Walcher and Walcher (Child support)

[2021] AATA 1695

Walcher and Walcher (Child support) [2021] AATA 1695 (23 April 2021)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2020/MC020233

APPLICANT:  Mr Walcher

OTHER PARTIES:  Child Support Registrar

Ms Walcher

TRIBUNAL:Member S Letch

DECISION DATE:  23 April 2021

DECISION:

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

(a)Ms Walcher’s adjusted taxable income is varied to $46,150 for the period 1 July 2020 to 31 October 2020;

(b)Mr Walcher’s adjusted taxable income is varied to $40,000 for the period 1 July 2020 to 30 June 2021.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of both parents – school fees considered in property settlement – 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 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. Mr Walcher and Ms Walcher are the parents of [Child 1], [Child 2] and [Child 3]. Mr Walcher was recorded by the Child Support Agency (CSA) as having 16% care of both [Child 1] and [Child 3], and no care of [Child 2]. Mr Walcher has been assessed by the CSA as liable to pay child support to Ms Walcher.

2. For the period 1 February 2020 to 30 June 2020, Mr Walcher was assessed to pay an annual rate of child support of $31,163. This assessment is based on an adjusted taxable income of $186,046 for Mr Walcher (as set by an earlier objection decision) and an estimated income of $37,803 for Ms Walcher.

3. For the period 1 July 2020 (when the assessment reverted back to the standard formula arrangements) to 20 February 2021, Mr Walcher’s annual rate of child support was assessed as $6,840. This assessment is based on a 2018/19 adjusted taxable income of $48,766 for Mr Walcher and a 2018/19 derived income of $6,615 for Ms Walcher.

4. On 10 March 2020, Ms Walcher applied for a “change of assessment” on the basis of what the CSA refers to as Reason 8A.

5. On 12 June 2020, a decision-maker concluded a ground to depart was established, and decided the following:

   ·From 1 July 2020 to 30 September 2021 the adjusted taxable income (ATI) for Mr Walcher is to be set at $158,888.

   ·From 1 October 2021 to 31 December 2022 the ATI for Mr Walcher is to be set at $162,701.

   ·From 1 January 2023 to 31 March 2024 the ATI for Mr Walcher is to be set at $166,612.

   ·From 1 July 2020 to 31 October 2020 the ATI for Ms Walcher is to be set at $51,000.

6. On 26 June 2020, Mr Walcher objected to the decision. On 22 October 2020, an objections officer decided to change the decision, determining the following:

   ·For the period 1 July 2020 to 30 November 2020 the ATI for Ms Walcher is set to $46,150.

   ·For the period 1 July 2020 to 31 December 2024 the ATI for Mr Walcher is set to $151,291. Mr Walcher`s ATI is to be increased on 1 July 2021 and each year thereafter on 1 July by the Consumer Price Index Amount Weighted Average for the preceding March quarter.

7. On 13 November 2020, Mr Walcher applied for further review by the Tribunal. Mr Walcher and Ms Walcher participated in the hearing by conference telephone. Mr Walcher was represented by his lawyer, [Mr A].

8. In making its decision, the Tribunal took into account the CSA materials, and additional materials submitted by both parties.  

CONSIDERATION

The legislative framework

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). A formula is used. It takes into account variables including each parent’s adjusted taxable income for the last relevant year of income, the number of children and the level of care provided by each parent.

2. Part 6A of the Act allows for a departure from an administrative assessment (a process commonly known as a “change of assessment”). Under subsection 98C(1) of the Act, the Registrar may make such a departure determination if three matters are established:

   ·     one, or more than one, of the grounds for departure referred to in subsection 98C(2) exists (subparagraph 98C(1)(b)(i));

   ·     a departure is just and equitable as regards the children and each parent (sub-subparagraph 98C(1)(b)(ii)(A)); and

   ·     it is otherwise proper to make a departure decision (sub-subparagraph 98C(1)(b)(ii)(B)). 

3. Subsection 98C(2) provides that the grounds for departure are the same as the grounds set out in subsection 117(2).

12.If satisfied that a ground or grounds exist and that it would be just and equitable and otherwise proper to make a particular determination, the Tribunal may make one of the determinations prescribed in section 98S of the Act. It permits a range of determinations, including varying the rate of child support payable, the adjusted taxable income or the cost percentage for a child.

Issue 1 – Is there a ground to depart?

1. Subparagraph 117(2)(c)(ia) of the Act, commonly referred to by the CSA as Reason 8A, provides as a ground for departure:

   (c)that, in the special circumstances of the case, application in relation to the child of the provisions of this Act relating to 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 child:

   …

   (ia)      because of the income, property and financial resources of either parent; or

14.Subparagraph 117(2)(b)(ii) of the Act, commonly referred to as Reason 3, provides as a ground for departure:

that, in the special circumstances of the case, the costs of maintaining the child are significantly affected:

…    

(ii)because the child is being cared for, educated or trained in the manner that was expected by his or her parents …

1. The starting proposition is that the child support formula should apply. Only in special circumstances should a departure be made. The words “in the special circumstances of the case” are not defined in the legislation. Whilst it is not possible to define with precision the meaning of that term, it is intended to emphasise that the facts of the case must establish something which is special or out of the ordinary. That is, the intention of the legislature is that the Tribunal will not interfere with the administrative formula result in the ordinary run of cases. In Gyselman and Gyselman (1992) FLC 92-279, it was held that “special circumstances” were “facts peculiar to the particular case which set it apart from other cases”. The Tribunal’s approach to the interpretation and application of the particular grounds in subsection 117(2) must be guided by that qualification.

2. The decision by the CSA presently before the Tribunal makes no provision for an additional component in respect of the private school fees for the children. In an earlier objection decision in late 2018, it had been determined that Reason 3 had been established given the evidently significant costs being incurred by Ms Walcher; however, in the final result (varying Mr Walcher’s adjusted taxable income to some $186,000), it was determined it was not just and equitable to add a separate component to Mr Walcher’s liability for school fees.

3. Following that decision, in late 2019, Mr Walcher and Ms Walcher reached a consent agreement in their family law property dispute. A notation to that agreement was made to the effect that Ms Walcher would be responsible for those fees and that she would not seek a departure application for school fees into the future.

4. The Tribunal observes that this notation is not strictly binding (however, that agreement is relevant to what might be “just and equitable”, discussed further below). Accordingly, in the special circumstances of the case in light of the significant cost of private school fees being borne solely by Ms Walcher, the Tribunal concludes there is a ground to depart from the formula under Reason 3.

Issue 2 – Is it just and equitable to depart from the administrative assessment?

1. The next relevant consideration for the Tribunal is whether a departure from the administrative assessment is just and equitable. This enquiry 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 children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula.

20.[Mr A] told the Tribunal that Mr Walcher knows he is obliged to pay child support; however, the amount he can pay is much less than the CSA assessment. Mr Walcher is presently paying $200 per month. He has an employment contract with Walcher [Company] Pty Ltd (“Walcher Company”) which pays him $620 per week following the company being transferred to [Ms B]; there no was better alternative to that arrangement. Mr Walcher suffers from some health issues which means he cannot work in the capacity of a [job position] (a position which can attract up to around $90,000 per annum); he finds he cannot work the hours necessary to undertake that role because of his health issues. COVID-19 has also impacted on the industry. Mr Walcher has no formal involvement with Walcher Company; he is merely an employee who undertakes work in Melbourne. [Mr A] said Mr Walcher is “somewhat the face of the company” in Melbourne as he is known there; however, the business is run by [Ms B] from Tasmania. Mr Walcher has a fuel account card for business purposes only, and has a work mobile phone for business purposes only (in addition to his own personal phone).

21.Ms Walcher told the Tribunal she agrees with the CSA decision, which had spent a lot of time going through Mr Walcher’s circumstances. She said the hearing was the first time she had heard that the reason for Mr Walcher transferring the business to [Ms B] was because he was unable to refinance the business arrangements; she said the reason given to date was a result of the marriage break-up. 

22.Mr Walcher told the Tribunal that he suffers from [injuries], which he has had for around 10 years. He has received specialist treatment in the past. He said he is [Age] years of age and “getting on a bit” in what is a “young fella’s game”. His [foot] is [physical condition 1] which is impacting his gait. He has “[physical condition 2]”. Since May 2020 (when his employment contract commenced), he has been working, on average, about two and half days per week. He considers this is the limit of his work capacity; the Tribunal asked why he could not work more hours – he said to some extent it is out of his hands as he is given hours depending on the work. He said if he works too many hours, it causes “trouble outside work”. He does not take any medications, and he conceded that he could probably work more than two to three days, but not as much as full-time hours. He said he is required to undertake a lot of forceful movements like pulling and pushing. He is a permanent part-time employee – his current six-month contract is due to expire in May 2021.

23.Ms Walcher told the Tribunal that she and Mr Walcher were together for 20 years, and she knows Mr Walcher is a hard worker. She said moving from [job position] to [assistant job position] does not make sense as the [assistant job position] does more physical work than the [job position]. Ms Walcher told the Tribunal that the medical evidence advanced by Mr Walcher does not say that his work schedule should be reduced or changed to accommodate his medical issues. Mr Walcher is still “relatively young”. Mr Walcher said that both the [job position] and [assistant job position] undertake physical work. Mr Walcher pointed to medical evidence at pages A174 and A175 pointing to the tears in his [body part]; he said it is his [body parts] that give him the most problem. He had an echocardiogram which was “not great”; in January 2020, his superannuation fund refused to increase his insurance cover on the basis of echocardiogram result, as well as multiple musculoskeletal issues. Mr Walcher said no surgery is planned; he said he must manage his body by allowing time to recover. Ms Walcher told the Tribunal she considered the insurance issue irrelevant as it does not relate directly to his present capacity to work.

24.In relation to the business transfer to [Ms B], Mr Walcher told the Tribunal that over a period of some years when he and Ms Walcher were together, they were involved in “deceptive conduct under-reporting income”. He said this included holding a holiday home which had been wrongly claimed as an investment property. He said an “unprompted voluntary disclosure process” was started in late 2018; he engaged [Law firm] to help him navigate through that process. He was told to keep those processes confidential; this is why he was not able to answer CSA enquiries in the ways he thought CSA wanted him to be able to do. He then had a “big tax problem” as a result of some $600,000 of income not previously declared. In addition to possible penalties and interest, there was a possibility of jail time. [Law firm] presented his case to the Australian Taxation Office (ATO) in such a way as resulting in the ATO taking a favourable view and only going back two years in the past. The result was that he took on some $100,000 as debt of unpaid tax post-separation. He paid [Law firm] some $180,000 in fees. The business had two [vehicles] under finance – he said nobody had turned their mind to whether he would be able to finance the continued running of the business post separation. To run the business, he needed money for things like fuel, maintenance, and materials, which he simply did not have. He referred to page 643 of the CSA materials (a credit check undertaken by the CSA – in particular, enquiries by [Finance company]) – he used them to attempt to gain finance (in the sums of some $31,000 and $26,000). He said both loan applications were declined. He said by early 2020, he was “already on the verge of a nervous breakdown”, and then COVID-19 loomed. His second marriage (to [Ms B]) broke down at the end of 2019 (he had lived with [Ms B] in two properties from January to December 2020). [Ms B] had a background in business, including the [specific] business. The “split” ended up being “60/40 in his favour”. He did not “give away everything”. The decision was made for [Ms B] to effectively purchase the business in the family law consent settlement process as the alternative was for the business to fold, or be sold at a loss.

25.Ms Walcher told the Tribunal that the taxation matter had been “sorted out” and she had made a statement to the Taxation Commissioner (which she supplied to CSA), which she stands by.

26.The Tribunal referred Mr Walcher to page 722 of the CSA materials and a loan application he made at the end of 2019 in which he declared his net monthly income as some $7,000. He said that was in relation to refinance a “balloon payment” – he said that application needs to be “taken with a grain of salt as he was trying to put his best foot forward”.  

27.Ms Walcher referred the Tribunal to her written submission. Ms Walcher said that Mr Walcher has been evasive with the CSA. Mr Walcher said he has little contact with [Ms B] other than purely for business purposes. [Ms B] now lives in [Town 1], Tasmania. Mr Walcher said the business was initially valued at $250,000 around the time of separation from [Ms B]; this value quickly declined as debt reduced its value.

28.Mr Walcher told the Tribunal that [Ms B] has plans to possibly move the business to Tasmania. Mr Walcher is “on six-month contracts” (due to expire in May 2021). Mr Walcher said he does not want to move to Tasmania so he will have no further involvement if the business is moved to Tasmania. Mr Walcher said he is not actively applying for other [specific] jobs at present.

29.Mr Walcher told the Tribunal that sometimes he is the only [specific worker] on a job – that depends on the scale of the job. He and [Mr C] (the other employee of the company, and [Ms B]’s son) will both do some “solo jobs”.

30.Mr Walcher explained that his adult daughter (with [Ms B] when they were together many years ago) lives in New Zealand. She has a heart condition and is in “palliative care” – she could live for some years, or pass away at any time. She is a successful [Occupation], and provided a payment to his lawyer without him requesting she do so.

1. [Ms B] spoke to the Tribunal by conference telephone. Her evidence was that she made an error in her written statement – she commenced cohabitation with Mr Walcher in 2019, not 2018. She said she has not been in a personal relationship with Mr Walcher since they separated at the end of 2019. Mr Walcher could not get a loan for the [vehicles], which presented her with an opportunity to take over the business. She said a “big part” of the reason Mr Walcher has been “kept on” is because of their dying daughter who had asked her to keep Mr Walcher employed in the business. She has “left Mr Walcher as the face of the business” – she did not want the business to suffer “two hits in one” when COVID-19 arrived. She said that Mr Walcher “did the social butterfly thing” by taking phone calls and attending to quotes. She said her son, [Mr C], is not a “social butterfly”. [Ms B] said the only contact she has with Mr Walcher is for business reasons; she said she was a “bit nervous” answering personal questions raised by Mr Walcher for child support purposes as she did not know whether it was appropriate as his employer to go into that sort of thing. [Ms B] said she was quite angry and upset when they separated and “could not stand the sight of him”. She wanted “an out” if the arrangement did not work out, which is why Mr Walcher has been given only six-monthly employment contracts. She said to date Mr Walcher has been “good at keeping things business only” – if the business transferred to Tasmania, Mr Walcher will not be a part of it. [Ms B] said she took on the debt of the business when she “took it over” – it was effectively worth nothing when it was transferred to her. When Mr Walcher had told her he could not refinance the [vehicles] to keep the business going, this presented an investment opportunity to take the business over as it would otherwise have folded or been sold at a loss. She said the business has been “on jobkeeper”; the business has not been thriving during the COVID-19 period, and she has slowly been paying off debt. In New Zealand, she and her family business have done a lot of [specific work] - she was confident with her experience that she could take over and manage the [specific] business. She has family in Tasmania who also have experience in the [specific] industry, as well as contacts in the industry there, which is why moving the business to Tasmania is a potentially attractive idea. After separating from Mr Walcher at the end of 2019, she said she temporarily moved to [Town 2], and then moved permanently to Tasmania. She is regularly visiting her daughter in New Zealand (who is unable to travel because of her health).

32.In response to questions from Ms Walcher, [Ms B] said she could provide evidence that her children attended the school in the area in which she lived with Mr Walcher. She confirmed that she worked in the [specific] industry in a family-run business (with her uncle) in New Zealand. She confirmed that Mr Walcher takes business calls and arranges quotes; [Ms B] makes sure Mr Walcher and her son both meet their regulatory training requirements. [Ms B] said that [Mr C] sends her inventory requests which she approves. The only thing that Mr Walcher has is a fuel card, which is used for business purposes only. [Ms B] said that if [Mr C] was not available for a “one person job”, she would arrange to send Mr Walcher; she said she is careful not to use Mr Walcher for more than four hours a day (on average). At present, the [vehicles] are out about two days per week – this has been the case for the last few months. If there was a sudden increase in work, [Ms B] said she would employ a sub-contractor (as she has done in the past) rather than give extra work to Mr Walcher who will be leaving the business. [Ms B] said she had to provide regular proof to the ATO of the reduction in business to get jobkeeper, which was received for the full period. [Ms B] said the business did not cover any of Mr Walcher’s personal expenses – Mr Walcher receives his wage and absolutely nothing else – she said she does not want him to be a [job position] and would frankly be “happy to see the back of him”.

33.Mr Walcher did not identify any particularly unusual expenses in his Statement of Financial Circumstances. He said he was “surviving” but “going backwards”. Ms Walcher told the Tribunal she is meeting private school fees, as well as “feeding three young men”; she said the boys have some special needs and that everything she receives is committed to supporting them. At the time of separation, the children were all in Catholic education; it had been expected by both parents that the children would be educated privately. At the time she agreed in family law proceedings that she would pay 100% of the fees, she had done so in the expectation she would receive a reasonable level of child support, which is no longer being provided.  

34.In response to the Tribunal’s questions about how far into the future any departure period might be set, [Mr A] said that a period of no more than 12 months into the future might be appropriate given the uncertainty surrounding Mr Walcher’s situation. Mr Walcher told the Tribunal she finds this process very overwhelming (particularly given her study and caring commitments) and preferred not to be in a position where she would need to go through a change of assessment process again.  

Consideration

35.At face value, the arrangement facilitated through the family law settlement between Mr Walcher and [Ms B] – after a short marriage – appears an unusual one. The sceptical approach of the CSA to the legitimacy of the arrangements is understandable.

36.The Tribunal found Mr Walcher a largely reliable witness. Whilst the Tribunal had some concern about the reliability of some of his evidence (for example, he conceded he had misrepresented his financial position in a finance application), he took the very significant step of volunteering to the ATO a significant amount of undisclosed income for which he incurred a substantial debt. Ultimately, the Tribunal accepted his evidence that his financial position was such that he was unable to secure finance to keep his business afloat as a going concern, and that he and [Ms B] determined the best course was for her to acquire the business through the existing family law property settlement. This was not a case – as is sometimes seen in similar cases before the Tribunal – of a new partner acquiring a business in which they have absolutely no experience or qualification in what appears an obvious “sham” to facilitate the existing owner of a business to distance or alienate themselves from income. Here, [Ms B] appears very well qualified and experienced in the [industry].

37.The Tribunal was particularly impressed by [Ms B]’s evidence, and found her a credible and reliable witness. Her evidence largely corroborates Mr Walcher’s account of key events.

1. The Tribunal does not consider the arrangement a “sham”. Although an unusual one, the Tribunal is satisfied that the Mr Walcher’s business was legitimately in peril following his “mea culpa” to the ATO, and that he had not been able to obtain sufficient finance to keep the business as a going concern (supported by the credit records obtained by the CSA). Mr Walcher and [Ms B] came to the mutually beneficial solution of the business being transferred to [Ms B]. The Tribunal accepted [Ms B]’s evidence that Mr Walcher is limited to his role as an employee on a rolling six-month basis, and he has no share in the income or the assets of the business. Mr Walcher’s only source of income is the wage he is paid, and he obtains no personal financial benefit from Walcher Company. He faces the real prospect of becoming unemployed in the event [Ms B] transfers the business to Tasmania in the relatively near future.

39.The Tribunal accepted Mr Walcher’s evidence that he some limitations as a result of his documented medical issues. Mr Walcher conceded he could likely do more than around two and half days per week; however, he did not consider he would be physically capable of full-time hours. [Ms B]’s evidence was that she had decided to limit Mr Walcher’s hours to a part-time basis as she had been reluctant to include Mr Walcher in the first instance, and has no plans to retain Mr Walcher in the business on a long-term basis.

40.The Tribunal considers Mr Walcher’s actual financial capacity from 1 July 2020 is represented by his wage of around $700 per week (the Tribunal understood that for a period, Mr Walcher would likely have received jobkeeper payment at the slightly higher rate of $750 per week).

41.Given the levels of recorded care, adjustments to Ms Walcher’s income make little, if any, material difference to the assessment .There was no serious dispute concerning the assessment of her income. Consistent with the approach of the original decision-maker (albeit with a slightly lower figure), the Tribunal considers it appropriate to vary her income to $46,150 from 1 July 2020 to 31 October 2020. From 1 November 2020, the assessment will revert to Ms Walcher’s 2019/20 adjusted taxable income (under the formula). There is no particular need to depart any further from the formula from that time, which provides an adequate reflection of Ms Walcher’s capacity.

42.Ms Walcher made her change of assessment application in March 2020 in anticipation of the previous departure coming to an end on 30 June 2020. It would not be just and equitable to make any adjustment from a date earlier than 1 July 2020. From that time, the Tribunal finds that Mr Walcher’s financial capacity roughly equates to his wage; he has been managing to repay a sum of $200 per month for some months. In rough and broad terms, varying Mr Walcher’s adjusted taxable income to $40,000 would result in an assessment of approximately $200 per month. It would be just and equitable to vary Mr Walcher’s income to $40,000 which is a figure representative of his financial capacity.

43.In respect of school fees, given the express agreement between the parties, it seems to the Tribunal there would need to be some compelling circumstances to make it just and equitable to put to one side Ms Walcher’s undertaking not to seek a child support departure in respect of school fees. No such circumstances appear to exist here; in any event, the Tribunal would not be satisfied that Mr Walcher presently has any financial capacity to make a contribution to the school fee expenses being met by Ms Walcher.

1. In terms of going forward, it is desirable to give the parties some certainty. This must be balanced against setting an assessment too far into the future which may not be reflective of changing circumstances.

2. In light of the possibility of an improvement in Mr Walcher’s financial capacity (particularly as the fog of COVID-19 begins to lift), the Tribunal does not consider it appropriate to set an assessment too far into the future. In the event the assessment of Mr Walcher’s income was varied to $40,000 only until 30 June 2021, the assessment from 1 July 2021 would revert to his 2019/20 adjusted taxable income of some $90,000 (and then later in the year to his 2020/21 adjusted taxable income upon completion of his tax return). Both parties would be at liberty to apply for a departure from the child support formula if they considered there were special circumstances rendering the child support assessment unfair. 

Issue 3 – Is it otherwise proper to make a departure determination?

46.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.

47.The rate of child support should reflect the obligation of both parents to take financial responsibility for the children and, where increased, may decrease any income-tested benefits payable. A departure is therefore proper.

48.As the Tribunal has reached a different conclusion to the objections officer, the decision under review will be set aside.

DECISION

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

(a)Ms Walcher’s adjusted taxable income is varied to $46,150 for the period 1 July 2020 to 31 October 2020;

(b)Mr Walcher’s adjusted taxable income is varied to $40,000 for the period 1 July 2020 to 30 June 2021.`