Weasley and Weasley (Child support)

[2018] AATA 2294

Weasley and Weasley (Child support) [2018] AATA 2294 (10 May 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/MC012431

APPLICANT:  Mrs Weasley

OTHER PARTIES:  Child Support Registrar

Mr Weasley

TRIBUNAL:Member S Lewis

DECISION DATE:  10 May 2018

DECISION:

The tribunal sets aside the decision under review and, in substitution, decides that for the period 28 October 2016 until there is a terminating event in relation to the child of the assessment:

• Mrs Weasley’s adjusted taxable income is varied to $340,000; and

• Mr Weasley’s adjusted taxable income is varied to $160,000.

CATCHWORDS
Child support – Departure determination - Income, property and financial resources of parents - Obligation on the parties to make a full and complete disclosure of their financial affairs - Business income - 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 has been brought by Mrs Weasley who disagrees with a decision made by the Department of Human Services, Child Support (the Department).

2. Mrs Weasley and Mr Weasley are the parents of the child, [Child 1] (born December 2002). The Department records that Mrs Weasley currently has 100% care of the child and Mr Weasley has 0%. This change in care came into effect on 10 April 2017 (being the date of notification). Prior to that, Mr Weasley had a care percentage of 24%. Mr Weasley is the parent liable to pay child support.

3. On 5 December 2016 Mr Weasley applied to the Department for a decrease 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 Mrs Weasley’s income, property, and financial resources. At the time of the application, Mr Weasley was assessed to pay an annual rate of child support of $11,618 (based on a care percentage of 24%).

4. On 24 February 2017, Mrs Weasley lodged a response to the current application together with a cross-application. She sought a departure from the administrative assessment 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 Weasley’s income, property, financial resources and earning capacity.

5. On 9 May 2017, a senior case officer, acting as a delegate of the Child Support Registrar, considered the departure application and determined that:

   ·         From 5 December 2016 to 31 March 2017, Mr Weasley’s adjusted taxable income is varied to $95,008 and Mrs Weasley’s adjusted taxable income varied to $130,637; and

   ·         From 1 April 2017 to the day [Child 1] ceases to be an eligible child, Mr Weasley’s adjusted taxable income is varied to $96,616 and Mrs Weasley’s adjusted taxable income is varied to $132,848.

6. On 4 June 2017, Mr Weasley objected to this decision. Mr Weasley’s objection was allowed in part by an objections officer on 8 August 2017. The objections officer determined that for the period 5 December 2016 until [Child 1] ceases to be a child of the assessment the annual rate of child support payable by Mr Weasley is set at $7,800.

7. On 4 September 2017 Mrs Weasley lodged an application for a review with the Administrative Appeals Tribunal (the tribunal) seeking review of the decision of the Department.

8. Prior to the hearing of the application for review, directions were issued to both Mrs Weasley and Mr Weasley directing them to provide the tribunal with specified documents. The tribunal also requested additional specified documents from the Department. Mrs Weasley provided the tribunal with documents (folios A1 to A100). Mr Weasley provided the tribunal with documents (folios B1 to B169). The Department provided the tribunal with a letter confirming that they had no further documents to provide (C1). Both parties have been provided with a copy. The tribunal and the parties also had access to the statement and documents provided by the Department under subsection 37(1) of the Administrative Appeals Tribunal Act 1975 (folios 1 to 503).

9. The matter was heard on 7 May 2018. Both Mr Weasley and Mrs Weasley attended the hearing by conference telephone and gave evidence on affirmation. Mr Weasley was represented by [Mr A], special counsel. Mrs Weasley’s brother, [Mr B]appeared as a witness and gave evidence on affirmation.

10. The matter was adjourned after the hearing to allow the tribunal to further review the evidence and submissions of the parties. The tribunal considered the matter and made its decision on 10 May 2018.

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 a 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. The Registrar, and the tribunal standing in place of the Registrar, must be satisfied:

   (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.

3. The grounds for departure from an administrative assessment of child support are those set out in subsection 117(2) of the Assessment Act. 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 Assessment Act. Section 98S sets out the determinations that may be made under the departure provisions. It permits a range of determinations, including varying the annual rate of child support payable and/or the adjusted taxable income of a parent.

4. To deal with Mrs Weasley’s application for review, the tribunal stands in the shoes of the Child Support Registrar.

CONSIDERATION

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

1. Both Mrs Weasley and Mr Weasley have sought a departure from the administrative assessment on the ground that in the special circumstances of this case the administrative assessment would result in an unjust and inequitable level of child support because of Mr Weasley’s and Mrs Weasley’s income, property, and financial resources. This ground for departure is found in subparagraph 117(2)(c)(ia) of the Assessment Act.

2. The term ‘special circumstances’ is not defined in the Assessment Act. In Gyselman v 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.

3. There are a range of circumstances which may support the finding that the administrative assessment would result in an unjust and inequitable determination of the level of child support. The tribunal referred to case law and the Child Support Guide (the Guide) which sets out government policy in relation to child support. The tribunal notes that the calculation of income and benefits for the purposes of taxation law does not limit its consideration of the true resources available to a party to child support proceedings and is but one factor to be taken into account in the particular circumstances of the case.

4. It is a well-established principle in the Family Court that the taxable income of a person who is self-employed may not be an accurate reflection of their earning capacity and financial resources (DJM and JLM [1988] FamCA 97; Scott v Scott (1994) FLC 92-457; Carey v Carey (1994) FLC 92-489). It is also a long established principle of law when a person conducts their business through an intermediary such as a company or trust that it is proper to lift the corporate veil to determine the value of the company or trust to that person (see in particular Stein v Stein (1986) FLC 91-779 and Ashton and Ashton (1986) FLC 91-777 (Ashton)). In Ashton, the Court stated that: ‘this Court is not bound by formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner’. Similarly, the Full Court of the Family Court in Stein said: ‘In our view, the Company [the Trustee of the Family Trust] is a mere puppet of the husband’ and could be disregarded. These principles have been affirmed by the Family Court in cases such as Carey v Carey (1994) FLC 92-489, with regard to the determination of a parent’s income for child support purposes. In these cases, effective control of the businesses was found to rest with the person conducting the business and not the intermediary. The tribunal took this case law into account in reaching its conclusions.

5. Child support legislation is interpreted by the Department with the aid of the Guide. The tribunal is not bound by law to apply the policy as set out in the Guide, but, provided the policy is consistent with the legislation, it is required to have regard to it and in the ordinary course follow it (see Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634). In chapter 2.6.14 of the Guide the following is included to which the tribunal has had regard:

   Income in the form of undistributed profits

   A parent or a third person may retain profits in a company, trust or partnership structure instead of distributing the profits to themselves or others. This may have the effect of reducing the parent's taxable income and could mean that the child support assessment is unfair.

   In a change of assessment, the Registrar may consider including some or all of the following in the parent's adjusted taxable income:

   ·      any undistributed profits from, and retained earnings in, a company,

   ·      any increase in the parent's partnership capital accounts and/or current accounts from a share of partnership-earned profits, and

   ·      undistributed trust profits if the parent is a beneficiary of the trust or a trustee.

   …

   Lump sum payments received by a parent

   Where a parent receives a substantial amount of money (a lump sum) that would otherwise not form part of his or her income amount used for child support purposes, and therefore is not included in the assessment of child support, the lump sum may be taken into account in deciding whether the assessment should be changed.

   Such payments may arise as a consequence of the parent:

   …

   ·      receiving a distribution from a deceased estate,

   …

   In each case it will be necessary to decide whether receiving the money makes the amount of child support payable unjust and inequitable.

   A relevant factor (but not the sole factor) is whether or not the payment results in one parent being in a better financial position compared to the other parent. However, the fact that there is a discrepancy in the parents' financial positions does not automatically mean that there is a reason to change the assessment (Hampson and Lightfoot (1997) FLC 92-775). It will depend on the circumstances of each case.

   …

6. Mr Weasley sought a change of assessment on the basis that Mrs Weasley’s inheritance from the estate of her mother renders the administrative assessment unfair; he is seeking to have no child support payable under the administrative assessment. The essence of Mrs Weasley’s cross-application is that Mr Weasley leads an extravagant lifestyle and has taken on debt which is inconsistent with the income reflected in his tax return and he has been able to do so due to the operation of his legal practice and the accumulation of superannuation funds in preference to earning a higher taxable income.

7. The tribunal has reviewed the evidence provided by the parties and the evidence arising from the Department’s investigation of the case. In Humphries & Berry (SSAT Appeal) [2008] FMCAfam 409 Slack FM dealt with the issue of the disclosure of financial information in matters before the former Social Security Appeals Tribunal. His Honour stated that the principle of full and frank disclosure applicable to proceedings in the Family Court was also applicable to proceedings before the Social Security Appeals Tribunal. His Honour stated as follows [at paragraph 26 and 27]:

   Although the SSAT has the power to obtain information (s.103K) and the power to require the Child Support Registrar to exercise powers under the Assessment Act and the Child Support Registration and Collection Act for the purposes of gaining information relevant to a review (s.103L), there nevertheless remains a primary duty and obligation on the parties to the review to make a full and complete disclosure of their financial affairs relevant to the matter before the hearing and a duty to assist the Tribunal to come to its determination in the application. The obligation to disclose information and documents extends to the presentation of that material in a way that the true nature of their financial affairs can be readily understood. The obligation extends not just to providing financial records but also includes presenting the information in a way that can be reasonably and readily understood and examined.

8. The tribunal also noted comments of Federal Magistrate Halligan in Agrippa and Horton (SSAT Appeal) [2010] FMCAfam 1144 in which he stated [at paragraph 24]:

   If the SSAT is satisfied that a parent has made a deliberate non-disclosure of his or her financial circumstances, it should be reasonably robust in assessing the non-disclosing parent’s financial circumstances adversely to that parent and in favour of the other parent. That is not to say that it may arrive at an entirely arbitrary result, but rather that it may draw generous inferences adverse to the non-disclosing party about that party’s financial circumstances.

9. In reaching its conclusions, the tribunal took this case law into consideration. The tribunal decided not to seek further information after the hearing. On balance, the tribunal was satisfied with Mr Weasley’s level of compliance. The tribunal considered that Mrs Weasley was reticent to comply with her obligation to make full and frank disclosure of her financial circumstances. This was particularly evident in her interactions with the Department. The tribunal found Mrs Weasley’s oral evidence to be at times unreliable and unsophisticated in relation to her financial circumstances. It was difficult for the tribunal to reconcile that Mrs Weasley controls a substantial inheritance through company and trust structures with her claimed ignorance and reliance on her accountant in meeting the corporate and trust obligations of being in control. The tribunal noted that she made conflicting statements to the Department and later the tribunal in relation to the quantum of her inheritance. The tribunal considered that Mrs Weasley’s behaviour was primarily a reaction to the difficult relationship between her and Mr Weasley; it seems to have been calculated to veil from Mr Weasley the true extent of the financial resources and income available to her and this therefore hindered the tribunal. For this reason, the tribunal has preferred the documentary evidence and the evidence of [Mr B] in reaching its conclusions in relation to the value of Mrs Weasley’s income, property and financial resources. There was a lesser degree of error in Mr Weasley’s financial disclosures which he rectified on questioning (for example by disclosing the rent on the bungalow at his residence). The tribunal considered his verbal evidence was largely consistent with the documentary records. In this case, the tribunal has reached a level of satisfaction required for an administrative decision to be made.

What incomes are used in the administrative assessment of child support?

1. The administrative assessment of child support is calculated for a child support period. The child support period at the time of Mr Weasley’s application for a change of assessment ran from 1 January 2016 to 31 March 2017. The incomes reflected in the administrative assessment at that time were:

   ·         Mr Weasley’s 2015 adjusted taxable income:     $139,473

   ·         Mrs Weasley’s 2015 adjusted taxable income:    $ 77,913

2. The current child support period runs from 1 April 2017 to 30 June 2018. In the absence of a change of assessment, the incomes which would be reflected in the administrative assessment are:

   ·         Mr Weasley’s 2016 adjusted taxable income:       $145,839

   ·         Mrs Weasley’s 2016 adjusted taxable income:     $88,339

3. The tribunal first considered Mrs Weasley’s income, property and financial resources.

Mrs Weasley’s income, property and financial resources

1. Mrs Weasley is a [occupation]. She earns wages which are reflected in her taxable income each year. In the 2017 financial year, Mrs Weasley’s annual income from [her work] was $98,515 (before work related deductions of $6,425). Prior to receiving an inheritance from her mother, Mrs Weasley’s adjusted taxable income primarily comprised her employment earnings. The immediate effect of the inheritance is reflected in the increase in Mrs Weasley’s 2017 taxable income.

2. Based on the documents and the verbal evidence at the hearing, the tribunal makes the following findings which are undisputed:

   ·         [Ms C]died on 27 April 2016. She was the mother of Mrs  Weasley and [Mr B]who are beneficiaries under her will (the Will);

   ·         [Mr B] and Mrs Weasley applied for probate of the Will in the Supreme Court of [State 1] on 10 October 2016 and probate was subsequently granted on 28 October 2016;

   ·         The probate inventory identified no liabilities and listed the following assets:

   oReal Estate:  $6,895,000

   oLoan to[Trust 1]:                  $1,824,255

   o[Company 1] shares:  $8,733

   o[Company 2]shares:            $1,746,901

   o[Company 3]:  $0

   oBank Account:  $76,178

   oTerm Deposit:  $1,376,187

   oTotal:  $11,927,254

   ·         The Will identified specific bequests of jewellery (including those to Mrs Weasley and [Child 1]). There were also nine specific cash bequests of $30,000 to [Mrs C]’s grandchildren, including the five children of Mr Weasley and Mrs Weasley;

   ·         The Will provided for the transfer of shares in two trustee companies as follows:

   oMrs Weasley: 100% shares in [Company 4]. is trustee of the [Mrs C] Memorial Trust No. 2 (Trust No. 2) which was bequeathed 50% of the residual estate of  [Mrs C] (the actual distribution was made based on an agreement between [Mr B] and Mrs Weasley; see below);

   o[Mr B]: 100% shares in [Company 5].  is trustee of the [Mrs C] Memorial Trust which was bequeathed 50% of the residual estate of Mrs [Mrs C];

   ·         [Company 4] as trustee of Trust No. 2 owns the following rental properties which were transferred from the Estate as part of the 50% distribution agreed between [Mr B] and Mrs Weasley for the benefit of Mrs Weasley:

   o[Property 1];

   o[ Property 2];            

   o[ Property 3];

   o[ Property  4].

   These properties continue to earn rental income for Trust No. 2.

   ·         Shares in [Company 3] carried a nil value in the probate inventory. [Company 3]is the trustee of [Trust 1]. The financial accounts indicate that at 30 June 2016 [Trust 2] had total assets of $1,965,915 (including payables totalling $536,205 owed by [Trust 1] and [Company 2]and a liability to the Estate of [Mrs C] of $1,824,252. Under the agreement with [Mr B], 100% of the shares in [Company 3] were transferred to Mrs Weasley and, as such, she controls [Trust 2];

   ·         The [Trust 2] holds an investment property at [address deleted]which earns rental income;

   ·          At 30 June 2017 [Trust 2] held $1,041,415 in cash assets and owed Mrs Weasley $1,567,380;

   ·         [Trust 2] held the following properties which were sold in the 2017 financial year with total of capital gains $885,115 reported in the 2017 income tax return:

   o[Property 5]: purchased 1993: $144,740; sold: $485,168; A28

   o[Property 6]: purchased 1988: $147,153; sold: $414,944; #A28

   o[Property 7]: purchased 1988: $147,386; sold: $418,282; #A28

   ·         [Trust 2] reported the following taxable income in the 2017 income tax return:

   oNet rental income:               $29,655

   oInterest income:                   $94

   oNet capital gains:                 $442,557

   ·         [Trust 2] made the following accounting distributions in 2017:

   oMrs Weasley:  $283,161

   oMr Weasley:             $180,000

   o[Trust 1]:       $110,084

1. The tribunal accepts that [Trust 2] and the No.2 Trust are valuable financial resources to Mrs Weasley, resources which she acquired following the death of her mother. Mrs Weasley has access to readily available cash and an ongoing income stream which her accountant in a letter dated 13 October 2017 (A10) indicates should increase her taxable income to $190,000 (an increase of around $100,000). It is also clear that Mrs Weasley, through her control of [Company 3] and [Company 4], has the ability to distribute earnings from the trusts to others aside from herself and so the total value of the earnings will not necessarily ever be reflected in her adjusted taxable incomes. This was particularly evident in the [Trust 2] in the 2017 financial year; [Mr B] and Mrs Weasley were unable to explain the decision making process behind the distributions. [Mr B] expressed the view that the distribution to [Trust 1] which he controls was likely part of the final calculation of entitlements under the Will. The tribunal accepts that this is likely. The tribunal considered it disingenuous that Mrs Weasley could not explain why a trust, controlled by her, distributed $180,000 to her son. The tribunal finds that it is more likely than not that, after paying out her brother, Mrs Weasley controlled the remaining accounting distributions totalling $463,161. The tribunal notes that this largely comprises a capital gain from the sale of the majority of the properties owned by the [Trust 2] prior to [Mrs C]’s death. The tribunal accepts that earnings of this magnitude are confined to the 2017 financial year and are not a realistic measure of the ongoing annual value of the [Trust 2] to Mrs Weasley. However, capital gains do form part of adjusted taxable income and so cannot be disregarded solely because it is a one-off occurrence.

2. In terms of calculating an annual value of the additional financial resources available to Mrs Weasley, the tribunal was in a difficult position. There are a number of private companies and private trusts in which Mrs Weasley has a controlling interest. The tribunal did not have financial statements for all of the relevant entities. [Mr B] also identified that there were loan accounts between the relevant entities and others controlled by him as well as a tax liability in [Company 2] which may cause the final entitlements to vary. The probate documents indicate that Mrs Weasley was entitled to 50% of the Estate plus 50% of the shares in [Company 3]as trustee for the [Trust 2]. The shares in [Company 3] were given a nil value in the Estate. [Mr B]’s evidence was in essence that he and his sister are close and they have taken a pragmatic approach to the division of assets. [Mr B] noted that he took a greater share of the cash assets and less property; Mrs Weasley’s 50% entitlement was weighted in favour of property and less cash. So in the final distributions, [Mr B] has 100% ownership of JH and [Company 2] (taking responsibility for the tax liability); Mrs Weasley has 100% ownership of [Company 3] and [Company 4].

3. The financial evidence does not lend itself to precise calculations as the terms of the Will have given way to an agreement between Mrs Weasley and her brother. On balance given the tribunal’s findings above, the tribunal was satisfied that Mrs Weasley inherited at least 50% of her mother’s total estate (including the value of the [Trust 2]). [Mr B] told the tribunal that the total estate (after the specific bequests) was accepted by him and Mrs Weasley as being valued at $13,524,100 at 1 November 2016. The tribunal finds that Mrs Weasley’s net assets position improved by at least $6.76 million following the death of her mother. Given the amicable and non-arm’s length relationship between the beneficiaries of the Estate, the tribunal considers it more likely than not that this is a modest valuation.

4. The tribunal finds that the inheritance is significant and has a substantial impact on the relative financial positions of the parties as well as the ongoing adjusted taxable income for Mrs Weasley. The ability to direct distributions to her adult children means that the full extent of future income or capital gains will not necessarily be reflected in her adjusted taxable income.

Mrs Weasley’s other financial circumstances

1. Mrs Weasley lives in an unencumbered family home which she values at $2.3 million. This value is in dispute. The tribunal accepts that the residence is currently used to house Mrs Weasley, [Child 1] and two adult children. Whilst it is a significant asset to Mrs Weasley, the tribunal accepts that it does not generate any income which could be used to support [Child 1] and so the tribunal was not persuaded that its existence or its value amounts to special circumstances.

2. In her Statement of Financial Circumstances (SOFC), Mrs Weasley identified savings (approximately $330,000) on which interest is earned; superannuation ($80,000) to which she has no access; a motor vehicle ($19,000) and personal/household contents ($50,000 (value disputed)). The tribunal accepts that any interest earned on Mrs Weasley’s personal savings will be included in her income tax return. There is evidence that Mrs Weasley has had access to overseas funds in the past; there was no current evidence and both [Mr B] and Mrs Weasley denied that funds remained. Based on the available evidence, there was no further evidence that Mrs Weasley has significant alternative sources of income or additional financial resources which are not reflected in her adjusted taxable income.

Mr Weasley’s circumstances

1. It is undisputed that Mr Weasley is a [occupation] who operates his business through a company. Mr Weasley is the sole shareholder and director of [Company 6].

2. It is also undisputed that Mr Weasley has property investments which are negatively geared and held in his personal name, a trust and a superannuation fund. The tribunal accepts that Mr Weasley has not yet retired and has no access to his superannuation at this time.

3. Based on the available financial information, the tribunal notes the following:

   ·         Mr Weasley’s 2016 wages:  $156,000;

   ·         2016 Taxable income:  $111,414;

   ·         2016 Tax deductions:  $10,331 (car log book method)

   ·         2016 Rental loss:  $34,425

   ·         2016 ATI:  $145,839

   ·         [Company 6]:  2016               2015

   oTaxable income:  $131,943        $158,810

   oSales  $1,418,193     $1,265,154

   oDepreciation:  $9,783            $7,689

   oProfit:  $131,943        $221,410

   oTax losses deducted:  $0                   $56,777

   oPayments to associated persons:     $186,000        $156,000

   oTrade Creditors:  $13,792          $7,848

   oTotal assets:  $479,931        $365,640

   oNet Equity:  $202,697        $108,358

4. Losses associated with rental properties are added back under the administrative formula and do not reduce a person’s adjusted taxable income. The evidence supports that Mr Weasley has investment properties in his personal name which he values at $3.343 million with mortgages totalling $2.775 million. There is also a rental property held in a trust –[of Mr Weasley’s] Family Trust. Mr Weasley explained that this property was acquired in 2017 and was largely funded by debt for the benefit of him and his domestic partner. Given the available evidence, the tribunal accepts that these investment assets are negatively geared and as such more vulnerable to market forces than Mrs Weasley’s assets position is.

5. Mr Weasley lives in an encumbered family home which he values at $2.7 million subject to a mortgage of $1.3 million. The tribunal notes that the capital improved value in the rates notice is $1.68 million. The tribunal accepts that the residence is currently used to house Mr Weasley and his domestic partner. Mr Weasley reported that he rents the bungalow on the property out at around $150 per week. Given the level of mortgage debt and other property expenses, the tribunal accepts that Mr Weasley is unlikely to make a profit from this activity; the tribunal did not consider that rental from the bungalow is a special or significant circumstance which impacts on the administrative assessment.

6. Mr Weasley told the tribunal that the legal business operated by [Company 6] is vulnerable to cash flow fluctuations; it has a commercial loan of approximately $150,000 and an overdraft facility of $300,000. He values the business at $100,000. Mr Weasley explained that the business commenced in 2013 and he is seeking to grow it through hiring new staff. Mr Weasley explained that he is now 60 years of age and cannot work the overtime that he could as a young [professional] and so the business needs to engage employees to supplement his capacity. The finance data for 2015 and 2016 supports that the business has recouped prior year losses and net income significantly decreased whilst revenue has increased. The tribunal considers this is consistent with Mr Weasley’s evidence that he retains cash funds in the business to manage the fluctuating fortunes of a growing business. He further stated that the current financial environment presents significant challenges in terms of the cost and availability of finance. The tribunal accepts that the business is seeking to rationalise its position and given the loan and overdraft requires the profit for a time to meet these obligations and to build a financial buffer. The tribunal considers that the net assets of [Company 6] are a financial resource which could be distributed to Mr Weasley; however, in the circumstances of this case it is reasonable to retain the profits in [Company 6] to meet the ongoing cash flow needs of the business and to ensure the ongoing ability of the company to fund Mr Weasley’s substantial wage.

7. In 2016 Mr Weasley was paid a wage of $156,000 and superannuation contributions of $30,000. Mr Weasley explained that he expected to be paid a similar wage and the concessional superannuation contributions would be capped in future years. The tribunal was satisfied that Mr Weasley’s income and financial resources from [Company 6] had an annual value of approximately $160,000 at the time of the application and this will be ongoing. In reaching this conclusion the tribunal has taken into account the net wages for 2016 and the superannuation contributions made in excess of the standard SGC contribution of 9.5%.

8. The tribunal did not consider that any of the other items disclosed in Mr Weasley’s SOFC has a significant impact on his ability to contribute to the child’s support. The tribunal notes Mrs Weasley’s submissions that Mr Weasley has opted to invest in luxury cars. However, the tribunal notes that Mr Weasley is meeting these obligations from his salary and wages; the tax deductions claimed have not been excessive and, in any case, such expenses do not take priority over his obligation to provide for the child.

Summary and application of the law

1. Having considered the documentary and other evidence, the tribunal is of the view that there are special circumstances in this case that make the level of child support payable under the administrative assessment unjust and inequitable. The tribunal formed this view as a result of the following findings:

   ·         Mrs Weasley inherited at least $6.76 million under the Will;

   ·         Mrs Weasley had personal control of accounting distributions from  [Trust 2] which could be applied for her benefit in the 2017 financial year of $463,161. Only $241,001 is reflected in her taxable income. The trust structures allow Mrs Weasley to alienate the income which she controls;

   ·         From 1 July 2017, Mrs Weasley expects that ongoing earnings from the inheritance will increase her taxable income by an estimated $100,000 per annum which is a very low rate of return given the level of unencumbered assets held by Mrs Weasley;

   ·         The net value of real estate investments (excluding his residence) held by Mr Weasley (outside superannuation) is less than 10% of the value inherited by Mrs Weasley. The gross value of Mr Weasley’s business and investment properties represents only about 30% of the total value of business, personal investments and inherited assets held by both parties; and

   ·         Mrs Weasley’s adjusted taxable income of $88,339, which in the absence of a departure determination would have been used in the administrative assessment, is only 26% of her taxable income in the 2017 financial year. That taxable income will not be taken into account in the administrative assessment until 1 July 2018 and, in any case, is unlikely to be given that Mrs Weasley could lodge an estimate.

2. The tribunal considers that the availability of additional income and resources over and above the income used in the administrative assessment for Mrs Weasley would have a significant impact on an assessment which reflected these amounts. The tribunal calculated that under an administrative assessment at the date of application which allocated their combined child support income on the basis of 30% to Mr Weasley and 70% to Mrs Weasley (being an approximation of their relative asset positions), Mr Weasley would be required to pay an annual rate of child support of approximately $1,670. This amount is approximately 14.5% of the rate of child support payable at the date of application. This is a significant reduction reflecting a significant change in the respective financial positions of the parties and it makes the administrative assessment unjust and inequitable. On the available evidence, the tribunal finds that the ground for departure in subparagraph 117(2)(c)(ia) of the Act does exist in this case in relation to Mrs Weasley’s income, property and financial resources.

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 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 self-support costs of either parent. The tribunal is not limited to exploring these parameters and is required to consider the global circumstances. In Gyselman the Court said:

   However, some of the matters listed in sub-section (4) may overlap with matters already considered under sub-section [117](2) and some of the paragraphs in sub-section (4) may be more significant in one case than they would be in another or of little relevance in a particular case. It is an essential part of the s.117 exercise to carry out the obligation under sub-section (4). However, that does not mean that it is necessary in each case to slavishly go through each of the paragraphs. The extent to which it is necessary to do so will depend upon the facts and conduct of the individual case and the analysis already performed under sub-section (2).

2. The tribunal had regard to the evidence which was presented, including the evidence which has been discussed above under subsection 117(4) of the Act.

The duty to maintain the child

1. Mrs Weasley and Mr Weasley each have a duty to maintain the child. Mrs Weasley’s improved financial position does not eliminate Mr Weasley’s obligation to provide for the child in circumstances where he is not providing shared care. Further, the tribunal notes the statements contained in sections 3 and 4 of the Act to the following effect:

   ·         Parents of a child have a primary duty to maintain the child. The duty has a priority over all commitments of the parent other than those 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, earning capacity, property and financial resources of the children

1. The evidence supports that [Child 1] attends a private fee paying school and has done so for a number of years. The fees are shared between the parties on the basis that Mr Weasley pays 66% and Mrs Weasley 33%; this is reflected in 2012 court orders. Mr Weasley is also required to provide private health insurance. The amount paid by Mr Weasley pursuant to the court orders is in addition to the administrative assessment of child support. Mr Weasley told the tribunal that he had sought to change these orders but has now ceased court action to do so. Mrs Weasley submitted that Mr Weasley pays his share of the fees after deduction of a 25% discount applied due to her status as a [occupation] and so this is a benefit to him. Mrs Weasley also identified a number of other expenses for [Child 1], including a forthcoming cultural trip, extra-curricular dance expenses, additional school fees for dance subjects and future orthodontic treatment.

2. Aside from the private school fees, there was no documentary evidence presented to the tribunal that [Child 1] has anything other than the usual expenses and needs of a child of her age; expenses which are dealt with in the administrative assessment and addressed in the Costs of the Children Table. The tribunal did not consider that any of the expenses identified by Mrs Weasley as currently being incurred were special needs which significantly impacted on the level of child support payable for [Child 1]. Both parties have significant financial means; the child support payable is calculated by reference to the highest Cost of the Children table. The evidence does not support that [Child 1]’s expenses exceed the costs in those tables by reason of any special needs. As Mrs Weasley now has 100% care for [Child 1], it is entirely appropriate that Mr Weasley pay child support to assist with meeting her proper needs.

3. There was no evidence that [Child 1] currently has significant independent income or resources. The tribunal notes the bequest of jewellery and $30,000 to [Child 1] under the Will. The tribunal finds that these bequests and any related earnings, whether paid to [Child 1] or held on trust, are not so significant that they should be taken into account in reducing either parent’s obligation to otherwise provide for [Child 1].

Other party receiving money, goods, and property for the benefit of the children

1. Mr Weasley confirmed that [Child 1] is listed on the private health insurance policy in his name. Mrs Weasley contended that this is a requirement of the court orders and as [Child 1] is the third person on the policy there is no additional cost to Mr Weasley. Given the available evidence, the tribunal concludes that neither party received money, goods or property for the benefit of [Child 1] which impacts on their ability to otherwise support her.

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

1. Mr Weasley’s financial circumstances have been discussed above and further considered in this context.

2. Mr Weasley reported that he is 60 years of age; he has a longstanding history of depression and he no longer has the stamina to undertake 12 hour working days as he could as a younger [professional]. There was no documentary evidence that his age or health actually interferes with his employment to the extent that the business cannot justify paying him an ongoing annual wage of around $150,000; the tribunal accepts that [Company 6] is focussed on the middle-term contribution of Mr Weasley and remunerating him accordingly whilst developing the business as a long term asset. The tribunal was satisfied that Mr Weasley has no additional earning capacity as a [occupation].

1. Mrs Weasley’s financial circumstances have been discussed above and further considered. Mrs Weasley is working full-time and she reported that she generally enjoys good health. The tribunal was satisfied that Mrs Weasley has no additional earning capacity as a [occupation].

2. The tribunal has taken into account that Mr Weasley earns higher wages than Mrs Weasley but has significantly less net assets. The tribunal considered that Mrs Weasley’s asset position places her in a far more robust financial position than Mr Weasley. Mrs Weasley’s assets will allow her to maintain her passive income. By contrast, Mr Weasley is dependent on the continued success of his firm.

The direct and indirect costs incurred by the carer entitled to child support in providing care for the child

1. On the available evidence, the tribunal was satisfied that Mrs Weasley is the parent entitled to child support from Mr Weasley for the care of [Child 1] who is 15 years of age and a full-time student. In the context of the current application, the tribunal was satisfied that neither parent has forgone income or earning capacity in this regard.

Necessary commitments to support themselves

1. The self-support amount used in the administrative assessment is approximately $24,150. On the documentary evidence available to the tribunal, including the disclosures to the Department and the SOFCs completed by both parties, the tribunal was satisfied that both Mrs Weasley and Mr Weasley have more than sufficient funds at their disposal to meet their necessary commitments. There was no documentary evidence of debs which would suggest that any expenses associated with Mr Weasley’s self-support impact on his ability to pay child support. The payment of child support takes priority over the accumulation of assets for retirement purposes.

Legal duty to support another person

1. The tribunal must take into account the commitments that are necessary to support any other child or another person that the parent has a duty to maintain. Such commitments shall not however take priority over the obligation to the child whose maintenance is under consideration. The evidence before the tribunal does not support that that either party has any outlays related to a legal duty to support another person which reduce their ability to support the child. Mrs Weasley told the tribunal that she as the means to meet the outlays identified in her SOFC for her household including the support she provides for her adult sons in relation to their mental health needs.

Hardship that would be caused to the parents and the child

1. If assessments were to be made in which Mr Weasley’s adjusted taxable income was varied to $160,000 from 28 October 2016 and Mrs Weasley’s adjusted taxable income was varied to $340,000, the annual child support payable by Mr Weasley would be approximately $1,670 at the date of application. This increases to approximately $8,300 ($690 per month) once the change in care is taken into account.

2. The tribunal considers that payment of child support at this level will not cause Mr Weasley hardship. The child support documents indicate there were no arrears in this case at 7 September 2017. There is significant discretionary expenditure disclosed in Mr Weasley’s SOFC which does not take priority over his obligation to provide for [Child 1]. On the basis of the available evidence, the tribunal is satisfied that there is no evidence to suggest that there would be hardship caused on Mrs Weasley or [Child 1] by any departure from the child support assessment. Given the tribunal’s decision to vary the adjusted taxable incomes rather than set the child support payable, the tribunal expects that a small overpayment may arise related to that period in which [Child 1] was recorded as being in the 24% care of Mr Weasley. The tribunal did not consider that this is significant given the financial position of both parties. The proposed change in the child support assessment will ensure that both Mr Weasley and Mrs Weasley share in the costs of caring for [Child 1] at a level commensurate with their resources. The tribunal was satisfied that no hardship would be caused.

3. Given the income, property and financial resources identified above for both parties, it is more likely than not that the child support assessment will always be based on the highest Costs of the Children Table. Overall the tribunal finds that it is just and equitable that the child support assessment reflects that Mr Weasley has 30% of the combined child support income and Mrs Weasley has 70%. The tribunal notes that this is comparable to the child support income ratio which would be applied if the 2017 adjusted taxable incomes were ever reflected in the assessment. It is also comparable to the ratio of child support income which would be applied if the 2017 capital gain was apportioned over the remaining life of the child support case and added to Mrs Weasley’s expected group income of $190,000. In reaching this conclusion, while considering the totality of the circumstances, the tribunal has placed greater weight on the following factors:

   ·         Mrs Weasley is in stable employment and has substantial unencumbered real estate investment assets together with in excess of $1.3 million dollars in cash funds. The tribunal found that Mrs Weasley’s net assets position improved by at least $6.76 million and that this was more likely than not a modest valuation;

   ·         Mr Weasley earns significantly more employment income and is using these resources to improve his long term position. The obligation to service debt does not take priority over his obligation to provide for [Child 1]. However, Mr Weasley’s rental properties are likely to be negatively geared for the life of the child support assessment; and

   ·         Mr Weasley’s ability to utilise accumulated profits in the business for his benefit is limited given the combined impact of Mr Weasley’s age and the short period in which he has had to develop the business.

4. On balance, the tribunal did not consider that it would be just and equitable to adjust the existing agreement between the parties in relation to [Child 1]’s costs of education through this process but has taken this into account in reaching the decision. After consideration of all of the factors in subsection 117(4), 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 that for the period 28 October 2016 until there is a terminating event in relation to the child of the assessment:

   ·         Mrs Weasley’s adjusted taxable income is varied to $340,000; and

   ·         Mr Weasley’s adjusted taxable income is varied to $160,000.

5. Taking into account the totality of the evidence, the tribunal considers it appropriate to determine that the assessment period should extend from 28 October 2016 until there is a terminating event in relation to the child. The start date is the date that probate was granted; the tribunal considered that by this date Mrs Weasley had control of her portion of the inheritance under the Will. Given the quantum of the inheritance, the tribunal considers that the limited backdating is appropriate – it will not create a significant overpayment nor any hardship on either party. The tribunal considers it would be just and equitable to extend the date until there is a terminating event as the relative financial position of the parties is stable; it has been for a number of years and this departure determination resets that position to reflect the new position in which Mrs Weasley finds herself.

6. 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 child 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) requires the tribunal to take into consideration whether the proposed departure is ‘proper’ within the context of the public interest and welfare expenditure by the community (see Gyselman).

2. Mrs Weasley does not receive family assistance. In this case the tribunal finds that the requirements under paragraph 117(5)(a) of the Act are met. 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 28 October 2016 until there is a terminating event in relation to the child of the assessment:

·         Mrs Weasley’s adjusted taxable income is varied to $340,000; and

·         Mr Weasley’s adjusted taxable income is varied to $160,000.