Archer and Secretary, Department of Social Services (Social services second review)
[2016] AATA 948
•28 November 2016
Archer and Secretary, Department of Social Services (Social services second review) [2016] AATA 948 (28 November 2016)
Division
GENERAL DIVISION
File Numbers
2016/0561
2016/0562
Re
Neil Archer and Gay Archer
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Senior Member J Sosso
Date 28 November 2016 Place Brisbane The decision under review is set aside and the debts raised against Mr Neil Archer and Mrs Gay Archer which remain unpaid as at the date of this decision are waived under section 1237AAD of the Social Security Act 1991.
........................................................................
Senior Member J Sosso
CATCHWORDS
SOCIAL SECURITY – debt repayment – age pension debt – carer payment debt – newstart allowance debt - whether the Applicants received social security payments in excess of their entitlements - whether all or some of the debts raised should be waived - Applicants’ involvement in a private company – partner’s income and assets - unsecured loan agreement within family
LEGISLATION
Social Security Act 1991 (Cth) ss 9(1), 1223, 1064, 1068
Social Security (Attribution of Assets) Principles 2001 (the Asset Attribution Principles)CASES
Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25; 100 ALD 9
Bysouth and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 59
Darcy and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 562
Department of Social Security v Hales (1998) 82 FCR 154
Groth v Secretary, Department of Social Security [1995] FCA 1708; 40 ALD 541
Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435
Sekhon v Secretary, Department of Family and Community Services (2003) 132 FCR 126
Re Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690
Re Lyons and Secretary, Department of Family and Community Services (2007) 94 ALD 450
Re Secretary, Department of Social Security and Griffin (1997) 49 ALD 662
Re Speed and Secretary, Department of Family and Community Services [2002] AATA 868
Re Venables and Secretary, Department of Social Security (1988) 15 ALD 180
Ryde v Secretary, Department of Family and Community Services [2005] FCA 866
Tsourounakis and Repatriation Commission [2004] AATA 332
Unicomb v Secretary, Department of Social Security (1998) 50 ALD 405REASONS FOR DECISION
Senior Member J Sosso
28 November 2016
INTRODUCTION
Mr Neil Archer and his wife Mrs Gay Archer (the Applicants) seek a review of the decision of the Social Services and Child Support Division of the Administrative Appeals Tribunal of 12 January 2016 which affirmed decisions of Centrelink of 11 May 2015, as varied by an Authorised Review Officer (ARO) of 6 August 2015, to raise and recover debts of $73,279.27 against Mr Neil Archer and $82,520.38 against Mrs Gay Archer. The debt of Mr Archer comprises newstart allowance, disability support pension and age pensions payments, whilst the debt of Mrs Archer is comprised wholly of carer payments.
The applications were heard on 22 September 2016. The Applicants and their son, Mr Zane Archer, appeared in person and gave oral evidence.
Apart from the evidence before the Tribunal on 22 September 2016, leave was granted to both the Secretary, Department of Social Services (the Respondent) and the Applicants to lodge further submissions on the question of the waiver of the debts. The Tribunal has been greatly assisted by the Secretary’s Further Submissions (SFS) dated 27 September 2016 as well as the further submissions of the Applicants.
ISSUES
There are two basic issues that require resolution by the Tribunal. The first is whether the Applicants received social security payments in excess of their entitlements, and, if so, whether all or some of the debts raised should be waived.
BACKGROUND
Mrs Archer has received a carer payment since 17 May 2004. This payment relates to the care of Mr Douglas Olsen, a family friend aged 77 years who has been cared for by the Applicants since 1991. Mrs. Archer stated at the hearing that Mr Olsen has no family and relied totally on the Applicants.
Mr Olsen attended the hearing of 22 September 2016. He appeared to be an elderly gentleman who was not in good health. The Applicants attached to their post-hearing submissions, a letter from Dr David Tedman of Maroochydore dated 30 September 2016. Dr Tedman stated:
“This is to certify that the above patient (Mr Olsen) suffers from lifelong intellectual impairment and is incapable of independent living. He has been cared for by Neil and Gay Archer since 1991 in their family home. He suffers also from diabetes/chronic pancreatitis/peripheral vascular disease with surgery for popliteal aneurysms. He has a cardiac pacemaker.”
The evidence before the Tribunal suggests that Centrelink undertook periodic reviews of the Applicants. One review of Mrs Archer was undertaken on 4 August 2004. The officer undertaking the review noted (Exhibit 1 T24 p.530): “Cus provides constant daily care for friend douglas olsen in shared private residence due to his perm med condition…I am satisfied cus is providing constant care – cus assists with all personal care & provides supervision due to med conditions/frailty & is unable to leave caree except for short periods. This is consistent with medical info provided”.
Mr. Archer was in receipt of a newstart allowance from 22 August 2006 to 11 February 2007, a disability support pension from 12 February 2007 until 2 August 2009 and the age pension from 3 August 2009.
On 6 March 2014, the Department of Human Services commenced a review of the Applicants’ entitlements and on 7 May 2015 raised an age pension debt for Mr Archer of $43,874.25 (Exhibit 1 T22 p.510) and on 11 May 2015 (Exhibit 1 T23 p.527) a carer payment debt for Mrs Archer of $43,878.50. Subsequently Centrelink raised further debts against Mr Archer: a newstart allowance debt of $543.96 (Exhibit 1 T22 p.512) and a disability support pension debt of $19,090.01 (Exhibit 1 T22 p.514).
The debts were raised because of the Applicant’s involvement in a private company, Chazane Pty Ltd (Chazane), was not factored in when calculating their social security entitlements.
When calculating the quantum of social security payments, or whether a person is entitled to any payment, a person’s income and assets are key factors. Section 9(1) of the Act includes in the definition of financial asset a loan that has not been repaid in full. In the case of a couple, the Act also requires consideration of the income and assets of the partner: sections 1064 (age pension, disability support pension and carer payment) and 1068 (newstart allowance).
In this matter, the involvement of the Applicants’ in Chazane had not been taken into account when calculating their social security payments.
Pursuant to section 1223 of the Act, if a person is paid more than they are entitled to, any excess payment is a debt to the Commonwealth.
Chazane was incorporated on 5 June 1995 (Exhibit 1 T13 p. 262). Chazane has been involved in the following commercial activities since its incorporation:
(a)Retail stores 1995–2003;
(b)Building, house construction and sales 2004-2011;
(c)Surf shop 2011-2012;
(d)Pest control (2011-present).
From Chazane’s incorporation until 1997 the Applicants, Mr Zane Archer and Ms Charleen Archer (the daughter of the Applicants) were shareholders in equal shares. Between 1997 and 1998 Mr Neil Archer was the sole shareholder, but from 1998 until 2007 Mr. Neil Archer and Mr Zane Archer were shareholders in equal shares. From 2007 until 2013 Mr Zane Archer became the sole shareholder, and since 18 March 2013 Mr Neil Archer has been the sole shareholder.
There was a similar pattern for the directorship of the company. Since 1 June 2015 Mr Zane Archer has been the sole director and from 1999 until 2013 he was either the sole or joint director of the company (Exhibit 1 T13 pp.263-264).In a letter to Centrelink of 18 June 2015 Mr Garry Edwards, the Applicants accountant, provided the following information regarding the management of Chazane (Exhibit 1 T14 p.271):
Mr Archer was a director of the company for several years until 30 June 2012, when Mr Archer relinquished his involvement to Mr Zane Archer. Unfortunately this transaction was not recorded in the ASIC records, due to an oversight by our office. When this error was realised the details with the ASIC were amended.
Mr Neil Archer has had minimal involvement with the company since 30 June 2012 as the business branched into a different field of Pest Control. Mr Zane Archer is the sole director of the company. Zane asks his father to help out on occasions when he is busy, but that is Neil’s only involvement in the business.”
At the hearing, the Applicants and Mr. Zane Archer gave evidence about the history of Chazane. Zane Archer stated that when the company commenced to trade both he and his parents injected money into the enterprise. The family had three discount stores that were called “Archer’s Discount Warehouses” and were located in Redcliffe, Margate and Sandgate. These shops were described as being akin to a “Crazy Clark” type of operation.
By 1999 Zane Archer became ill and required ongoing medical treatment to deal with his serious ailments. He handed up at the hearing a photocopy of an article that appeared in the Sydney Morning Herald of 13 February 2014 entitled “The killers inside”. The article concerns the ongoing medical problem of antibiotics becoming less effective against drug-resistant bacteria. The article then states:
“Zane Archer found a cure by looking online. That’s usually a recipe for disaster, but he was ready to try anything in 2008 after close to a decade of serious infections by seven superbugs. He had picked up one – the virulent MRSA – after one of many surgeries on his sinuses, the root of his problems. ‘From there it got worse and worse.’ he says.
He suffered chronic sinusitis, swallowed endless cocktails of antibiotics that never cured him but gave him a blistered oesophagus, went through countless hospitalisations for powerful IV antibiotics, picked up fungal infections and developed a bowel disorder. ‘I was very sick,’ he says.
The former competitive bodybuilder from Queensland’s Sunshine Coast is an extreme example of a growing problem – bacterial resistance to antibiotics, the ‘magic bullets’ used to vanquish disease since their introduction in the 1940s.”
The article proceeds to describe how Mr. Zane Archer discovered a treatment offered in Georgia, where ‘phages’ viruses designed to eat bacteria are given to patients.
Zane Archer testified that he was seriously ill for almost a decade and that by 2003-2004 the last of the discount stores had closed. The Financial Statements of Chazane for 2004-2005 disclose (Exhibit 1 T16 p.333) that the Margate store had stock to the value of $60,000 in 2003-2004 and had sales valued at $30,015.16 in the same period.
Zane Archer also testified that his father helped on a small time basis, but his father had heart and other ailments. The disposition of the shops took two to three years to effect. The Financial Statements for 2004-2005 disclose that during 2003 both the Redcliffe and Margate stores were the subject of disposition activity (Exhibit 1 T16 pp.334-335). He also testified that his parents, and especially his father, were appointed as company directors because of his ill health, and because he thought he was going to die.
The appointment of Neil Archer as a director for legal, as distinct from commercial reasons, is also supported by a statement of Chazane’s accountant who wrote in a letter of 17 December 2015 (Exhibit 1 T14 p. 273):
“we have been the Accountants for Chazane Pty Ltd since it was incorporated on 5th June 1995. During this time Mr Neil Archer was a Director of the Company on and off. This was due to there needing to be 2 Directors though Mr Neil Archer was not paid continuously during this time.”
An Unsecured Loan Agreement dated 1 July 2004 was entered into between Neil, Gay and Zane Archer as the Lenders and Chazane as the Borrower. The Lenders advanced $500,000 to Chazane to “Help Chazane buy and sell properties as seen fit by the Directors from time to time.” – (Cl 1.4)
Both Neil and Zane Archer testified that they sold their homes and invested the proceeds into the company. Neil Archer testified that $167,000 was obtained from the sale of the family home, and which sum was lent to Chazane. The business of Chazane morphed from running discount stores into buying and selling properties and a surf shop. The surf shop business was a failure, with purchases by the shop of $51,572 in 2006-2007 and $18,983.49 in 2007-2008 with no reported income from sales in 2006-2007 and only $1456.53 in 2007-2008 (Exhibit 1 T16 p.344). Neil Archer testified that the “surf business” was actually the sale of T shirts, which went very badly, and eventually most were given away.
Neil Archer also testified that the property business failed due to the slump in the real estate market and increases in interest rates. The last two homes acquired by Chazane were subsequently sold at below their purchase price. In the 2000-2006 period Neil Archer had a series of medical issues, including a hand operation in 2006. Financially the Applicants were, by this stage, in significant financial strife, and Neil Archer testified that they were living off the carer allowance paid to Mrs Archer. The Applicant’s accountant wrote (Exhibit 1 T14 p. 272) that in the period 1 July 2007–30 June 2015 Neil Archer received wages from Chazane in only two years: 2011-2012 ($7,530) and 2012-2013 ($11,746). The only other income of Neil Archer during this period was the age pension.
Mrs Archer was paid a salary of $3575 from Chazane during the 2011-2012 financial year (Exhibit 1 T16 p.380), but this appears to be the only income she earned apart from her carer payment.
Neil Archer testified that he was in reality a “paper” director, and acted throughout on the advice of his accountant. Money paid to him as wages was for living expenses.
By this stage, having sold the family home, and having experienced the financial implosion of Chazane, Mr and Mrs Archer were living in rented accommodation at Deception Bay. Also by this stage, Neil Archer was unwell, Mrs. Archer was in bad health but caring for Mr Olsen, their daughter had medical issues and their son, Zane, was suffering from life threatening ailments.
Further compounding this situation, Neil Archer was involved in a serious traffic accident. He suffered numerous injuries to his upper body, including, according to a medical report dated 18 December 2015 (Exhibit 1 T11 p.229), four crushed vertebrae. Mr Archer received a compensation payment on 27 October 2015, the exact details of which are not before the Tribunal. However, according to Mr. Archer, his legal fees were $92,000 (Exhibit 1 T9 p.226) and Centrelink garnished $53,510.30 (SSFC para 56). In a letter written by Mr. Archer prior to the first Tribunal hearing the following information was provided (Exhibit 1 T9 p.226):
“From a payment of 300,000 I don’t have enough left to cover my operations on my spine & lumber as well as my shoulder reconstruction.
I am on heavy medication till the day I die & also need money to help pay for assistance around our house.Sir we are struggling & I find my life a real struggle from day to day.”
A medical report of Neil Archer prepared on 18 December 2015 (Exhibit 1 T11 p.229) discloses a range of ailments since 2003:
(a)Hypogonadism–2003;
(b)Diabetes type 2–2004;
(c)Obesity–2005;
(d)Apnoea–2005;
(e)Fatty liver–2011;
(f)Diarrhoea–2011
(g)Crushed vertebrae.
The Tribunal was also presented with medical certificates dated 1 August 2016 from Dr David Tedman (Exhibit 4) in which he states that both Mr and Mrs Archer are being treated for anxiety/depression, with Mr Archer being prescribed 30mg murelax and Mrs Archer 10-20mg temazepam.
In short, the Archer family was in a position of distress: financial, physical and emotional.
The debt owed by Chazane to Neil Archer was said to be forgiven from 30 June 2012 (Exhibit 1 T14 p.270). The rationale for this was outlined by Mr. Edwards in a letter to Centrelink of 18 June 2015 (Exhibit 1 T14 p. 271):
“The explanation of the loan to Chazane Pty Ltd from Mr Neil Archer is through selling his private home and lending the money to the company in the expectation that the company would be able (to) trade it way back out of the situation it was in, but the global economic downturn this was not possible. After discussing the situation with Mr Archer it was decided that the company would never be in the situation to repay the loan, then Mr Archer decided to forgive the loan and allow Mr Zane Archer to run the business his way and hopefully recoup the monies owed to him over the years.”
Neil Archer made a claim for a newstart allowance on 21 September 2006. In the Customer Declaration Form (Exhibit 1 T7 p.111) he declared that he had a Bank of Queensland account with nil balance (p.112) and a joint Commonwealth Bank savings account with a $14 account balance. He declared that he had a 50% interest in household and personal effects valued at $4000, a 50% interest in a 1992 Nissan valued at $1000 (p.113) with nil assets in real estate, foreign income or income streams. Importantly, he declared he had no business interests (p.113) and no trust or company interests (p.112). In short, he did not disclose his interest in Chazane to the Commonwealth.
On the same day Mrs Archer completed a Centrelink Partner Details form which accompanied Mr Archer’s application for the newstart allowance (Exhibit 1 T7 p.116). Her answer to the question: “27. Are you or have you been involved in a private company?” was in the negative (p.121).
On 6 March 2014 Centrelink commenced a review of Neil Archer’s entitlement to the age pension (Exhibit 1 T25 p. 541). On 5 May 2014 a similar review was instigated into Mrs Archer’s entitlement to receive the carer payment (Exhibit1 T25 p.531).
As previously stated, on 7 May 2015 Centrelink raised an age pension debt for Neil Archer and on 11 May 2005 a carer payment debt for Mrs Archer. Subsequently on 29 September 2015 Centrelink raised a newstart allowance debt Mr Archer and on 30 September 2015 a disability support pension debt.
The debts were raised because the Applicants’ social security payments were calculated without consideration of their involvement in Chazane. The basis for the calculation of the debts was a report of a Centrelink Complex Assessment Officer (CAO) who carried out an assessment of the Applicants and issued a report on 21 August 2014. Centrelink determined that Mr Neil Archer was an attributable shareholder of Chazane, and was attributed 50% of the net income and assets of the company. It was also determined that the loans by the Applicants to Chazane were assets of the Applicants’.
As the CAO’s assessment was pivotal in this matter, it is appropriate that it be quoted extensively (Exhibit 1 T18 pp. 407-408):
“A Data Match with Australian Securities and Investment Commission (ASIC) shows Neil Archer has an interest in a private company which has not previously been declared. Neil Archer has provided Module PC and financial statements for the company.
Neil Archer owns all four of the issued shares in Chazane Pty Ltd. The directors of Chazane Pty Ltd are Neil Archer and Gay Archer. Neil Archer and Gay Archer have loans totalling $864222 to Chazane Pty Ltd. Neil and Gay Archer’s son, Zane Archer has a loan of $1007512 to the Chazane Pty Ltd.
The original shareholders in the company at incorporation in 1995 are one each held by Neil, Gay, Zane and Charleen Archer. Shareholding was amended in 1997 to 4 shares held by Neil Archer. Shareholding was amended again in 1998 to 2 shares each held by Neil and Zane Archer. Shareholding was changed in 2007 to 4 shares held by Zane Archer and changed again 18/3/2013 to 4 shares held by Neil Archer. The company has been involved in property development/sales, retail sales and pest control business…
Decision and Reasons for Decision
Chazane Pty Ltd is attributed to Neil Archer and Zane Archer jointly under Part 3.18 of the Social Security Act 1991. This decision is made in view of the changing shareholding and with regard to the amounts owing to Zane Archer and to Neil and Gay Archer. The assets of the company at 1/7/2009 are not known and the income in the 2009/2010 year is loss of 17048 from sales of houses. The assessment is therefore commenced from 30/6/2010 per the earliest balance sheet provided. The net assets per the company balance sheet at 30/6/2010 are net deficit of $1544954. Unknown loan $200000 and loans from Neil and Gay Archer totalling $772843 and Loan from Zane Archer $789527 are not bound by the loan agreement and therefore they are not recognised as liabilities, per the Guide 4.12.5.10. Neil and Gay Archer’s loan is still a personal financial asset and is subject to deeming… The adjusted net assets at 30/6/2010 are $217416. The profit and loss statement for the financial year 2010/2011 shows net loss of $337746. Chazane Pty Ltd has multiple sources of income that are not necessarily related. Per the Guide 4.12.7.20, the marked, and a loss from one source has not been used to offset the income from another. The adjustment amount is $359573 representing the loss from other activities including the sales of houses. The profit from the pest control business is assessed at $21752.
The assets of the company at 30/6/2011 are assessed per the balance sheet at 30/6/2011 which shows net asset deficit $1 882 700. Unknown Loan $200000 and loans from Zane Archer $954459 and Neil and Gay Archer $773448 are not documented and therefore not recognised as liabilities of the company. Neil and Gay Archer’s loan is still a personal financial asset and is subject to deeming. The loan amount appears on the SVS screen of customers’ records. The adjusted net assets at 1/7/2011 are $45208…”
The report then proceeds to deal with the profit and loss statements for 2011-2012 and 2012-2013. However, for present purposes, it is sufficient to note that the company profit and loss statements for both of those financial years continue to show a company in difficulty. The final financial year statement of 2012-2013 discloses a net loss of $39,877. The net assets of the company as at 30 June 2013 was a deficit of $1,846,499. However, the Centrelink officer noted: “Loans from Neil and Gay Archer totalling $864001 and Loan from Zane Archer $1007512 are not bound by loan agreements and therefore they are not recognised as liabilities, per the Guide 4.12.5.10. Neil and Gay Archer’s loan is still a personal financial asset and is subject to deeming.”
The Applicants’ sought a review of this decision. The ARO issued two review reports on 6 August 2015, one dealing with Neil Archer (Exhibit 1 T8 p. 199) and one with Mrs Archer (Exhibit 1 T8 p. 187).
The ARO outlined the reasons Neil Archer adduced for requesting the review (Exhibit 1 T8 p. 200):
“You requested a review because you do not agree that you have been overpaid. You said that your business venture left you with nothing. The business was involved in property development and investment at a time when there was a slump. Once the properties were sold there was still money owing and you subsequently had to sell your family home to repay the loans. You are now renting and you have nothing. You do not understand how your unsuccessful business venture has resulted in an overpayment of the Age Pension.”
This ARO found that the Applicants’ involvement in Chazane should have been taken into account from the date income support was initially claimed, namely 17 May 2004 for Mrs Archer when she began receiving the carer payment and 22 August 2006 when Mr Neil Archer claimed a newstart allowance. The debt to Centrelink, therefore, was to commence from 17 May 2004 and 22 August 2006 respectively and not 26 June 2010.
The ARO determined that Mrs Archer owed a debt to the Commonwealth of $82,520.38 and Mr Archer debts of $543.96 newstart allowance, $19,090.01 disability support pension and $53,645.30 age pension.
On 12 January 2016 Member Amundsen of the Social Services and Child Support Division of the Tribunal affirmed the decisions of Centrelink, as varied by the ARO, to raise and recover the debts outlined above.
CONSIDERATION
Were Mr and Mrs Archer paid social security in excess of their entitlements?
Social security payments are determined by rate calculators set out in Chapter 3 of the Act. As previously noted, section 1064 outlines how the rate of age pension, disability support pension and carer payment are calculated, and section 1068 deals with the newstart allowance. Module A2 of section 1064 provides that where two people constitute a couple, their income and assets are deemed to be pooled and shared on a 50/50 basis.
Part 3.18 of the Act deals with the means test treatment of private companies and trusts. This Part was inserted into the Act in 2000 with the aim, inter alia, of providing that the income and assets of a private company (or trust) will be attributed to the person or persons who control the company or the person or persons who were the source of the capital or corpus of the company or trust.
It is not contested that Chazane is a designated private company for the purposes of section 1207N of the Act. In essence a designated private company is a small to medium sized non-public company.
The next issue to be determined is whether the designated private company is a controlled private company. The “control test” is set out in section 1207Q and includes a “source test”. The latter test focuses on the original source of the company’s assets and whether they were transferred to the company by a social security recipient in a non-arm’s length transaction. Accordingly, the control test can be satisfied by either the criteria outlined in section 1207Q or the source test.
The Respondent contends (Secretary’s Statement of Facts & Contentions (SSFC) para 19) that Chazane was under the control of Mr. Neil Archer within the meaning of section 1207Q. The Applicants’ have not produced any material, or made any submissions, that contradict the Respondent’s contention. Indeed, at the first hearing of the Tribunal before Member Amundsen the following admissions were made (Exhibit 1 T2 p.6/[9]):
“Mr Archer confirmed that Chazane met the requirements of being a designated private company as contemplated by section 1207N. As he also agreed that he met the requirements of the control test specified in subsection 1207Q, I am satisfied that Chazane is a controlled private company in relation to Mr Archer.”
If a company is found to be a controlled private company, section 1207X deems the person meeting the test requirements of section 1207Q to be “an attributable stakeholder”. Such a stakeholder has 100% of the assets and income of the company attributed to them, unless the Secretary determines a lesser percentage.
At the hearing before the Social Services and Child Support Division of the Tribunal, Neil Archer advised (Exhibit 1 T2 p.6/[14]) that he was not disputing Centrelink’s conclusion that he and Zane Archer should be assigned attribution percentages of 50% each.
Mr Neil Archer did not resile from those concessions at the hearing of 22 September 2016.
The Respondent contends (SSFC para 25) that Neil Archer is an attributable shareholder of Chazane due to his involvement as both director and shareholder for the majority of the debt period. Further, the Respondent accepts that Zane Archer held an equal share in running the company and contends that it is appropriate to attribute 50% of Chazane’s income and assets to Neil Archer for the relevant period.
Section 1207Y of the Act provides that income attributed to the company under Part 3.18 is to be assessed as if it was the ordinary income of the attributable stakeholder. Further, section 1208B provides, inter alia, that a company’s income can be reduced by allowable deductions but loses from one business cannot be used to reduce the income from an unrelated business.
Chazane’s Financial Statement for 2010-2011 discloses a loss from ordinary activities before tax of $337,746.01 (Exhibit 1 T16 p.368). The Respondent contends (SSFC at para 27), applying section 1208B of the Act, that the losses from house sales ($359,573) cannot be used to reduce the profit made from the pest control business ($21,752). The Respondent further contends (SSFC at paras 28-29) that there was attributable income from Chazane of $78,175 in 2011-12, but no company income for the other financial years during the debt period.
There is no material before the Tribunal that contradicts the above contentions of the Respondent, and I accept them.
Turning now to the assets of Chazane, section 1208E of the Act provides that company assets attributed under Part 3.18 are to be assessed as if they were the personal assets of the attributable stakeholder. Section 1208H provides that where a company has borrowed under an unsecured loan, the Secretary can determine that the value of a company asset is to be reduced by the whole, or part, of the loan. In making such a determination, the Secretary must comply with any relevant decision-making principles – section 1208H(3). The relevant principles are the Social Security (Attribution of Assets) Principles 2001 (the Asset Attribution Principles).
The Respondent contends (SSFC at para 31) that the value of the attributable assets of Chazane are as follows:
03/04
06/07
07/08
08/09
09/10
10/11
11/12
12/13
$398,798
$72,932
$636,640
$52,006
$217,417
$45,208
$60,357
$25,017
These figures differ from the assets reflected in Chazane’s financial statements, because the Respondent contends that the loans from the Applicants and Zane Archer should not be recognised as liabilities of the company. The basis for this contention is that the transaction that gave rise to the debt of the company was not an arm’s length transaction.
Considerable attention is given in both the Respondent’s contentions and in the reasons of the Social Services & Child Support Division of the Tribunal to the legitimacy of the Unsecured Loan Agreement dated 1 July 2004; which document is annexed to the Respondent’s Statement of Facts and Contentions and also to the Secretary’s Further Submissions.
The logo on the Loan Agreement is “LawLive”, however the Respondent contends that the LawLive website wasn’t launched until September 2006 (SSFC para 33). When this matter was heard by the Social Services and Child Support Division, Member Amundsen questioned both Mr Neil Archer and his accountant about this discrepancy. Mr Archer was unable to give an explanation, and his accountant, gave what could only be described as an unconvincing response (Exhibit 1 T2 pp.9-10/[34]-[38]).
Member Amundsen concluded (Exhibit 1 T2 p.10/[39]) that it was more likely than not that the loan agreement was not genuine. He went on to find that a determination under section 1208H could not be made and the value of the assets of Chazane could not be reduced by the secured loans.
The Respondent likewise contends that the loan agreement is not genuine (SSFC at para 34), but submits that even if it was genuine there is insufficient evidence to establish that the loan was an arm’s length transaction for the life of the loan. The amount of the loans increase and decrease over time, and the proportion of the value of the loan held by Zane Archer frequently changes.
The Asset Attribution Principles provide as follows:
“11 Purpose of Part 4
This Part sets out decision-making principles with which the Secretary must comply in making a determination under subsection 1208H(1) of the Act.
12 Effect of unsecured loan on value of assets
In relation to an unsecured loan, the Secretary must take into account:
(a) whether the transaction that gave rise to the loan was an arm’s length transaction, having regard to the criteria described in section 13; and
(b) the matters referred to in section 14.
13 Criteria for arm’s length transaction
For paragraph 12 (a), a transaction is an arm’s length transaction if:
(a) the transaction is for the purposes of the business activities of the company or trust;
(b) the transaction is made under a written agreement that is signed by each party to the agreement, and witnessed by an individual who is not a party to the transaction; and
(c) each party to the transaction is:
(i)at least 18 years old; or
(ii)at least 16 years old and engaged in a full-time occupation; or
(iii)at least 16 years old and receiving a social security entitlement; and
(d) the transaction is made for an arm’s length amount.”
The material before the Tribunal is confusing and, at times, inconsistent. Unfortunately although Mr Garry Edwards was telephoned numerous times during the hearing, he was not able to be contacted. It became abundantly clear to the Tribunal that the Applicants’ and their son relied totally on the advice provided by their accountant. They were unable to explain why documents were prepared or their meaning. Mr Neil Archer, in particular, appeared confused and at times bewildered
Clearly there was no loan agreement in existence on 1 July 2004. The loan agreement must have been executed at some time after September 2006. It is open to conclude that the document was created only recently and after Centrelink commenced its investigations. Member Amundsen outlined in meticulous detail his inquiries into this matter, and it clear when reading his judgment that the loan document was an ex post facto concoction (Exhibit 1 T2 pp. 8-10/[25]-[39]). The more likely scenario is that that there was a loan of money in 2004 from the Applicants and their son Zane to Chazane, but that it was not evidenced by any written record. The inevitable conclusion that must be reached on the evidence is that there was not an arm’s length transaction.
Applying the Asset Attribution Principles, a determination cannot be made under section 1208H and the value of the other assets of Chazane cannot be reduced by the amount of the unsecured loan.
The Respondent referred the Tribunal to sections 9(1)(k) (sic) and 1122 of the Act. Cumulatively, these sections provide that an unrepaid loan is to be classified as an asset of the lender, and the value is the amount unpaid, but does not include any amount payable by way of interest. This is the case even if the loan is unlikely to be repaid (SSFC para 36).
The Financial Statements of Chazane disclose that the Applicants’ made loans to the company of the following amounts (SSFC para 38):
Year Amount ($)
2003-2004 331,379.36
2004-2005 101,926.70
2005-2006 180,851.34
2006-2007 468,830.02
2007-2008 782,698.23
2008-2009 785,119.44
2009-2010 772,843.53
2010-2011 773,448.81
2011-2012 884,222.50
2012-2013 864,001.64
2013-2014 0
Mr Neil Archer has consistently contended that the “loans” were simply paper transactions (Exhibit 1 T8 p.211). At the hearing of 22 September 2016, Mr Archer said that the money obtained from the family home, which was less than $200,000, comprised the vast majority of he and his wife’s assets. The loans referred to in Chazane’s financial statements are, according to Mr Neil Archer, loans taken out by Chazane with the Bank of Queensland, and not further cash injections by the Applicants (Exhibit 1 T2 p.7).
Unfortunately this key point required the testimony of Chazane’s accountant, who failed to attend the 22 September 2016 hearing. However, what is abundantly clear is that the Applicants simply did not have much money at any time. Whether the above figures represent the ebb and flow inherent in the business of buying and selling homes or creative accounting, or a combination of both, is unclear and the Tribunal is unable to conclusively resolve the question on the basis of the evidence presented.
On the balance, I find that it more likely that the loans Chazane had with the Applicants were paper entries. Nonetheless, I agree with the Respondent’s contention (SSFC para 42), that even if they are paper entries, they are required to be included in the total value of the Applicants’ assets.
The Respondent cited a number of Tribunal and Federal Court authorities that highlight that the characterisation of a transaction in a company’s financial statements should, in the normal course of events, be relied upon, rather than ex post facto rationalisations of what was said to be the real commercial relationship of the parties – Re Lyons and Secretary, Department of Family and Community Services (2007) 94 ALD 450. A further Tribunal decision referred to was Bysouth and Secretary, Department of Education, Employment and Workplace Relations [2010] AATA 59. In that matter Senior Member Cunningham said ([34]): “(t)he authorities make it clear the issue of recoverability is not determinative of the characterisation of funds as a loan or gift… a reference in financial records to a sum as a loan represents a strong indication it was a loan and that such references suggest expectations of eventual repayment.”
The Respondent drew the Tribunal’s attention (SSFC para 44) to the decision of Branson J in Unicomb v Secretary, Department of Social Security (1998) 50 ALD 405. Her Honour said (407): “Nothing in the terms of s 1122 of the Act, in my view, suggests that it is appropriate for the purpose of determining whether a person has lent an amount, to consider whether, having regard to the factual circumstances which surround the transaction prima facie falling within the terms of the section, the person has gained a net advantage from such transaction so far as his or her total assets are concerned.”
In this matter, the Applicants have received no financial advantage from the loan to Chazane. To the contrary, they have, from the uncontested evidence, lost their life savings. Whatever financial advantage they obtained from injecting money into the company was small and sporadic, but their losses were total and devastating. Nonetheless, for the purposes of section 1122 the characterisation of a loan is not predicated on the financial success of the commercial transaction.
For the sake of completeness, there is a further possible scenario which though not canvassed by the Applicants I will deal with as the Applicants were not legally represented and were clearly in a position of disadvantage. That is that the loan from the Applicants to Chazane was, despite the nomenclature of the “agreement”, in actuality a gift.
Such a situation has arisen in the past, particularly when it is clear that despite the wording of an agreement, or the title of the property, parents have gifted money or property to their children. Two examples of this are Tsourounakis and Repatriation Commission [2004] AATA 332 and Darcy and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2012] AATA 562. In the latter case the Tribunal said (at [44]): “any transaction which has every appearance of a loan, but which is claimed to be a gift, should be examined closely to determine its true nature. There needs to be compelling evidence to treat it as anything other than what it appears to be.”
In this matter, there is no evidence before the Tribunal that the loan by Mrs and Mrs Archer to Chazane was anything other than a commercial transaction. The creation of Chazane, albeit one driven by their son Zane, was, and remained, a commercial enterprise. Although the Applicants’ wanted to help their son, a subsidiary reason for injecting money into Chazane was to make a profit. Accordingly, even if it had been submitted that the loan transaction should be characterised as a gift from loving parents to their son via a corporate entity, the available evidence, in terms of the reason for the “loan”, the shareholding and office holding of Chazane and the way in which the company operated, lead to the conclusion that the loan was a loan and not a gift.
On 6 November 2014 Mr Edwards wrote to Centrelink (Exhibit 1 T14 p. 270) in which he provided the following information:
“We have been asked to advise when the debt owed by Chazane Pty Ltd to Mr Archer was forgiven.
Mr Archer advised our office that he had forgiven this debt as from the 30 June 2012.”
The Respondent contends (SSFC para 45) that the loan cannot be found to have been forgiven from 30 June 2012 as the Financial Statements of Chazane state that there was a loan as at 30 June 2013.
The Financial Statements for Chazane for 2012-2013 disclose (Exhibit 1 T16 p.382) that as at 30 June 2013 there were two loans from the Applicants to Chazane: the first in the sum of $754,001.64 and the second (A/C 19202) in the sum of $110,000. The Financial Statements for Chazane for 2014-2015 disclose (Exhibit 1 T16 p.391) no loan from the Applicants to Chazane either at 30 June 2014 or 30 June 2015.
In the absence of any documentation or reason explaining why the company records disclosed a loan from the Applicants to Chazane in the period 2012-2014, the Tribunal accepts the contentions of the Respondent, and finds that the loan was forgiven from 30 June 2014 and not 30 June 2012. The ramifications of this are set out in the Respondent’s contentions (SSFC para 46), however for the purposes of this determination, I note and accept the analysis of the Respondent.
It flows from the above conclusions that the Applicants were paid amounts of social security in excess of their lawful entitlements and the debts were lawfully raised. There was no material before the Tribunal which questioned the veracity of the ARO’s calculation of the quantum of the debts. From the uncontested material before the Tribunal, and based on the legal principles discussed above, I find no error in the calculation of the quantum of the debts as determined by the ARO.
Should the debts be waived?
Having determined that the Applicants received social security payments in excess of their entitlements, the next question is whether those payments should be repaid in full or part, or whether the repayment should be suspended or waived altogether.
In considering this question, it is appropriate to quote from a decision of French J (as he then was) in Secretary, Department of Social Security v Hales (1998) 82 FCR 154 which sets out the general principles that should guide decision-makers (155):
“From time to time in the administration of social security benefits overpayments occur. Sometimes these are the result of innocent non-compliance with the requirements of the law which can be affected by the stress associated with the circumstances that led to the receipt of the benefits in the first place. The taxpayer is entitled to expect that in the ordinary course money paid to people which they are not entitled to receive will be recovered, albeit in a way appropriate to the circumstances which led to the overpayment and the circumstances of the persons concerned. However, the confining of a recovery regime by rigid rules, particularly in this area of the law, is likely to be productive of unfair or harsh outcomes in some of the great variety of fact situations that can arise. There are provisions in the Act which recognise that reality. They relate to the writing off and the waiver of debts otherwise due to the Commonwealth.”
The Respondent contends that the debts must be repaid (SSFC para 49).
Section 1236 provides for the writing off of debts. The Respondent contends that this provision is not applicable as the debts of the Applicants are currently being repaid by withholdings from their social security benefits (SSFC para 50).
Since 1997 the availability of the write-off provisions have been narrowed, and there are specific prescribed statutory circumstances that permit the write-off of a debt. Specifically, subsection 1236(1A) permits a write-off where the debtor has no capacity to repay the debt. As the Respondent correctly contends, this is not the case here as the Applicants do have the capacity to repay the debts raised, albeit slowly and by means of small deductions from their social security repayments.
Section 1237A allows for the waiver of debts caused solely by administrative error. The waiver relates to “that proportion of a debt that is solely due to administrative error made by the Commonwealth”. In Sekhon v Secretary, Department of Family and Community Services (2003) 132 FCR 126, Selway J said (at [35]): “The ordinary or usual interpretation of the phrase ‘attributable solely to’ is that it refers to the single or sole cause of the relevant act or event.”
There is scant evidence before the Tribunal of any administrative error by Centrelink, let alone that the overpayments resulted solely from an administrative error or a series of administrative errors.
Successive forms lodged by Neil Archer, and co-signed by Mrs Archer, contained omissions about his involvement with Chazane.
The answer to the business interests question in the “Customer Declaration Form Newstart Allowance”, dated 21 September 2006, is: “I have no business interests” - Exhibit 1 T7 p.113). In the 2008 and 2009 Income and Asset Review forms there is a negative response to the question regarding any other sources of income, including payments as director’s fees (Exhibit 1 T7 pp.159 and 169).
The only time that there is a written record of either of the Applicants drawing the attention of Centrelink to the existence of Chazane was in the initial claim for carer payment. In that form Mrs Archer drew Centrelink’s attention to Chazane at the answer to question 55. Conversely, at question 68, Mrs Archer answered in the negative to the question whether she or Mr Archer had been involved in a private company as a director or a shareholder (Exhibit 1 T6 pp. 60 and 64).
I therefore find that the debts cannot be said to be caused solely by administrative error of the Commonwealth.
Finally, the Tribunal needs to consider the operation of section 1237AAD of the Act, which provides for debt waiver due to special circumstances.
So far as is relevant, section 1237AAD provides:
The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a) the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or a false representation; or
(ii ) failing or omitting to comply with a provision of this Act, the Administration Act or the 1947 Act; and
(b) there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c) it is more appropriate to write off the debt or part of the debt.
The Respondent accepts that it is open to the Tribunal to consider whether there are special circumstances that make it desirable to waive all or part of the debts pursuant to section 1237AAD of the Act. The Respondent accepts that the debts did not arise wholly or partly from the Applicants making false statements or representations (SFS para 5).
In making this concession the Respondent refers to the Affidavit of Neil Archer of 21 September 2016 (Exhibit 17) and Mrs Archer’s oral testimony and supporting documentation.
Neil Archer made the following statement in his Affidavit:
“on 21/9/16 I and my wife had an appointment with our accountant Garry Edwards of G Edwards accounting and taxation of Sutton St Redcliffe phone No 32038063 to discuss the Centrelink case. I asked him to give me a letter on what he had told my wife and myself regards being both Directors of Chazane P/L and on myself & wife both on pensions & could we stay on them as it was the only income we had. His exact words were as he had told us several times in the past he said you are both entitled to your pensions as non paid Directors of Chazane P/L as long as you tell me if you receive any money that might take you over the threshold of your pensions then I will have to let Centrelink know & fill out forms for you. He did fill out forms for us.”
Mrs Archer testified that she had notified Centrelink of Chazane. Question 55 of her claim for a carer payment, which was lodged at the Kippa Ring Centrelink office on 25 May 2004, asks: “In the last 12 months, have you (and/or your partner) stopped working for any employers?” Mrs Archer answered in the affirmative and stated that her employer was “Chazane Pty Ltd – closed down” – (Exhibit 1 T6 p.60).
The Respondent, nevertheless, contends that there are no special circumstances that make it desirable to waive some or all of the debts (SFS para 5).
In summary the Respondent’s contentions are as follows (SFS paras 6 – 16):
(a)to constitute special circumstances there must be something that distinguishes the case from the ordinary or usual case;
(b)while conceding that the Applicants are in difficult financial circumstances, to constitute special circumstances the circumstances must be truly exceptional;
(c)the Applicants’ are in straitened financial circumstances, but not exceptional. They receive social security benefits of $1440.95 per fortnight and have stable rental accommodation;
(d)a circumstance which is open to the Tribunal to consider is the actions of the Applicants’ accountant. The Respondent outlines the difficulties caused to the Applicants by the manner in which the accountant failed to assist the Tribunal by either coming in person to give evidence or answer repeated telephone calls during the hearing;
(e)the Applicants and their son relied heavily on the advice of their accountant, and it became obvious during the hearing that Mr Neil Archer was unable to answer many of the questions about Chazane’s financial statements, including explaining why 30 June 2012 was chosen as the date for giving the debt owed by Chazane to the Applicants;
(f)the Chazane financial statements, the accountants letter of 6 November 2014 and the loan agreement of 1 July 2004 support a finding that Neil Archer was an attributable stakeholder and the Applicants had unpaid loans with Chazane. However, the Respondent accepts that the legitimacy of some of these documents are questionable and the Applicants have been left in the difficult position of not having their accountant available to explain the documents. This, however, does not constitute a special circumstance;
(g)Both the Applicants and their son have relied on the advice of their account for 20 years after the debt was raised. If they believe that their current circumstances are due to incorrect advice from the accountant, then they are able to seek restitution;
(h)A further possible special circumstance, notwithstanding the documentation, is that the only financial contribution by the Applicants to Chazane was $167,000 in 2004. However, even if this were accepted, Mr Archer was still an attributable stakeholder and should be attributed 50% of Chazane’s income and assets. This is because Mr Archer still had effective control of the company;
(i)Section 1207X provides that if a person is an attributable stakeholder they are attributed, unless otherwise determined by the Secretary, 100% of the company’s income and assets. Mr Neil Archer did not dispute at the first tier review that he and his son should be assigned attribution percentages of 50% each;
(j)Other circumstances are that Mrs Archer has been the carer of a family friend since 1991 and there is medical evidence that the Applicants suffer from anxiety and depression;
(k)None of these circumstances are sufficiently special to make it desirable to waive some or all of the debts;
(l)If the Tribunal were to find there are special circumstances, a full waiver is not appropriate. Centrelink has already recovered $57,704.13 of the debt, which amounts to 37% of the total debt. The Respondent contends that it is not appropriate to apply a waiver that would result in a refund of the debt already recovered.
Waiver on the grounds of special circumstances is not available if the debtor or another person knowingly made a false statement, representation or failed or omitted to comply with a provision of the Act.
The Respondent has, as stated above, conceded that the Applicants have not done so and that the waiver provisions remain open for consideration. The Tribunal agrees with this contention. Reference can be made to Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435 where the Tribunal commented (at 445):
(a)“There is nothing in section 1237AAD which suggests that the word ‘knowingly’ should be given any meaning other than that a person has actual knowledge, rather than constructive knowledge, that he or she is making a false statement or representation or that he or she is failing or omitting to comply with a provision of the Act. That actual knowledge is to be ascertained by reference to the statements of the person as to his or her actual state of knowledge at the time and to events surrounding the false statement or the act or omission.”
It became increasingly clear during the hearing that the Applicants relied implicitly and explicitly on the advice of their accountant. It also became increasingly obvious that this advice was not, from the viewpoint of social security law, particularly helpful. I make no adverse findings, except to note that the Applicants were, prima facie, in a position of disadvantage at times as a result of their reliance on their accountant. Further, the Applicants were naïve and not people who presented as trying to deceive anyone. In fact they presented as confused and desperate.
When this matter was before the Social Services and Child Support Division of the Tribunal Mr Neil Archer stated that he and Mrs Archer believed that their accountant would have notified Centrelink on their behalf about their involvement with Chazane. Member Amundsen accepted, on balance, that the Applicants’ debts were not due to any knowingly false statements or false declarations (Exhibit 1 T2 p.12).
The affidavit of Mr Neil Archer of 21 September 2016 (Exhibit 17) also highlights the extent to which the Applicants’ implicitly accepted the advice and direction of their accountant.
The Tribunal has found in the past that when a person relies on the advice of a professional person, and that advice is either incorrect, negligent or misconceived, then the failure to disclose information, flowing from acceptance of such advice, does not necessarily constitute knowingly making a false statement – Re Secretary, Department of Social Security and Griffin (1997) 49 ALD 662.
The Applicants relied on professional advice and acted accordingly. Mrs Archer disclosed to Centrelink her involvement with Chazane in her carer payment application form. I find that their social security debts did not arise because they knowingly made false statements or declarations. I find that neither of the Applicants deliberately acted dishonestly and with any intent to mislead Centrelink.
The next question is whether the material before the Tribunal discloses special circumstances, other than financial hardship alone, such that it is desirable to waive all or part of the debts. It is helpful to again refer to the observations of French J in Secretary, Department of Social Security v Hales (1998) 82 FCR 154. His Honour said (162):
“The concept of special circumstances is broad. A constellation of factors, including financial circumstances, may fall within it. The express exclusion of financial hardship alone as a special circumstance is an indicator that it would otherwise be included. This gives some measure of the range of circumstances which will qualify as special….
The evident purpose of s 1237AAD is to enable a flexible response to the wide range of situations which could give rise to hardship or unfairness in the event of a rigid application of a requirement for recovery of debt. It is inappropriate to constrain that flexibility by imposing a narrow or artificial construction upon the words. It may be that there will be few cases in which the Secretary will be satisfied that there are special circumstances in the absence of financial hardship. It may be that there are few cases in which having found special circumstances to exist, the Secretary would exercise the discretion to waive in the absence of financial hardship. But to anticipate the limits of the categories of possible cases by imposing on the language of the section a fetter upon its application which is not mandated by its words, is to erode its useful purpose.”
There have been a number of Federal Court decisions which provide guidance on what constitutes special circumstances, at least in a very general sense. Some assistance is provided by Branson J in Ryde v Secretary, Department of Family and Community Services [2005] FCA 866 where her Honour said (at [26]):
“the evident purpose of s 1237AAD is to enable a flexible response to the wide range of circumstances which could give rise to hardship or unfairness, the statutory requirement for ‘special circumstances’ discloses an intention to proscribe waiver in ordinary cases. The hardship or unfairness to which French J referred must be understood to be hardship or unfairness sufficient to justify departure from the general rule in the particular case.”
Finally, I refer to the observations of Besanko J in Angelakos v Secretary, Department of Employment and Workplace Relations (2007) 100 ALD 9. His Honour said (17-18/[33]):
“the authorities have emphasised time and again the importance of maintaining flexibility in determining what constitutes special circumstances. The danger is that the test will be overstated if the word ‘exceptional’ is emphasised. It was not the intention of Parliament to confine the exercise of the discretion to an exceptional case. There is less risk of overstatement if the words ‘unusual’ or ‘uncommon’ are emphasised. Those words indicate, correctly in my view, the fact that there must be something that distinguishes the case from the ordinary or usual case.”
The Respondent accepts that the Applicants are in difficult financial circumstances (SSFC para 56). In the Statement of Financial Circumstances that was submitted by Mr Neil Archer to Centrelink on 20 November 2015 (Exhibit 1 T9 p.220) information was provided regarding the Applicants then current income and assets. On that date the only stated income of the Applicants was the carer payment to Mrs Archer and their only asset was a 1991 Toyota Celica valued at $200. Under the heading of “Compensation Claims’ the following information was provided:
“YES. Due to my car accident my shoulder has to be operated on. YES I will need my back operated on to fuse the vertebrae together. 4 vertebraes were broke and the ‘L1’ was squashed down to 25% left. I am in severe pain permanent. My doctor is Dr D.Tedman Maroochydore Medical Centre Sunshine Coast”.
Financial hardship of itself is not sufficient to make a finding that special circumstances exist. However, as French J observed in Hales (at 162): “It may be that there will be few cases in which the Secretary will be satisfied that there are special circumstances in the absence of financial hardship.” The existence of financial hardship, and, in this case, extreme financial hardship, is not conclusive but provides a compelling threshold consideration when weighing up whether special circumstances exist.
With respect to the Respondent, I do not think it is helpful to contend that to constitute special circumstances, the financial circumstances must go beyond straitened circumstances and be truly exceptional (SFS para 7). Re Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690 was cited in support of that proposition. However, that decision was delivered before the Federal Court in both Ryde v Secretary, Department of Family and Community Services [2005] FCA 866 and Angelakos v Secretary, Department of Employment and Workplace Relations (2007) 100 ALD 9 cautioned that the test for special circumstances will be overstated if the world ‘exceptional’ is emphasised.
I think it is more helpful to bear in mind the observations of Kiefel J in Groth v Secretary, Department of Social Security (1995) 40 ALD 541. Her Honour said of the phrase ‘special circumstances’ (545): “it is sufficient to observe that it would require something to distinguish Mr Groth’s case from others, so take it out of the usual or ordinary case.” In that context, I agree with the Respondent that simply because a person or persons is in financial distress and is living in straitened circumstances is not of itself a special circumstance. To obtain social security in the first place a person must be in a situation requiring the assistance of the Commonwealth. Poverty, illness and a range of other factors come into play. However, it is raising the bar too high to require that a person’s situation is “exceptional”. Rather, and in the context not of the general community, but of social welfare recipients, the person’s situation must be out of the usual.
In these circumstances, and having considered the Federal Court authorities on ‘special circumstances’ I have formed the view that there are special circumstances in this matter. The particular factors that cumulatively result in that conclusion are as follows:
(a)The Applicants are living in very straitened circumstances. They have lost their home and live in rental accommodation and have no appreciable assets. Their financial hardship alone is not conclusive, but it is the threshold factor which leads to the following matters;
(b)The Applicants are elderly and in poor health and vulnerable to deterioration;
(c)The Applicants care for another elderly gentleman who is totally dependent on them;
(d)Mr Neil Archer was severely injured in a motor vehicle accident and requires further surgery;
(e)The Applicants are both severely depressed, and ongoing enforcement proceedings by Centrelink will only worsen what is already is a serious situation. The material before the Tribunal suggests that the ongoing uncertainties brought about by the Centrelink investigations has caused significant stress and grief and led to a deterioration of their mental and physical health;
(f)The evidence before the Tribunal suggests that the Applicants were almost totally dependent on the advice of their accountant and failed to properly understand the documentation that they executed or the significance of the various transactions they were a party to;
(g)Some of the advice provided by their accountant seems not to have been particularly helpful; if indeed it was correct at all. Incorrect or negligent professional advice of itself may not constitute a special circumstance – Re Venables and Secretary, Department of Social Security (1988) 15 ALD 180, but it can be taken into account with other matters in determining that there are special circumstances – Re Krzywak (1988) 15 ALD 690;
(h)The Applicants do not appear to have intended to mislead Centrelink and relied on the advice of their accountant. Neil Archer stated (Exhibit 1 T9 p.226): ”I was advised by my accountant wrongly. Garry Edwards our accountant said that he was taking care of all our Centrelink papers & that we were allowed to remain Directors because we were not paid.” After the hearing Mr Edwards provided a document, dated 3 October 2016, in which he said; ‘We have acted for the above clients since 1995 and have completed the financial paperwork as per Australian Taxation Law. As Accountants we do not and are not required to know Centrelink Law which varies greatly from Taxation law.” This last statement eloquently highlights, in part, why this matter has taken the course it has;
(i)The evidence tends to suggest that the actual financial contribution made by the Applicants to Chazane was approximately $167,000. In any event, the overwhelming evidence is that the amount of money the Applicants injected into the company was less than $250,000 and certainly not of the magnitude that an initial perusal of the company records suggests. This relatively modest cash injection led to the Applicants losing their family home and then being subject to forensic Centrelink investigations. The irony being that if they had not invested and lost their life savings in Chazane, they would have been entitled, prima facie, to the social security payments they received. In short they have been financially disadvantaged twice for simply trying to assist their son Zane.
This is an unusual and sad case. It is tragic in the sense that two elderly people with few assets, who were not in good health, and who were caring for an elderly friend and a sick daughter, foolishly invested their relatively meagre life savings in a small company run by their son. As it transpired, their son became ill, and suffered life threatening ailments, and as a result of events, mostly out of their control, the family company failed.
Throughout this time the Applicants relied on the advice of their accountant, who apparently is himself an elderly gentleman. The advice they received, at least so far as its interface with Centrelink, was less than helpful.
Applying the law mechanistically to the Applicants as is required, results, in an almost Kafkaesque situation. From the Tribunal’s viewpoint a strict application of the law without the ameliorating operation of section 1237AAD would give rise to the hardship and unfairness that French J spoke of in Hales.
There is no criticism of the way in which Centrelink has gone about its duties in this matter: far from it. This matter has proved very difficult to fathom simply because the documentation often bears little relation to the reality. What at first glance may appear to be a sophisticated company operation involving multiple businesses and significant sums of money, turns out to be a small failing family company with confusing paper entries and directors who signed documents prepared by their accountant with little understanding of the consequences.
If the debt is allowed to stand the medical and other evidence suggests that the health of the Applicants will continue to suffer. There is a risk that this could result in the breakdown of the family unit; a unit which cares for at least one other vulnerable person. This is another factor, albeit not of the highest order, that needs to considered: Re Speed and Secretary, Department of Family and Community Services [2002] AATA 868.
The final question which section 1237AAD requires to be considered is whether it is more appropriate to waive than to write off the debts.
There appears to me to be two interrelated questions that need to be addressed. The first is whether the public interest in recovering debts properly raised is greater than the special circumstances disclosed. The second is whether there is any likelihood that the Applicants financial position will improve and that they will have the capacity to fully repay the debts.
The Applicants’ financial circumstances are dire. They are elderly and ill, and there is, realistically, no chance that they will ever be in a position to fully repay the debts apart from small periodic deductions. Deductions, it should be added, that will negatively impact on their life, but have a microscopic impact on Commonwealth revenue.
Write off rather than waiver, is only a real issue when there is, or may be, a capacity to repay. Even if there may be a capacity to repay, other factors need to be weighed. Here the threshold has not been reached. The Applicants do not have now, and never will have, a capacity to repay other than by means of small periodic deductions. In these circumstances, and having regard to the fact that a write off would provide no certainty to an already sick and worried couple, I conclude that it would be more appropriate to waive than to write off the debts raised.
In view of the above findings, I conclude that the discretion to waive the debts is enlivened.
The final issue is whether all the debts as originally raised should be waived or a lesser amount be subject to waiver.
The Respondent made the following submission (SFS paras 16-17):
“16. The Secretary contends that although the Applicants have found themselves in difficult circumstances, the circumstances are not sufficiently special to make it desirable to waive some or all of the debts. If the Tribunal were to find that there are special circumstances, the Secretary would contend that a full waiver of the debt is not appropriate. Taxpayers are entitled to expect that in the ordinary course money paid to people which they are not entitled to receive will be recovered. The Department has recovered $57,704.13 in total which amounts to 37% of the total debt. The Secretary contends that it is not appropriate to apply a waiver that would result in a refund of the debt already recovered. Although the Applicants are in difficult financial circumstances, they invested in Chazane and Neil Archer was involved in its operation. If the company had been successful the Applicants would have been entitled to the profits of the company.”
The Secretary notes that if the Tribunal were to waive 30% of the debts, this would reduce the amounts owing by Gay Archer to $55,624.34 and Neil Archer would be refunded $4,268.71.
I agree with the Respondent that it would not be appropriate to apply a waiver that would result in a refund. Although the Applicants are in severe financial distress, have health problems and did not engage in a deliberate course of misinforming Centrelink, it is nevertheless the case that they did receive large sums of money over a long period that they were not legally entitled to. Neil Archer’s compensation payment was perhaps the only source of funds available to help repay some of the debt raised. I note that the Commonwealth did not take all of the compensation, and there is no conclusive evidence before the Tribunal as to how the balance was dealt with, other than the payment of legal fees. The material before the Tribunal is voluminous but vague, and there are many questions that have not been answered. In these circumstances a partial repayment of the debts raised is appropriate to ensure that there is a balance between the public interest in recouping public moneys owed and ensuring the law is not administered in a harsh and unfair manner.
I have formed the view that the remaining debts owed by both Mr Neil Archer and Mrs Gay Archer to the Department of Human Services be waived. The Respondent calculated as at 23 September 2016 Neil Archer owed $17,715.07 and Gay Archer owed $80,380.45. The amount owing now would be slightly different, but not materially. I am not convinced that waiving a proportion of the remaining debts, as outlined by the Respondent, is the optimal approach. Waiving a proportion of the debt would ensure that the Applicants would continue to have small amounts taken out of their social security payments until their death. This would create difficulties and tension for them but achieve no significant financial advantage for the Commonwealth. Nor would it achieve a positive result for the Australian community but only increase hardship on two elderly and sick people. It would be better and fairer that this matter be brought to a swift conclusion not only for the Applicants, their family and Mr Olsen, who is totally dependent on them, but also so that the Commonwealth is not engaged in an enterprise that will result in further difficulties, and potential injustice, as time proceeds.
DECISION
The decision under review is set aside and the debts raised against Mr Neil Archer and Mrs Gay Archer which remain unpaid as at the date of this decision are waived under section 1237AAD of the Social Security Act 1991.
I certify that the preceding 134 (one hundred and thirty -four) paragraphs are a true copy of the reasons for the decision herein of Senior Member J Sosso ........................................................................
Associate
Dated 28 November 2016
Date of hearing 22 September 2016 Date final submissions received 6 October 2016 Applicant
Other Person:
In person
By Phone
Solicitors for the Respondent Department of Human Services
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