S v R [2016] NZCA 526

S v R [2016] NZCA 526 [7 November 2016]NOTE: PURSUANT TO S 124 OF THE CHILD SUPPORT ACT 1991, ANYREPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11DOF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION,PLEASE SEE HTTP://WWW.JUSTICE.GOVT.NZ/FAMILY-JUSTICE/ABOUT-US/ABOUT-THE-FAMILY-COURT/LEGISLATION/RESTRICTION-ON-PUBLISHING-JUDGMENTS.IN THE COURT OF APPEAL OF NEW ZEALANDCA403/2016[2016] NZCA 526BETWEEN SApplicantAND RRespondentHearing: 31 October 2016Court: Randerson, Cooper and Winkelmann JJCounsel: R A Dewar for ApplicantC M Earl for RespondentJudgment: 7 November 2016 at 10:30 amReissued: 23 November 2016Effective dateof Judgment: 7 November 2016JUDGMENT OF THE COURTA The application for leave to appeal is declined.B The applicant must pay costs to the respondent for a standard application for leave to appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Randerson J)Introduction[1] The applicant applies under s 120(4) of the Child Support Act 1991 (the Act) for leave to bring an appeal to this Court against a judgment given by Woolford J in the High Court.1 Woolford J dismissed the applicant's appeal from a decision of Judge Otene in the Family Court in which she upheld on appeal a decision of aReview Officer under the Act whereby the applicant's child support income was setat $85,000 for the period 1 April 2014 to 31 March 2015.2Background[2] The parties were previously married. They had a daughter who is now 14 years of age. The parties separated before the child's first birthday. Both havesubsequently re-married. The child has always lived with the respondent mother who receives child support under the Act. The applicant is a farmer. He and his wife are the directors and minority shareholders in Kewl Agriculture Ltd (KAL). The majority shareholder in the company is a family trust controlled by the applicant and his wife. KAL operates a dairy farming business on land belonging to the applicant'sparents with whom the company has a 50/50 sharemilking agreement. KAL pays theapplicant and his wife a shareholder's salary apportioned between the two. They enjoy rent-free accommodation in a house on the farm owned by the family trust ofthe applicant's parents. In addition, KAL pays certain personal expenses for thebenefit of the applicant and his wife including for a vehicle, insurance, taxation, power and telephone.[3] In terms of s 105 of the Act, the Family Court may make an order departing from the usual formula assessment of child support where it is satisfied that special circumstances exist and it would be just and equitable and otherwise proper. The Family Court found that a departure was justified and confirmed the applicant's childsupport income at the figure of $85,000. Although Woolford J upheld the1 [S] v [R] [2016] NZHC 1618.2 [S] v [R] [2016] NZFC 438.Family Court's decision, he reached his conclusions on a slightly different basis thanthe formula applied in the Family Court. The applicant wishes to argue on appeal that Woolford J was wrong in these respects:(a) Treating sums drawn from KAL as reflecting real income available to the applicant.(b) Assessing depreciation as part of a liable parent's real income.(c) Dividing drawings on an 80/20 basis as between the applicant and his wife rather than a 50/50 basis in accordance with their personal shareholdings.(d) Breaching natural justice by adopting a calculation of child support income on a basis not discussed during the hearing.Principles[4] In considering the grant of leave to appeal under s 120(4) of the Act, we agree with Mr Earl that it is appropriate to apply by analogy the principles applicable to second appeals under s 67 of the Judicature Act 1908. The appeal must raise some question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of a further appeal. Ultimately, the guiding principle must be the interests of justice: Waller v Hider3 and Snee v Snee.4DiscussionApproach to drawings[5] We are not persuaded that Woolford J erred in treating the drawings of KAL as reflecting real income. In the 2013/2014 financial year, cash of $86,779 was taken by way of drawings and KAL paid personal expenses for the applicant and hiswife of $33,098. The fact that the shareholder's salary was declared at the end of the3 Waller v Hider [1998] 1 NZLR 412 (CA) at 413.4 Snee v Snee [2000] NZFLR 120 (CA) at [22].financial year at a figure of $53,6465 does not alter the position. As Woolford J said all that meant was that the shareholders were only liable to repay KAL for the net difference between the drawings and the allocated salary. The cash operating surplus for the company in the 2013/2014 year was virtually identical to the drawings — a figure of $86,697. The declared salary of $53,646 was arrived at by deducting two items from the cash operating surplus ($28,447 for depreciation and $4,604 to reflect a decrease in the value of livestock).[6] In the 2014/2015 financial year, the cash operating surplus for KAL increased to $129,364. There was an almost identical total of drawings and personal expensespaid by KAL ($119,546). A shareholder's salary of $69,000 was declared in thatyear.6[7] As Woolford J pointed out, the farming business in the 2014/2015 year generated more than enough cash to pay for all shareholders' drawings and personal expenses. We agree with his observation that the submission on the applicant'sbehalf that the drawings did not represent income to himself and his wife would have had greater force if evidence had been provided that KAL had to borrow money to fund the drawings recorded or that he and his wife had subsequently repaid thedrawings. This answers Ms Dewar's submission that the applicant and his wife wereliving beyond their means and that their drawings did not reflect available income.Depreciation[8] As to the depreciation issue, the applicant seeks to place before this Court additional evidence from two accountants that was not before the Courts below. This evidence is designed to demonstrate that depreciation is a real business expense tosupport the applicant's submission that depreciation should not be "added back" to a liable parent's income under the Act. In making his assessment, Woolford Jconsidered that the decrease in the value of livestock in the 2013/2014 year and depreciation were not cash amounts, but nominal amounts. As already noted, he observed that the cash operating surplus in that year was almost identical to the drawings. The Judge considered this might not be a coincidence.5 $43,000 to the applicant and $10,646 to his wife (an 80/20 split).6 $50,000 to the applicant and $19,000 for his wife (a split of 72.5/27.5).[9] We accept Mr Earl's submission that a person's real income under the Act should be ascertained and liability assessed as far as possible on the person's trueability to pay based on real income. As it was put by Morris J in Clasper v Clasper:7In common parlance, every liable parent should be assessed under the Act on the money the parent gets in his/her pocket.[10] The assessment of income for the purposes of the Act is not controlled by the assessment of income for tax purposes. In particular, the Court is entitled to "look through" company, trust and other structures.8 Here, the applicant and his wife had complete control of the relevant structures to adjust income to minimise the incidence of tax. The Courts below, rightly, did not accept that the approach adopted for tax purposes should control the outcome under the Act.[11] We also accept Mr Earl's submission on behalf of the respondent that theissues are not of sufficient importance to outweigh the cost and delay of a further appeal. As he pointed out, the total legal costs incurred would likely exceed the amount of child support payable for up to five years. The amount assessed as theliable parent's child support income does not determine the amount actually payableby the liable parent. Rather, the liable parent's living allowance under the Act is firstto be deducted. Then, the child support payable is fixed in accordance with a percentage which in the case of a liable parent with one child is 18 per cent of the net figure. So, for example, in the 2013/2014 year where the depreciation was $28,447, the amount at issue is less than 18 per cent of that sum. We note too that Woolford J did not take into account the value of rent-free accommodation amounting to $9,630 per annum. This sum was an obvious and significant benefit to the applicant and supports the conclusions reached in the Courts below.Division of drawings and natural justice[12] The final two issues were not advanced in oral submissions. The first relatesto Woolford J's conclusion that it was appropriate to adopt an 80/20 split of the drawings and personal expenses paid by KAL. The Judge noted that, in evidence7 Clasper v Clasper (1995) 13 FRNZ 604 (HC) at 607, endorsed by this Court in EJV v AJCB[2013] NZCA 100, [2013] NZFLR 325 at [55].8 Andrews v Andrews [1995] NZFLR 769 (CA) at 771.before the Family Court, the applicant had acknowledged that the shareholder'ssalary and the apportionment between himself and his wife were nominal figures determined for the purpose of the financial accounts. The salary did not reflect a value placed on the application of his personal skill and labour in the farming enterprise. We do not regard this point as having sufficient merit to warrant the grant of leave. To suggest the proper split was 50/50 to reflect their personal shareholdings in KAL is not supportable. There is nothing in the natural justice point since all the figures were before the Court. It was a matter for the Judge to reach his independent assessment of them.Result[13] The application for leave to appeal is declined.[14] The applicant must pay costs to the respondent for a standard application for leave to appeal on a band A basis and usual disbursements.Solicitors:Hunwick Law Limited, Hamilton for ApplicantGrayson Clement Law, Hamilton for Respondent