Weidlich and Weidlich (Child support)

[2019] AATA 4300

Weidlich and Weidlich (Child support) [2019] AATA 4300 (7 August 2019)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2018/HC015672

APPLICANT:  Mr Weidlich

OTHER PARTIES:  Child Support Registrar

Mrs Weidlich

TRIBUNAL:Member A Schiwy

DECISION DATE:  07 August 2019

DECISION:

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

·       For the period 1 June 2018 until terminating events occur for both children; Mr Weidlich’s adjusted taxable income is varied to $180,000.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business - 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 Weidlich to Mrs Weidlich and whether a departure should be made from the child support formula assessment.

2. Mr Weidlich and Mrs Weidlich are the parents of two children aged 15 and 14 years.  A child support case was registered in 2009. The Department of Human Services (Child Support) have determined that the parents have shared care of the children.

3. The administrative assessments for child Support from 4 April 2018 to 31 December 2018 were based on Mr Weidlich’s 2016–17 adjusted taxable income of $107,508.  The child support liability was assessed to be $14,026 per annum.  This liability has been increased by 20% from the formula assessment due to a child support agreement.

4. On 1 June 2018, Mrs Weidlich 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 Weidlich’s income, property and financial resources.

5. On 24 July 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 1 June 2018 until a terminating event occurs Mr Weidlich’s adjusted taxable income  is varied to $295,524.

6. On 10 August 2018 Mr Weidlich objected to this decision and on 11 December 2018, the objections officer decided to disallow his objection.

7. On 21 December 2018, Mr Weidlich lodged an application with the Administrative Appeals Tribunal (the tribunal) seeking a review of the objection decision.

8. Prior to the hearing of the application for review, directions were issued to both Mr Weidlich and Mrs Weidlich to provide the tribunal with specified documents. Mr Weidlich provided the tribunal with documents (folios A1 to A251). Mrs Weidlich provided the tribunal with documents (folios B1 to B14). Both parties were provided with a copy. The tribunal and the parties also had access to the statement and documents provided by Child Support (folios 1 to 362). Child Support forwarded supplementary papers shortly before the hearing (folios 363 to 436) and neither parent received them prior to the hearing.  The papers were the latest assessments issued by Child Support and the tribunal decided that the parents were not disadvantaged by not seeing the papers prior to the hearing.

9. The matter was heard on 7 August 2019.  Mr Weidlich attended the hearing in person and Mrs Weidlich attended the hearing by conference telephone.  Both parents gave evidence on affirmation.  Mr Weidlich’s accountant, [Mr A], gave evidence at the hearing.

10. After the hearing Mrs Weidlich provided a further submission and this is discussed below (A15-16).

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.

3. Mr Weidlich runs a [specified] business.  He and his brother, [Mr B], took the business over from their parents several years ago and until recently they owned 50% each.

4. The business is run through a company, [Company 1].  The company pays the brothers a salary and they also receive dividends from the company.  Mr Weidlich’s shares are owned by [Family Trust 1] (“the family trust”) and the beneficiaries include his parents.

5. In recent years Mr Weidlich’s taxable income has been made up of his salary and profit/loss from a [farm].  His adjusted taxable income includes reportable superannuation benefits.  Any dividends paid by [Company 1] to the family trust have been distributed to the parents in recent years and therefore have not formed part of Mr Weidlich’s taxable income.

6. In recent years Mr Weidlich’s adjusted taxable incomes have been as follows:

   ·2015-16    $112,598

   ·2016-17    $107,508 (includes salary of $89,999 and farm loss of $3,792)

   ·2017-18    $112,598 (includes salary of $91,729 and farm loss of $805)

7. [Company 1] financials included the following information:

2015-16	2016-17	2017-18	2018-20193
Gross sales	7,997,628	8,397,469	7,601,824	7,997,628
Net Profit after tax	(263,740)1	329,666	(17,448)2	39,867
Dividends paid	440,000	300,000	Nil	Nil planned
Retained earnings	3,689,648	3,719,314	3,701,867	NA

¹The loss in 2016 is after impairment losses of $608,159 – it is unknown what assets this relates to.

²The loss in 2018 was after writing off bad debts of $179,974 including an abnormal amount of around $140,000.

³Accounts not yet finalised.

1. The tribunal noted that after removing the abnormal reductions for impairment losses and bad debts; the company has remained profitable. 

2. The tribunal was satisfied that any profits Mr Weidlich takes from the company (dividends) should form part of his income for child support purposes; it is his decision to divert the dividends to his parents.  To determine what level of income and financial resources he has for child support would normally be a simple matter of adding the salary he draws, his share of the dividends and any benefits paid for  by the company (for example, motor vehicle expenses).

3. Mr Weidlich has submitted that the dividend income should not be included as his income as he does not actually receive any payment.  In 2008 and 2009 [Company 1] lent him $332,199 to pay out Mrs Weidlich’s property settlement and $650,000 to $700,000 to build his current family home.  When a dividend is paid to him it is credited against his outstanding loan balance.  Mr Weidlich pays interest on the loan from [Company 1]. 

4. The tribunal did not agree that the dividends were not income merely because Mr Weidlich does not receive any cash; his loan is being reduced and this is therefore a financial resource available to him, in the same way as it would be if the company paid off his mortgage with an external financial institution. 

5. Mr Weidlich also submitted that [Company 1] had sufficient retained earnings to pay him a dividend back in 2008 and 2009 equivalent to what he borrowed and if it had he would not be getting a dividend now to reduce the loan.  The tribunal did not accept this argument; the fact is, [Company 1] did not pay this money out to Mr Weidlich in 2008 and 2009.  Instead it was treated as a loan.  If it had been paid out at the time there presumably would have be tax implications and his own evidence is that the arrangement was done this way ‘for legitimate tax planning purposes’.

6. The tribunal requested details of all transactions making up his loan from [Company 1] for 2016-17 and 2017-18.  This showed that during 2016-17 he obtained net financial resources of $83,469 in 2016-17 and $41,677 in 2017-18.  This was made up of cash withdrawals and repayments, expenses paid on his behalf and part of his salary not actually drawn.  He owed [Company 1] $201,375 and it is therefore clear that over the years he has been able to extract a significant benefit from the company, given he owed over $1 million in 2009.  In addition to the financial drawings, the company provides and maintains Mr Weidlich’s motor vehicle.

7. In late 2018 Mr Weidlich bought out his brother’s share of the business for $530,000 and this has been financed by a loan for $175,000 from [Bank 1] and a loan from the brother’s family trust.  As at 30 June 2019 Mr Weidlich’s total debts (to [Company 1], his brother and [Bank 1]) were $645,693 and he now owns 100% of [Company 1].

8. Having details of how the sale price was calculated may provide some insight into how the two brothers see the net worth and profitability of the business.   Neither Mr Weidlich nor [Mr A] could provide clear evidence on how the business was valued other than it took into account previous profitability and that a valuation had been undertaken about 12 months earlier.  In the submission she provided after the hearing, Mrs Weidlich and said she felt there was something really wrong about the evidence provided.  She noted that in 2009 [Mr A] prepared a Financial Binding Agreement that she felt she had been pressured into signing and as a result she received nothing from the business.  She said this supports her view that [Mr A] was holding back information about the sale.  The tribunal did not give this submission much weight given it is more ‘of a feeling’ than substantiated evidence.  The tribunal accepts that Mr Weidlich paid $530,000 for the half share despite the net equity being booked at over $3 million.  More importantly, Mr Weidlich will now benefit from 100% of any profits made; offset by the finance costs of the purchase.

9. Mr Weidlich also submitted that the business has been in decline and Mr Weidlich is unable to extract profit from the business.  He said that the business is a long way behind in paying its rent.  Mr Weidlich and [Mr A] both gave evidence about the difficulties the business has been facing and said the major issues impacting on profitably were:

   ·     They used to only sell [Product 1] but they now sell other [products] and these have lower margins;

   ·     Increased competition;

   ·     Lack of availability of [staff];

   ·     Staffing issues in [City 1] caused a significant downturn and in 2017-18 the store made substantial losses.

10. Mr Weidlich said his brother had been managing the [City 1] store and there had been some difficult staffing issues.  He told his brother that either he would get out or buy his brother out; but he would not stay in partnership.  This led to him purchasing the entire business in 2018.  A new manager has been put into the [City 1] store and his salary is around $30,000 per year less than what Mr Weidlich’s brother was paid.  Mr Weidlich said the profitability of the [City 1] store is improving (it made a loss in 2018 of around $100,000 and this has decreased to around $20,000 to $30,000 loss). 

11. Mrs Weidlich submitted that the business must not be going too badly as they opened up a new [City 2] store this year.  Mr Weidlich said that the [City 2] store was profitable but the premises were too small so after 35 years they have moved to a bigger location.  He is hopeful profits for this store will further increase. 

12. Mrs Weidlich stated that Mr Weidlich’s father, who started the business, would never allow it to be closed down. 

13. In summary the tribunal was satisfied that in 2017-18 and 2018-19 the business has had a down turn and a reduction in profitability but it is likely (given the improvement to the [City 1] store management) that the situation will improve.  In addition to his salary, Mr Weidlich has extracted financial benefits of $83,469 in 2017 and $41,677 in 2018 (an average of $62,573), in addition to some value in having his car paid for by the company.  It is more likely than not that Mr Weidlich will be able to extract further financial benefits in the future.

14. The tribunal decided that a fair representation of Mr Weidlich’s total financial benefits from the business is an annual amount of $180,000 (including salary, superannuation, drawings from the business and motor vehicle).

15. With regard to the [farm], Mr Weidlich said this usually breaks even and it gives his father something to do.  The turnover is only round $25,000.  The tribunal decided that this is more in the nature of a hobby than a business and any losses should not reduce his taxable income for child support purposes.

16. The tribunal found that Mr Weidlich has income and financial resources of $180,000 per year and this is likely to be maintained for several years.

17. There is a binding financial agreement between Mr Weidlich and Mrs Weidlich that states that Mr Weidlich is to pay child support at a rate calculated using the applicable legislative formula increased by 20% and also pay 80% of all agreed extraordinary expenditure for medical, educational or recreational costs.

18. Mr Weidlich was assessed to pay $14,026 per annum in child support based on his 2016–17 adjusted taxable income. The tribunal has decided that he has income and resources of $180,000 per annum which would result in child support payable of around $23,354 including the 20% increase. 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 Weidlich.

19. 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).

The duty to maintain the children

1. Mrs Weidlich and Mr Weidlich 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 that the children currently have any significant independent income or resources.

2. The eldest child, [Child 1], was selected as part of the Australian team to play [sport] in [Country 1] in 2018.  Mrs Weidlich would only agree to her attending if Mr Weidlich accompanied her.  The cost, after sponsorship was around $13,000 which Mr Weidlich paid.  There was no evidence of similar costs in 2019.  The tribunal noted that the financial agreement between the parents, discussed above, provided that Mr Weidlich pay 80% of this type of cost.  

3. The costs of children table used in the child support formula indicate costs of approximately $42,000 for two children over 13, where the income of the parents is $180,000.  Apart from the [sporting] costs there was no evidence that the children’s costs would exceed this amount.

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

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

1. Mr Weidlich’ income and financial resources have been discussed above.  The tribunal was satisfied that he has no further earning capacity.

2. Mr Weidlich’s assets include his residence which he values at around $750,000 to $800,000, motor bikes and motor home valued at $115,000, his interest in [Company 1] (at least $1,060,000), superannuation of $660,000 and cattle valued at $20,000.  In June 2019 he stated his liabilities were $645,693.  The tribunal found that he has net assets of over $1.9 million. Mr Weidlich has a de facto wife and she has two children who spend half of their time at Mr Weidlich’s home.  He listed total weekly household expenses at $1,628 per week including loan payments of $489 per week.  He stated that he spends $400 per week on the children and $110 on the other adult; leaving $1,118 for his own expenses.  His expenses included $140 per week for gifts and holidays.  Mr Weidlich stated his income tax liability was $488 per week.

3. Given Mr Weidlich’s financial resources the tribunal was satisfied that a child support liability of around $23,000 to $24,000 would not place him in any financial difficulty; after all of his expenses (including the children’s) he would have more than enough capacity to meet this amount.

Mrs Weidlich’s circumstances

1. Mrs Weidlich has been unwell for about six years with [medical condition].  She was recently diagnosed with [Medical Condition 1].

2. She has worked as an [Occupation 1] for several years.  Mrs Weidlich’s income has dropped in the last couple of years due to her illness.  Her recent taxable incomes have been:

   ·     2016-17         62,460

   ·     2017-18         22,823

   ·     2018-19         24,427

1. Mrs Weidlich’s income is supplemented by [government payments] and child support payment. 

2. Her employment was terminated recently due to the amount of leave she needed to take and she is on [government payments].  In the submission she provided after the hearing she stated that she wants to work more but her health has caused her a lot of difficulties.   She is currently looking for a better job with increased salary.  The tribunal accepted that Mrs Weidlich currently has no further earning capacity, but it may increase when her health improves.

3. Mrs Weidlich has a residence valued at around $320,000 to $330,000 and superannuation of $102,423.  She owes $93,862 on her home loan.  Her net assets are around $330,000.

4. Mrs Weidlich listed total household expenses (including the children’s expenses) of $1,150 per week.  Some of the expenses seemed high ($75 per week for phones and internet), $120 per week for petrol, and $100 per week for clothing.  She listed some discretionary items such as entertainment of $40 and gifts of $10.  She also listed $25 per week for [Child 1]’s skin care and clothing.

5. Mrs Weidlich’s income is supplemented by the child support she receives for the children and income support payments.  She said her credit card debt has been going up and her parents have been helping out with the odd purchase.

6. The tribunal was satisfied that Mrs Weidlich is in a very difficult financial situation which has been exacerbated by illness.  Her level of net assets and income is significantly lower than Mr Weidlich’s.  She will need to drastically reduce her expenditure while she is not working and the tribunal decided she will suffer financial hardship if she only receives the currently assessed amount of child support.

Necessary commitments to support themselves

1. The self-support amount used in the administrative assessment is approximately $24,500. On the documentary evidence available to the tribunal, including the Statement of Financial Circumstances completed by both parties, the tribunal was satisfied that both Mrs Weidlich and Mr Weidlich have sufficient funds at their disposal to meet their necessary commitments, none of which are extraordinary.

Summary

1. Mr Weidlich’s financial position and earnings are much higher than Mrs Weidlich’s. Mrs Weidlich is currently in financial difficulty mainly due to suffering a long term illness; and her ability to support the children is limited. 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 decided that Mr Weidlich has financial resources from his business of $180,000 per annum.

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. Mrs Weidlich 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.

CONCLUSION

1. Having decided that it would be otherwise proper to make the departure determination the tribunal then considered what would be an appropriate start and end date.

2. Mrs Weidlich applied for a departure determination on 1 June 2018.  The tribunal decided that this would be an appropriate start date. 

3. Mr Weidlich has been paying the increased rate of child support assessed in July 2018; there are no arrears. The tribunal’s decision will result in arrears for Mrs Weidlich as it decreases the annual amount of child support by about $2,000 per annum (therefore there will be around $2,400 in arrears (14 months).  Mrs Weidlich has significant equity in her home and the tribunal was satisfied that she could finance these arrears through a small increase in her loan.

4. In considering an end date, Mr Weidlich has noted that his business has been less profitable than in the past.  However the tribunal was satisfied that given profitability increased in 2019, and Mr Weidlich now owns 100%; his ability to obtain financial resources of around $180,000 per annum is unlikely to diminish.  Mrs Weidlich’s future income is difficult to determine.  If she is able to obtain full time employment her income should increase and this will be reflected in her taxable income.  Given that the children are now 14 and 15 years old the tribunal decided that it would be appropriate to depart from the administrative assessment when the case terminates (this is likely to be in three and a half years). 

DECISION

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

• For the period 1 June 2018 until terminating events occur for both children; Mr Weidlich’s adjusted taxable income is varied to $180,000.