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AAT decision wrt to redundancy

Adverse AAT decision art to redundancy and advice on question of law to appeal

Hi,

I have had an adverse decision, by the AAT, made about my redundancy payment; and I am considering my strategy for appeal to the Federal Corcuit Court. I seek your advice.

Basically I had argued that my redundancy payment should be treated as ordinary income in the financial year in which it was earned. That the CS Act did not deal specially with redundancy payments, and that there was no legal precedence on the treatment of redundancy; and that “just and equitable” did not offer a licence to make any decision that the tribunal likened.

During the hearing the member didn’t really argue with my point. He did offer that other legislation, like the Social Security Act, did deal with redundancy. I rebutted that was a different act and not the governing act of this case.

They decided that my redundancy payment should be prorated as my income until the termination of my child support case, being many years.

In their written decision, the member didn’t state a reason or justification of their decision with the exception of saying that the decison is “just and equitable”.

Therefore, could I appeal to the FCC on a question of law because the member did not establish a reason for departure? And that being “just and equitable” is not a reason in its own right, but rather a final check and balance?

And that for a Reason 8 departure, the tribunal also needs to establish that an administrative assessment is firstly unjust and inequitable before they establish a proper reason, and then finally establish that their decision was just and equitable? The member did not establish the admin assessment was unjust and inequitable to begin with.

Any advice welcome.

A person who can't pay gets another person who can't pay to guarantee that he can pay. Like a person with two wooden legs getting another person with two wooden legs to guarantee that he has got two natural legs. It don't make either of them able to do a walking-match. Charles Dickens
I recall MikeT has written extensively here on redundancy and Child support. Redundancy, as I have read the material, is not considered as normal salary and wages or treated as ordinary income. There is a different tax rate applied and it is a payment to offset payment in lieu of notice and OR severance payment of a number of weeks' pay for each year of service and OR a gratuity or 'golden handshake'.

The ATO says :
The following payments are not included in a genuine redundancy payment:

  • salary, wages or allowances owing to you for work done or leave already taken for work completed
  • lump sum payments of unused annual leave or leave loading paid on termination of employment
  • lump sum payments of unused long service leave paid on termination of employment under a formal arrangement
  • payments made in lieu of superannuation benefits.

Any payments that meet the conditions of a genuine redundancy are tax-free up to a limit based on your years of service with your employer. The tax-free limit is a flat dollar amount plus an amount for each year of completed service in your period of employment with your employer. Indexation changes the tax-free limit on 1 July each year.

The issue to determine is the interpretation of 'income' for purposes of child support.

Executive Secretary - Shared Parenting Council of Australia
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Doesn't always pay to fight these things. Would have been better to put the redundancy into super and go on estimates and stay away from the court. Regardless it is unfair to factor in the redundancy payment into the future child support assessments as the court has no idea where you life is going and what you will earn etc… How did Child Support initially treat the redundancy income before you decided to object etc….? Re your past relationship with the payee - have you reached financial settlement?
You do also need to be careful with Super because Super draw downs such as TAP (Term Allocated Pensions) and other transition to retirement plans or early drawings are considered as income by the Child Support program. I am not sure if early drawings on hardship grounds are added also to income pool for calculation of Child Support income.

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
 
Thanks, with regards to the comments about when to inform the CSA, rolling into super, tax treatment of the redundancy payment, etc. i don't see that it matters too much. As soon as the CSA knows your redundant because your ex-wide tells them, they get the Employment Termination Certificate immediately from the ATO and they know. I provided an updated income estimate after I was made redundant. That also kicked off the whole saga.

The.CSA sent the AAT 900 pages of investigation material about me. They had retrieved all my tax info, overseas travel entails from immigration, bank and credit card statements. They were on a real witch hunt.

The CSA made two decison on this matter and third decision by the AAT. Each decision was completely different on how to treat the redundancy. So I can only assume that with wildly varying decisions there is no formal way of treating a redundancy payment.

I'll have a look at MikeTs article, but in the first instance I'm looking fo4ways to raise a question of law to get this to the Federal Circuit Court.

A person who can't pay gets another person who can't pay to guarantee that he can pay. Like a person with two wooden legs getting another person with two wooden legs to guarantee that he has got two natural legs. It don't make either of them able to do a walking-match. Charles Dickens
CSA would only go to that extent if you were a non-payer or avoider of paying child support or you had a lot of children and the ex had no money and your income was very high etc.... and also if you have not settled with the ex. A big consideration is the current financial status of the payee and if the children are actually getting enough child support to cover the basics. Your percentage of care would also impact the level of action. Good luck with your appeal.
I believe there are two core issues a) that there is no call for income to be adjusted by the away of an ongoing order in that the respective amounts are duly reported via the ATO and b) that the non-taxable component is not income but is compensation.

Also beware,  it has been found that the CSA have invented the existence of non-existent legislation and applied FBT grossing-up to redundancy payments.

I believe the article can be found at http://flwg.com.au/forum/pg/topicview/misc/child-support-agency/csa-the-incantations

a) is a no-brainer there is call for a departure from administrative assessment as the tax is duly reported.
b) is the un-tested but would rely upon :-

Case law defines relevant and important aspects of redundancy payments. Two important findings are established by Lindenmeyer J in Burke (1993) FLC 92-553.
The first finding is that redundancy payments are compensation and specifically not compensation for loss of wages or salary; that they are compensation for non-transferable credits such as for, sick pay, long service leave, loss of seniority, and inconvenience and hardship as a result of the losses. Lindenmeyer J in Burke held:
The commission in the TCR case[2] held that the legal basis for the payment of redundancy pay is twofold. Namely, it is justifiable as compensation for non-transferable credits such as sick leave and long service leave, loss of seniority and loss of the employer's contribution to pension and superannuation, and for the inconvenience and hardship to employees associated with that. It held that redundancy payments do not relate to the need to search for other employment, or to tide over an employee during a period of unemployment, as they are payable whether or not unemployment ensues, and commented that it, 'would be misleading to assume that success in obtaining a new job indicated that an individual made redundant had managed to recover the security built up over years of service in the redundant job'. Consequently, the standard for redundancy entitlements is linked to years of service. In summary, redundancy awards generally provide for a payment of a minimum number of weeks salary, plus a set number of weeks paid per year of service for the qualifying period, and a set maximum amount.

and perhaps secondly

The second finding is that redundancy payments are joint resources. Lindenmeyer J in Burke held:
An employer's obligation under an award to provide redundancy pay is part of an employee's indirect remuneration arising from his or her employment. By analogy with a decision of this Court in Hauff and Hauff [1986] FamCA 16(1986) FLC 91-747regarding superannuation entitlements, the circumstances that no direct financial contribution is made by the employee's spouse to the entitlement, and that no actual deprivation is suffered or established by the non-contributor spouse, do not inhibit the conclusion that the non-employee spouse has made a contribution to the redundancy under s 79(4)© during the period of the marriage that relates to the relevant period of employment. The extent to which the non-employee spouse has so contributed to the property or resource as the case may be, that is constituted by the right to redundancy pay will be a question of fact to be determined in the ordinary way in each case.


and that the Guide clearly interprets compensation liable for inclusion as only the aspect of compensation that is compensation for lost wages or a decrease in future earning capacity. as per 
 
Child Support Guide 2.6.14 said
Compensation
Where a lump sum is received because of compensation for a personal injury there may be a reason to change the assessment because the payment compensates the parent for past loss of wages or a reduction of future earning capacity (Harris and Harris (1991) FLC 92-254).

Where the amount of compensation is set by way of private settlement it can be difficult to establish the portion of the compensation which relates to loss of wages or a decrease in future earning capacity. In these cases a decision by the department concerning the period during which the parent is precluded from applying for social security benefits can be of assistance.

The cost of the parent's future needs may be increased and a part of the compensation, if not all, may need to be preserved to meet those costs. The parent's cost of meeting their future needs will need to be ascertained to decide the extent to which the parent's capacity to contribute to the financial support of the child has been increased because of the compensation payment.



This I believe is a more comprehensive explanation :-
 

Comprehensive Details of the Concerns.

This section provides a more comprehensive discussion of the actions that are of concern. A reference to one case is made to assist. This case involved a parent who received a redundancy payment when retrenched.
The total gross amount was approximately $200,000. Approximately $80,000 was the taxable component, and approximately $120,000 was the tax-free component (net payment, after tax, was approximately $170,000).

1. Stating that legislation exists when it does not.

The CSA make statements that imply that legislation exists when in fact it does not.
In a Change of Assessment decision letter, dated 20th November 2014, Senior Case officer Lisa Lambert, Delegate of the Child Support registrar, states:
The Act requires the department to use the gross income when calculating the financial support that is to be provided by the parents. This being the case, net income must be “grossed up” using the relevant taxation scales
The fact is that the legislation, the Child Support Assessment Act 1989, does not state this. In fact, the legislation does not contain any instance of the word gross nor does it contain any instance of any word that contains gross as part it. The statement above is a fabrication of legislation existing and an act of abuse of power of the highest magnitude by the Department of Human Services via the CSA.
The CSA, as an agency, act under legislation. To state that they can do otherwise under the guise of “invented” legislation is very obviously wrong and perhaps even contrary to the constitution of Australia. It is also a form of anarchy.

2. Classifying a gross sum as net-income

The CSA classify the tax-free component as net income as per:
“When grossing up the net lump sum payment of $120,000 ……..”
Previously the CSA stated:
The Act requires the department to use the gross income when calculating the financial support that is to be provided by the parents. This being the case, net income must be “grossed up” using the relevant taxation scales
As such, a net lump sum payment (actually, this is the tax-free component) has been treated as net-income even though it is not. It is believed that the CSA have “creatively named” the tax-free component as the net lump sum payment to disguise it’s metamorphosis from a tax-free component into net-income.

 

3.  Grossing-up of Gross Amounts as if they are Fringe Benefits.

The CSA gross up the tax free component as per:
“When grossing up the net lump sum payment of $120,000 using the relevant taxation scales, an income of $180,000 is derived. Add to this the taxable component and I find X to have received $260,000”
Grossing-up is method undertaken by the ATO to convert Fringe Benefit amounts into the “Reportable Fringe Benefits” amount. Grossing-up takes into account the amount that the employee would have to earn before tax to realise the amount of the benefit. It is inappropriate and unfair to apply this other than for Fringe Benefits, as doing so would increase an amount to beyond the amount actually received.
As can be seen, from the extract of the Change of Decision Letter it is a significant increase (approximately a 50% increase).
As the CSA was originally within the ATO, it is hard to discount the establishment of a connection many years ago.

 

4. Treating exempt lump-sum payments as if they are not exempt.

The CSA wrongfully include all redundancy components as lump sum payments as per:
“ This income is equivalent to  125 weeks of pay or a period of around 2 years and 4 months, calculated as follows:
  • 2013-2014 taxable income of $110,000 is divided by 52 weeks to arrive at a weekly amount of $2,115
  • $260,000 is then divided by this weekly amount of $2,115 to arrive at 122.9 weeks.”
The $260,000 (highlighted) is composed of the $180,000 (grossed-up tax free component) plus the $80,000 taxable component. The $260,000 is used as the lump sum in the calculation to determine the weeks at which the $2115 will be paid over.
The CSA’s guide (2.6.14 reason 8 - a parent's income, property, financial resources, or earning capacity) states - :
Lump sum payments received by a parent
Where a parent receives a substantial amount of money (a lump sum) that would otherwise not form part of his or her income amount used for child support purposes, and therefore is not included in the assessment of child support, the lump sum may be taken into account in deciding whether the assessment should be changed.
Such payments may arise as a consequence of the parent:
    being retrenched from their employment;
    drawing funds from a superannuation fund;
    receiving a distribution from a deceased estate;
    being compensated for some loss or damage; or
    being successful in a lottery or some other gambling venture.
In each case it will be necessary to decide whether receiving the money makes the amount of child support payable unjust and inequitable.”
The text “being retrenched from their employment” indicates that redundancy payments are apt (they are lump sum payments or one-off payments).
The relevant longer text above excludes payments that are included in a person’s taxable income.
The reason being is that such payments are reported to the CSA from the ATO and the payments are automatically taken into consideration as part of the parent’s income for CS purposes.
The taxable components of redundancy payments are required to be included in tax returns and they affect the taxable income and thus are rightfully excluded by the guide.

 

Comparison of the Incorrect and Correct Methods.

Both examples assume a static taxable income of $100,000 and use a $200,000 gross redundancy payment ($120,000 tax-free plus $80,000 taxable). The CSA method causes $345,430 to account for the $200,000 gross redundancy, whilst the correct method causes $201,853 to account for the $200,000 gross redundancy.

The Incorrect Method (as used by the CSA).

After redundancy, $110,508 (2115 * 52.25(weeks per year)) is added (the Change of Assessment Adjustment) to the ATI ($100,000) for each full year (this addition lasts for 2.36 years (125 weeks)). The amount used for the calculation of child support is $210,508 in the first year.
When the tax return includes the redundancy payment, the ATI, as issued from the ATO, is $180,000. The Change of Assessment adjusts the ATI by adding $110.508 resulting in $290,508 being used to calculate child support (i.e. the taxable components are applied twice).
In the third year, the adjustment is $44,414 ((110,508 / 52.25) * 21(weeks remaining)). Thus $144,414 is used to calculate child support.
In total, over three years, the child support income used is $645430 of which $345430 is to account for the $200,000 gross redundancy amount.

The Correct Method.

Instead of dividing $260,000 by 2115 to determine an effective period of 125 weeks, $120,000 (tax-free component) is divided by 2115 which determines an effective period of 57 weeks.
After redundancy, $110.508 is added to the ATI and $210,508 is used for calculation of child support (the first years of both examples are the same).
The following year, the taxable income is $180,000 but only 5 weeks of redundancy payment are added as an adjustment ($10,575) so the amount of $190,575 is used to calculate Child Support.
In total, over three years, the child support income is $501,853 of which $201,853 is to account for the $200,000 gross redundancy payment.
(Note! this is a simplified view. In reality, periods using the full annual rate for shortened periods when applicable apply. However, the end result is the same.)

Secondary Implications

An adjustment to the ATI is an Income Amount Order. The legislation prohibits a parent from estimating their income if an income amount order is in place. A parent who has lost their job could suffer severe hardship and especially so if child support is based upon a grossly inflated amount.
The CSA manipulate amounts to prolong the secondary implications. In a case that closely reflects the scenarios above an officer originally used the most relevant taxable income as the basis for determining the duration (number of weeks). The customer objected to some decisions so the objections officer used a rejected estimated income (lower) to prolong the duration to over 3 years from just over 2 years.

 

5. Not Considering Case Law.

Case law defines relevant and important aspects of redundancy payments. Two important findings are established by Lindenmeyer J in Burke (1993) FLC 92-553.
The first finding is that redundancy payments are compensation and specifically not compensation for loss of wages or salary; that they are compensation for non-transferable credits such as for, sick pay, long service leave, loss of seniority, and inconvenience and hardship as a result of the losses. Lindenmeyer J in Burke held:
The commission in the TCR case[2] held that the legal basis for the payment of redundancy pay is twofold. Namely, it is justifiable as compensation for non-transferable credits such as sick leave and long service leave, loss of seniority and loss of the employer's contribution to pension and superannuation, and for the inconvenience and hardship to employees associated with that. It held that redundancy payments do not relate to the need to search for other employment, or to tide over an employee during a period of unemployment, as they are payable whether or not unemployment ensues, and commented that it, 'would be misleading to assume that success in obtaining a new job indicated that an individual made redundant had managed to recover the security built up over years of service in the redundant job'. Consequently, the standard for redundancy entitlements is linked to years of service. In summary, redundancy awards generally provide for a payment of a minimum number of weeks salary, plus a set number of weeks paid per year of service for the qualifying period, and a set maximum amount.
The second finding is that redundancy payments are joint resources. Lindenmeyer J in Burke held:
An employer's obligation under an award to provide redundancy pay is part of an employee's indirect remuneration arising from his or her employment. By analogy with a decision of this Court in Hauff and Hauff [1986] FamCA 16; (1986) FLC 91-747 regarding superannuation entitlements, the circumstances that no direct financial contribution is made by the employee's spouse to the entitlement, and that no actual deprivation is suffered or established by the non-contributor spouse, do not inhibit the conclusion that the non-employee spouse has made a contribution to the redundancy under s 79(4)(c) during the period of the marriage that relates to the relevant period of employment. The extent to which the non-employee spouse has so contributed to the property or resource as the case may be, that is constituted by the right to redundancy pay will be a question of fact to be determined in the ordinary way in each case.
The guide should reflect these findings. Redundancies should be placed into the compensation section and it should be clearly specified that only the appropriate portion of the joint resource is considered. The guide mentions a finding ('Harris and Harris (1991) FLC 92-254') that indicates that only compensation for loss of wages and salary or reduction of future earning capacity may be considered.
 
Thanks so much MikeT. I need to disgust your invaluable advice and I may come back with a few questions. Again thanks.

As to my strategy to establish a right to appeal I understand that for a Reason 8 determination, that the CSA and the AAT needs to follow a four step approach, being:

  1. Firstly establish that maintaining the administrative assessment is unjust and inequitable.
  2. Secondily, they need to establish the grounds for departure.
  3. Thirdly, they need to establish that the departure is just and equitable.
  4. Finally, they need to establish that the departure is otherwise proper.

In my case before the AAT the member did not deal with the steps 1 and 2. Instead he articulated a decision and proceeded to establish it was a just and equitable and so on.

I believe that the member erred in law bu skipping the first 2 steps.

Is this error at law my strategy to initiate an appeal? Thereafter I need to establish the strategy of my case, which you have helped with.

Thanks

A person who can't pay gets another person who can't pay to guarantee that he can pay. Like a person with two wooden legs getting another person with two wooden legs to guarantee that he has got two natural legs. It don't make either of them able to do a walking-match. Charles Dickens
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