Editors --- "Family tax benefit: 'in kind' maintenance" [2008] SocSecRpr 48; (2008) 10(4) Social Security Reporter, Article 14

• TRAHAIR and SECRETARY TO THE DFHCSIA
• Background
• Legislation
• Discussion
• Formal decision

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Family tax benefit: ‘in kind’ maintenance

TRAHAIR and SECRETARY TO THE DFHCSIA

(2008/847)

Decided: 23rd September 2008 by L. Hastwell

Background

Trahair separated from his wife in December 2002. He left the jointly owned family home. At the time he and his wife had three children under the age of 18years. His wife retained the primary care of the children.

Trahair set up alternative accommodation and incurred considerable costs in establishing separate accommodation to ensure that his children could spend time with him. His wife continued to reside in the jointly owned home. He left the family car for his wife to use and he took a vehicle with him.

There was no child support agreement.

Trahair received family tax benefit(FTB) for the 2003/2004 year. Centrelink assessed his entitlement to FTB as being $2,488.80, based on him having an adjusted taxable income of $57,016.00 after deductible child maintenance expenditure (DCME) had been allowed.

Trahair challenged the assessment of his adjusted taxable income for that year on the basis that his DCME had not been properly accounted. He claimed various expenses he paid had benefited the children, and income that he had foregone also benefited the children and should be treated as DCME and brought to account when assessing his taxable income for FTB purposes.

There were three benefits alleged by Trahair to be DCME; the value of the benefit to his spouse and children of being able to live in the family home rent free while he paid rent; his payment of some of the capital outgoings on the family home being his contribution to rates and insurance; and the value of the use of the family car by his wife, including maintenance, insurance and registration costs.

Legislation

In assessing entitlement to FTB, Centrelink must determine the adjusted taxable income for that year. Schedule 3 of the A New Tax System (Family Assistance) Act 1999 (the Act)sets out how adjusted taxable income is assessed for the purposes of FTB. DCME is an allowable deduction.

‘Deductible child maintenance expenditure’ (DCME) is defined in Schedule 3 clause 8 of the Act and the relevant provisions are:

Deductible child maintenance

expenditure

For the purposes of this Schedule, if an individual incurs an amount of child maintenance expenditure during an income year, 100% of the amount of the expenditure is the individual’s deductible child maintenance expenditure in respect of that year.

Child maintenance expenditure

For the purposes of this clause, an individual incurs child maintenance expenditure if:

a) the individual (the payer) pays a payment (either one-off or periodic) or provides benefits; and

b) the payment or benefits are paid or provided in respect of the payer’s natural or adopted child; and

c) the payment or benefits are paid or provided to another individual other than the payer’s partner (if any) for the maintenance of the child.

Amount of child maintenance

expenditure

For the purposes of this clause, if an individual incurs child maintenance expenditure, the amount of the child maintenance expenditure incurred by the individual is the amount of the payment paid or the value of the benefits to the individual who provided them.

The following provisions of the Act deal with the situation where a benefit is being paid under a child support agreement:

Value of a benefit provided

For the purposes of subclause (3), the value of a benefit, in relation to the individual providing the benefit, has the meaning set out in subclauses (5) and (6).

Value of benefit where provider is a party to a child support agreement ....(not applicable)

Value of benefit where provider is not a party to a child support agreement

6) If an individual providing a benefit is not a party to a child support agreement under the Child Support (Assessment) Act 1989, the value of the benefit provided by the individual is the cost of the benefit to the individual.

Expenditure claimed by Trahair as DCME in the 2003/2004 financial year was:

Half the annual commercial rental value of the jointly owned property he left for his wife and children to reside in -$18,200. He said this was the value of this benefit to his children by reference to what he could rent the property for in an arm’s length transaction.

His contribution to household insurance on the jointly owned property - $336.

His contribution to his share of the rates on the jointly owned property - $302.

The sum that he paid for the car registration for the vehicle retained by his wife - $290.

The value he attributed to his wife having the benefit of a vehicle for that period of 12 months - $5,200.

Discussion

There was no child support agreement between the Trahairs at the time of separation, or at any time up until the hearing. If a child support agreement had been in force and it attributed a value to these various ‘benefits’ retained by Trahair’s wife as being agreed child support ‘in-kind’, then the items referred to could be treated as DCME but that was not applicable in this case.

The Tribunal referred to Clause 1.1.M.10 of the Family Assistance Guide. The clause provides examples of non cash maintenance. It does not purport to be a comprehensive list, but gives the following examples: food; clothing; household items and repairs; mortgage payments, rent and free lodging; health insurance and medical expenses; loan, credit card and store account repayments; childcare fees; travel or holiday expenses; utility bills, such as electricity, gas, telephone and heating; rates, such as council, water and sewerage and motor vehicle expenses.

The Tribunal noted there was no assistance in the case law with respect to the interpretation of cash or ‘in-kind’ maintenance but observed that the Act specifically refers to paying a payment or providing a benefit in respect of the payer’s natural or adopted children and the payment or benefit is for the maintenance of the child.

The Tribunal went on to say that the words of the legislation require that the payment of benefit must be ‘paid or provided’ and must be ‘for the maintenance’ of the child or children. The words would therefore appear to require a positive provision of funds or a benefit that is direct and is focused just on the children and is not just incidentally linked to a benefit for a child or children.

The Tribunal was not satisfied that any of the benefits that Trahair wanted to bring to account as DCME came within that category.

With respect to the matrimonial home, the fact that the children continued to live in the home, and thereby had the incidental benefit of remaining in their own home, was not, in the Tribunal’s view, a benefit within the meaning of the Act. The children would have continued to reside in the home regardless of whether Trahair was in or out of the home, as long as his wife wanted to remain in the home with the children and therefore was not a direct provision of a benefit to the children for their maintenance.

The Tribunal did not accept the argument put forward by Trahair with respect to the value of the benefit to his wife of leaving a vehicle with her. He had the use of the second vehicle. When parties separate, it was common for each to take a vehicle and had he attempted to remove the family car from his wife, a Court was likely to have returned it to her in any event. His wife had the right to retain that vehicle for her use. It was a marital asset. It benefited his wife and it incidentally benefited his children in that undoubtedly the children travelled in that vehicle from time to time. The vehicle was not left to exclusively and specifically benefit the children. The vehicle was there for his wife’s use and the children were incidentally benefited when the wife used the car to transport them.

The Tribunal would not accept that it was a reasonable interpretation of the relevant provision to attribute the concept of DCME to the incidental benefit that may accrue to children when a spouse retains assets that the other spouse has chosen or is legally obliged to leave behind when a relationship ends and there happens to be an incidental benefit to their children. Use of such assets could not be characterised as a direct benefit provided for the maintenance of the children.

The insurance payment ensured that Trahair’s own asset remained protected by insurance. The rates payment was a payment that he was legally obliged to pay. The Tribunal doubted there was even an incidental benefit to the children to be derived from those two payments.

The Tribunal determined that when clause8(2) of Schedule 3 of the Act refers to DCME as payment or a benefit provided in respect of the children and another individual for the maintenance of the child, it refers to a payment or benefit that is most specifically provided for the children for the purposes of child maintenance and not a benefit that incidentally benefits the children. Further support for that view was said by the Tribunal to be found in the consequence that once a benefit is characterised as DCME, then 100% of that amount can be deducted from the claimant’s adjusted taxable income for the purposes of calculating entitlement to FTB.

The Tribunal discerned a legislative intention that DCME was required to be expenditure or the provision of a benefit that is specifically and directly child focused and can be attributed 100% as a direct and specific benefit of the children.

Formal decision

The Tribunal found the claimed expenditures and benefits fell outside the legislative definition of Deductible Child Maintenance Expenses and affirmed the decisions of the Secretary and the SSAT.

[I.T.]