Yeary-Eaton and Eaton (Child support)

[2022] AATA 3055

Yeary-Eaton and Eaton (Child support) [2022] AATA 3055 (21 July 2022)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2021/SC022914

APPLICANT:  Ms Yeary-Eaton

OTHER PARTIES:  Child Support Registrar

Mr Eaton

TRIBUNAL:Member J Leonard

DECISION DATE:  21 July 2022

DECISION:

The Tribunal sets aside the decision under review and substitutes it with the following decision:

·For the period to 9 April 2020 to 30 June 2020 Mr Eaton’s adjusted taxable income is varied to $76,898;

·For the period 1 July 2020 to 30 June 2021 Mr Eaton’s adjusted taxable income is varied to $67,622; and

·For the period 1 July 2021 to 31 October 2024 Mr Eaton’s adjusted taxable income is varied to $98,892.

CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent – a ground for departure established – decision to depart – decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

1. Mr Eaton and Ms Yeary-Eaton are the parents of [the child] (born 2017). Mr Eaton is the parent liable to pay child support. Ms Yeary-Eaton is recorded as having 100% care of [the child] and Mr Eaton is recorded as having 0% care of [the child].

The underlying administrative assessments

1. For the period 1 September 2019 to 10 December 2019, the assessment is at a rate of $15,609 per annum based on Mr Eaton’s 2018-2019 adjusted taxable income of $130,072 and Ms Yeary-Eaton’s 2018-2019 adjusted taxable income of $15,827.

2. For the period 11 December 2019 to 8 April 2020, the assessment is at a rate of $6,580 per annum based on Mr Eaton’s partial year 2019 -20 estimate of $63,894 and Ms Yeary-Eaton’s 2018-2019 adjusted taxable income of $15,827.

3. For the period 9 April 2020 to 30 June 2020, the assessment is at a rate of $2,835 per annum based on Mr Eaton’s amended partial year 2019-20 estimate of $41,714 and Ms Yeary-Eaton’s 2018-2019 adjusted taxable income of $15,827.

4. For the period 1 July 2020 to 31 August 2020, the assessment is at a rate of $2,835 per annum based on Mr Eaton’s 2020-2021 estimated income of $41,714 and Ms Yeary-Eaton’s  2018-2019 adjusted taxable income of $15,827. This rate decreased to $2,744 per annum from 1 September 2020.

5. For the period 1 July 2021 to 30 November 2021, the assessment is at a rate of $2,744 per annum based on Mr Eaton’s 2021-22 estimate of $41,714 and Ms Yeary-Eaton’s provisional income of $23,863.

Application for a departure from the administrative assessment

1. On 4 May 2021 Ms Yeary-Eaton lodged a change of assessment application with Services Australia (Child Support). Her application was on the ground that the assessment does not correctly reflect Mr Eaton’s income, property and/or financial resources and this makes the administrative assessment unfair. This is commonly referred to as Reason 8A.

2. On 1 July 2021 Child Support decided that a ground under Reason 8A had been established and departed from the assessment so that as from 11 December 2019 until the case ends,  Mr Eaton’s adjusted taxable income  was varied to $137,539 per annum, increasing each year by the child support inflation factor.

3. Mr Eaton objected to that decision. On 16 November 2021 an objections officer decided that for the period 1 July 2020 to 30 June 2022 Mr Eaton’s adjusted taxable income is varied to $60,267 per annum.

4. Ms Yeary-Eaton lodged an application seeking independent review by the Tribunal. Mr Eaton and Ms Yeary-Eaton participated in a hearing by conference telephone on 21 July 2022 and each gave their evidence under affirmation.  Documents relevant to the issues to be determined had been provided by Child Support (597 pages); Ms Yeary-Eaton (A1–A14); and Mr Eaton (B1–B90).

ISSUES

1. The statutory provisions relevant to this review are contained in the Child Support (Assessment) Act 1989 (the Act).

2. Child support legislation is interpreted by Child Support with the aid of the Child Support Guide (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.[1]

   [1] See Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634.

3. Having regard to section 98C of the Act the issues for the Tribunal to determine in this case are:

   ·     Does a ground for departure exist? If so,

   ·     Would it be just and equitable as regards the children, the liable parent, and the carer entitled to child support determination to depart from the administrative assessment of child support?

   ·     Is it otherwise proper to make a particular departure determination?

CONSIDERATION

Issue 1 – is there a ground to depart from the administrative assessment?

1. The rate of child support payable by a liable parent is usually based on an administrative assessment calculated using the relevant formula under Part 5 of the Act. This involves the application of a statutory formula, which takes into account factors such as the number of children, the age of each child, the level of care provided and the income of each parent. The income used in the calculation has a number of components making up the adjusted taxable income, which is worked out using section 43 of the Act.  The general approach is that the Child Support Registrar (“the Registrar”) will utilise a parent’s adjusted taxable income as assessed by the Australian Taxation Office for the last relevant year of income.

2. Part 6A of the Act allows for a departure from an administrative assessment (a process commonly known as a change of assessment). The grounds for departure from the administrative assessment are set out in subsection 117(2) of the Act.  Only one ground is required in the special circumstances of the case to depart from the administrative assessment and thereby satisfy the requirements of subsection 117(2) of the Act.[2]

Income and benefits from [Company].

[2] The phrase “special circumstances of the case” is not defined in the Act. However the Family Court has held that “it is intended to emphasise that the facts of the case must establish something special or out of the ordinary” (Gyselman and Gyselman (1992) FLC 92-279).

1. Subparagraph 117(2)(c) (ia) of the Act provides a ground for departure exists where, in the special circumstances of the case, application of the provisions of the 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 child because of the income, property and financial resources of either parent.

2. The decision maker can look beyond the parent’s taxable income when considering an application for a change of assessment. Income, earning capacity, property and financial resources, which do not necessarily form part of a parent’s taxable income, can be added to a child support assessment and as such form part of the legitimate and necessary inquiry.

3. Prior to registering his own company in February 2020, Mr Eaton stated he was working as a sub-contractor doing [Job task 1] and [Job task 2] work. He was paid on a contract basis and his 2018-19 adjusted taxable income was $130,072. He submitted an estimate of income on 11 December 2019 as he had been unemployed since his contract ended in September 2019. A new contact commencing on 15 December 2019 was for considerably less. The contract ended on 9 February 2020 and Mr Eaton registered his [Job task 3] [company], [Company] on 17 February 2020.

4. Mr Eaton and his father, [Mr A], are co-directors of [Company]. [Mr A] is the only shareholder. Mr Eaton stated he decided to set up his own company with the intention of increasing his income as he transitioned to a [Job task 4]. Mr Eaton’s partner, [Ms B] is the company secretary. [Mr A] has experience as [Occupations 1 and 2]. He is not involved in the day-to-day operation of the company. Financial records from the company show he has not received any wages, dividends or fees.

5. Initially, [Ms B] intended to set up her own [Job task 5] company; however, when the COVID-19 pandemic began in late 2019 she decided it was not the right time to set up a [Job task 5] business.

6. [Ms B] is involved in administration, bookkeeping, accounting, business development and marketing of [Company]. She set up the necessary IT systems and developed the website. She also providing [administrative] services to other companies. [Ms B] has a degree in [Subject 1] and is undertaking a degree in [Subject 2]. While working in [Country] she was [an Occupation 3]. She shares the workload of a [Job task 2] with Mr Eaton.

The 2019-20 financial year

1. Mr Eaton stated his company only operated a month before they went into strict lockdown due to COVID-19. Between April 2020 and September 2020, the company was largely reliant on jobkeeper payments. Mr Eaton’s 2019-20 adjusted taxable income was $93,715 which included gross payments and allowances totalling $15,200 from [Company].

2. [Company’s] 2019-20 income tax return shows gross income of $59,024 of which $12,000 was jobkeeper payment. Operating expenses totalled $61,330. The return includes an amount of $14,035 for depreciation for the purchase of a vehicle for company use and $1,383 for motor vehicle expenses. Wages of $31,436 were split equally between Mr Eaton and [Ms B].

3. The Tribunal is satisfied that [Ms B] has a practical role in the generation of the business income. Mr Eaton stated she derives income from no source other than [Company] and that she generates income from the provision of [Job task 3] services to other companies. The Tribunal consider it is reasonable that an even split of wages in the 2019-20 financial year when income generation was low and work to establish the business was significant is fair.

4. Mr Eaton is entitled to profits from the company. The 2019-20 company return indicates a loss of $2,307; however, depreciation of $14,035 was claimed. There is no evidence that the depreciation is being set aside for future costs and so the Tribunal considers it is a financial resource of the company. The Tribunal determines that after adding back depreciation, the company has a profit of $11,728 over a four-month period ($35,184 annualised).

5. Mr Eaton provided an estimate of income of $41,714 per annum on 9 April 2020. He told the Tribunal that in April 2020 they decided to set themselves a wage of $41,600 per annum each given the uncertainly of their income.

6. The Tribunal is of the view that Mr Eaton had access to income and financial resources of $76,898 ($41,714 + $35,184) per annum from 9 April 2020.

The 2020-21 financial year

1. [Company’s] company return for the 2020-21 financial year show total income of $114,701 of which $27,000 was jobkeeper payment. Total expenses came to $114,100 of which $78,880 was wages and $10,142 was a depreciation expense. The net profit was $590 to which Mr Eaton is entitled; however, there is no evidence that the amount listed as depreciation was set aside for future costs and so the Tribunal determines it is a financial resource for the company.

2. Motor vehicle expenses totalled $4,684. Mr Eaton’s contribution to the cost of his personal use of the motor vehicle was $1,677 which the Tribunal considers is reasonable. The return also listed home office expenses of $6,997 which the Tribunal considers is a resource available to Mr Eaton, noting that he also claimed an amount for light, power and heating as a personal work-related expense.  The company also pays $1,657 for two phones which Mr Eaton and [Ms B] use for both personal and business calls; a cost that Mr Eaton would otherwise incur for personal use.

3. Mr Eaton‘s personal 2020-21  income tax return shows gross income of $10,039 from one employer and $27,237 from [Company]. [Ms B]’s wages totalled $51,680.  Although Mr Eaton stated the wage paid to [Ms B] was in accordance with the industry standard, the Tribunal was not persuaded that there was any justification for [Ms B] to be paid more than Mr Eaton.

4. The Tribunal determines that Mr Eaton had access to income and financial resources of $67,622. This is made up of 50% of the wages ($39,440), income from other employment ($10,039), company profit ($590), depreciation ($10,142) , the benefit derived from the company contributing to his rent ($6,997), and paying for the personal use of his phone ($414 per annum).

The 2021-22 financial year

1. [Company’s] profit and loss for the 10 months ending 30 April 2022 shows total trading income of $111,629 and total operating expenses of $98,542. Wages totalled $69,232. Net profit is stated to be $40,707.

2. Mr Eaton stated that he anticipates approximately $40,000 will be claimed as depreciation in the 2021-22 financial year.

3. Mr Eaton stated that since 1 July 2022 his salary has increased to $60,320 and [Ms B]’s wage remains the same at $51,680. He did not sub-contract to another employer in 2021-22. Although the industry is still recovering following COVID-19 restrictions, he anticipates there will be continued improvement in the company’s prospects.

4. The Tribunal notes that [Company] has trading income in 10 months roughly equivalent to the income it derived in 12 months in the previous financial year. The Tribunal considers it is reasonable to expect that the income and financial resources available to Mr Eaton in the 2021-22 financial year will exceed those derived in the 2020-21 financial year given the net profit and evidence regarding anticipated depreciation. 

5. Based on the Tribunal’s finding regarding the income and financial resources available to Mr Eaton in the 2020-21 financial year and the increase to the trading income in the 2021-22 financial year, the Tribunal considers that Mr Eaton had an increase in the income and financial resources available to him from 1 July 2021.

6. As a starting point, the Tribunal considers Mr Eaton’s evidence that he has increased the amount he pays himself is a reflection of an improved financial position. The Tribunal considers it is reasonable to conclude that from 1 July 2021 Mr Eaton had income and financial resources (incorporating  wages, phone, contribution to home rent) of $98,892. This is based on the income and financial resources derived in the 2020-21 financial year ($67,622), plus an amount of $31,270 taking into consideration an increase in profits in the 2021-22 financial year.  Consistent with the reasons outlined above, the Tribunal considers a significant amount of the $40,000 depreciation expense anticipated by Mr Eaton to be a financial resource available to him. 

7. According to authorities a financial resource refers to something that is not property but from which a financial benefit is or may be gained.  The term is to be broadly defined and refers to any financial benefit that would enhance the capacity of a parent to provide a proper level of support for their children.  

8. It is a long-established principle of law that when a person conducts their business or profession through an intermediary such as a company, it is proper to lift the corporate veil to determine the value of the entity to that person.[3] These principles have been affirmed by the Family Court,  with regard to the determination of a parent’s income for child support purposes and in these cases, effective control of the businesses was found to rest with the person conducting the business and generating the income. 

   [3] See in particular Stein and Stein (1986) FLC 91-779 and Ashton and Ashton (1986) FLC 91-777. 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.” 

9. The Tribunal was satisfied that the income tax return and financial statements provided by Mr Eaton do not paint an accurate picture of his financial circumstances.  As noted in the Guide:[4]

   A business may be able to deduct certain expenses from income for tax purposes and as a result legitimately may have a reduced income or may even run at a loss. These deductible expenses can result in a child support assessment that does not take into account the full financial resources available to the parent. In these cases, assessing child support on the basis of taxable income can result in an unjust and inequitable level of child support.

   Expenses partly for business purposes & partly for private purposes

   Where an expense is partly business and partly private the expenses must be apportioned for taxation purposes. Parents who are self-employed or who operate a business might claim expenses that may otherwise be considered private as a legitimate income tax deduction. Examples include the fixed-costs component of telephone expenses such as the rental and connection fees, home office expenses or motor vehicle expenses. These deductions are generally not available to parents who derive income solely from salary and wages.

   [4] 2.6.14.

10. The Tribunal concluded that from 9 April 2020 Mr Eaton had income and financial resources of $76,898  available to him to support the children. This decreased to $67,622 from 1 July 2020 and increased to $98,892 from 1 July 2021. This is  considerably more than the income used in the administrative assessment. From 9 April 2020 the annual rate of child support payable by Mr Eaton was $2,835 based on his estimate of $41,714.

11. Using an income of $76,898 for Mr Eaton from 9 April 2020 would result in an annual rate of child support of approximately $8,466. This is considerably more than the annual rate of $2,835 payable under the administrative assessment.

12. Using an income of $67,622 from 1 July 2020 would result in an annual rate of child support of approximately $7,075. Using an income of $98,892 from 1 July 2021 would result in an annual rate of approximately $11,675.

13. The Tribunal concludes that a ground for departure exists because in the special circumstances of the case, the application of the provisions of the 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 child because of the income and financial resources of Mr Eaton.

14. The Tribunal is satisfied that the difference between the income amounts used in the administrative assessment and Mr Eaton’s available income and financial resources are a special circumstance which renders the child support assessment unfair to Ms Yeary-Eaton and [the child]. The Tribunal finds this ground established.

Issue 2 – Is it just and equitable to make a particular departure determination?

1. As the Tribunal is satisfied that there is a ground to depart from the assessment of child support in relation to Mr Eaton’s income and financial resources, the next step for the Tribunal is to consider whether it is just and equitable to make a particular determination in accordance with sub-subparagraph 98C(1)(b)(ii)(A) of the Act.  This in turn requires the Tribunal to consider the matters set out in subsection 117(4) of the Act.

2. Section 3 of the Act states that it is the duty of both parents to financially support their children. All children should receive a proper amount of financial support from their parents in accordance with their capacity to contribute. The Tribunal only has to consider the factors set out in subsection 117(4) of the Act to the extent they are relevant in any particular case (see Gyselman).

The child

1. [The child] is reliant on his parents for financial support and has no income of his own. Ms Yeary-Eaton enrolled [the child] in an online class to learn [Language] at a cost of approximately $700. The Tribunal considers this is a discretionary expense and is not related to a particular special need that is out of the ordinary.

The parents

1. Ms Yeary-Eaton is receiving income support from Centrelink and has not worked since the birth of [the child]. She has no responsibility to support anyone other than [the child]. She is responsible for caring for two cats and is concerned Mr Eaton does not assist with associated veterinary and food expenses. She is in rental accommodation and has no property or unused earning capacity. The Tribunal finds that Ms Yeary-Eaton has no unusual expenses associated with her own self- support and Mr Eaton is not responsible for providing support in respect of the cats.

2. Mr Eaton’s financial situation is set out above. He is in rental accommodation. He has no significant assets.

3. In terms of Mr Eaton’s decision to become self-employed, the legal test for an earning capacity decision requires three criteria to be met. The first is that the parent is not working despite ample opportunity to do so, has reduced their work hours to below full-time or has changed their occupation, industry or working pattern. The Tribunal finds that Mr Eaton’s change in employment from PAYG to establishing a company satisfies this criterion. The second criterion is that this change is not justified by the parent's caring responsibilities or state of health. There is no evidence that Mr Eaton’s decision to change his employment had any relationship to his health or caring responsibilities. This criterion is also met.

4. The third criterion is that the parent has failed to show that affecting the administrative assessment of child support was not a major purpose of the decision about their work arrangements. The Tribunal accepts that Mr Eaton’s evidence that he started a [Job task 3] company with a view to diversifying the services he could offer and employ others on a sub-contracting basis with a view to career progression and long-term growth in income. Mr Eaton provided a revised estimate of his income in April 2020 once it became apparent that his company would be significantly affected by COVID-19 lockdowns. The Tribunal is satisfied that a major reason Mr Eaton’s income reduced was due to the unforeseen COVID-19 restrictions. The Tribunal is satisfied that Mr Eaton has rebutted the presumption and so Mr Eaton does not have an unexercised earning capacity.

5. Mr Eaton stated he has a debt to his mother of approximately $50,000 which he is repaying at the rate of $208 per week. He denied financially supporting his partner, but stated they shared expenses. Mr Eaton stated he and his partner had recently moved and their rent liability had increased from $580 per week to $750 per week. Mr Eaton has no unusual costs associated with his own self-support and has no responsibility to support any person other than [the child].

6. Between December 2020 and June 2021 Mr Eaton was incurring costs of $150 per week to see his son at a contact service in accordance with a court order. Contact ceased mid-June 2021 and the total cost incurred by Mr Eaton was $2,550. In determining whether the costs incurred in spending time with [the child] were high, the Tribunal had regard to Mr Eaton’s income in the child support period commencing 1 September 2020 and whether the costs were at least 5% of his adjusted taxable income. Courts have held that other costs, such as legal fees or losses incurred in not working cannot be included in determining whether the costs of spending time with the child significantly affect the costs of maintaining him. The Tribunal finds that the costs of seeing [the child] at a contact service between December 2020 and June 2021 were not high having regard to the provisions of subparagraph 117(2)(b)(i) of the Act.

7. The Tribunal is satisfied taking into account the relevant costs of self-support utilised in the assessments and based upon evidence provided at hearing that neither party has extraordinary costs of self-support that are relevant to the assessment.

Any hardship that would be caused

1. The Tribunal is proposing to make a determination which varies Mr Eaton’s adjusted taxable income to:

   ·$76,898 for the period 9 April 2020 to 30 June 2020;

   ·$67,622 for the period 1 July 2020 to 30 June 2021; and

   ·$98,892 from 1 July 2021.

2. The Tribunal considers it is reasonable to depart from the administrative assessment from 9 April 2020 when Mr Eaton provided an estimate of $41,714 on the basis of his earnings from [Company]. The Tribunal proposes to extend the period of departure to 31 October 2024 given Mr Eaton’s income and financial resources available to him to support [the child] are unlikely to be reflected in his personal income tax returns. This allows for Mr Eaton to have his financial statements completed before the matter is considered again.

3. Mr Eaton has paid off the child support arrears that were generated by the decision of the objections officer. This decision will generate further arrears. The Tribunal notes that Mr Eaton is making repayments to his mother of $208 per week, however this does not take precedence over his duty to support [the child]. The child support law recognises that each parent has a primary duty to maintain their children.

4. The Tribunal is satisfied this decision will not cause hardship to Mr Eaton. Ms Yeary-Eaton is reliant on income support and the increased child support will better enable her to meet the needs of [the child]. The Tribunal concluded that for all of the above reasons, in the special circumstances of this case, it was just and equitable to make a departure determination from the administrative assessment.

Issue 3 – Would it otherwise be proper to make a particular departure determination?

1. The final step is for the Tribunal to determine whether it is ‘otherwise proper’ to make a particular departure determination. 

2. Subsection 117(5) of the Act requires the Tribunal to take into consideration the nature of the duty of a parent to maintain a child, and the effect that any change to the assessment would have on the rate of any Centrelink benefits being received by the parties or the children.

3. Ms Yeary-Eaton is in receipt of family tax benefit and the proposed departure from the administrative assessment may reduce her entitlement to 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 substitutes it with the following decision:

·For the period to 9 April 2020 to 30 June 2020 Mr Eaton’s adjusted taxable income is varied to $76,898;

·For the period 1 July 2020 to 30 June 2021 Mr Eaton’s adjusted taxable income is varied to $67,622; and

·For the period 1 July 2021 to 31 October 2024 Mr Eaton’s adjusted taxable income is varied to $98,892.