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Family Trusts & Child Support

Their father pays the minimum child support and last year had a taxable income of approx $55k from a business that he ran. He submitted a new estimate for the year of less than half that which was accepted by CSA. We submitted a COA and it turned up that

My Partner has 3 children 100%. Their father pays the minimum child support and last year had a taxable income of approx $55k from a business that he ran. He submitted a new estimate for the year of less than half that which was accepted by CSA.

We submitted a COA and it turned up that he had stood down from from the day to running of the business and handed it over to his "Business Partner".

We checked the ABN details of the business & found that his new wife was listed as the co-registrant of the ABN and that the ABN was cancelled about 2 weeks after by partner submitted her CSA request.

We have also discovered that a new ABN has been registered for the same trading name with the registrant being the "[HIS NAME] Family Trust" which suggest that the business is a going concern but that its no longer under his name directly.

I've done a little research into this & found (from http://www.cleardocs.com/extra-family-trust.html) that An Australian family trust :

  • is generally established by a family member for the benefit of members of the 'family group';
  • can be the subject of a family trust election which provides it with certain tax advantages, provided that the trust passes the family control test and makes distributions of trust income only to beneficiaries of the trust who are within the 'family group';
  • can assist in protecting the family group's assets from the liabilities of one or more of the family members (for instance, in the event of a family member's bankruptcy or insolvency);
  • provides a mechanism to pass family assets to future generations; and
  • can provide a means of accessing favourable taxation treatment by ensuring all family members use their income tax "tax-free thresholds".

My question then is what impact does it have on Child Support? I know CSA looks at Adjusted Taxable Income & would earnings passed into a trust be quarantined from the ATI or treated in the same way as other methods of reducing ATI for the purposes of lower CS liabilities?

Thanks

"I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant."

 
I know little about trusts. However, it may be that the other parent could be found, by way of a reason 8 change of assessment application, to be alienating income. I'd suggest a read of The CSA Guide - Reason 8 - a parent's income, property, financial resources, or earning capacity. This mentions trusts, although it could be company trusts rather than family trusts.
A Business, Company or Trust is an Entity.
A Entity pays there employees an assessable income which then after deductions equals taxable income.
Refer to the ATO, Redirect Page | Australian Taxation Office

But dont forget that the CSA have there own rules.
MikeT said
  This is spot on. We suspect that given the speed with which he re-estimated his income after CSA stepped in that he is trying to "alienate" and finding the details of this trust seems to confirm it. The link above refers to "trusts" generally but also how that entity relates directly to the parent so that is encouraging.

"I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant."

 
C$A has access to all this information from the ATO so there nothing to hide and they will also make a decision based on differences in living standards of the father, mother and children so it's not automatic that they will chase a payer for every cent that can get.

What was the outcome of the COA?
COA is ongoing, we only just found the Trust & ABN changes based on his response so we'll include what we found and submit it in our reply.

"I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant."

 
So what are you trying to achieve with your COA?
Simple really, we're trying to have him provide financially for his 3 children, to meet his responsibilities for them and we're using the COA to help determine what his actual income is.

His income estimate of $25k has him paying $30 per month however based on his previous tax return he earn approx $55k annually for past 7 years which equates to about $400 per month CS. The creation of the Family Trust, and the estimate of his income all coincide within 4 weeks of my partner requesting CSA to collect child support for her. If CSA need to dig into his finances in more detail through the COA then that's fine in the interest of the kids and us.

"I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant."

 
That's fair enough but there are considerations that need to be made when working out responsibilities for example your partner would have received a property settlement that would have reflected her as major carer. Your partner also has an obligation to provide for the children and also has an earning capacity. IF C$A digs further they may want to look at your finances too.
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Last edit: by Secretary SPCA


Executive Secretary - Shared Parenting Council of Australia
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MikeT said
I know little about trusts. However, it may be that the other parent could be found, by way of a reason 8 change of assessment application, to be alienating income. I'd suggest a read of The CSA Guide - Reason 8 - a parent's income, property, financial resources, or earning capacity. This mentions trusts, although it could be company trusts rather than family trusts.
Just a couple of things I will add to MikeT comments. There are a range of different sorts of trusts. In principle a trust is another legal entity which has had property or equity transferred into it. A Trustee administers the trust for a fee usually for the benefit of the beneficiaries (in this case the CSA payer)

BAUER & BECKER (2009) FMCAfam 480

Court citation: [2009] FMCAfam 480
Federal Magistrates Court of Australia

Judgment delivered 22 May 2009
Child Support  Payer seeks courts leave to review administrative assessment of child support more than eighteen months old  Payer has accumulated significant levels of arrears  Whether prima facie case to establish departure from administrative assessment  Balance of hardship.

The husband Applicant sought a stay on orders for the enforcement of monies sought by the Child Support Agency in relation to his two children and an application for the amendment of six administrative assessments relating to child support payments from 2003 to 2008. The Applicant was aware of the assessments made against him and did not pay them. The Respondent argued that the Applicant did not work to his full earning capacity in order to avoid payment of child support.

Held: for the Respondent.

1. The Applicant was aware of the mounting child support debt that he owed.

2. No new evidence arose to substantiate a retrospective review of assessments.

3. The Applicants low level of earnings did not reflect his capability nor the economic circumstances of the economy and so it would appear that the Applicant's income is both reasonable and one that has been calculated to avoid his child support responsibilities.

4. The Applicant will suffer no hardship but his wife respondent will suffer hardship from the Applicant's ongoing litigation.

A trust will not necessarily quarantine income from CSA perusal in a COA. The key point is the extent to which the company's assets, or trust's assets, are used to derive the income; Regardless of what sort of legal trust entity has been established any income derived in a trust could be considered and determined regardless of that income actually being drawn on. There will be different aspects looked at for each type of trust for example there are around seven or eight types of trusts each with specific rules. I would not be surprised to even see "Testamentary trusts" where property may be held on behalf of a payer in a will for the benefit of beneficiaries (ie. funds set aside to pay to the SPCA for the good work done during that persons life time and after the person dies) could be calculated for purposes of CSA calculation of income. Certainly I would expect a  "Unit Trust" to be closely audited especially where there would be income in the form of dividends from return on the trust unit shares. Although these last few years you have probably seen a big loss and these losses can well be considered to add back.

What is not at all certain is how the CSA will treat these things as there is no procedural based system (Although we are looking at ways on how to implement a much more consistent COA system currently) and it all depends how the SCO (Senior Case Officer) wants to deal with any information provided.





Executive Secretary - Shared Parenting Council of Australia
 Was my post helpful? If so, please let others know about the FamilyLawWebGuide whenever you see the opportunity
 
SPCA
You are saying that a Senior Case Officer, depending on which side of the bed they get out off in the morning, will make a decision on a parents assessable income by pulling numbers out of the sky, instead of using the correct ATO's accredited formulation for " taxable Income "
taylor said
SPCA
You are saying that a Senior Case Officer, depending on which side of the bed they get out off in the morning, will make a decision on a parents assessable income by pulling numbers out of the sky, instead of using the correct ATO's accredited formulation for " taxable Income "
Clearly you have not been reading a number of posts in these CSA related forums. The issue is that the ATO taxation system is not aligned to the CSA determination of income system. What is considered a legitimate tax deduction, by the ATO, for business purposes and tax returns is not dealt with in the same way during an assessment of income. For purposes of assessing CSA income the same rules most certainly do not apply. Where you have people making decisions you can get different decisions, and we see that from the court cases that have been published. Read some of MikeT's post relating to some of the key cases. I don't believe I suggested they get out of the wrong side of their bed although reading Ladd the SSAT officers may have slept somewhere else that night. The Honourable Federal Magistrate Reithmuller has been making a number of judgements around the sorts of things we see here.

We have had many complaints in here and through LFAA about differing treatment of income for self employed. I had one case a few years ago where the self employed car radio installer had a number of different interpretations, wrong interpretations and even demands served on the wrong legal entity by the CSA. He dealt with numerous (more than 5) officers. Another case spent months working out and arguing which pencils were personal use and which were deductible and legitimate business expenses.

If the CSA were serious about a fair determination for self employed parties they would take our extensive submissions relating to self employed people, along with others (don't just take ours on its own) and create a proper guide and booklet on how to be self employed under a CSA tax system (Which is not the same as the ATO tax system). Most business people who are self employed don't have an issue with the ATO system. Both they and their accountants and financial planners and advisors understand it. Few if any understand how the CSA determine income when self employed. Many seem to be here with problems in understanding how the CSA SCO's work. Mr D S a CSA Project Manager commenced a project late 2010 early 2011 that dealt with consistency issues and the need for clarity in written decisions. It was an issue then and it is supposed to have improved but there are way too many complaints here.

When there is a check-list published, of what is included, what is not included, how to pay your new partner for work done in the self employed persons business that meets their compliance requirements and a complete list of typical business expenses and how they are treated by the CSA, how depreciations, bad debt write off and how they deal with cash flow deficits, share losses, capital asset write off, self managed super contributions , workers comp when off work and many other items then and only then, will it will be seen as a fair and consistent system. Publish the guidelines in a FACT sheet or booklet, set up a pre qualifying procedural based system (with check boxes and radio buttons) through the web site, that will give a guide to a self employed party keying in company data so they can see what sort of differences there are between ATO deductions and CSA SCO determinations. Then we will see some consistency…

Perhaps one way to get consistency for self employed businesses is to duplicate the ATO e-tax return web site and on each field create either a pop up that explains how CSA will treat that entry and add additional entries and help bubbles or advice pop ups that walk a self employed payer through a CSA determination of income by way of a dummy trial lodgement.

If someone in the CSA wants to give the SPCA some money we will build it!

Executive Secretary - Shared Parenting Council of Australia
 Was my post helpful? If so, please let others know about the FamilyLawWebGuide whenever you see the opportunity
 
taylor said
SPCA
You are saying that a Senior Case Officer, depending on which side of the bed they get out off in the morning, will make a decision on a parents assessable income by pulling numbers out of the sky, instead of using the correct ATO's accredited formulation for " taxable Income "
  Yes, this is exactly what happens.

In my case:

SCO decided to "arbitrarily" (sic) set an assessment amount in a COA case

She did not state what part of the legislation enables her to simply pluck an assessment amount out of the air.

Objections Officer:

- Added back the amount I claimed for postage to mail products to customers because that "is not an expense borne by me"
(Customers buy the item and then pay me for the item and postage and then I pay to post the item to them)

- Added back the amount I claimed for "depreciation" on a laser printer and some hard drives.
(They cost me about $300 and I claimed it as an expense, NOT depreciation)

These two examples are hardly complicated taxation issues….

The OO then went on to pluck an Adjusted Taxable Income amount out of the air without showing how she worked out the amount. Magically, the assessment on this amount was IDENTICAL to the assessment "arbitrarily" set by the SCO.

My experience with the SCO & OO officers and the COA process is that they are at best incompetent but more likely corrupt and probably criminal.
Posts from this topic have been moved by members. 8 posts have been transferred to topicview.

Last edit: by Secretary SPCA


Executive Secretary - Shared Parenting Council of Australia
 Was my post helpful? If so, please let others know about the FamilyLawWebGuide whenever you see the opportunity
 
No problems - good to see such passion about important issues. Good luck to you all.

In our case we're just trying to provide for these children (I have 2 of my own that I pay $800 CS per month for) & it's hard to see my $ heading off to the other house when there are 3 children still here getting almost nothing from their father, and seeing him manouvering to avoid his own responsibilities is hard to accept.

"I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant."

 
Hi Willfred
How did the COA process go if you don't mind me asking or is it still in progress? It's really tough as you get the extremes - then you get my case where my $ goes to supporting ex's lifestyle definitely & not going towards the kids- hair needs cutting every time I see them, clothes that don't fit and are hand-me- downs, even refusing to treat the kid's hair for headlice. However ex manages to have overseas trips each year etc. It sounds like it happens all the time, very disheartening!
COA is still ongoing.

My partner spoke to a CSA officer with the information we had found in relation to the setup of the Family Trust and the business dealings the father had with his new wife and CSA were going to look into it in greater detail. This is all we've asked them do as ultimately he should provide for the children he fathered.

"I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant."

 
Topic bumped to allow last poster to post.
Status update on this. Father (payer) denied in his response any assertion that he was benefiting from the family trust citing that he'd had a work accident that was preventing him from working as much as he had previously. he went on to say that he had sold the business to his "business partner".

Turns out his "business partner" is his wife & they then transferred the business to the Family trust.

CSA accepted his account and declined the COA on the basis that his injury was the sole contributing factor to his reduction in income.

We lodged an objection citing that whether he was injured or not the income his household is drawing from the business is the same & that it was simply the structure of the business that had changed. He's now doing 30+ hrs a week running the office for the business whilst his wife still doesn't go out to work. We cited benefits being paid to other family members (trust benefactors) that are then transferred in cash or in kind to him so that it doesn't appear as income for him. We also cited that his wifes income had doubled from the business even though her role in the business hasn't changed.

We received a receipt for our objection in November & then nothing since. My partner chased up CSA this week only to be told that "There is nothing outstanding for you in our system". As best as we can tell that whilst our objection has been received they're currently doing nothing to review it or act on it. Just slipped though the cracks….well almost…

Once the shock of startling fact this settles we'll be back on the phone chasing down the objection and why after 4 months nothing has been done.

Meanwhile this father pays a meagre $30 per month for his 3 children.

Last edit: by Willfred


"I know that you believe you understand what you think I said, but I'm not sure you realise that what you heard is not what I meant."

 
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