Zimmer and Wilson (Child support)

Zimmer and Wilson (Child support) [2018] AATA 3291 (17 July 2018)

DIVISION:Social Services & Child Support Division
REVIEW NUMBER:  2018/SC013394
APPLICANT:  Mr Zimmer
OTHER PARTIES:  Child Support Registrar
Ms Wilson

TRIBUNAL:Member M Douglas
DECISION DATE: 17 July 2018
DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides that the adjusted taxable income for Mr Zimmer is $90,000 for the period 1 September 2017 to 29 August 2020.

CATCHWORDS
Child support - Departure determination - Income, property and financial resources of liable parent - Earning capacity criteria not satisfied - Business income - A ground for departure exists - Adjusted taxable income of the liable parent varied - 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

Mr Zimmer and Ms Wilson are the parents of [Child 1], in regards to whom the Child Support Registrar has issued an administrative assessment of child support. Mr Zimmer is liable to pay child support to Ms Wilson for [Child 1] under the assessment.
The Administrative Appeals Tribunal (the tribunal) observes that the Child Support Registrar acts through the Department of Human Services, and in these reasons the Tribunal shall refer to the Registrar as the Department.
The Tribunal, on Mr Zimmer’s application, is reviewing an objection decision the Department made on 13 January 2018. The decision, which was made under subsection 98S(1) of the Child Support (Assessment) Act1989 (the Act), set Mr Zimmer’s adjustment taxable income at $179,224 for the period 1 September 2017 to 31 March 2019.
The Department responded to an objection Mr Zimmer made to an earlier decision of the Department that his adjusted taxable income be set at $111,096 for the same period. That earlier decision was made in response to what the Department describes as a ‘change of assessment’ application that Ms Wilson had made under section 98B of the Act. At the time Ms Wilson made that application, Mr Zimmer’s adjusted taxable income was $49,887, which was his taxable income for the 2016/17 year.
The change to the assessment consequent upon the Department’s objection decision, and which the Tribunal is reviewing, resulted in an increase in the annual rate at which Mr Zimmer was required to pay child support to Ms Wilson for [Child 1]. The intent behind the Department’s objection decision was to set Mr Zimmer’s adjusted taxable income at an amount which the Department considered reflected his real income, being his share of income that the Department found was available to him through a business that the Department considered he was conducting with his wife through a company called [Company 1].

THE HEARING AND THE EVIDENCE

The Tribunal heard Mr Zimmer’s application on 17 July 2018. He and Ms Wilson participated in the hearing by telephone and each gave oral evidence. The Department did not appear.
Mr Zimmer and Ms Wilson also provided documents to the Tribunal which have been received into evidence. Mr Zimmer’s documents are marked A1–81 and Ms Wilson’s documents are marked B1–160. The Tribunal has also received into evidence documents the Department provided in accordance with subsection 37(1) of the Administrative Appeals Tribunal Act 1975, which are paginated 1–249, and documents the Department obtained from Messrs Bladen King & Barker, after the Tribunal had requested the Department to do so under subsection 95J(1) of the Child Support (Registration and Collection) Act 1988, and these documents are marked C1–34.
The Tribunal has had regard to this evidence.

RELEVANT LAW AND ISSUES

Part 5 of the Act contains the provisions by which the Department assesses the annual rate at which a liable parent is to pay child support to the carer entitled to child support. A liable parent or the carer entitled to child support may, if there are special circumstances, apply to the Department under section 98B of the Act for a determination to depart from the provisions relating to the assessment of child support. The Department, or the Tribunal in the Department’s place, if satisfied that the criteria of subsection 98C(1) are met can make one or more of the determinations listed in subsection 98S(1) to depart from the provisions of the Act relating to an administrative assessment of child support. The criteria specified in subsection 98C(1) are:
i.that one, or more than one, of the grounds for departure referred to in subsection (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 determination (under subsection 98S(1)).
The grounds for departure referred to in subsection 98C(2) are those set out in subsection 117(2) of the Act.
In reviewing the Department’s decision, the Tribunal must consider whether these criteria are met, and if they are, the Tribunal must then consider what determination or determinations should be made under subsection 98S(1).
Ms Wilson relied on the grounds for departure provided in subparagraphs 117(2)(c)(ia) and (ib) of the Act in her change of assessment application, which grounds the Department describes, respectively, as reason 8A and 8B.

CONSIDERATION

Is there a ground to change the assessment?

It is convenient to deal separately with the grounds on which Ms Wilson has relied.

Subparagraph 117(2)(c)(ia)

Subparagraph 117(2)(c)(ia) of the Act reads as follows:
117(2)(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.
In her change of assessment application, Ms Wilson questioned whether the adjusted taxable income of $49,887that was used for Mr Zimmer in the assessment of child support was a fair reflection of his actual income or his capacity to earn an income.
Mr Zimmer ceased employment as a [manager] on 4 July 2016. At that time he and his wife’s accountants formed a company known as [Company 1] of which, initially, Mr Zimmer and his wife were the directors and shareholders. His evidence to the Tribunal was that he signed all papers necessary to allow the registration of that company. His evidence was also that he would have read everything that he had signed. Those papers would have included a consent to act as a director of the company upon its registration.
In evidence before the Tribunal is a letter dated 14 November 2017 from Mr Zimmer’s and his wife’s accountants in which they confirm that the shareholders and directors of the company upon its registration were Mr Zimmer and his wife but in which they also say, “we note that the set up of the company was made in error as it was not reflective of the funding introduced to the business nor was it reflective of the risk associated with the establishment of the business. Subsequent to the discovery of this, amendments were made with the Australian Securities and Investment Commission”. The accountants also advised that the funding to which they referred was a loan from Mr Zimmer’s wife’s parents. The accountants advised that Mr Zimmer’s wife’s role was, essentially, management of the company. The accountants advised that Mr Zimmer was employed in the business on a ‘part-time basis’ working three days a week.
The evidence before the Tribunal includes transaction summaries that the Australian Securities and Investment Commission issued to the company, which reveal that on 22 July 2017 a form was lodged relating to someone vacating the position of officeholder. The Tribunal infers that on that date Mr Zimmer resigned as a director of the company.
In the bundle of documents that Mr Zimmer provided is a statement from his wife in which she advises that her role in the business that the company conducts ‘comprises of, but is not limited to, proposals, bookkeeping, administration and coordinating contractors. All of this is through skills I have obtained throughout my working career’.
The business of the company is [details deleted]. Mr Zimmer’s evidence to the Tribunal is that he was briefly employed for three months by the company but has not been since September 2017. He was also previously engaged by the company for a short period as a contractor. His evidence to the Tribunal was the only employee of the company, other than for the brief period in which he was employed by the company, is his wife. The company operates from his and his wife’s residential premises.
Mr Zimmer acknowledged in his oral evidence to the Tribunal that his skill set from having been previously employed as a [manager] would allow him to conduct the business of the company. His evidence was that he does not work for the company notwithstanding that the company conducts its business from his residential premises and notwithstanding that he has the skill set to enable him to conduct or transact the business of the company. His evidence was that he does not do so, firstly, because he is a full-time carer of his and his wife’s three children, two of whom attend school but one of whom is of pre-school age and secondly, because he is not presently in ‘the head space’ to work. He said, however, that he does not consider that he has a problem with his mental health and he has not been consulting a doctor with respect to mental health issues.
The evidence before the Tribunal in the form of the financial statements for the company for the financial year ending 30 June 2017 reveals that it paid a total amount of salary and wages to its employees of $160,000. Based on Mr Zimmer’s evidence, those wages were only paid to him and his wife, and the much greater part of that was paid to his wife. The profit and loss statement also included a separate entry for superannuation contributions and hence, the amount that was disclosed in the profit and loss statement for wages, which were paid to Mr Zimmer and his wife, are exclusive of superannuation contributions.
The financial statements revealed that in the 2017 financial year, the company, after payment of its expenses, incurred a small loss. Notes to the financial statements reveal that the amount outstanding to Mr Zimmer’s wife’s parents is $80,000 at the end of the 2017 year.
The evidence before the Tribunal also includes copies of the BAS forms the company lodged for the first three quarters for the 2018 financial year, which reveal that wages of $136,413were paid by the company in the period from 1 July 2017 to 31 March 2018. That amount extrapolates to an annual figure of $181,429. Again, based upon Mr Zimmer’s evidence, the wages the company paid were paid only to Mr Zimmer and his wife, and the greater part was paid to his wife.
Noting that:
·the company transacts its business from Mr Zimmer’s place of residence,
·Mr Zimmer is not otherwise employed,
·Mr Zimmer has a skill set that aptly qualifies him to assist with management of the business the company transacts,
·Notwithstanding, Mr Zimmer feels he is not in ‘a head space’ to engage in the business of the company. He has not been diagnosed and is not being treated with a mental illness such that he would be incapacitated from conducting or assisting to conduct the affairs of the company, and
·Mr Zimmer consented to be an initial director of the company and thereby commit himself to the responsibilities of that position,
the Tribunal infers that Mr Zimmer is, in conjunction with his wife, transacting the business of the company and has done so since the company’s inception. In other words, the Tribunal is not persuaded, and consequently does not accept, Mr Zimmer’s evidence to the contrary.
Given what the company paid out in wages for the period 1 July 2017 to 31 March 2018, the Tribunal infers that in all likelihood it would have paid out wages totalling around $180,000 for the financial year. The bulk of that amount was paid to Mr Zimmer’s wife, but having regard to findings of the Tribunal as set out in the preceding paragraph, the Tribunal considers that half of what the company pays out in wages ought to be attributed as being available to Mr Zimmer as income for the purposes of determining whether an assessment of child support based on his taxable income from the last relevant year of income provides an unjust and inequitable determination of the level of financial support he is to provide for [Child 1]. Insofar as he does not draw that actual wage from his company, then his company represents a financial resource to him, for the reasons the Tribunal has stated.
Given that, the Tribunal is satisfied that this ground for departure exists.

Subparagraph 117(2)(c)(ib)

Subparagraph 117(2)(c)(ib) of the Act reads as follows:
117(2)(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.
By virtue of subsection 117(7B) of the Act, the Tribunal can only find that Mr Zimmer has a capacity to earn more than his actual income if it is satisfied that:
(a) one or more of the following applies:
(i) [he] does not work despite ample opportunity to do so; or
(ii) [he] has reduced the number of hours per week of his employment or other work below the normal number of hours per week that constitutes full-time work for the occupation or industry in which he is employed or otherwise engaged;
(iii) [he] has changed his occupation, industry or working pattern;
and
(b) [his] decision not to work, to reduce the number of hours, or to change his occupation, industry or working pattern, is not justified on the basis of:
(i) [his] caring responsibilities; or

(ii) [his] state of health;
and

(c) [he] has not demonstrated that it was not a major purpose of that decision to affect the administrative assessment of child support in relation to [Child 1].

The Tribunal is satisfied that the criteria set out in (a) and (b) are established in this case, but not that in (c), and hence, since all three criteria are not satisfied, the Tribunal cannot find that Mr Zimmer has had the capacity to earn income above what he actually has earned.
At the time Mr Zimmer ceased his employment as a [manager], and thereby reduced the number of hours per week of his employment, he was then paying child support in accordance with a child support agreement that he and Ms Wilson had made whereby he paid no child support directly to Ms Wilson but paid the fees for [Child 1] to attend a private school. [Child 1] stopped attending that school at the end of the 2016 school year. With the consent of both Mr Zimmer and Ms Wilson the Federal Circuit Court of Australia made orders on 27 July 2017 setting aside the child support agreement under section 135 of the Act.
In other words, at the time Mr Zimmer changed his working arrangement he was meeting his child support obligation as agreed between the parties and that continued for approximately a year. That circumstance indicates it was not Mr Zimmer’s intention in changing his working pattern to avoid his child support obligation. The Tribunal infers from the evidence that the purpose of Mr Zimmer ceasing his employment was to start, with his wife, the business that they transact through the company.
The Tribunal finds therefore that this ground for departure is not established.

Is it just and equitable to make a determination?

The matters the Tribunal must consider when deciding whether it is just and equitable to make a determination to depart from the provisions of the Act relating to a child support assessment are listed in subsection 117(4) of the Act. Rather than dealing with each matter separately, it is convenient for the Tribunal to group the matters and consider them by reference to the following headings.

[Child 1]’s circumstances

[Child 1] has all the usual needs. There is no evidence that she has any special needs.
There is no evidence that she has income, property or financial resources.
The Tribunal takes into account that, insofar as Mr Zimmer is assessed to pay child support for [Child 1] based on his taxable income from the last relevant year of income, and without regard to the financial resource available to him through [Company 1], hardship is caused to [Child 1] in the sense that she would not be able to enjoy a standard of living reflective of that of their parents.

Ms Wilson’s circumstances

The Tribunal takes into account that Ms Wilson has a primary obligation to support [Child 1]. That obligation ranks equally with her commitments for her own support and the support of the child born from her present marriage.
The Tribunal takes into account that Ms Wilson is [employed]. She earns on average a weekly wage of $1,427. She also receives a very modest amount of interest income each week. She does not receive any benefits from the Commonwealth Government.
She has another child who is dependent upon her, born from her present marriage. There is no evidence that that child has any special needs.
Her only asset of significance is the house that she owns jointly with her husband. The title to that house is encumbered by a mortgage securing repayment of a loan that has an outstanding debt near the value of the home. In other words, her equity in the house is negligible.
Her only other assets of significance are motor vehicles and household furniture.
The evidence reveals that she incurs all the normal costs to support herself.
The Tribunal takes into account that, insofar as Mr Zimmer is assessed to pay child support for [Child 1] based upon his taxable income from the last relevant year of income, and without regard to the financial resource available to him through [Company 1], then hardship would be caused to Ms Wilson in that she would have to draw disproportionately on her resources to ensure [Child 1]’s support. In other words, by refusing to make a determination to depart from the assessment of child support so as to ensure that Mr Zimmer’s child support obligation for [Child 1] incorporates the financial resource he has available to him, hardship is caused to Ms Wilson.

Mr Zimmer’s circumstances

Mr Zimmer’s circumstances in terms of his income and financial resources have been discussed above.
In terms of his property, the Tribunal takes into account that he and his wife own an investment property of which he estimates the value to be $865,0000. It is subject to a mortgage securing repayment of a loan of $722,500. In other words, he has equity in that property of the order of $21,500, but that amount would likely be less upon realisation of the asset given that capital gains tax might apply to some of the proceeds and also real estate agent commission would be payable upon the sale. Mr Zimmer’s ownership of that asset in the Tribunal’s view does not enhance or provide him additional capacity to assist with the support of [Child 1].
He has no other assets of significance.
Mr Zimmer has all the usual commitments to meet for his own support. He also has an obligation to support the three children born from his present marriage. His obligation to support [Child 1] and his three children is a primary obligation, ranking in priority over all commitments other than those necessary for his self-support.

The Tribunal acknowledges that making a determination that would result in his child support obligation for [Child 1] increasing, from that based upon his taxable income from the last relevant year, would result in some financial hardship to him and his other children.
It seems to the Tribunal that a just and equitable determination to make in this matter would be to set his adjusted taxable income at $90,000 for the period [date] September 2017 to [date] August 2020, being the day preceding [Child 1]’s 18th birthday. In the Tribunal’s view, given the manner in which Mr Zimmer has arranged his income earning activities, a child support assessment based upon his taxable income from the last relevant year of income will not for the remainder of the time in which he is assessed as liable to pay child support for [Child 1], provide a fair basis upon which his liability ought to be assessed.

Is it otherwise proper to change the assessment?

51. In deciding whether it is otherwise proper to depart from the assessment of child support the Tribunal must have regard to the fact that the primary obligation to support [Child 1] rests with Mr Zimmer and Ms Wilson and also have regard to whether, and if so how, any determination it makes would affect the entitlement of Ms Wilson or the children to an income tested pension, allowance or benefit.

As mentioned above Ms Wilson does not receive any financial benefits from the Commonwealth Government. The Tribunal understands that were it to make the determination that it considers just and equitable to make, then the circumstances with respect to Ms Wilson receiving an income tested pension, allowance or benefit from the Commonwealth Government would also not change.
The Tribunal understands that [Child 1] does not receive any income tested pension, allowance or benefit from the Commonwealth Government and were the Tribunal to make the determination it considers just and equitable to make, that circumstance would not change.
In the circumstances, the Tribunal considers it is otherwise proper to depart from the assessment of child support so as to set Mr Zimmer’s adjusted taxable income at $90,000for the period 1 September 2017 to 29 August 2020.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides that the adjusted taxable income for Mr Zimmer is $90,000 for the period 1 September 2017 to 29 August 2020.

[2018] AATA 3291

17 July 2018

Key Legal Topics

Areas of Law

Family Law

Administrative Law

Legal Concepts

Statutory Construction

Jurisdiction

Remedies

Judicial Review