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Child support – Third party debt notices issued against the second wife’s business

Court hears a case of attempted avoidance of child support obligations

It is not unusual when a relationship ends for parents who are liable for child support try to create ways to minimise or avoid their liability. The courts will examine these arrangements carefully to ensure that child support obligations are fulfilled.

In Cary & Dalgard [2018] FCCA 2942 (24 September 2018) Judge Harland heard the mother’s private enforcement proceedings in which the father had been ordered to pay arrears.
When the father failed to pay, the mother sought to join the father’s new wife to the proceedings because she claimed the father was on her business website and was alienating income through that business. She also sought a third party debt notice against the business.

The court’s findings

Judge Harland found that the new wife and the husband were diverting his income, which should be assessable for child support, through her business because:

  • The father’s name appeared on the business website with his address, showing he was the person responsible at the business. There was also a photo of the husband, referring to him and his business.
  • After the mother applied to the Court, invoices issued by the business changed and no longer referred to the husband by name, and were handwritten invoices, rather than typed.
  • The Court also considered the definition set out in section 84.5 of the Income Tax Assessment Act 1977 regarding personal services which states, at subsection (1) that ordinary income is personal services income, if that income is mainly a reward for personal efforts or skills. Clearly, that was the case here.
  • The Court accepted the Australian Taxation Office ruling TR2001-7, and referred to a New Zealand decision of Spratt v IRC (NZ) 1964 9 AITR 227 where Henry J said: ‘No taxpayer can, by way of assignment, escape assessment of tax on income resulting from his personal activities – such income always remains truly his income and is derived by him irrespective of the method he may adopt to dispose of it.’

Orders made by the Court

Orders were made for the second wife to be joined to the proceedings and that the mother file third party debt notices that provided for the business to pay $350 per week to the Registrar of Child Support and $150 per week to the mother’s lawyers. The father was ordered to pay the mother’s costs of $10,000.

 

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Please note that this article has been prepared by Margaret Miller, partner of Bell Legal Group, for information purposes only. It is not legal advice nor should it be relied upon as such.