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Werden and Jerome (Child support) [2019] AATA 1747 (14 May 2019)

Last Updated: 9 July 2019

Werden and Jerome (Child support) [2019] AATA 1747 (14 May 2019)

DIVISION: Social Services & Child Support Division

REVIEW NUMBER: 2018/SC015417

APPLICANT: Mr Werden

OTHER PARTIES: Child Support Registrar

Mrs Jerome

TRIBUNAL: Member W Kennedy

DECISION DATE: 14 May 2019

DECISION:

The Tribunal sets aside the decision under review and, in substitution, decides to set Mr Werden’s ATI at $149,965.00 for the period from 7 May 2018 to 19 February 2021, and to increase the annual rate of child support payable by Mr Werden by $2,066.00 for the period from 1 May 2018 to 31 January 2020.


CATCHWORDS

CHILD SUPPORT – departure determination – income, property and financial resources of the liable parent - benefits derived from business - income from family trust – special needs of the child by way of orthodontic treatment - 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

  1. This decision concerns an application for a departure from the formula assessment of child support. Mr Werden and Mrs Jerome are the parents of [Child 1] (born February 2003). 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 6 November 2003. The assessment is based on Mrs Jerome having greater than primary care.
  2. For the period from 1 October 2017 to 31 December 2018 Mr Werden was assessed to pay an annual rate of child support of $9,179.00 based on his adjusted taxable income (ATI) of $83,623.00 and Mrs Jerome’s adjusted taxable income of $86,020.00.
  3. On 7 May 2018 Mrs Jerome applied to the Department for a departure from the formula assessment because of the special needs of [Child 1] and because of the property, income and/or financial resources of one or both parents. For administrative purposes these are known as Reason 2 and Reason 8A respectively. Although Mrs Jerome originally also applied under Reason 9, she later withdrew her application in respect of that reason.
  4. On 19 June 2018 a delegate of the Child Support Registrar considered the departure application and decided that Reason 2 and Reason 8A had been established and that it was just and equitable and otherwise proper to change the assessment. The delegate decided to vary the assessment as follows:
  5. On 23 July 2018 Mr Werden lodged an objection to that decision, stating that he generally objected to the principles applied by the delegate and that [Child 1’s] earnings should be taken into account in the assessment.
  6. On 12 October 2018 a Department objections officer partly allowed Mr Werden’s objection but made a determination adverse to Mr Werden. As well as the Reasons raised in Mrs Jerome’s application the objections officer also considered Reason 4 (the income, earning capacity, property and financial resources of the child). The objections officer decided that Reason 2 and Reason 8A had been established, that Reason 4 had not been established, and that it was just and equitable and otherwise proper to change the assessment. The objections officer set aside the original decision and decided to vary the assessment as follows:
  7. On 12 November 2018 Mr Werden lodged an application for a review of the decision with this Tribunal, restating his objection to the basis upon which child support is assessed and also stating that his current partner’s involvement in his business is greater than had been determined by the objections officer. The Tribunal had access to the statement and documents provided by the Department. The documents are at folios 1 to 275 of the hearing papers and were provided to the parents in advance of the hearing. Following a Directions Hearing Mr Werden provided additional documents which were numbered A1 to A93 by the Tribunal. Mrs Jerome provided additional documents which were numbered B1 to B90 by the Tribunal. The additional documents were provided to both parents in advance of the hearing.
  8. The matter was heard and determined in Sydney on 14 May 2019. Mr Werden and Mrs Jerome both attended the hearing by telephone and gave their oral evidence under affirmation. [Ms A], who is Mr Werden’s partner, gave evidence under affirmation. The Child Support Registrar was not present and 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 formula 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:
  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; (1992) FLC 92-279 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 varying 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 her application to the Department Mrs Jerome asserted that there were two grounds (or reasons) for a departure from the formula assessment.

Does a ground exist to depart from the administrative assessment under Reason 2?

  1. Mrs Jerome has sought a departure from the administrative assessment on the ground that there are extra costs because of the special needs of [Child 1]. This ground for departure is found in subparagraph 117(2)(b)(ia) of the Act:

(2) For the purposes of subparagraph (1)(b)(i), the grounds for departure are as follows:

. . .

(b) that, in the special circumstances of the case, the costs of maintaining the child are significantly affected:

. . .

(ia) because of special needs of the child; or ...

  1. The Tribunal has before it various documents from [name], an orthodontist trading under the [business name]. These include a quote dated 21 March 2018 for orthodontic treatment for [Child 1] and a schedule of payments to be made between 23 April 2018 and 1 February 2020. The total cost is quoted as $8,910.00 (folios 67 to 68). In addition there is a “pre-treatment records appointment” fee of $360.00 (folio B84) and a “band removal” fee of $360.00 (folio B85). Thus the total cost of [Child 1’s] orthodontic treatment is $9,630.00. Mrs Jerome has provided documentation showing that she has been making payments in accordance with the schedule of payments (folios B88 to B90). She has previously advised that she will receive a total rebate of $2,400.00 from her health fund, meaning that the net cost is $7,230.00 (folio 144).
  2. It is well established in this jurisdiction that orthodontic treatment is a special need. The Tribunal finds that there is sufficient evidence to establish that [Child 1] has needs that are special or out of the ordinary and that this significantly affects the cost of maintaining [Child 1]. Accordingly, the Tribunal finds that there is a ground to depart from the administrative assessment of child support under subparagraph 117(2)(b)(ia) of the Act.

Issue two – Would departure from the administrative assessment be just and equitable?

Relevant law and evidence

  1. As the Tribunal is satisfied that there is a ground to depart from the administrative assessment of child support, the next step is to consider whether it is just and equitable to depart from the assessment. In deciding whether it is just and equitable the Tribunal had regard to the following matters set out in subsection 117(4) of the Act:

(4) In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order under this Division, the court must have regard to:

(a) the nature of the duty of a parent to maintain a child (as stated in section 3); and

(b) the proper needs of the child; and

(c) the income, earning capacity, property and financial resources of the child; and

(d) the income, property and financial resources of each parent who is a party to the proceeding; and

(da) the earning capacity of each parent who is a party to the proceeding; and

(e) the commitments of each parent who is a party to the proceeding that are necessary to enable the parent to support:

(i) himself or herself; or

(ii) any other child or another person that the person has a duty to maintain; and

(f) the direct and indirect costs incurred by the carer entitled to child support in providing care for the child; and

(g) any hardship that would be caused:

(i) to:

(A) the child; or

(B) the carer entitled to child support;

by the making of, or the refusal to make, the order; and

(ii) to:

(A) the liable parent; or

(B) any other child or another person that the liable parent has a duty to support;

by the making of, or the refusal to make, the order; and

(iii) to any resident child of the parent (see subsection (10) by the making of, or the refusal to make, the order.

  1. The Tribunal considered the evidence provided by both parents, including the documents and Statement of Financial Circumstances form that each party provided to the Tribunal, as well as the documents provided by the Department.

Assessment of evidence, findings of fact and application of the law

  1. Section 3 of the Assessment Act states that it is the duty of both parents to financially support their children and that [Child 1] should receive a proper amount of financial support from her parents in accordance with their capacity to contribute.
  2. In his submission to the Tribunal Mr Werden states his view that the assessment should be based on [Child 1’s] actual expenses alone. He further states that his own income is not relevant to the child support assessment. The legislation under which this application is determined is based on the child’s costs being determined through the application of an administrative formula and the parent’s liability being determined by factors which include the income, property and financial resources of both parents. Mr Werden’s suggested alternative approach is not found in the legislation.

The child’s needs

  1. Paragraph 117(4)(b) of the Act requires the Tribunal to consider the proper needs of the child. The Tribunal has done this in accordance with the legislation under which this determination is made. At the hearing Mrs Jerome outlined a number of health issues affecting the care of [Child 1] but said that she did not expect Mr Werden to contribute to the costs involved (other than his contribution to orthodontic treatment). As there is no documentation before the Tribunal in relation to those other health issues the Tribunal did not consider them further. The only circumstance that is relevant to the assessment is [Child 1’s] orthodontic treatment. As this was considered by the Tribunal as part of its consideration as to whether a reason to depart from the administrative assessment had been established it is not necessary to further consider [Child 1’s] needs.

The child’s income and earning capacities

  1. Mr Werden has asserted that [Child 1] is employed part-time and that her earnings should be taken into account in the assessment.
  2. Many children have part-time jobs and the earnings generated are generally not considered significant enough to require that they be taken into account in the assessment. Although the legislation does not specify the point at which a child’s earnings are of such an amount that they should be taken into account, the minimum rate of youth allowance is often used as a benchmark. In order to reach this benchmark [Child 1] would need to have a gross income of at least $343.10 per week. In his cross-application Mr Werden stated that [Child 1’s] earnings “averaged a min of $100 plus a week”. As [Child 1] is no longer attending full-time education Mr Werden is of the opinion that her earnings are now higher (folio 126). In her SOFC Mrs Jerome states that [Child 1] earns some $155.00 per week. At the hearing Mrs Jerome said that she had arrived at this figure by averaging 12 of [Child 1’s] payslips. The evidence before the Tribunal does not convince the Tribunal that [Child 1’s] earnings should be taken into account in determining the assessment.

The income, property and financial resources and earning capacity of Mr Werden and his necessary commitments

  1. Mr Werden’s financial circumstances were closely examined by the Tribunal. The Tribunal examined the Statement of Financial Circumstances (SOFC) (folios A1 to A9), which shows that he earns some $1,654.00 per week and that his partner earns a further $2,846.00 per week. Mr Werden’s declared income is consistent with his recent tax returns (folios 95 to 104 and A72 to A84) and also with a payslip dated 15 May 2018 (folio 129). His household income is greater that his household expenses. Mr Werden discloses in his SOFC that together with his partner he owns his own home and an investment property, both subject to mortgages, and other normal household goods. He has a modest superannuation balance and no consumer debts.
  2. At the hearing Mr Werden said that he is employed as [an occupation 1] and that he and [Ms A] operate a business trading as [business name]. The business is operated through the [family trust name], a private trust of which Mr Werden and [Ms A] are the beneficiaries. At the hearing Mr Werden said that he believed that the children of himself and [Ms A] are also nominated as beneficiaries.
  3. Mr Werden has provided Financial Statements for the Trust for 2017/18 (folios A16 to A24) as well as income tax returns for the Trust for 2016/17 (folios 74 to 79) and 2017/18 (folios A85 to A93) and the Trust bank account for the period from 5 July 2018 to 4 October 2018 (folios A25 to A48). The Financial Statements and other documentation shows the following key figures:

2016/17 2017/18

Income $201,053.00 $241,858.00

Expenses $85,628.00 $109,728.00

Net Income $115,425.00 $132,129.00

In both years the net income was paid as a distribution to [Ms A].

  1. At the hearing Mr Werden asserted that the business was operated jointly by himself and [Ms A]. [Ms A] gave the same evidence and was able to describe, in some detail, her duties and her qualifications and experience. The evidence before the Tribunal shows that [Ms A] has held two other jobs in the recent past. At the hearing she said that she continues to hold one other job and that she devotes about 15 hours per fortnight to that other job.
  2. At the hearing Mrs Jerome said that she believes that the business belongs to Mr Werden and that he claims that it is [Ms A’s] business in order to reduce his child support. She has previously said that she accepts that [Ms A] assists with the administrative side of the business, but said that Mr Werden generates the business and does the substantive work.
  3. The Tribunal finds that the business is operated by Mr Werden and [Ms A] jointly. Each of them contributes to the profits. It appears that Mr Werden has the technical skills and [Ms A] the bookkeeping and “back office” skills. The Tribunal finds that it would be fair to attribute half of the net income to each of Mr Werden and [Ms A]. This means that in 2017/18 Mr Werden’s income is some $66,065.00 higher than the amount that is derived from his personal income tax return.
  4. This does not include any benefits that Mr Werden may derive from the fact that he and [Ms A] operate a business meeting some expenses from which he may derive a benefit. In this regard the Tribunal notes the decision of the Family Court in Carey v Carey [1994] FamCA 74; (1994) FLC 92-489 where it was 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.

  1. This and other cases establish that a self-employed person is able to derive additional personal benefits through their business structures, and that they also have greater control over the structure of their finances than does a salaried employee.
  2. The business’s Financial Statements for 2017/18 show expenditure items which are of interest to the Tribunal in determining the income, property and financial resources available to Mr Werden. At the hearing Mr Werden acknowledged that all of his personal motor vehicle expenses and all of his personal telephone expenses are met by the business. As [Ms A] has her own motor vehicle the Tribunal considers that it is fair to conclude that half of the motor vehicle expenses result in a personal benefit to Mr Werden. It attributes that amount as a financial resource available to Mr Werden. With regard to the telephone expenses the Tribunal finds that half of the expense represents a personal benefit for Mr Werden and [Ms A]. It attributes one-quarter of the overall expense as a financial resource available to Mr Werden. As depreciation is an allowance rather than an expense the Tribunal attributes all of this amount as a personal benefit for Mr Werden and [Ms A] and attributes half of it as a financial resource available to Mr Werden. This means that in 2017/18 Mr Werden’s financial resources are as follows:

Taxable income $75,594.00

Business net income $66,065.00

Motor Vehicle benefit $4,000.00

Telephone benefit $623.00

Depreciation benefit $3,683.00

TOTAL $149,965.00.

  1. The business’s bank account shows numerous items of expenditure which would not seem to have any relationship to the business. These include numerous expenditure items at restaurants and coffee shops, purchases at sporting goods stores and a veterinary clinic, as well as health insurance premiums, a Foxtel subscription and an item identified as “[Mr Werden] footy trip”. At the hearing [Ms A] acknowledged that many personal expenses are met through the Trust, but said that these are not included in the business expenses. She said that their accountant only includes business expenses when preparing the books. The Tribunal is not completely convinced by this explanation. Using the Trust bank account to pay personal expenses is, at best, poor business practice. However, in the face of the inconclusive documentary evidence, the Tribunal has decided to accept [Ms A’s] oral evidence in this regard.

The income, property and financial resources and earning capacity of Mrs Jerome and her necessary commitments

  1. Mrs Jerome’s financial circumstances were closely examined by the Tribunal. The Tribunal examined the SOFC (folios B1 to B9) and the other documentation provided by Mrs Jerome. Mrs Jerome is employed by the same organisation that employs Mr Werden. In her SOFC she states that her average weekly income is $1,743.00, comprising salary of $1,296.00 and child support of $447.00, paid by Mr Werden. Mrs Jerome owns her own home, subject to a mortgage, and other normal household goods. She has a modest superannuation balance and a modest credit card debt.
  2. With regard to her salary Mrs Jerome has provided a letter of appointment confirming the rate of pay disclosed in her SOFC (folio B10). However, her 2016/17 income tax return shows a taxable income of $86,020.00, some $1,645.00 per week (folio B15), while her 2017/18 income tax return shows a taxable income of $91,696.00, some $1,763.00 per week (folio B23). A payslip dated 3 April 2018 shows year to date earnings of $73,918.35. This suggests an annual income of some $96,000.00 (folio 71). It appears that these figures are prior to her present appointment, which dates only from the second half of 2018.
  3. The Tribunal is aware that on 2 July 2018 the Department decided to accept Mrs Jerome’s estimate of income and that Mr Werden did not object to that decision. That decision is not before the Tribunal, however the Tribunal notes that the most recent assessment is based on an increased ATI for Mrs Jerome. The Tribunal found Mrs Jerome to be a credible witness and it concludes that the documents provided to the Tribunal together with Mrs Jerome’s oral evidence presents an accurate picture of the financial resources available to her.

The parents’ duty to support others

  1. Both parents have a legal duty to support other children. This duty is taken into account in the formula assessment and it is not necessary to make any further provision.

Hardship

  1. Both parents have above average incomes. Mr Werden’s financial circumstances are much better than Mrs Jerome’s, the latter being complicated by her husband’s health issues. The Tribunal accepts that Mrs Jerome has some financial difficulties but these do not seem to the Tribunal to be severe. The determination contemplated by the Tribunal should not result in any financial hardship for either party.

Terms and period of departure

  1. The Tribunal has decided to depart from the formula assessment by increasing Mr Werden’s assessment to take into account the cost of [Child 1’s] orthodontic needs and to set Mr Werden’s ATI to take into account the financial resources available to him.
  2. With regard to the former the Tribunal finds that the total net cost of the orthodontic treatment is $7,230.00. Half of this is $3,615.00. Using the same methodology as the delegate and the objections officer, which involves apportioning Mr Werden’s contribution over a 21-month period, the Tribunal has decided to increase the annual child support assessment by $2,066.00 for the period from 1 May 2018 to 31 January 2020.
  3. With regard to the latter the Tribunal has found above that the financial resources available to Mr Werden total $149,965.00. This is greater than the figure established by the delegate but less than the figure established by the objections officer. The Tribunal does not find it necessary to change Mrs Jerome’s ATI, finding that it is adequately reflected in the administrative formula assessment. At the time of Mrs Jerome’s application Mr Werden’s child support liability was $9,179.00. Assuming no other changes (such as changes to Mrs Jerome’s ATI due to changes in her employment) Mr Werden’s child support liability would increase to some $17,000.00.
  4. Mrs Jerome lodged her application on 7 May 2018 and although Mr Werden has had the benefit of an income greater than is reflected by the ATI used in the assessment for a longer period, Mrs Jerome could have applied for the departure earlier. The Tribunal finds it fair to commence the departure from the date of Mrs Jerome’s application. As [Child 1] turns 18 [in] February 2021 and in order to ensure predictability in the assessment the Tribunal will continue the departure until 19 February 2021, or until a terminating event. Given the current low rate of inflation and wage growth the Tribunal does not find it necessary to add an inflator to Mr Werden’s ATI.
  5. In order to ensure that Mr Werden provides his full share of the cost of orthodontic treatment the Tribunal will date that part of the departure from 1 May 2018 and end it on 31 January 2020.

Issue three – Is it otherwise proper to depart from the administrative assessment?

  1. The final step for the Tribunal to undertake is to determine whether it is “otherwise proper” to depart from the administrative assessment. Subsection 117(5) of the Assessment Act requires the Tribunal to take into consideration the following matters:

(a) the nature of the duty of a parent to maintain a child (as stated in section 3) and, in particular, the fact that it is the parents of a child themselves who have the primary duty to maintain the child; and

(b) the effect that the making of the order would have on:

(i) any entitlement of the child, or the carer entitled to child support, to an income tested pension, allowance or benefit; or

(ii) the rate of any income tested pension, allowance or benefit payable to the child or the carer entitled to child support.

  1. The child support law recognises that each parent has a primary duty to maintain their children. In this case neither party receives social security benefits and this will not change as a result of the Tribunal’s decision. The Tribunal is satisfied that it is otherwise proper to depart from the administrative assessment in this matter.

DECISION

The Tribunal sets aside the decision under review and, in substitution, decides to set Mr Werden’s ATI at $149,965.00 for the period from 7 May 2018 to 19 February 2021, and to increase the annual rate of child support payable by Mr Werden by $2,066.00 for the period from 1 May 2018 to 31 January 2020.

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