Welaman and Welaman (Child support)

[2024] AATA 2279

Welaman and Welaman (Child support) [2024] AATA 2279 (1 May 2024)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2024/MC027367

APPLICANT:  Mr Welaman

OTHER PARTIES:  Child Support Registrar

Ms Welaman

TRIBUNAL:Member S Hoffman

DECISION DATE:  1 May 2024

DECISION:

The Tribunal affirms the decision under review.

CATCHWORDS

CHILD SUPPORT – particulars of the administrative assessment – estimate of income – reconciliation provisions – deferred income from imputation credit – refusal of estimate – decision under review affirmed

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 Welaman paid child support to Ms Welaman for [Child 1], born in August 2004. According to documents provided by Services Australia - Child Support (Child Support) the case ended on 17 October 2022.

2. On 9 September 2022, Mr Welaman contacted Child Support about lodging an estimate of his income. From that date, the rate of child suppprt was calculated using an estimate of income of $123,728 for Mr Welaman.

3. On 9 August 2023 Child Support determined that Mr Welaman’s income estimate of $123,728 was to be reconciled against an annualised income figure of $186,902.27 (the original decision). As a result of the original decision, Mr Welaman was required to pay a penalty.

4. On 24 August 2023, Mr Welaman lodged an objection to the original decision. On 8 January 2024, an objections officer from Child Support disallowed the objection (the objection decision). This meant there was no change to the original decision.   

5. Mr Welaman lodged an application for review with this Tribunal on 17 January 2024. The matter was heard on 1 May 2024. Mr Welaman and Ms Welaman attended the hearing via MS Teams audio (equivalent to conference telephone) and gave affirmed evidence.

6. The Tribunal had before it a bundle of documents provided by Child Support (numbered 1 to 136), copies of which were provided to the parties before the hearing. Mr Welaman submitted documents numbered A1 to A2, copies of which were sent to Ms Welaman before the hearing.

ISSUE

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act1989 (the Act). 

2. The issue which arises in this case is whether Mr Welaman’s estimate of income should be reconciled against $186,902.27 or a lesser amount.

CONSIDERATION

Legislation

1. Sections 64 to 64AE of the Act (the reconciliation provisions) are about reconciliation of estimates against a person’s adjusted taxable income.

2. The meaning of “adjusted taxable income” as it is used in child support legislation can be found in section 43 of the Act. It sets out that the components of a parent’s adjusted taxable income are as follows:

   ·     The person’s taxable income;

   ·     Any reportable fringe benefits;

   ·     Any target foreign income;

   ·     Total net investment loss;

   ·     Tax-free pensions or benefits;

   ·     Any reportable superannuation contributions.

3. The reconciliation provisions differentiate between estimates lodged by a parent for a whole financial year and estimates lodged for a part year.

4. The reconciliation provisions which are about estimates lodged for a part year include the steps to be followed when performing the reconciliation. These require the parent’s adjusted taxable income to be split into two portions; one being for the period before the income estimate applied and the other being for the period during which the income estimate applied. This is to ensure the reconciliation is undertaken only in relation to the period starting from when the income estimate applied. That entails determining the amount of the parent’s year to date income for the period before the date the income estimate was applied.

5. Section 64AF of the Act provides that a parent is liable to pay a penalty if their actual income was more than 110% of their estimated income for the period during which the estimate (or estimates) applied.

Evidence and consideration of evidence

1. Mr Welaman wanted a review of the objection decision on the basis that his 2022-23 taxable income did not represent the income he actually received. His taxable income included deferred income in the form of an imputation credit from a franked dividend of $55,397.

2. In his written submission, Mr Welaman referred to his company, [Business 1], and that an accountant had advised him some years ago to use this company as a bucket company to defer tax. Mr Welaman started to do this in 2013. Over time, he came to understand this was bad advice and he changed his accountant. He has been trying to get rid of [Business 1], but it is too expensive for him to do so.

3. Mr Welaman wrote that within seven years of each year during which an amount was allocated to [Business 1], “a distribution to personal income in the form of a franked dividend must be made”.

4. Mr Welaman’s point was that he has to record in his tax return a franked dividend but this does not represent income he has actually received. He said that his actual income for 2022-23 was about $100,000 rather than the figure used by Child Support in the reconciliation.

5. Mr Welaman’s adjusted taxable income, as advised by the Australian Taxation Office to Child Support, was $181,058. After working out how to split that figure between the period during which no income estimate applied and the period during which the income estimate did apply, Child Support reconciled the estimate against an annualised income for the estimate period of $186,902.27.

6. Mr Welaman said he was not disputing Child Support’s calculations. The Tribunal will set them out for the sake of completeness.

7. When he lodged his estimate of income on 9 September 2022, Mr Welaman told Child Support that he had earned $30,000 to that point. At the hearing Mr Welaman said that was pretty close to what his income had been up until then during that financial year.

8. Mr Welaman said that when he lodged his income estimate, he did not give Child Support a figure which represented what he expected to earn for the rest of 2022-23. Based on Child Support’s records, it appears that Child Support proceeded on the basis that if Mr Welaman earned $30,000 between 1 July 2022 and 8 September 2022, he would earn about $100,000 between 9 September 2022 to 30 June 2023. That would be equivalent to having an annual income of $123,728 from 9 September 2022 to 30 June 2023.

9. The reconciliation calculations can be found on page 57 of the documents.

10. Mr Welaman’s adjusted taxable income for 2022-23 was $181,058. Relying on information he provided to Child Support, $30,000 of that was income related to the period 1 July 2022 to 8 September 2022 (70 days). That leaves $151,058 being his actual income for the period of the estimate (9 July 2022 to 30 June 2023 or 295 days).

11. If a person’s income is $151,058 over 295 days ($512.061 a day), that is equivalent to being on annual salary of $186,902.27 ($512.061 x 365).

12. As explained at the hearing, there are no provisions that allow any discretion to a decision maker, such that the reconciliation of Mr Welaman’s estimate of income should use a figure other than his adjusted taxable income in the reconciliation calculation. The method for reconciling a parent’s income estimate against their adjusted taxable income, as set out in the legislation, has to be followed.

13. As Mr Welaman advised Child Support that his year-to-date income to 8 September 2022 was  $30,000 and his 2022-23 taxable income was $181,058, the Tribunal is satisfied that $186,902.27 is the correct figure to use when reconciling his estimate of income of $123,728.

DECISION

The Tribunal affirms the decision under review.