A New Tax System (Family Assistance) Act 1999 Schedule 3, clause 8

1. Dr Jeffrey Trahair separated from his wife in December 2002 and left the jointly owned family home. At the time he and his wife had three children under the age of 18 years. His wife retained the primary care of the children.
2. He set up alternative accommodation to ensure that his children could spend time with him. He was hopeful a shared care arrangement could be negotiated with his wife. His wife continued to reside in the jointly owned home. He then incurred considerable setting up costs in establishing separate accommodation. He left the family car for his wife to use and he took another vehicle with him. He thereafter lived in rental accommodation until he and his wife finalised a property settlement and he was able to purchase another home.
3. Dr 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 once an allowance for deductible child maintenance expenditure (DCME) had been allowed.
4. He challenged the assessment of his adjusted taxable income for that year on the basis that all his DCME had not been brought to account. He claimed various expenses that he had paid 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.

1. The issue to be determined in this case is whether certain specific payments made or benefits pointed to by Dr Trahair can be claimed as DCME. In particular, the Tribunal is asked to consider the following expenditure and benefits:
   • 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 payments of some of the capital outgoings on the family home in that year, 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.

1. In assessing a person's entitlement to FTB, Centrelink must determine their 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 and states that DCME is an allowable deduction.
2. "Deductible child maintenance expenditure" is defined in Schedule 3 clause 8 of the Act and the relevant provisions are as follows:

(1) 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.

(2) 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."

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

(4) 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

(a) an individual providing a benefit is a party to a child support agreement under the Child Support (Assessment) Act 1989; and

(i) provisions under which the individual is providing child support to an individual for a child otherwise than in the form of a periodic payment; and

(ii) a statement of the annual value of a specified amount that the child support has; and

the value of the benefit provided by the individual is the specified amount.

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."

1. The Authorised Review Officer affirmed the original decision and assessed Dr Trahair's 2003/2004 taxable income for FTB purposes as being $57,016. The Social Security Appeals Tribunal (the SSAT) affirmed this decision and he now seeks a review of that decision to this Tribunal.

RELEVANT BENEFIT OR PAYMENT CLAIMED BY DR TRAHAIR AS DCME

1. The expenditure claimed by Dr Trahair as DCME in the 2003/2004 financial year is as follows:
   • Half the annual commercial rental value of the jointly owned property he left for his wife and children to reside in - $18,200. He says this is the value of this benefit to his children.
   • 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 attributes to his wife having the benefit of a vehicle for that period of 12 months - $5,200.

1. There was no child support agreement between Dr and Mrs Trahair at the time of separation, or at any time up until the hearing before this Tribunal. If a child support agreement was in force and it attributed a value to these various "benefits" retained by Dr Trahair's wife as being agreed child support "in-kind", then the items referred to could be treated as DCME. That is not applicable in this case.

1. Dr Trahair contends that the wording of the legislation is broad and that he bore a cost by not being in the home during that period while he had to pay rent and that the non cash benefits that he provided to his family should be brought to account as DCME.
2. His argument is set out at T1. He calls the provision of furnished established accommodation for his wife and children a "non cash contribution". He puts a value on that benefit to his wife and children by reference to the commercial rent he would have received for his share of the property, had he claimed commercial rent for the property. He obtained a letter from a real estate agent which was put to the SSAT, which indicated that the property would attract a rental of $600 per week had it been rented fully furnished. He therefore claims $18,200 as being the value of the benefit he provided to his children by not being in the house pending property settlement.
3. Dr Trahair and his wife owned two vehicles. He left a vehicle with his wife that was registered in his name and he took a vehicle with him. He has quantified the value of leaving the vehicle with his wife at $5,200 or $100 per week, being a benefit he says that he provided to the family by allowing his wife to drive the vehicle during that year.
4. Dr Trahair paid property rates and property insurance for the former matrimonial home. He claims 100 percent of that contribution as a payment made for the benefit of the children.
5. He claims 100 percent of car registration that he paid in that year, for the vehicle driven by his wife, as being a payment for the benefit of the children.
6. He pointed to the substantial cost to himself of renting accommodation appropriate for the children to stay in during the period that he was waiting for a property settlement to occur. He was required to pay substantial child support to his wife during this time. This payment of child support, combined with his own expenses, meant that he had very little to live on during that year. His spouse's available income during that year, he calculated, was more than double the income available to him.

1. There was no child support agreement in place in this case and so clause 8(5) of Schedule 3 of the Act does not apply.
2. Clause 8(2)(b) and (c) of Schedule 3 of the Act are the relevant provisions. Clause 8(6) is also relevant in that it provides as follows:

"(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."

1. Clause 1.1.M.10 of the Family Assistance Guide gives some examples of what they refer to as 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.
2. There is no assistance in the case law with respect to the interpretation of cash or "in-kind" maintenance.
3. 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.
4. 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 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 does not accept that the benefits and payments that Dr Trahair claims can come within such a category.
5. The Tribunal is not satisfied that any of the benefits that Dr Trahair wants to bring to account as DCME come within that category.

1. Dr Trahair chose to leave the former matrimonial home because his marriage had broken down and he moved to alternative accommodation. The house was a jointly owned home. His wife, as the joint tenant, had the right to remain there and no Court would have ordered her to pay him rent for the period that she was in occupation pending a property settlement. The fact that she was left in the home was a consequence of the Trahairs' decision to separate. The fact that the children continued to live in the home, and thereby had the incidental benefit of remaining in their own home, is 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 Dr Trahair was in or out of the home as long as his wife wanted to remain in the home with the children. Them remaining there was not a direct provision of a benefit to the children for their maintenance. It was a status quo position that was maintained for his wife and children pending finalisation of a settlement.

1. The Tribunal likewise does not accept the argument put forward by Dr Trahair with respect to the value of the benefit to his wife of leaving a vehicle with her. Dr Trahair had the use of the second vehicle. When parties separate, it is common for each to take a vehicle. Had he attempted to remove the family car from his wife, a Court is 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.
2. The Tribunal does not accept that it is 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. It is not a direct benefit provided for the maintenance of the children.
3. 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.

1. Once more, these payments were not made to directly benefit Dr Trahair's children and for their maintenance. The insurance payment was to ensure that his own asset remained protected by insurance. The rates payment was a payment that he was again legally obliged to pay. It is difficult to see even an incidental benefit to the children in these two payments. The same argument applies to payment of motor vehicle registration. It was not a payment that was intended to directly benefit the children.
2. The Tribunal is of the view that when clause 8(2) of Schedule 3 of the Act refers to a 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.
3. Once a benefit is deemed to be DCME, then 100 percent of that amount can be deducted from adjusted taxable income for the purposes of calculating entitlement to FBT. This further supports the Tribunal's view that the legislation intended DCME to be expenditure or provision of a benefit that is specifically and directly child focused and can be attributed as to 100 percent to be a direct and specific benefit of the children.
4. Having considered all available evidence and Dr Trahair's submissions, the Tribunal is not satisfied that the expenses and benefits that he referred to come within the definition of DCME.
5. In all the circumstances, the Tribunal affirms the decision under review.

I certify that the 33 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member

Signed: ..........J Coulthard............................................