Jones and Jones (Child support) [2015] AATA 2003 (6 November 2015)

DIVISION	Social Services & Child Support Division
APPLICANT	Mr Jones
OTHER PARTIES	Ms Jones
	Child Support Registrar
	
DECISION DATE	6 November 2015

DECISION
The decision under review is varied such that Mr Jones’ adjusted taxable income is varied to $90,067 per annum from 1 October 2014 to 31 October 2017. 

CATCHWORDS
Child Support - Departure determination - Income and financial resources of a parent - Trust income - Decision under review varied

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
Introduction
1.	Mr Jones and Ms Jones are the parents of [Child 1] who was born in 1999, [Child 2] who was born in 2001, and [Child 3] who was born in 2003. A child support case was registered in 2009. From 13 August 2013, Mr Jones was recorded as having 38% care of the children. Since 2 February 2015, Mr Jones has been recorded as having 50% care of the children. Ms Jones has always been recorded as having the balance of care.
2.	The Child Support (Assessment) Act 1989 (“the Act”) provides for an administrative assessment of the child support payable. It uses a formula which contains variables such as the parents’ adjusted taxable incomes and their percentages of care of the children. The Act also provides for a departure from the administrative assessment in certain circumstances. In July 2013 a senior case officer made a departure decision to vary Mr Jones’ adjusted taxable income to $136,031 per annum from 5 June 2013 to 30 September 2014. Neither parent sought review of that decision.
3.	From 1 October 2014 the rate of child support payable reverted to the administrative assessment. It was based on Mr Jones’ 2013-14 adjusted taxable income of $38,821 and Ms Jones’ 2013-14 adjusted taxable income of $95,830, and Ms Jones was required to pay Mr Jones child support of $3,405 per annum. 
4.	On 21 October 2014, Ms Jones lodged a departure application. A senior case officer granted her application and made a departure decision. Mr Jones objected. An objections officer allowed the objection and varied Mr Jones’ adjusted taxable income to $101,959 per annum from 1 October 2014 to 31 October 2016. Mr Jones sought further review by this Tribunal and I heard the matter on 6 November 2015. I spoke to Mr Jones and Ms Jones, as well as Mr Jones’ accountant, [name and firm], Chartered Accountants, by conference phone. In reaching my decision I have considered the sworn evidence of Mr Jones, Ms Jones and [Mr Jones’ accountant] as well as the documentation provided by the Department of Human Services – Child Support (“the Department”), Mr Jones and Ms Jones.
5.	Subsection 98C(1) of the Act provides, relevantly, that a decision to depart from the administrative assessment may be made if:
(i)	... one, or more than one, of the grounds for departure referred to in subsection 117(2) exists; and
(ii)	... 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 particular determination under this Part …
A Ground for Departure
6.	Subparagraph 117(2)(c)(ia) of the Act, commonly referred to as Reason 8, provides as a ground for departure:
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; …
7.	Mr Jones is [an occupation]. He is employed by [Company 1] the shareholders of which are [Company 2] as trustee for the Jones Family Trust (“the family trust”), and [Ms A] as trustee for [another] Trust (“Trust 1”). Mr Jones and [Ms A] are in a de facto relationship. [Company 1] runs a [type of] business. At the hearing Mr Jones agreed that for all practical purposes the business is his. 
8.	During 2014-15, [Company 1] made a profit of $46,692. Its listed expenses included depreciation of $6,756. Depreciation is not a cash expense. From a cash perspective, $46,692 + $6,756 = $53,448 was available for distribution to the shareholders. During the same year, [Company 1] also lent $28,819 to Mr Jones. [Mr Jones’ accountant] confirmed that the loan was in addition to the profit that was distributed to the entities listed above. 
9.	[Mr Jones’ accountant] stated that, on the instructions he had received, Mr Jones’ use of [Company 1] assets was minimal and so no adjustment was made to [Company 1’s] financial statements in respect of that usage. After [Mr Jones’ accountant] had finished giving evidence, Mr Jones acknowledged that he used [Company 1’s vehicle] to “drop the kids to and from school” and he used [Company 1’s] mobile phone for work and personal purposes. The objections officer, doing the best she could with the information available, had valued Mr Jones’ personal use of [Company 1] assets at $150 per week. I suggested to Mr Jones that that was a reasonable figure. He initially disputed that figure but he did not provide a figure that he considered to be more accurate and he ultimately agreed to the use of that figure. $150 x 52 = $7,800.
10.	Mr Jones said [Ms A] does some bookkeeping for [Company 1] at nights and on weekends. She has full-time employment elsewhere. [Mr Jones’ accountant] confirmed that she was not remunerated for the work she did for [Company 1] during 2014-15. 
11.	In summary, $53,448 + $28,819 + $7,800 = $90,067 worth of income and resources were available to Mr Jones during 2014-15 via [Company 1]  to meet his various financial obligations, including his child support obligations.
12.	What actually happened is more complicated. [Company 1] paid tax on its profit. It paid a franked dividend of $11,000 directly to the family trust and a franked dividend of $22,000 to [Trust 1], which then made a $22,000 distribution to the family trust. The family trust also holds two negatively geared investment properties. [Company 1’s] profits, which directly and indirectly make their way to the family trust, offset the investment properties’ losses. In 2014-15 the family trust made a profit of $270. Even if depreciation were removed from the investment properties’ listed expenses, they would still be negatively geared. 
13.	One reason why the administrative assessment is based on a parent’s adjusted taxable income rather than their taxable income is that an adjusted taxable includes certain losses – including negatively geared investment property losses – that are added back to taxable income. The rationale is that while parents are free to structure their financial affairs as they see fit, their election to fund the ongoing losses of their investments should not be allowed to reduce what would otherwise be their appropriate financial contribution towards their children’s costs. The rationale applies equally to Mr Jones’ more complicated financial arrangement and I reject any suggestion that because [Company 1]’s profits are used to offset the losses the family trust incurs through its ownership of negatively geared investment properties, Mr Jones’ income and financial resources are consequently reduced for child support purposes. 
14.	I also note that Mr Jones has said the investment properties cannot be sold due to the current economic climate. On 16 June 2015 he signed a statement of financial circumstances in which he estimated that the investment properties were worth $910,000 and the associated loans totalled $784,428. If the investment properties were sold, the proceeds of sale would exceed the associated debt. I am not stating what Mr Jones should do; that is not a matter for this Tribunal. But I do not accept Mr Jones’ submission that the investment properties cannot be sold, or that it would be financially disastrous to do so. 
15.	For those reasons, I find that Mr Jones’ income and financial resources for child support purposes are fairly reflected in an adjusted taxable income of $90,067 per annum. When Ms Jones lodged her departure application the administrative assessment was based on Mr Jones’ 2013-14 adjusted taxable income of $38,821. The disparity between those two figures, and the consequential disparity in the rates of child support payable pursuant to the administrative assessment, constitute special circumstances such that the application of the administrative assessment would result in an unjust and inequitable determination of child support payable. As a result, the Tribunal concludes that a ground for departure exists.
Just and Equitable 
16.	The requirement to consider whether a departure would be just and equitable directs attention to what is fair to the parents and their children. Regard must be had to a variety of factors such as the needs of the children, the parents’ commitments and any hardship that would be caused by departing or not departing from the formula. 
Mr Jones 
17.	Mr Jones’ household consists of himself, [Ms A] and the three children. Last year [Ms A] bought a house for $484,000. Mr Jones and [Ms A] are jointly liable for the associated home loan of approximately $263,000. In a letter dated 26 February 2015, Mr Jones explained:
… the home was purchased in [Ms A’s] name only, to protect this asset should [Company 1] be sued for anything. However, the loan is in both our names as [Ms A] did not have enough equity to obtain the loan on her own. … To enable us to have the required deposit, equity was taken from my 2 Investment Properties … 
18.	Mr Jones was unable to provide much detail concerning his household expenses. He said he went to work and left such matters to [Ms A]. His statement of financial circumstances suggests that he lives quite frugally from week to week, although he neither agreed nor disagreed with that observation. 
Ms Jones 
19.	Ms Jones is in full-time employment as [an occupation]. She receives a wage and a company car, the value of which is a reportable fringe benefit which is included in her adjusted taxable income. Her 2014-15 adjusted taxable income was $100,831.
20.	Ms Jones completed a statement of financial circumstances on 11 June 2015. Mr Jones was provided with a copy. Both parents agreed that Ms Jones’ income and financial resources are fairly reflected for child support purposes in her adjusted taxable income as assessed by the Australian Taxation Office from time to time. Notwithstanding their agreement on that point, there is one qualification. Ms Jones receives a tax-free income for providing board and lodging to international students. She is paid on a “per-student-per-week” basis. It was difficult to follow her evidence concerning the income she receives. She said the income is “fantastic”. She then said the income is tax-free because it is intended to cover the costs associated with providing board and lodging (in which case it would not be fantastic, it would be a net income of nil). Ms Jones could not recall the amount she receives per student per week, at one point stating it was $125 per week and at another point stating it was $240 per week. In fairness to Ms Jones, the events preceding the Tribunal hearing had been less than ideal for her. She had travelled [overseas] expecting to return to Australia [in] November 2015 but her return flight was cancelled [details deleted]. She remained in contact with the Tribunal registry and various contingent arrangements were considered from time to time. Ultimately, Ms Jones attended the hearing by phone while still [overseas]. The hearing commenced at 9am [City 1] time, [earlier overseas] time, on 6 November 2015. Understandably, Ms Jones did not have her hearing papers and related documentation with her. 
21.	Ms Jones concluded with the following evidence. She has, on average, one to two students staying with her for twelve weeks per year and she receives $240 per week per student. She estimated that food costs were $30 per day per student, which would be $210 per week – almost all of the income she receives - and she estimated that utility costs were $25 per week per student. I have doubts about the accuracy Ms Jones’ evidence on this issue. Ms Jones appeared to have doubts too. Her explanation for the tax-free status of the income appears reasonable, but her description of the income as “fantastic” suggests that in practice her gross income exceeds her associated expenses. I will return to Ms Jones’ board and lodging income later. 
22.	Ms Jones’ household consists of herself and the three children. She owns her house and is repaying an associated home loan. Her expenses appear unremarkable given her circumstances. She said she has no savings and struggles to meet her expenses, but a comparison of her most recent statement of financial circumstances with a preceding one suggests that she is able to meet her expenses. Furthermore, she expects her expenses to increase significantly in mid-2016 and she expects to be able to meet those expenses too. Those expenses are discussed in the next paragraph.
[The three children]
23.	The children attend private schools. The parents have put funds in a separate bank account to meet the associated costs. At a directions hearing prior to the full hearing both parents stated that they were not seeking an adjustment to the rate of child support payable between them on account of those associated costs. The funds are expected to last until mid-2016, at which time each parent will pay half the ongoing costs. They have entered into a written agreement to that effect. Ms Jones has arranged for the school to issue separate invoices to each parent for half the costs. 
24.	[Child 3] had an orthodontic retainer fitted in [month] 2014. The total cost was $1,940. Mr Jones provided documentation which showed that she received private health rebates of $490 + $280 + $280 = $1,050, leaving an out-of-pocket balance of $890. Ms Jones submitted that Mr Jones should be required to pay half. Ms Jones had been asked to provide medical evidence addressing whether [Child 3’s] orthodontic condition constituted a special need. She provided evidence that [Child 3] had [a dental condition]. There is no evidence of what that means in terms of the severity of the condition or the consequences of not having it treated. Mr Jones said the treatment was cosmetic. He did not provide any evidence in support of that submission.
25.	Otherwise, the children’s costs are unremarkable for children their ages. 
A consideration of what would be just and equitable
26.	A ground for departure has been established and it is appropriate to make a departure decision. For the reasons set out above I will vary Mr Jones’ adjusted taxable income to $90,067 per annum.
27.	Ms Jones receives an unquantified net income for providing board and lodging. That income is not reflected in her adjusted taxable income. She also incurred out-of-pocket expenses in respect of [Child 3’s] orthodontic treatment and seeks a contribution from Mr Jones of $495. If I were to increase Ms Jones’ adjusted taxable income and adjust the rate of child support payable on account of the contribution towards [Child 3’s] orthodontic treatment that Ms Jones seeks, the adjustment would be minimal. Given the unsatisfactory state of the evidence surrounding both issues and the likely offsetting of one adjustment against the other, I will not make any adjustment in respect of either issue. 
28.	Otherwise, as both parents agreed, Ms Jones’ income and financial resources are fairly reflected in her adjusted taxable income as assessed by the Australian Taxation Office. 
29.	Mr Jones stated that he had been over-assessed from 1 October 2014 and he sought a new decision with effect from that date. Varying his adjusted taxable income to $90,067 per annum from 1 October 2014 would reduce his child support liability over the period from 1 October 2014 to 6 November 2015 by approximately $1,500 and would require Ms Jones to pay approximately $810 per annum. I agree that Mr Jones was over-assessed. It is appropriate to vary Mr Jones’ adjusted taxable income for the reasons set out above. 
30.	The objections officer’s decision had effect until 31 October 2016. Both parents were invited to make submissions on when any new decision should have effect until. Neither did so. Given the way Mr Jones has structured his financial affairs, it seems likely that if a new departure decision had effect until 31 October 2016, Ms Jones would lodge a departure application once that decision expired. It is therefore preferable to vary Mr Jones’ adjusted taxable income to $90,067 per annum until 31 October 2017. It may be that once Mr Jones’ 2015-16 financial information becomes available he considers $90,067 per annum to no longer be a fair reflection of his income and financial resources, in which case he can lodge another departure application. However, on the information currently available, it is more likely to be a fair reflection of his future income and financial resources than his adjusted taxable income as assessed by the Australian Taxation Office.  
Otherwise proper
31.	The requirement to consider whether a departure would be otherwise proper directs attention to what is fair to the community. It is necessary to consider the effect of any departure from the administrative assessment on entitlements to income-tested pensions, allowances and benefits. Parents rather than the community have the primary duty to maintain a child. 
32.	Ms Jones receives family tax benefits in respect of the children of the assessment. Mr Jones does not. Changing the child support payable between the parents will result in a more appropriate apportionment of financial responsibility between the parents and the community. Such a result would be otherwise proper.
DECISION
The decision under review is varied such that Mr Jones’ adjusted taxable income is varied to $90,067 per annum from 1 October 2014 to 31 October 2017.