residence valued at $800,000 with a mortgage of $400,000. 

5. The tribunal concluded that due to pooling resources with her partner, Ms Vartanian is not currently suffering financial hardship.

6. Mr Solvej has submitted that Ms Vartanian has either undisclosed assets or squandered the financial resources she received in their property settlement.  She received the family home (with mortgage owing), a [property] and around $205,000 in cash.  He said that she and her partner spend money on expensive holidays, ‘toys’ such as dirt bikes and cosmetic surgery.  He said that her partner is renting out a property (Ms Vartanian said this was sold 12 months ago) and they are applying to build a [garage] on their property.

7. The tribunal noted that Ms Vartanian’s partner is not responsible for supporting Ms Vartanian and Mr Solvej’s children.  As discussed above, given their income, Ms Vartanian and her partner have significant disposable income and are not considered to be in hardship.  There is no evidence to show that Ms Vartanian has any undisclosed assets.

Summary

1. After consideration of all of the factors in subsection 117(4) of the Assessment Act, the tribunal is satisfied that it is just and equitable to depart from the administrative assessment. Having regard to all of the evidence, the tribunal considered that the decision under review should be set aside and a decision made to vary the parents’ adjusted taxable incomes to those determined by the tribunal and to require Mr Solvej and Ms Vartanian to contribute to the school fees ($2,275 per child) based on their relative income levels.

2. The tribunal then considered what an appropriate start and end date would be for a departure determination.

3. The previous departure determination ended on 31 December 2017 and Ms Vartanian lodged her application on 14 March 2018.  The tribunal decided that the start date should be 14 March 2018; it was open to Ms Vartanian to lodge her application earlier.

4. Ms Vartanian’s adjusted taxable income will likely decrease in 2018–19 when she lodges her income tax return given her drop in income and period of unemployment.  It will probably not be until she lodges her 2019–20 return that her actual income will be adequately reflected by her taxable income.  The tribunal therefore decided to vary her income until 30 September 2020.

5. Mr Solvej’s adjusted taxable income is likely to be significantly less than his actual income for years given his failure to disclose a significant amount of income in his income tax return.  The tribunal therefore decided to vary his income until the case terminates, in around four to five years.

6. The school fees will be around the same each year and the tribunal decided to increase the costs of each child by $4,545 per annum until the case terminates.  That way, when the eldest child turns 18, the annual liability will decrease by her school fees.  

7. In the event that either party’s circumstances change during the assessment period, they have the opportunity to lodge a further change of assessment application. The tribunal considers these dates to be in the best interests of the children and the parents as they promote certainty and consistency for those concerned.

Issue 3 – Would it be otherwise proper to make a particular departure determination?

1. The final step for the tribunal to undertake is to determine whether it is ‘otherwise proper’ to make a particular departure determination (subsection 117(5) of the Assessment Act). It is a prime objective of the child support legislation that parents should be obliged to support their own children to the extent of their real capacity, and that that obligation should not be unnecessarily abrogated to the public welfare system when the parents themselves have the capacity to maintain their children. Ms Vartanian does not currently receive family assistance. The proposed departure determination will not affect any government payments. The tribunal concludes that it is otherwise proper to depart from the administrative assessment.

DECISION

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

·       For the period 14 March 2018 until the child support case ends, Mr Solvej’s adjusted taxable income is varied to $180,000.

·       For the period 1 March 2019 to 8 May 2019 Ms Vartanian’s adjusted taxable income is varied to nil.

·       For the period 9 May 2019 to 30 September 2020 Ms Vartanian’s adjusted taxable income is varied to $73,000.

·       For the period 14 March 2018 until the case ends, the cost of each child is increased by $4,545 per annum.