Wells and Miller (Child support)

[2018] AATA 3287

Wells and Miller (Child support) [2018] AATA 3287 (24 July 2018)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/SC013175

APPLICANT:  Mr Wells

OTHER PARTIES:  Child Support Registrar

Ms Miller

TRIBUNAL:Member W Kennedy

DECISION DATE:  24 July 2018

DECISION:

The decision under review is affirmed.

CATCHWORDS
Child support - Departure determination - Whether income, property and financial resources of the liable parent makes the administrative assessment unjust and inequitable - Business income - No ground for departure - Decision under review affirmed

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 review concerns an application for a departure from the formula assessment of child support.  Mr Wells and Ms Miller are the parents of [Child 1] who was born in December 2006.  There has been a child support assessment in place for [Child 1] made by the Child Support Agency of the Department of Human Services (the Department) since 29 March 2011.  The assessment is based on Ms Miller having primary care and Mr Wells having regular care of [Child 1].

2. At the time of Mr Wells’ original application the child support assessment was based on an objection decision to a Registrar-initiated departure from the formula assessment.  The objection decision set Mr Wells’ adjusted taxable income (ATI) at $96,000.00 plus CPI adjustments from 15 February 2015 until a terminating event.

3. On 6 April 2017, Mr Wells applied to the Department for a departure from the formula assessment of child support based on Reason 8A (the income, property and financial resources of one or both of the parents) and Reason 8B (the earning capacity of one or both parents).  Mr Wells asserted that his income “is not what CS has calculated”.

4. On 17 August 2017, a delegate of the Child Support Registrar found that no reason had been established to depart from the assessment.  The delegate found that Mr Wells had not provided evidence that established that his income was significantly lower than the ATI used in the assessment.  The delegate also found that no evidence in relation to either parents earning capacity had been provided.

5. On 4 October 2017, Mr Wells lodged an objection to that decision.  On 18 December 2017 a Department objections officer decided to disallow the objection.  The objections officer found that no reason to depart from the assessment had been established.

6. On 21 December 2017, Mr Wells lodged an application for a review of the decision with the Administrative Appeals Tribunal (the Tribunal).  The Tribunal had access to the statement and documents provided by the Department.  Those documents are at folios 1 to 285 of the hearing papers.  Mr Wells acknowledged having received folios 1 to 255 but not the additional documents at folios 256 to 285.  Ms Miller acknowledged having received all of the documents.  The Tribunal finds that the documents at folios 256 to 285 relate to subsequent events that have no bearing on the matters before the Tribunal and that Mr Wells has not been disadvantaged by not receiving them in advance of the hearing. 

7. Following a telephone directions hearing, the Tribunal directed Mr Wells and Ms Miller to provide completed Statements of Financial Circumstances (SoFC) and other documentation.  The documents provided by Mr Wells are at folios A1 to A107 of the hearing papers.  The documents provided by Ms Miller are at folios B1 to B37 of the hearing papers.  The matter was heard and determined in Sydney on 24 July 2018.  Mr Wells and Ms Miller both attended the hearing by telephone and gave their oral evidence under affirmations.  The Child Support Registrar was not represented at the hearing.

CONSIDERATION

The legislative framework and issues for the Tribunal to determine

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).  This requires the application of a statutory formula which takes into account factors such as the number and ages of the children, the level of care provided and the income of each parent.

2. The liable parent or a carer may apply to the Child Support Registrar for a determination to depart from the child support administrative assessment under Part 6A of the Act.  Section 98C of the Act provides that the Registrar may make a determination to depart from the assessment and establishes a three-step process for considering applications to do so.  The Registrar, and the Tribunal standing in place of the Registrar, must be satisfied:

   ·that one, or more than one, of the grounds for departure referred to in subsection 117(2) of the Act exists;

   ·that it would be just and equitable as regards the child, the liable parent, and the carer entitled to child support; and

   ·that it would be otherwise proper to make a particular determination.

3. The grounds for departure from the administrative assessment are set out in subsection 117(2) of the Act.  Each of the grounds, which for administrative purposes are referred to as reasons, require that special circumstances be established.  The term ‘special circumstances’ is not defined in the Act.  In Gyselman v Gyselman [1991] FamCA 93 the Full Court of the 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.

4. 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 must make one of the determinations prescribed in section 98S of the Act.  These include varying the annual rate of child support payable or a parent’s ATI.

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

1. The Tribunal’s first task is to determine whether a ground for departure from the administrative assessment can be established.  In his application to the Department Mr Wells said that he wished for a change from the administrative assessment on the ground that the assessment does not correctly reflect one or both parent’s income, property and/or financial resources.  This ground, which is known as reason 8A for administrative purposes, is set out at subparagraph 117(2)(c)(ia) of the Act:

   (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

   …

2. At the hearing Mr Wells said that he had appealed the objection decision of 22 May 2015 but that his appeal had been too late and that no extension of time was granted.  He said that he was now applying for a change of assessment because ‘this is the first opportunity’.

3. In responding to the Tribunal’s Directions Mr Wells provided:

   ·     SoFC dated 10 January 2018

   ·     Personal income tax return (ITR) for 2017

   ·     Company ITR for [Company 1] for 2017

   ·     Financial accounts for [Company 1] for 2017

   ·     Statements for various bank accounts and for a credit card account

4. Unfortunately Mr Wells has provided statements for his personal bank account for the period from 26 July 2016 to 25 July 2017, contrary to the Tribunal’s Directions that he provide statements for the period from 1 July 2017 to 30 September 2017.  Mr Wells has also provided statements for a loan account for the period from 18 June 2016 to 25 November 2016 but not for the relevant period.  At the hearing Mr Wells said that this was just a mistake and that he must have copied the wrong pages.  Although this makes it more difficult for the Tribunal to establish Mr Wells’ financial circumstances Mr Wells’ failure in this regard does not prevent the Tribunal from reaching conclusions supported by the evidence.  The Tribunal also has before it various other documents obtained by the Department prior to Mr Wells’ application and some of these are relevant. 

5. In his SOFC Mr Wells states that his only income is weekly rental of $807.69.  Against this he states that he has weekly expenses of some $1,251.00, including child support of $50.00 per week.  At the hearing Mr Wells said that he was only able to meet the shortfall by borrowing from his company.  The company’s financial accounts show longstanding director’s loans.  The outstanding amount increase by $15,028.00 in 2016/17 (folio A52).  Mr Wells’s personal bank account statements show an opening balance of $314.51 (folio A86) and a closing balance of $2,095.87 (folio A85).  His personal credit card shows an opening balance of $5,190.25DR (folio A90) and a closing balance of $1,478.92DR (folio A104), demonstrating that despite the shortfall Mr Wells is not running down his bank account or increasing his credit card balance.  Thus, despite claiming that he had to borrow from the company to meet his expenses, Mr Wells’ personal accounts show a net improvement of $5,492.69 over the period from 1 July 2017 to 30 September 2017.

6. At the hearing Mr Wells said that he owns one-half of the issued capital of [Company 1].  Mr Wells said that the [details deleted].

7. It is well established that the taxable income of a person who is self-employed may not be an accurate reflection of their financial resources.  For instance, in Carey v Carey (1994) FLC 92-489 the Family Court observed:

   The legislation however realises that, whilst the simplest method of calculating child support is to use existing taxation records, the use of taxable income as the sole basis for child support could lead to some inequities and injustices. For a start, the financial position of many members of the community is not accurately reflected in their taxable income; either they manage to evade or avoid their taxation liabilities or they can so structure their affairs so that they are capital rich and income poor.

8. This and other cases establish that a person’s taxable income is not necessarily indicative of the resources available to them.  This is because self-employed persons are able to derive additional personal benefits through their business structures, and also have greater control over the structure of their finances than does a salaried employee.

9. The Tribunal proceeded to examine the documentation provided by Mr Wells and by the Department in relation to the business.  The documentation before the Tribunal is:

   ·     Company ITRs for [Company 1] for 2015, 2016 and 2017

   ·     Financial statements for [Company 1] for 2016 and 2017

   ·     BAS statements for 1 July 2016 to 31 March 2017

   ·     Statements for CBA bank account …6562 for 1 July 2017 to 30 September 2017

10. The financial statements show a healthy business, with a gross income of $402,454.00 in 2015, $456,773.00 and $448,931.00 in 2017.  Net profit was $33,350.00 in 2015, $6,814.00 in 2016 and $45,095.00 in 2017.  At 30 June 2017 the company held retained profits of $370,927.00 (folio A51) as well as a franking account balance of $116,147.00 (folio A38).

11. Many of the expenses claimed in the financial statements are consistent with the expected normal business expenses.  The Tribunal focused its attention on those expenses that could deliver some personal benefit to Mr Wells and which therefore might be considered as a financial resource available to Mr Wells.  These include:

    ·Depreciation  $48,199.00

    ·Director’s fees  $16,000.00

    ·Motor vehicle expenses         $15,459.00

    ·Rent  $14,240.00

    ·Superannuation  $12,704.00

    ·Telephones  $5,834.00

    ·Travel  $6,396.00

    ·Wages  $65,512.00

12. At the hearing, Mr Wells acknowledged that the director’s fees and the amount of wages shown on his tax return were paid to him.  Mr Wells’ tax return shows that he was paid wages of $25,000.00 and director’s fees of $16,000.00 (folio A14).  Mr Wells acknowledged that he does not own a private vehicle, that he uses the Holden Rodeo owned by the business and that all of the expenses related to it are met by the company.  The company accounts show expenditure of $12,103.00 related to the Rodeo and the Tribunal attributes half of this as a personal benefit to Mr Wells.  Mr Wells acknowledged that the rent is paid to him by the company.  All of this is income to Mr Wells.  Mr Wells said that he does not own a private telephone and that the company meets all of the cost of the telephone he uses.  The Tribunal attributes half of Mr Wells’ telephone costs (which are identified separately in the accounts) as a personal benefit to Mr Wells.  With wages payments of $65,512.00 the company was required to pay $6,223.64 in superannuation.  It in fact paid $12,704.00 and the Tribunal considers that the excess amount of $6,480.36 is a benefit to the owners of the company.  As Mr Wells owns one half of the company it attributes half of this amount to Mr Wells. 

13. Depreciation is a provision rather than an expenditure.  As no depreciation schedule is provided in the financial accounts the Tribunal is unable to determine exactly what is being depreciated.  The accounts show property plant and equipment valued at $186,329.00 but the depreciation attributed to these assets is only $3,252.00 (folio A52).  The Tribunal will not count this part of the claimed depreciation as a resource, however the Tribunal determines that half of the unidentified depreciation should be considered a resource available to Mr Wells.  The Tribunal also considers half of the company’s profit as a resource available to Mr Wells.

14. The Tribunal finds that it is fair to attribute the following amounts as benefits derived by Mr Wells from the company:

    ·     Wages  $25,000.00

    ·     Directors Fees  $16,000.00

    ·     Motor vehicle expenses       $6,051.50

    ·     Rent  $14,240.00

    ·     Telephones  $1,569.00

    ·     Superannuation  $3,240.18

    ·     Depreciation  $22,473.50

    ·     Profit  $22,547.50

15. These amounts total $111,121.68.  Even without taking into account the value of the tax advantage derived by Mr Wells, it is clear that the resources available to him far exceed the amount shown on his income tax return.  The Tribunal emphasises that the law governing child support is not the same as the law governing income tax.  A finding that for the purposes of child support a person has more financial resources than are reflected in their tax returns is not a finding in relation to the income tax assessment legislation. 

16. In order to confirm its conclusion as to the resources available to Mr Wells the Tribunal examined the actual amount of funds or benefits disclosed by the various account statements provided by Mr Wells.  Mr Wells’ accounts show that [Company 1] deposits $740.75 from its CBA account …6562 into Mr Wells’ personal CBA account …8525 each month (folios A65/A76, A69/A76, A74/A77).  At the hearing Mr Wells said that he had ceased employment with the company from 1 July 2017.  He said that he did not have a separation certificate.  The evidence before the Tribunal shows that the company continued to pay Mr Wells throughout the period under review (which extends to 30 September 2017).  At the hearing Mr Wells said that he must have been in error about the date that his employment ended. 

17. Although Mr Wells has failed to provide all of the relevant statements it appears that the company also deposits $2,400.00 each month into Mr Wells’ personal NAB account …5906 (folios A62/A85).  At the hearing Mr Wells said that he owns the premises rented by the company and that these payments are rent for that investment property.  Other regular income received by Mr Wells includes a monthly payment of $860.80 from ‘[Name] Trust’.  At the hearing Mr Wells said that this was rent from another tenant renting another part of the investment property owned by Mr Wells.

18. It appears that Mr Wells uses his personal NAB account (folios A82 to A89) to make mortgage repayments and to pay council and water rates and insurance for the investment property.  At the hearing Mr Wells acknowledged that the NAB account is used to receive rent and to meet expenses related to the investment property.  The NAB account has almost no other transactions.  Mr Wells’ personal CBA account (folios A76 to A77) also shows very few transactions.  It is used to make monthly payments of $37.38 to RACQ Insurance and it has made one transfer of $900.00 to Mr Wells’ St George Mastercard account …4825.  The few other transactions show funds being withdrawn in cash or transferred to other unidentified accounts.

19. It appears that almost all of Mr Wells’ personal and household expenses aside from the rental property related expenses are met by his personal St George Mastercard account …4825 (folios A90 to A107).  At the hearing, Mr Wells said that he uses the credit card for both business expenses and also for personal expenses.  He said that he pays an amount into the credit card account to cover the personal expenses component.  During the period from 1 July 2017 to 30 September 2017 payments of $23,374.59 were made to the credit of this account.  Twelve payments totalling $20,474.59 were made by [Company 1] through its CBA Account (folios A62, A65, A68, A69, A72, A73).  Only two payments, totalling $2,900.00, were sourced elsewhere.  One of these, of $900.00, was made by Mr Wells from his CBA account (folio A77).  The Tribunal is unable to determine the source of the other payment of $2,000.00.  It is possible that the payment was made from Mr Wells’ NAB account, however as he has failed to provide statements for the relevant period the Tribunal is unable to make a finding in this regard.  In the 12-month period covered by the statements for Mr Wells’ NAB account only one payment was made to his personal St George Mastercard, an amount of $800.47 made on 20 March 2017 (folio A83).  The Tribunal notes that the level of expenditure on the credit card continued undiminished even after the date when Mr Wells claims his employment with the company had been terminated.

20. During the period under close examination by the Tribunal Mr Wells’ net monthly salary paid by [Company 1] is $740.75.  He also receives $2,400.00 per month in rent from the company and $807.69 per month from the entity that rents the other part of his investment property.  In addition, it appears that the majority of Mr Wells’ living expenses are met by the company through its payment of almost all of his credit card bills.  The only expenses met directly by Mr Wells are the mortgage, council and water rates and insurance for his investment property and a very small percentage (possibly less than 4%) of the expenditure on his personal St George Mastercard.  In this regard the Tribunal notes that Mr Wells also owns livestock and that he claims expenses related to the livestock on his personal tax return.  In 2017 he claimed expenses of $18,231.00.  As these expenses are not shown elsewhere the Tribunal assumes that they are met through Mr Wells’ credit card account.  In this regard the Tribunal notes significant expenditure items on the credit card account that appear to be agriculture related, for instance at [an agricultural supplies firm].

21. It is difficult for the Tribunal to determine the percentage of expenditure on the St George Mastercard that is personal.  Certainly some of the expenditure may be business related.  However much of the expenditure appears to be personal.  Dental and medical expenses and expenditure at hotels, restaurants and liquor stores is unlikely to be business related.  At the hearing Mr Wells suggested that expenditure at restaurants and hotels was likely to be business related.  He identified one item of expenditure as definitely being business related because his brother (who is the other shareholder in the company) was with him.  Mr Wells also asserted that the cost of him travelling from his home to work and back is a business related expense. 

1. Through an examination of the account statements the Tribunal determines that at least 50% of the amount paid by the company to the credit of Mr Wells’ St George Mastercard account results in a personal benefit for Mr Wells.  This amounts to some $3,412.00 per month.  This means that Mr Wells receives as income or as a resource available to him a net amount of some $7,360.00 per month.  This amounts to some $88,320.00 per annum.  Taking into account that the salary amount is received net of tax and that the benefit delivered through payment of his credit card account is not subjected to income tax the Tribunal concludes that Mr Wells has available resources equivalent to a gross income above $100,000.00 per annum. 

2. Using two different methodologies, the Tribunal has determined that the resources available to Mr Wells amount to more than $100,000.00.  The Tribunal notes that in the decision before it the objections officer, using a third different methodology, concluded that Mr Wells’ income was ‘in the vicinity of $106,235.50’.

3. Currently the child support assessment is based on Mr Wells having an ATI of $99,057.00, being the CPI adjusted amount resulting from the Department’s objection decision of 22 May 2015.  The Tribunal finds that the assessment is not unfair and that no reason to change the assessment has been established under subparagraph 117(2)(c)(ia) of the Act.

Does a ground exist to depart from the administrative assessment under Reason 8B?

1. Mr Wells sought a change to the administrative assessment on the ground that his earning capacity is not reflected in the assessment.  This ground, known as Reason 8B for administrative purposes, is set out in subparagraph 117(2)(c)(ib) of the Act:

   (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:

   …

   (ib)   because of the earning capacity of either parent; or

…

Subsection 117(7B) of the Act provides:

(7B)In having regard to the earning capacity of a parent of the child, the court may determine that the parent's earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied that:

(a)    one or more of the following applies:

(i)the parent does not work despite ample opportunity to do so;

(ii)the parent has reduced the number of hours per week of his or her employment or other work below the normal number of hours per week that constitutes full-time work for the occupation or industry in which the parent is employed or otherwise engaged;

(iii)the parent has changed his or her occupation, industry or working pattern; and

(b)    the parent's decision not to work, to reduce the number of hours, or to change his or her occupation, industry or working pattern, is not justified on the basis of:

(i)the parent's caring responsibilities; or

(ii)the parent's state of health; and

(c)the parent has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to the child.

1. Neither Mr Wells nor Ms Miller has provided any evidence as to the earning capacity of the parents and the Tribunal is unable to establish that this provision in the legislation is in any way relevant to the matter before it.  The Tribunal finds that there are no special circumstances that would allow a change of assessment under subparagraph 117(2)(c)(ib) of the Act.

1. As no reason to depart from the assessment has been established the Tribunal affirms the decision of the Department.

DECISION

The decision under review is affirmed.