Arndt v Commissioner for Social Housing (Appeal)
[2018] ACAT 7
•22 January 2018
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
ARNDT v COMMISSIONER FOR SOCIAL HOUSING (Appeal) [2018] ACAT 7
AA 12/2017 (AT 49/2016)
Catchwords: APPEAL – meaning of ‘income’ under the Commissioner for Social Housing rent rebate program – ‘income’ does not include return of a person’s own money from investment in a self-managed superannuation fund – appeal allowed – onus on applicant for rent rebate to satisfy the Commissioner that a payment from a self-managed superannuation fund is (wholly or in part) return of the person’s own money – practice and procedure – application for adjournment of hearing – adjournment refused – importance of determining tribunal proceedings in a timely manner
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 ss 6, 7, 48, 68
Housing Assistance Act 2007 s 19
Income Tax Assessment Act 1936 (Cth)
Social Security Act 1947 (Cth) s 18
Social Security Act 1991 (Cth) s 8
Superannuation Industry (Supervision) Act 1992
Veteran’s Entitlement Act 1986 (Cth) s 35
Subordinate
Legislation cited: ACT Civil and Administrative Tribunal Rules 2009 r 21
Housing Assistance Public Rental Housing Assistance Program 2013 (No 1) cl 9, 11, 25
Superannuation Industry (Supervision) Regulations 1994
Cases cited: AON Risk Services Australia Ltd v ANU [2009] HCA 27
Arndt v Commissioner for Social Housing [2017] ACAT 16
CIC Australia Ltd v ACT Planning and Land Authority, Mainore Pty Ltd and ACT Civil and Administrative Tribunal [2013] ACTSC 96
Commissioner of The Australian Federal Police v Kalimuthu [No 3] [2017] WASC 108
Commissioner for Social Housing v Williams [2017] ACAT 53Davies and Secretary, Department of Family and Community Services [2002] AATA 904
JW and JE Carter and Secretary, Department of Social Security [1996] AATA 128
Lend Lease Real Estate Investment Ltd v GPT RE Ltd [2006] NSWCA 207
Little v Commissioner for Social Housing [2017] ACAT 11
Mankey v Commissioner for Social Housing [2015] ACAT 76
McLaughlin and Secretary, Department of Family and Community Services [2003] AATA 298
Miller v Commissioner for Social Housing [2017] ACAT 10
Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537
Niedorf v Commissioner for Housing [2003] ACTAAT 51
Peach v Commissioner of Taxation [2012] AATA 781
Re Leo Andrew Flanigan and Director-General of Social Security [1984] AATA 284
Re Sydney Herbert Hungerford v Repatriation Commission [1990] AATA 219
Read v Commonwealth [1988] HCA 26
Secretary, Department of Social Security v Brian McLaughlin & Anor [1997] FCA 1456
Secretary, Department of Employment and Workplace Relations v Richards [2007] FCA 1710
The Tenant v Commissioner for Social Housing [2016] ACAT 49
List of
Texts/Papers cited: Pearce and Geddes, Statutory Interpretation in Australia, 8th edition, 2014
Tribunal: Presidential Member G McCarthy
Date of Orders: 22 January 2018
Date of Reasons for Decision: 22 January 2018
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AA 12/2017
BETWEEN:
ROBIN ARNDT
Appellant
AND:
COMMISSIONER FOR SOCIAL HOUSING
Respondent
TRIBUNAL:Presidential Member G McCarthy
DATE:22 January 2018
ORDER
The Tribunal orders that:
1.Order 1 of the decision under appeal is amended to read:
The respondent’s decision made on 13 September 2016 is set aside and the applicant’s application for a rental rebate is remitted to the respondent for re-determination.
2.Order 2 of the decision under appeal is amended to read:
In calculating the applicant’s ‘income’ for the purposes of clause 11 of the Housing Assistance Public Rental Housing Assistance Program 2013 (No 1) the respondent may regard the annual stipend or pension the applicant receives from time to time from her self-managed superannuation fund as income, save for any part of the stipend or pension that the applicant demonstrates to the satisfaction of the respondent is a repayment of money that the applicant deposited into the fund.
………………………………..
Presidential Member G McCarthy
REASONS FOR DECISION
Background
1.On 19 April 2011 the appellant, Robin Arndt, entered into a residential tenancy agreement with the respondent, the Commissioner for Social Housing (the Commissioner). Over the following years, the Commissioner assessed Ms Arndt as eligible for a rebate of the rent payable for the rented premises. Ms Arndt was required, like all tenants who rent premises from the Commissioner, to apply annually for a rebate if she wished to continue receiving a rebate.
2.By application dated 26 February 2016, Ms Arndt applied for continuation of her rental rebate. The application was in the same terms as a previous application submitted on 26 September 2015, which had been overlooked.
3.On 29 March 2016, with reliance on additional information from Ms Arndt, the Commissioner determined Ms Arndt’s rental rebate.
4.On 19 May 2016, Ms Arndt provided still further information.
5.By letter dated 8 June 2016 after taking into account the further information, the Commissioner advised Ms Arndt that her application for a rental rebate had been reassessed. Relevant to this appeal, the Commissioner wrote:
Rental rebates are granted for a period of 12 months unless otherwise indicated. Housing ACT will advise you when your rebate is due for review. Housing ACT has calculated your rebate entitlement on the information you provided in your application and/or the information provided through Centrelink with your permission. Your assets are not included as income for the purpose of the assessment. However, any income generated from your assets is assessable and has also been included.
6.The Commissioner determined that Ms Arndt derived income from two sources: her Centrelink Disability Support Pension of $394.20 per week and her financial investments from which she obtained $247.67 per week. Ms Arndt’s rental rebate was reduced accordingly. The letter also advised Ms Arndt that her request to backdate the rebate for the period 26 July 2015 to 14 October 2015 had been denied.
7.By letter dated 13 September 2016, the Commissioner advised Ms Arndt that her application for a rental rebate had been reassessed, and that the weekly income from her financial investments was now deemed to be $164.85, not $247.67 per week. Her rebate was therefore increased, and her weekly rebated rent decreased, accordingly.
8.Ms Arndt’s financial investments were and continue to be a self-managed superannuation fund. Mr Christensen, who appeared for Ms Arndt, explained that Ms Arndt received a compensation payment and applied it to establish the fund known as the Laog Pty Ltd Super Fund (the Fund). The Fund was established on 11 November 2008.
9.The trustee of the Fund is Laog Pty Ltd (Laog), of which Ms Arndt is the sole director. Ms Arndt is also the sole beneficiary under the trust deed that established the Fund.
10.Gateway SMF Services Pty Ltd (Gateway) manages the Fund on behalf of Laog. Mr Arthur Pascoe, a qualified financial planner, owns and operates Gateway.
11.At the original tribunal hearing, Mr Pascoe gave evidence that under the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations), self-managed superannuation funds commence in what is known as the ‘accumulation phase’ during which time further payments into the fund and returns derived from investment of the money in the fund accumulate in the fund. During the accumulation phase, no payments are made to a beneficiary of the fund.
12.Mr Pascoe explained that when certain statutory preconditions are met, in particular that the beneficiary has reached a prescribed age, the trustee of the fund (presumably on instructions from the beneficiary) may take the fund out of the accumulation phase and place it into what is known as the ‘pension phase’.
13.Mr Pascoe said that once a fund is placed in pension phase a minimum of 5%[1] and up to a maximum of 10% of the value of the fund, as at 30 June of each financial year, must be paid from the fund to the beneficiary of the fund by 30 June of the following year.[2]
[1] At the appeal hearing, Mr Christensen referred me to a document entitled ‘Pension standards for self-managed super funds’ downloaded from the Australian Taxation Office website, which states that for persons over the age of 60 but under the age of 65 (which he said includes Ms Arndt) the minimum payment is 4% not 5%. I need not make a finding about whether the minimum percentage payable to Ms Arndt is 4% or 5%, or the percentage paid to Ms Arndt, because the appeal was confined solely to the question whether payments to Ms Arndt that represent return of capital that Ms Arndt paid into the Fund are ‘income’ for the purposes of the Program.
[2] Transcript of proceedings, 2 December 2016, page 21, lines 21-23
14.The beneficiary may receive payments from the fund by way of a fortnightly or monthly stipend, in irregular amounts or as a lump sum, but the minimum amount must be paid by 30 June of the following financial year in order for the fund to maintain its concessional tax status. In this case, Ms Arndt has elected to receive payments from the Fund by means of a monthly payment or stipend.
15.Mr Pascoe explained that if a fund increases in value by 5% or more over a financial year because of returns on investments, and the beneficiary has elected to receive a pension from the fund of 5%, the 5% payment could be (and is) treated as paid entirely from the returns. Conversely, if a fund returns less than 5% on its investments or decreases in value (i.e. makes a loss), the 5% pension needs to be paid from the capital sum under investment to the extent that returns to the fund were less than 5% to make up the shortfall. For example, if a fund achieved a return of 2.5% on its investments over a financial year, the 5% (pension) payment would comprise payment of those returns (2.5%) and 2.5% of the value of the fund as at 30 June of the preceding year.
16.Ms Arndt placed the Fund into pension phase with effect from 1 July 2010.
The original tribunal proceeding
17.Ms Arndt sought review of two decisions: the Commissioner’s decision made on 8 June 2016 not to backdate her rent rebate to 26 July 2015 (the backdate decision); and the Commissioner’s decision made on 13 September 2016 to determine Ms Arndt’s rental rebate by reference to her ‘deemed’ income of $164.85 per week from her financial investments (the deeming decision).
18.The original tribunal’s role on review was to determine whether each decision was the correct or preferable decision on the material before it, not the material before the original decision-maker.[3] For that reason, both decisions were, by consent, set aside.
[3] Miller v Commissioner for Social Housing [2017] ACAT 10 at [56] – [59]
19.Regarding the backdate decision, having regard to the Tribunal’s later decisions in Miller v Commissioner for Social Housing[4] and Little v Commissioner for Social Housing,[5] the Commissioner consented to an order that the decision be set aside and that an order be made in substitution that Ms Arndt is entitled to a rental rebate from 26 July 2015 to 26 September 2015.[6] The original tribunal made that order on 14 March 2017.[7]
[4] Miller v Commissioner for Social Housing [2017] ACAT 10
[5] Little v Commissioner for Social Housing [2017] ACAT 11
[6] Regarding provision of a rent rebate to take effect from an earlier date under clause 25(8)(d) of the Program, see also Mankey v Commissioner for Social Housing [2015] ACAT 76
[7] Arndt v Commissioner for Social Housing [2017] ACAT 16
20.Regarding the deeming decision, the original tribunal received further evidence regarding Ms Arndt’s actual financial position in the form of a statement dated 28 October 2016 from Mr Pascoe and his oral evidence at hearing. The parties agreed, in light of that evidence, that it was no longer appropriate to determine Ms Arndt’s rental rebate by reference to her deemed income from her financial investments, and that the rebate should be determined by reference to her actual income.[8]
[8] Transcript of proceedings, 2 December 2016, page 38, lines 14-16
21.The parties did not call upon the original tribunal to consider the calculation of her actual income, and agreed[9] that the matter proceed only on the question whether all of Ms Arndt’s monthly payments from the Fund is ‘income’ for the purposes of the Housing Assistance Public Rental Housing Assistance Program 2013 (No 1) (the Program).
[9] Transcript of proceedings, 2 December 2016, page 5, lines 19-27
22.The Commissioner contended that the whole of the payments was income regardless of whether the payments were drawn (wholly or in part) from returns to the Fund or from capital that Ms Arndt had paid into the Fund. Ms Arndt contended that only returns to the Fund derived either from income or from capital growth that make up the monthly payments (wholly or in part) are ‘income’ for the purposes of the Program.
23.The Commissioner has power under subclause 11(2) of the Program to exclude stated kinds of income as income for the purposes of the Program, but the parties accepted that the Commissioner has not made such a determination in relation to the return of capital as part of a payment made to a beneficiary from a self-managed superannuation fund. The question remained, therefore, whether the return of capital is ‘income’ at all.
24.The original tribunal noted that the definition of ‘income’ in clause 11 is ‘clearly intended to encompass a very broad range of payments from any source’. The original tribunal then stated:
It is quite apparent that the purpose of the establishment of a SMSF is the establishment of an ‘income stream’ that provides financial support in the form of a ‘stipend’ or pension during retirement.
…
The reality is, the applicant has used a capital fund to effectively guarantee herself an income stream. That income stream must be considered when determining eligibility for a rental rebate (subject to any determination by the Commissioner that it be excluded).
Accordingly, I am satisfied that the appropriate approach is to characterise the stipend or income derived from the Fund as ‘income’ for the purpose of clause 11 of the HA Program.[10]
[10] Arndt v Commissioner for Social Housing [2017] ACAT 16 at [56] – [59]
25.For the reasons it gave, the original tribunal made the following orders:
1. Pursuant to section 68 of the ACT Civil and Administrative Tribunal Act 2008 the decision under review[11] is set aside and the applicant’s application for a rental rebate is remitted to the respondent for re-determination.
[11] It is apparent from the original tribunal's reasons for decision that the decision under review for the purpose of order 1 was the Commissioner's decision made on 13 September 2016 regarding the Commissioner’s reassessment of Ms Arndt's rental rebate
2. In calculating the applicant’s ‘income’ for the purposes [of] clause 11 of the Housing Assistance Public Rental Housing Assistance Program 2013 (No 1) the respondent may regard as income the annual stipend or pension the applicant has actually received from her self-managed superannuation fund.
The appeal proceeding
26.By application for appeal dated 20 April 2017, Ms Arndt appealed from the original tribunal’s decision.[12] The order sought on appeal was as follows:
[12] The application to appeal was not made within 28 days of the original Tribunal's decision, however on 28 April 2017 the Tribunal granted Ms Arndt an extension of time until 20 April 2017 to file her notice of appeal
That the decision under review be set aside and the the [sic] decision [be] remitted to the Respondent with a direction that only the actual earnings of the applicant’s superannuation fund be taken into account in determining the applicant’s income for the purposes of the [Public Rental Housing Assistance Program] PRHAP.[13]
[13] I understood the reference to the Public Rental Housing Assistance Program to mean a reference to the Housing Assistance Public Rental Housing Assistance Program 2013 (No 1)
27.The application for appeal identified the following questions of law said to be relevant to the order sought on appeal:
Whether a payment made from the applicant’s own funds can be income for the purposes of the Public Rental Housing Assistance Program (PRHAP).
Whether a payment made from the applicant’s superannuation fund ought be treated any differently, for the purposes of the PRHAP, from monies paid out of the applicant’s bank account.
Whether payments made out of the capital (as opposed to the income) from the Applicant’s superannuation fund were “earned, derived, received or become entitled to” by the applicant (sic).
Whether income, for the purposes of [the] PRHAP should be the actual income of the fund.
28.At the commencement of the appeal hearing on 28 June 2000 700, Mr Christensen applied for an adjournment on the grounds that, he said, “he [hadn’t] been able to prepare the material that [he] would have liked to”.[14] He contended that Ms Arndt “appears to be drawing a lot less” than the amount she is required to under the SIS Regulations and he was “trying to get to the bottom” of how she can do that.[15] I refused the application for an adjournment for three reasons.
[14] Transcript of proceedings, 28 June 2017, page 2, lines 19 - 20
[15] Transcript of proceedings, 28 June 2017, page 3, lines 20 - 23
29.First, Mr Christensen’s concern was not new.
30.On 4 May 2017, Mr Christensen explained his concern to the Appeal Tribunal during a directions hearing. In response, Ms Arndt was given leave to call an accountant, Mr Basil Le Brooy, as a witness at the hearing of the appeal to give evidence about the operation of the Fund, the quantum of the monthly pension paid to Ms Arndt, and the amount required under the SIS Regulations to be paid annually from the Fund to Ms Arndt. The Appeal Tribunal also ordered that Ms Arndt file and serve her submissions, any witness statement and any other additional material on which she intended to rely by 2 June 2017. The Tribunal listed the matter for hearing on 28 June 2017.
31.Regardless of the date by which the material was due,[16] Ms Arndt had not filed anything by 26 June 2017, two days before the hearing, when Mr Christensen sent an email to the Tribunal requesting an adjournment “to enable consideration by the appellant’s advisors of the actual position of the Fund”. The Tribunal replied that it would hear the application for an adjournment, if pressed, at the commencement hearing.
[16] The Tribunal acknowledges that it intended to provide the transcript of the original tribunal hearing to the parties by 12 May 2017, but did not do so until 26 May 2017. Even allowing for that delay, Ms Arndt should have filed her documents in accordance with the orders by 16 June 2017
32.To have granted the adjournment would have been to contradict the Tribunal’s obligation under section 6 of the ACT Civil and Administrative Tribunal Act 2008 (the ACAT Act) to ensure that applications to the Tribunal “are resolved as quickly as is consistent with achieving justice”.
33.The balance between justice and the minimising of delay and expense is an inherent tension in litigation. The promotion of expeditious and inexpensive procedures should not be used to defeat a bona fide claim. However, what constitutes ‘justice’ must be understood in light of the purposes and objectives of the legislative framework within which the claim is made
34.In my view, avoidance of delay and the consequent costs for parties arising from delay is an important consideration in achieving justice in Tribunal proceedings, especially in light of the Tribunal’s inability to award costs against the party seeking an adjournment[17] which sometimes (but not always) in court proceedings can sufficiently remedy the prejudice to another side arising from an adjournment.
[17] ACT Civil and Administrative Tribunal Act 2008, section 48, CIC Australia Ltd v ACT Planning and Land Authority, Mainore Pty Ltd and ACT Civil and Administrative Tribunal [2013] ACTSC 96
35.Avoidance of delay is also important from the viewpoint of other litigants and the public at large. In AON, French CJ noted:
...the time of the Court is a publicly funded resource. Inefficiencies in the use of that resource, arising from the vacation or adjournment of trials are to be taken into account So too is the need to maintain public confidence in the judicial system.[18]
[18] AON Risk Services Australia Ltd v Australian National University [2009] HCA 27 at [5]
36.The President of the Tribunal recently expressed a similar position in Commissioner for Social Housing v Williams.[19] He quoted from a decision of the Court of Appeal (UK) in Mitchell the News Group Newspapers Ltd[20] in which the Court said:
[19] Commissioner for Social Housing v Williams [2017] ACAT 53 at [11]
[20] Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 at [41]
... The court will want to consider why the default occurred. If there is a good reason for it the court will likely to decide that relief should be granted. For example if the reason why a document was not filed with the court was that the party or his solicitor suffered from a debilitating illness or was involved in an accident, then depending on the circumstances, that may constitute a good reason ... But mere overlooking a deadline, whether on account of overwork or otherwise, is unlikely to be a good reason. We understand that solicitors may be under pressure and have too much work. It may be that this is what occurred in the present case. But that will rarely be a good reason.
37.The President acknowledged that the decision in Mitchell was made in circumstances and by reference to rules that are different from those that apply in Tribunal proceedings, but was of the view that the overarching principle explained in that case is not irrelevant in Tribunal proceedings.[21] He concluded:
[21] Commissioner for Social Housing v Williams [2017] ACAT 53 at [16]
52. The starting point in deciding this application is that time limits are important and prima facie must be obeyed. The purpose of the time limits is to promote the orderly and efficient conduct of proceedings in the Tribunal and achieve finality in litigation. All parties should comply with the time limits, but the Tribunal expects that parties who are legally represented or public authorities will be particularly careful to meet those requirements.
38.In this case, Ms Arndt and her solicitor knew from 4 May 2017, by order, the date upon which her appeal would be heard. They were given two months to prepare, with a timetable in which to file and serve any documents or witness statements upon which Ms Arndt wished to rely. It would, in my view, have been contrary to the proper administration of justice to grant an adjournment, especially when requested by email two days before the hearing, so that Ms Arndt would have more time to consider an issue that she and Mr Christensen knew about from the beginning.
39.My second reason for dismissing the application for an adjournment was that Mr Christensen’s need to “get to the bottom” of how much Ms Arndt was drawing by way of a pension from the Fund and the consequent calculation of Ms Arndt’s rental rebate was not relevant to the question on appeal, which, as Mr Christensen acknowledged,[22] was not concerned with quantum.
[22] Transcript of proceedings, 28 June 2017, page 6, lines 5 - 41
40.My third reason concerned prejudice to the Commissioner. Mr Adkins, who appeared for the Commissioner, was understandably reluctant for the appeal to proceed in circumstances where Mr Christensen had not filed anything despite orders to do so. On 19 June 2017, the Commissioner filed an application for the appeal to be dismissed on the grounds that Ms Arndt had not filed any submissions or evidence on the appeal, contrary to the Tribunal’s orders. It meant that Mr Adkins was in effect being asked to ‘fly blind’. However I concluded that it was not appropriate to dismiss the appeal or to adjourn the hearing upon Mr Adkins stating he was willing to proceed if the appeal was “purely” about whether payments forming part of Ms Arndt’s monthly pension that represented a return of her own capital paid into the Fund were ‘income’ as defined in clause 11 of the Program, regardless of quantum. Mr Christensen agreed that that was the only question to be decided on the appeal.[23]
[23] Transcript of proceedings, 28 June 2017, page 12, line 29 - page 13, line 1
The legislative framework
41.The ACT social housing scheme is established under the Housing Assistance Act 2007 (the HA Act). Pursuant to section 19 of the HA Act, the Minister has approved the Program.
42.Subclause 9(4) of the Program provides that an applicant is eligible for a rent rebate if the applicant is receiving rental housing assistance from the Commissioner under the Program, and is eligible for a rent rebate under clause 25.
43. Subclause 25(1) of the Program provides:
The housing commissioner may provide the tenant of a public housing dwelling a rent rebate provided that the tenant satisfies the eligibility criteria in clause 9(4) and this clause.
44. Subclause 25(2) sets out the manner of calculating a rent rebate as follows:
The rent rebate for a tenant is calculated as the amount by which the weekly rent payable by the tenant under the tenancy agreement is more than the total of the following (the basic rent) –
(a) 25% of the weekly income of the household, other than—
(i) the weekly income of all members of the household (other than the tenant) who are under 18 years old; and
(ii) dependent child payments;
(b) 10% of the weekly income (other than dependent child payments) of all members of the household (other than the tenant) who are independent people under 18 years old;
(c) 10% of dependent child payments payable to any member of the household;
(d) any component of the rent that is—
(i) in relation to water consumption charges, central heating, garages or other facilities; and
(ii) decided by the housing commissioner to form part of the basic rent.
45.‘Income’ for the purposes of subclause 25(2) is defined in clause 11 of the Program as follows:
11 Meaning of income
(1) For this program, income, for a person—
(a) means personal earnings, valuable consideration, profits or any other amounts the person has earned, derived, received or become entitled to, for the person’s own use or benefit, by any means from any source; and
(b) includes a periodical payment or benefit by way of gift or allowance to the person; and
(c) includes an amount taken to be earned, derived or received by the person under subclause (3); and
(d) includes an entitlement forgone as part of a salary packaging arrangement or any arrangement which has the effect of reducing the person’s taxable income.
Example for par (d) Where a person forgoes part of their income by salary sacrificing the payments on the lease of a motor vehicle or computer the amounts sacrificed are part of the income of that person.
(2) However, income, for a person—(a) does not include income that the housing commissioner determines is not income for the person for this program; and
(b) does not include an amount expended by the person for a purpose determined by the housing commissioner for this program.
46.Further subclauses 11(3), (4) and (5) of the Program are not relevant for present purposes.
The appellant’s submissions
47.Mr Christensen submitted that any portion of Ms Arndt’s monthly pension that represented a return of her own capital paid into the Fund was not ‘income’ as defined in clause 11 of the Program. He submitted that the Fund is:
analogous to [Ms Arndt] having a bank account. If she deposits $100 in the account, and after 6 months is credited with $5.00 interest, and then withdraws $10.00, only $5.00 and not $10.00 is income.[24]
[24] Written submissions (anonymous, unsigned and undated) provided at the commencement of the hearing, paragraph 11
48.Mr Christensen referred to the High Court’s (majority) decision in Read v Commonwealth[25] in which the Court held that the appellant’s entitlement to additional units in a capital growth trust was not ‘income’ for the purposes of the Social Security Act 1947 (Cth) (repealed). At the relevant time, ‘income’ was defined in section 18 of that Act as follows:
‘income’, in relation to a person, means any personal earnings, moneys, valuable consideration or profits earned, derived or received by that person for his own use or benefit by any means from any source whatsoever, within or outside Australia, and includes any periodical payment or benefit by way of gift or allowance from a person other than the father, mother, son, daughter, brother or sister of the first-mentioned person, but does not include…
[25] Read v Commonwealth [1988] HCA 26; (1988) 167 CLR 57 at
49.Mr Christensen submitted that where the definition was materially the same as the definition of income under clause 11 of the Program, it should follow that return of Ms Arndt’s capital from the Fund to her in the form of pension payments should likewise not be ‘income’. Mr Christensen did not explain why an entitlement to additional units in a capital growth trust is analogous to return of a beneficiary’s capital from a superannuation fund.
50.Mr Christensen also relied upon a decision of the (then) ACT Administrative Appeals Tribunal in Niedorf and Commissioner for Housing[26] in which the tribunal discussed the operation of clause 4 in an earlier version of the Program that was materially the same as clause 11. Mr Christensen relied upon Niedorf to submit that if the Commissioner intends to rely on money that Ms Arndt is deemed to have received as income, rather than has actually received, there needs to be a proper evidentiary basis for it. Mr Christensen accepted that that submission was no longer relevant in circumstances where the Commissioner was willing to have the decision set aside and to proceed instead by reference to actual financial information, and where the only question on appeal was the meaning of ‘income’ in clause 11 of the Program.[27]
[26] Niedorf and Commissioner for Housing [2003] ACTAAT 51 at [36]
[27] Transcript of proceedings, 28 June 2017, page 41, line 18 - page 42, line 5
51.Mr Christensen accepted, and indeed submitted, that the compensation payment Ms Arndt received in 2008 was income at the time of its receipt.[28] He submitted, however, that after depositing the payment into the Fund, its withdrawal (wholly or in part) from the Fund as part of a monthly pension payment cannot again be regarded as income. Such an approach would be to count it twice.
[28] Transcript of proceedings, 28 June 2017, page 63, lines 1 - 6
52.Mr Christensen also relied upon a decision of the Administrative Appeals Tribunal (Cth) (the AAT) in JW and JE Carter and Secretary, Department of Social Security[29] in which the AAT considered whether returns to a pensioner from their investments in a monthly income trust administered by the Government Insurance Office were income for the purposes of the Social Security Act 1991 (Cth). The applicants’ investments were to return “12% income per annum”, it being so arranged that if the investment earnings were less than 12% the shortfall would be made up from capital gains and/or “repayment of capital as required”. As in this case, the applicants submitted that for the purposes of calculating their income, earnings and capital growth may be included but not repayment of their own deposited capital. However Mr Christensen stated (correctly in my view) that JW and JE Carter “probably doesn’t assist” because the case turned on particular sections of the Social Security Act 1991.[30]
The respondent’s submissions
[29] JW and JE Carter and Secretary, Department of Social Security [1996] AAT 128
[30] Transcript of proceedings, 28 June 2017, page 46, lines 30 - 36
53.Mr Adkins submitted that the payments to a beneficiary from a self-managed superannuation fund (and in this case Ms Arndt) cannot be equated with payments to a person from the capital in the person’s bank account. The two kinds of payments, he said “are completely separate.”[31]
[31] Transcript of proceedings, 28 June 2017, page 44, line 30
54.In the case of a bank account, he said, a person retained ownership and control of capital deposits made into the account. Mr Adkins accepted that withdrawal of those capital deposits is not ‘income’ for the purposes of the Program.[32] However, he said, that scenario does not equate with the legal structure of a self-managed superannuation fund. He submitted that Ms Arndt ‘gifted’[33] her money to Laog, the trustee of the Fund, in consideration for a guaranteed income stream. The source of that income, he said, and whether it was drawn from capital paid into the Fund, capital growth or returns from investment of the capital in the Fund is irrelevant. The Fund, he said
…is not returning to [Ms Arndt] capital or her money, it is paying her an income stream. It may be that in some years it has to realise some of the assets of the superannuation fund to achieve the payment it’s statutorily obliged to make [to] her, but that is very different to it returning her money to her.[34]
[32] Transcript of proceedings, 28 June 2017, page 48, line 39 - page 49, line 1
[33] Transcript of proceedings, 28 June 2017, page 45, line 30
[34] Transcript of proceedings, 28 June 2017, page 46, lines 6 - 9
55.Mr Adkins accepted that the amount of the income stream may go up or down depending on the returns to the Fund but only because the payments are a percentage annuity income stream as opposed to a fixed amount annuity. It is, he said, nevertheless an investment structured to return an annuity income stream. The Fund may need to draw from capital in order to fulfil its statutory obligation to provide that income stream (meaning the minimum statutory percentage that must be paid from the Fund), but that feature is (he said) only a “by-product” of the scheme. It is not a circumstance where Ms Arndt is “requesting a return of her capital to her.”[35]
[35] Transcript of proceedings, 28 June 2017, page 44, lines 38 - 39
56.In response to Mr Christensen’s submission that return of Ms Arndt’s deposited capital in the Fund as part of a pension payment is only taking back that which she already owns, Mr Adkins said:
…that’s a misunderstanding of the fact that she doesn’t own the investment while it’s in the trust. The trust owns the investment, so it’s not a repayment of something which she already owns because ownership has been given to the trust … This isn’t a request for a return of capital. This is a statutory annuity that falls from investing within that investment. So to call it her money being repaid to her, fundamentally misunderstands the legal status of the trust.[36]
[36] Transcript of proceedings, 28 June 2017, page 47, lines 31 - 41
57.In Mr Adkins’ submission, all of the money in the Fund belongs to the trustee, not Ms Arndt, and so provision of an annuity income stream is not ‘repayment’ of anything in the Fund.
58.In answer to my enquiry, Mr Adkins could not provide any authority in support of his submission, although Mr Pascoe gave evidence at the original tribunal hearing that funds drawn from a self-managed superannuation fund are “basically an income stream, a pension or an allocated pension or another payment”.[37] Mr Pascoe said that “when a fund is in pension phase the earnings on the fund are not subject to earnings tax. The tax liability transfers to the pension but anybody that’s over the age of 60 doesn’t pay any tax liability on money coming out of superannuation.”[38] Mr Pascoe disagreed with the proposition that a person drawing 5% of a superannuation fund where returns on the fund were only 2% could treat as income only that 2%. Mr Pascoe said:
It’s all treated as income. The pension is based on what the accounting value is at 30 June.[39]
[37] Transcript of proceedings, 2 December 2016, page 20, lines 4- 5
[38] Transcript of proceedings, 2 December 2016, page 21, lines 29 - 31
[39] Transcript of proceedings, 2 December 2016, page 22, lines 3 - 4
59.Mr Adkins also submitted that JW and JE Carter should be distinguished on the grounds that it considered materially different circumstances to that now before the Appeal Tribunal.
60.Mr Adkins relied on a decision of the AAT in Peach and Commissioner of Taxation[40] in which Mr Peach had established a self-managed superannuation fund. Contributions were paid into the fund by Mr Peach and by his employer. In breach of the Superannuation Industry (Supervision) Act 1992, Mr Peach withdrew money from the fund before he had retired. As the AAT noted, “the taxpayer effectively treated the fund which was established to provide for his retirement as a bank account to be used to fund his daily activities before he retired. That is not what the fund was there for.” Having done so, the tribunal concluded that the amounts withdrawn counted as part of Mr Peach’s taxable income.
[40] Peach and Commissioner of Taxation [2012] AATA 781
61.Mr Adkins also relied on a determination from the Australian Taxation Office (the ATO) entitled ‘Managed Superannuation Funds Determination’, SMSFD 2013/2, which provides (in summary) that a payment made as a result of a partial commutation of an account based pension (other than a transition to retirement income stream) counts towards the minimum annual amount required to be paid under the SIS Regulations, unless the payment is rolled over within the superannuation system on or after 6 June 2009.
62.Mr Adkins also submitted with reliance on The Tenant v Commissioner for Social Housing[41] that I should dismiss the appeal unless I am satisfied that the decision under appeal was “clearly wrong”. He submitted that Ms Arndt had not so demonstrated.
Consideration
[41] The Tenant v Commissioner for Social Housing (Appeal) [2016] ACAT 49
63.What constitutes ‘income’ must be referenced to its definition in clause 11 of the Program. As Brennan J observed in Read v Commonwealth, referring to the definition of ‘income’ in the Social Security Act 1947:
The definition is exhaustive: the term “income” means what it is defined to mean; it does not mean what “income” would be understood to mean if the definition were not in the Act. The definition is couched in the widest terms, presumably to ensure that public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide.[42]
[42] Read v Commonwealth [1988] HCA 26 per Brennan J at [3]
64.The passage has been frequently cited in subsequent cases notwithstanding Brennan J being in the minority. However, as Collier J observed in Secretary, Department of Employment and Workplace Relations v Richards:
(I note that Brennan J was in dissent in his judgement in Read 167 CLR 57. However, like Foster J in Secretary to the Department of Social Security v Cuneen [1997] 1033 FCA, I do not read the other judgments in Read 167 CLR 57 as differing from Brennan J’s construction of the meaning of “income”).[43]
[43] Secretary, Department of Employment and Workplace Relations v Richards [2007] FCA 1710 at [32]
65.Subclause 11(1)(a) states what income ‘means’. Subclauses 11(1)(b), (c) and (d) state what income ‘includes’ and does not include client are. The balance of clause 11 provides detail about what is and is not income for the purposes of subclauses 11(1)(b), (c) and (d) save for subclause 11(5) that is not relevant for present purposes.
66.The words ‘means’ and ‘includes’ are not defined in the Program but have well settled meanings under principles of statutory interpretation. In Statutory Interpretation in Australia,[44] Pearce and Geddes observe:
The orthodox and, it is submitted, the correct approach to the understanding of the effect of these expressions is that ‘means’ is used if the definition is intended to be exhaustive while ‘includes’ is used if it is intended to enlarge the ordinary meaning of the word. [authorities omitted]
…
Unfortunately, this neat distinction has not always been adhered to by either drafters or judges. Particular confusion has arisen where the word ‘includes’ has been used in a definition and then one or more items that would usually fall within the accepted meaning of the word have been specified together with some items that would not. The problem has arisen whether the definition, notwithstanding the use of the word ‘includes’, was intended to be exhaustive. From the drafter’s point of view this practice can be defended simply on the basis that it is not always clear precisely what items will be regarded as falling within the scope of the word. Hence caution advises that doubtful items should be listed among those ‘included’ lest they be regarded as not covered by the word defined.
[44] Pearce and Geddes, Statutory Interpretation in Australia 8th edition, 2014, at [6.60]
67.Applying this reasoning, it becomes clear that clause 11(1)(a) states the meaning or definition of ‘income’ for the purposes of the Program. The remaining subclauses provide illustrations or details of the kinds of payments, amounts or entitlements that fall (or do not fall) within the meaning of ‘income’ without being exhaustive of the definition.
68.That being so, cases that have considered a definition of income that is materially the same as the definition of ‘income’ in clause 11 become relevant, and vice versa. In particular, whether payments to Ms Arndt from the Fund are income for the purposes of the Income Tax Assessment Act 1936 (Cth) or taxation laws generally are of little (if any) relevance because of the materially different definitions of income. In Secretary, Department of Employment and Workplace Relations v Richards[45] Collier J stated:
It is important to note that the concept of “income” under the [Social Security Act 1991] is not to be equated with “income” under income tax legislation.[46]
[45] The decision was upheld on appeal in Secretary, Department of Employment and Workplace Relations v Richards [2008] FCAFC 97
[46] Secretary, Department of Employment and Workplace Relations v Richards [2007] FCA 1710 at [33].
69.Likewise, in Secretary, Department of Social Security v Brian McLaughlin & Anor, French J (then as a Judge of the Federal Court) said:
The definitions of “income” and “income amount” in the Social Security Act 1986 indicate that like their statutory predecessors they are of wide application. This meets the public policy requirement that “public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide” - Read v The Commonwealth [1988] HCA 26; (1989) 167 CLR 57 at 69 (Brennan J). The purpose of the applicable provisions of the Act is to “maintain a basic level of income for those who [are] unable to receive sufficient income to provide for themselves” - Secretary, Department of Social Security v Garvey (1989) 22 FCR 132 at 136.
The concept of “income” defined in the Social Security Act is entirely different from that embodied in the comparable provisions of the Income Tax Assessment Act - Read v The Commonwealth (supra) at 69. [47][47] Secretary, Department of Social Security v Brian McLaughlin & Anor [1997] FCA 1456
70.For this reason, the AAT’s decision in Peach to which Mr Adkins referred is of little assistance. Similarly, Mr Pascoe’s evidence that an income stream from a superannuation fund is all income (taxable or exempt from tax) for the purposes of the Income Tax Assessment Act 1936 may be correct, but that is of no assistance when determining the meaning of ‘income’ for the purposes of Program.
71.Read v Commonwealth does not assist on the facts because it was concerned with whether additional units in a capital growth trust issued to the pensioner constituted income. The majority found that the additional units were not ‘valuable consideration’ per the definition of income because they should be properly seen as an ‘adjusting mechanism’ within the trust. The majority was prepared to accept that the words ‘profits earned, derived or received’ were wide enough to include capital profits, but found that the additional units represented only a potential to achieve a capital gain or capital profit, and that such gain or profit is not ‘earned, derived or received’ until a sale of units occurs so that the gain or profit is realised.
72.Brennan J in the minority (with whom Toohey J agreed) found that the additional units were valuable consideration received.
73.Brennan J said:
5. The concept of an “annual rate of income” is at the heart of the scheme for determining the rate of an aged or invalid pension, and it is consistent with the scheme that the definition of “income” includes (in its latter half) the periodical payments therein mentioned. It is entirely consistent with the scheme to include within a pensioner’s “income” receipts of moneys etc. to which a pensioner becomes entitled periodically, even though the entitlement depends on an increment in, or in the value of, a capital asset. Such receipts may well be regarded as available to a pensioner to defray the recurrent expenses ordinarily met out of income.
6. It is neither possible nor necessary to attempt a general declaration as to what receipts are within the definition of “income” in the Act and what are outside it. But one general proposition can be affirmed by reference to the phrase “from any source whatsoever”, namely, that a receipt which has its source in an increment in the value of a capital asset is not, on that account alone excluded from the category of “income”. That proposition immediately distinguishes the definition of “income” in the Act from statutory definitions which do not contain the quoted or any similar phrase. The definition of “income” in the Act falls to be construed in its unique context and care must be exercised in applying decisions on the meaning of “income” in other statutes or in other jurisdictions.
74.Of note is that Read v Commonwealth concerned a capital profit arising from an issue of additional units to the person, not return of the person’s capital arising from the sale of the person’s original units purchased in the trust.
75.From my research, the decision most on point appears to be the AAT’s decision in Re Sydney Herbert Hungerford and Repatriation Commission, per Deputy President Forgie, Member Brumfield and Member Kearne.[48] In that case, Mr and Mrs Hungerford were in receipt of a service pension payable to them under the Veteran’s Entitlement Act 1986 (Cth) (the VE Act). On 28 July 1987, Mr Hungerford paid $8,000 to Suncorp in consideration for which Suncorp agreed to pay him an annual annuity of $1,237.92 paid in the form of a monthly sum of $103.16. Regarding the payment, the AAT stated:
On the basis of the letter from Suncorp dated 14 June, 1988 to Mr Hungerford (T documents, page 15), we are satisfied that of the sum of $103.16 which Mr Hungerford receives monthly, the sum of $55.79 is the return of his capital and the sum of $47.37 is the interest component of his annuity income. On Mr Hungerford’s behalf, Mrs Budgen argued that only the sum of $47.37 should be treated as income in calculating his pension. Mrs Carstairs argued on behalf of the Commission that the capital component of the monthly payments was income within the meaning of the Act. There was agreement between the parties, and we are satisfied, that the monthly figures represented a payment of $57.48 per fortnight of which $21.80 comprised the interest component and $25.68 the return of capital.[49]
[48] Re Sydney Herbert Hungerford and Repatriation Commission [1990] AATA 219
[49] Re Sydney Herbert Hungerford and Repatriation Commission [1990] AATA 219 at [4]
76.The AAT noted the definition of ‘income’ in section 35(1) of the VE Act as follows:
The term “income” is defined in sub-section 35(1) but only the opening words of that definition, rather than the qualifications which follow, are relevant in this case. Those words are:
“‘income’, in relation to any person, means any personal earnings, moneys, valuable consideration or profits, whether of a capital nature or not, earned, derived or received by that person for his or her own use or benefit by any means from any source whatsoever, within or outside Australia, and includes a periodical payment or benefit by way of gift or allowance and any income that the person is taken to receive because of section 37C or 37D, ...”
Various exceptions to the definition are then set out but none is applicable to this case. [50]
[50] Re Sydney Herbert Hungerford and Repatriation Commission [1990] AATA 219 at [6]
77.It may be seen that the definition of ‘income’ in section 35(1) of the VE Act is materially the same as the definition of ‘income’ in clause 11 of the Program, save for reference to ‘moneys’ in section 35(1) rather than ‘any other amounts’ in clause 11 and the additional words ‘whether of a capital nature or not’ in section 35(1). I have considered these differences below.
78.The AAT considered numerous decisions given from time to time concerning the meaning of ‘income’ in different factual contexts. The AAT then continued:
12. None of these cases considered an annuity of the type held by Mr Hungerford . In broad terms, they fall into three general categories: money paid in instalments from an outside source (Flanigan - inheritance from deceased estate and Moran - maintenance payments) payments made under the West German Federal Restitution Act for persecution under Nazi tyranny (Artwinska, Kolodziej and Zolotenki) and payments of other pensions (Kelleners - pension from overseas Government, Flannery - repatriation payments). Some drew a distinction between the receipts of a capital nature and receipts of an income nature and have suggested that receipts of a capital nature do not constitute “income” within the meaning of the definition as it previously existed prior to the 1986 amendment. Parliament has sought to put an end to this distinction by the 1986 amendment by adding the words of “whether of a capital nature or not”. That is not to say, however, that the cases necessarily no longer have any relevance. The amendment inserted the words “whether or a capital nature or not” after the words “personal earnings, moneys, valuable consideration or profits” but did not alter that phrase. While keeping in mind that there can be no distinction based on the capital nature of a payment since the 1986 amendment, the cases which considered the meaning of the phrase “personal earnings, moneys, valuable consideration or profits” are still of some assistance.[51]
[51] Re Sydney Herbert Hungerford and Repatriation Commission [1990] AATA 219 at [12]
79.The AAT then progressed through the components of the definition of income.
80.It noted that ‘earnings’ is defined in the Shorter Oxford Dictionary as meaning “that which is earned by labour, or invested capital”, and is understood in workers compensation legislation as meaning “the sum the workman gets for his work”. The AAT found that return of Mr Hungerford’s own capital could not qualify as ‘earnings’.
81.It noted that the meaning of ‘valuable consideration’ was addressed in Read v Commonwealth in which the majority in the High Court said that the words “would seem intended to embrace receipts not in money form, but capable of being valued in money terms” and include consideration such as “board and lodgings, goods, meals, rent-free accommodation or provision of gratuitous services.”[52] Implicitly, valuable consideration could not capture the return of Mr Hungerford’s own capital.
[52] See Read v Commonwealth [1988] HCA 26 per Mason CJ, Deane and Gaudron JJ at [14]
82.The minority in Read disagreed with the majority’s conclusion that the issue of additional units in the trust was only an ‘adjusting mechanism’, finding instead that the additional units was a capital gain amounting to valuable consideration and therefore income for the purpose of the Act, but neither the majority nor the minority suggested that the words ‘valuable consideration’ could include the return of a person’s own capital.
83.The AAT noted that the meaning of ‘profits’ was also addressed in Read v Commonwealth in which the majority said that ‘profits’ implies a comparison between the state of a business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain, and that ‘profit’ is the measure of an improved financial position. Again, the word could not capture the return of Mr Hungerford’s own capital.
84.The AAT then addressed the meaning of ‘money’, stating it to be “more nebulous in its meaning.” It noted from Halsbury’s Laws that the precise meaning of the word ‘money’ depends upon the context in which it is used. The AAT then stated:
In the definition of “income” in section 35 of the VE Act, the word “moneys” is used in the context of “personal earnings, valuable consideration or profits”. On the basis of the cases referred to above, we must interpret the word “moneys” while taking into account the context in which it appears.
85.In doing so, the AAT noted the earlier decision of the AAT in Re Leo Andrew Flanigan and Director-General of Social Security in which the AAT said:
All the words the subject of ‘means’, except ‘moneys’ necessarily denote an element or reward or profit from personal exertion or investment or exchange of capital. The words the subject of the verb ‘means’ are required by definition to be ‘earned, derived or received’ for either of the stated purposes of the recipient’s ‘use or benefit’. The methods of acquisition, ‘earned’ and ‘derived’ are consistent with the notion of personal earnings and profits and investment. ‘Received’ is not so forcefully consistent and is more the neutral but nevertheless is not inconsistent with the notion of profit or reward.
Both the words ‘moneys’ and ‘received’ are certainly coloured by association with their respective companion or allied words; ‘moneys’ by ‘personal exertion ... valuable consideration or profits ...’ and ‘received’ by ‘earned or derived’. The syntactical aid noscitur a sociis[53] is appropriate and assists this conclusion. The result of such application is to have the receipt of moneys read as ‘the receipt of moneys, payable by way of reward or from personal exertion or as consideration for some services rendered.[54]
[53] The Latin maxim noscitur a sociis entails the doctrine or rule that the meaning of questionable words or phrases in a statute may be ascertained by reference to the meaning of words or phrases associated with it
[54] Re Leo Andrew Flanigan and Director-General of Social Security [1984] AATA 284
86.In Lend Lease Real Estate Investment Ltd v GPT RE Ltd[55] the Court of Appeal, NSW Supreme Court, per Spigelman CJ, made a similar observation:
30 The general principle of the law of interpretation that the meaning of a word can be gathered from its associated words – noscitur a sociis – has a number of specific sub-principles with respect to the immediate textual context. The most frequently cited such sub-principle is the ejusdem generis rule. The relevant sub-principle for the present case is the maxim propounded by Lord Bacon: copulatio verborum indicat acceptationem in eodem sensu – the linking of words indicates that they should be understood in the same sense. As Lord Kenyon CJ once put it, where a word “stands with” other words it “must mean something analogous to them”. (Evans v Stevens [1791] EngR 1347; (1791) 4 TR 224; 100 ER 986 at 987. See also W J Byrne (ed) Broomes Legal Maxim (9th ed) Sweet and Maxwell, London (1924) pp373-374.)
31 However, as Lord Diplock put it in Letang v Cooper [1964] EWCA Civ 5; [1965] 1 QB 232 at 247:“The maxim noscitur a sociis is always a treacherous one unless you know the sosietas to which the socii belong.”
32 There is no such difficulty here. Unless the expression “assumption of obligations” is confined to “alienation”, most of the adjoining words would be otiose. The reading down of general words is one of the most common mechanisms applied in the course of legal interpretation. The Court should not give one word in an interrelated, overlapping list of expressions a meaning that is so broad as to be inconsistent with adjoining words or that renders those words irrelevant.
[55] Lend Lease Real Estate Investment Ltd v GPT RE Ltd [2006] NSWCA 207 at [29] - [32]
87.In my view, the observations of the Court of Appeal in Lend Lease Real Estate Investment and the AAT in Re Hungerford and Re Flanigan about the need to determine the meaning of a seemingly ‘nebulous’ word from their associated words applies in this case when determining the meaning of ‘any other amounts’ in clause 11(1)(a) of the Program. In my view, the words are no more than a different way of stating ‘moneys’ or ‘any other moneys’, which leads to the conclusion that ‘any other amounts’ is used in the context of “personal earnings, valuable consideration, profits” meaning the obtaining by some means of additional money.
88.In Re Hungerford, having examined one by one the meanings of the words in definition of ‘income’ in section 35(1) of the VE Act, the AAT concluded:
24. Having reviewed the cases, we conclude that we must look at the nature of the money which Mr Hungerford has received and, consequently, the true nature or the investment. To fall within that category, that payment must either have been received as gains derived as a result of his providing personal exertion or services of some kind or as a result of the disposition of his property in some way. There was no suggestion by the parties that Mr Hungerford’s payments could be described as a gift or allowance. Mr Hungerford’s payment do not have any element of an ex gratia payment and cannot, as such, fall within the second part of the definition of “income” as a “periodical payment or benefit by way of gift or allowance”.
25. Mr Hungerford’s monthly payments from Suncorp Comprise both capital and interest. There is no doubt in our minds that the interest component ($21.80) comes within the meaning of “income”. The return of the portion of the undeducted purchase price, however, has not been earned as a result of Mr Hungerford’s efforts. It is a return of his own capital. It has been paid to him as a result of arrangements he has made but it cannot be regarded as a “gain” from some dealing in property or as consideration for his person exertions or efforts. Indeed, in so far as his capital outlay of $8,000 is concerned, Mr Hungerford will, over the ten year period, incur a loss on his capital as he will receive back only $6,694.80. Nor is it a gift or allowance. It is his own money. (emphasis added)
89.Subsequent cases demonstrate that for many years courts and tribunals held, with reliance on Re Hungerford, that in order for money received to be regarded as ‘income’ the money “must either have been received as gains derived as a result of [the person] providing personal exertion or services of some kind or as a result of the disposition of his property in some way.” ‘Gain’ was central.
90.The need for gain through exertion or services was disapproved (and was therefore no longer good law) following French J’s decision in Brian McLaughlin[56] on appeal from the AAT. In that case, Mr and Mrs McLaughlin had been carrying on business as milk vendors. They accepted $121,950 from the Western Australian Dairy Industry Authority under an industry deregulation scheme in consideration for their undertaking to have no involvement in the milk distribution or milk vending businesses in Western Australia for three years. The question was whether the amount they received was ‘income’, as defined in section 8 of the Social Security Act 1991.
[56] Secretary, Department of Social Security v Brian McLaughlin & Anor [1997] FCA 1456
91.The AAT in its decision under appeal, after referring to Re Hungerford, had concluded that the payment was not a profit as there was no disposal of property. The payment was “compensation for the extinguishment of their business and in consideration of the respondents entering into the restrictive trade covenant referred to above.” The payment was therefore not income.
92.On appeal, French J disagreed. His Honour noted the statutory framework as follows:
Sections 8(1) and 8(2) of the Social Security Act 1991 provide in the relevant parts:
“8(1) In this Act, unless the contrary intention appears:
.
“earned, derived or received” has the meaning given by subsection (2);
. ..
“income”, in relation to a person, means:
(a) an income amount earned, derived or received by the person for the person’s own use or benefit; or
(b) a periodical payment by way of gift or allowance; or
(c) a periodical benefit by way of gift or allowance;
but does not include an amount that is excluded under subsection (4), (5) or (8);“income amount” means:
(a) valuable consideration; or
(b) personal earnings; or
(c) moneys; or
(d) profits;
(whether of a capital nature or not);8(2) A reference in this Act to an income amount earned, derived or received is a reference to:
(a) an income amount earned, derived or received by any means; and
(b) an income amount earned, derived or received from any source (whether within or outside Australia).”None of the exclusions contained in subss (4), (5) or (8) of s 8 have relevance to this application.
93.It may be seen that the definition of ‘income’, although structurally revised from the definition in the 1947 Act, had materially the same components as the definition of ‘income’ in subclause 11(1)(a) of the Program.
94.After considering the definition, French J said:
What the Tribunal has sought to do and the Court is invited now to do is to read down the definition of “income” and “income amount”. That reading down involves not just a choice of meanings to be attributed to the existing words of the definitions but the introduction into the definitions of words of limitation which the legislature has not seen fit to enact.
The definition of “income” extends to income amounts “received” by a person. There is no requirement in the Act that such amounts are received in exchange for anything. They may therefore extend to gifts. This is reinforced by the extension of the definition of “income” to “a periodical payment by way of gift or allowance”.
There is no requirement in the definition for the payment received to constitute a net gain. Absent such a requirement a payment of money received by a person for that person’s own use or benefit is a payment of an income amount. No doubt examples may be generated and multiplied of apparently startling or unfair results of this construction. The receipt of the proceeds of the sale of a house or a lottery win may constitute “income” for the purposes of the Act. Such debates, however, are best reserved for the legislature. There is, in my opinion, no room in the language of the definitions of “income” and “income amount” for the kind of construction adopted by the Tribunal.
The amounts paid were income and should be treated as such.
95.It may be seen that French J agreed with Brennan J in Read v Commonwealth that it does not matter whether money is received as capital or income.
96.Applying the Court’s reasoning in McLaughlin, where the definition of ‘income’ was materially the same as subclause 11(1)(a) of the Program, it appears clear that the original compensation payment or any other capital sums that Ms Arndt received constituted ‘income’ at the time of the receipt. Mr Christensen agreed. [57]
[57] Transcript of proceedings, 28 June 2017, page 63, lines 1 - 6
97.However, that does not answer the core issue. McLaughlin concerned receipt of money from another person. In this case, consistent with Re Hungerford, the money in question is the return of Ms Arndt’s own capital that she previously paid into the Fund.
98.Further, it appears clear that for the purposes of the Social Security Act 1991 the Commonwealth through its agencies and departments accepts that return of a person’s own money is not ‘income’.
99.In McLaughlin and Secretary, Department of Family and Community Services[58] the AAT considered a circumstance where, in 1970, Mr McLaughlin had taken out a life insurance policy. In 2001, the policy matured. The maturity amount of the policy was $18,860.00. Over the period of the policy, the premiums amounted to $12,437.76. The difference between the maturity payment and the sum of the purchase price and premiums paid was $6,422.84. The Commonwealth contended that the profit (and only the profit) on the policy (i.e. the difference between the maturity payment and the sum of the purchase price and premiums paid) was ‘income’ for 12 months following maturity. Mr McLaughlin contended that the whole return ($18,860) was an exempt lump sum and so was not ‘income’ for the purposes of the Act. The AAT agreed with the Commonwealth, but of relevance for present purposes was the Commonwealth’s acceptance from the outset that the money Mr McLaughlin had paid to obtain and continue the policy in the form of the purchase price and premiums needed to be deducted. In other words, the return of his own money as part of the maturity amount was not ‘income’.
[58] McLaughlin and Secretary, Department of Family and Community Services [2003] AATA 298
100.In Davies and Secretary, Department of Family and Community Services[59] the Commonwealth took the same position in relation to payments under a life assurance policy. In issue was whether the whole amounts were exempt income, but before considering that issue the AAT noted preliminary aspects of the Commonwealth’s argument as follows:
The Department maintains that section 8 of the Act defines “income”. .. The life insurance policy … could not be considered therefore to generate an income contemporaneous with the policy’s existence, despite growth in the capital amount. Until its maturity, no consequent income was assessed against the applicant’s pension. Section 1073 of the Act provides for the treatment of lump sum amounts as though received over a 12 month period. The section only applies where a sum of money first answers the description of income, and it applies to income received in a non-periodic or capital form. The mere return of capital would not be caught as “income”. Accordingly, the applicant’s contributions were excised in recognition that they were simply the return of his own moneys. In this way an amount akin to an accumulation of interest, is all that is assessed as income. (emphasis added)
[59] Davies and Secretary, Department of Family and Community Services [2002] AATA 904 at [16]
101.My research has not found any case, and Mr Adkins did not refer me to any case, that supports the Commissioner’s submission that the return of a person’s own capital (whether that be from the trustee of a superannuation fund, an insurer or a banker) is ‘income’ for the purposes of the 1991 Act or for the purposes of any other legislation or subordinate instrument (such as the Program) where ‘income’ is defined in materially the same way as it is defined in subclause 11(1)(a).
102.I also reject the submission that Ms Arndt ‘gifted’ her money to the trustee of the Fund or that there is significance in the trustee’s ownership of the Fund. Laog, as trustee, may ‘own’ the investment but it does so as trustee for the beneficiary - Ms Arndt.
103.Also, referring to capital repayments to a person from a bank which the Commissioner acknowledges are not income, the position is materially the same. If a person deposits money into a bank, the bank then owns the money even though the amount deposited is repayable to the customer on demand. In Commissioner of The Australian Federal Police v Kalimuthu [No 3], to choose a recent case stating well-settled principle stretching back more than 200 years, Allanson J said:
The relevant interest held by the respondents is as the account holders of saving accounts, with credit balances, in two Australian banks. Neither party sought to prove terms of the contract between the bank and its customers which might modify the normal relationship between customer and bank. The nature of that relationship was summarised by Barrett JA in Citigroup Pty Limited v National Australia Bank Limited [2012] NSWCA 381:
The accepted analysis of the banker-customer relationship where the account is in credit casts the bank in the role of the customer’s debtor. Money notionally ‘in’ the customer’s account is in truth money owned by the bank which is owed by it to the customer and payable on demand made by the customer by way of ‘withdrawal’: see, for example, Carr v Carr [1811] EngR 606; (1811) 1 Mer 541; 35 ER 799; Devaynes v Noble (1816) 1 Mer 529; 35 ER 767; Foley v Hill [1848] EngR 837; (1848) 2 HL Cas 28; 9 ER 1002. [41][60]
[60] Commissioner of The Australian Federal Police v Kalimuthu [No 3] [2017] WASC 108 at [104]
104.There is also, in my view no significance in characterising the payments as an ‘income stream’. The amount to be paid to Ms Arndt is determined by the payments into the Fund whilst it is in accumulation phase and returns to the Fund generally. Payments to a beneficiary from a fund once in pension phase may be ‘income’ for taxation and superannuation purposes, noting tax concessions given on contributions during a self-managed fund’s accumulation phase, but that is irrelevant for the purpose of what constitutes ‘income’ under the Program. For the same reason, the ATO’s Determination about treatment of payments made as a partial commutation of an account based pension do not assist in relation to the meaning of ‘income’ in the Program.
105.The only authority which, arguably, supports the Commissioner’s position is JW and JE Carter where the AAT rejected a submission that a return of the applicants’ own capital was not ‘income’. However the AAT did so because the submission did not fairly represent what had occurred. The amount of monthly distributions to the applicants from the income trust was not taken as their investment income. Rather, the person’s managed investments were assessed in accordance with a formula devised by the Department which took a return of the person’s capital into account (to the applicants’ advantage) and which complied with specific provisions in the Social Security Act 1991 concerning managed investments. There are no such provisions in the Program. The AAT concluded
I therefore find that the applicants’ income was assessed in accordance with the formula which I accept is a correct interpretation of the requirements under the Act.[61]
[61] JW and JE Carter and Secretary, Department of Social Security [1996] AATA 128 at [23]
106.As Mr Christensen stated, the case ‘doesn’t assist’.
107.The weight of authority obliges me to conclude that when considering the monthly payments made from the Fund to Ms Arndt, money that constitutes a return of Ms Arndt’s own capital paid into the Fund (if any) is not ‘income’ for the purposes of subclause 11(1)(a).
108.I deal nevertheless with Mr Adkins’ submission that “when considering appeals before the [Appeal] Tribunal the original decision is presumed to be correct unless demonstrated to be clearly wrong.”[62] In support, Mr Adkins relied on the decision of General President Crebbin in The Tenant v Commissioner for Social Housing.[63] Mr Adkins submitted that Ms Arndt ‘has failed to support her application for appeal to [that] level’. I would agree that Mr Christensen has not persuaded me of error on the part of the original tribunal, but the submission does not fairly represent the statement of General President Crebbin or the authorities she relied upon when making it. Her statement was as follows:
If an original decision was made following the exercise of discretion, the appeal Tribunal should not set it aside unless satisfied that the decision was clearly wrong.[64]
[62] Submissions of the respondent, 7 July 2017, at [5]
[63] The Tenant v Commissioner for Social Housing [2016] ACAT 49
[64] The Tenant v Commissioner for Social Housing [2016] ACAT 49 at [12]
109.The decision under appeal in this case is not a discretionary decision: it is a decision involving a question of law about the meaning of ‘income’ for the purposes of the Program. Also, it is not necessarily a matter of whether Ms Arndt has satisfied the Appeal Tribunal that the decision was clearly wrong but whether the Appeal Tribunal is satisfied, by whatever means, the that the decision was clearly wrong.
110.Although I will allow the appeal, it is important to note that neither party brought the applicable law to the attention of the original tribunal. I anticipate that had either party done so, the original application would have been decided differently.
111.Order 2 made by the original tribunal will be amended under rule 21(d) of the ACT Civil and Administrative Tribunal Rules 2009 to give effect to my conclusion that money paid to Ms Arndt from the Fund that represents return of her own capital is not ‘income’ as defined in subclause 11(1)(a) of the Program.
112.I anticipate a host of factual complexities beyond the question referred on appeal, especially when endeavouring to identify a specific amount that constitutes a return of Ms Arndt’s own capital. By this, I do not imply that Ms Arndt needs to show that her capital was ‘kept safe’ somewhere and that she is getting back that which she gave. The capital she paid into the fund was plainly invested in the sense of paid by the trustee to third parties in the expectation of returns to the Fund, but that is equally true for money paid to a bank or to an insurer in return for interest or a later payments under the policy.
113.Complexities may arise, however, in determining whether returns to the Fund are (or were) sufficient to meet a monthly payment as and when it is paid. There is also a question whether, despite fluctuations on returns over the 12 month period, the end result was that a return of capital did not occur. For example, assume the Fund achieved a 7% return over a financial year and Ms Arndt had elected to take 5% of the balance of the Fund (even if the minimum statutory requirement was 4%) as at 30 June of the preceding year, it would seem that 2% of those returns would remain in the Fund to form part of the value of the Fund as at 30 June of the following year. Assuming Ms Arndt continued to receive 5% of the value of the Fund over the following financial year, that 2% return would form part of the total value of the Fund for the purpose of calculating the amount to be paid to Ms Arndt for the following year. When considering each monthly payment, the difference between return of capital and income may blur. From a superannuation viewpoint, the sole consideration is the value of the Fund as at 30 June each year regardless of the source of the money in the Fund.
114.Ms Arndt (through her financial advisers) is the only person who could ascertain whether any part of her monthly pension payment is a return of her own capital. It must therefore be for her to satisfy the Commissioner, as required under clause 25(1) of the Program, that any part of her monthly pension payment is a return of her own capital and therefore not income. I will therefore amend order 2 of the original tribunal’s orders accordingly.
115.I will also amend order 1 of the original tribunal’s orders to identify the decision under review.
………………………………..
Presidential Member G McCarthy
HEARING DETAILS
FILE NUMBER:
AA 12/2017
PARTIES, APPELLANT:
Robin Arndt
PARTIES, RESPONDENT:
Commissioner for Social Housing
APPELLANT’S REPRESENTATIVE
Mr P Christensen
RESPONDENT’S REPRESENTATIVE
Mr C Adkins
SOLICITORS FOR APPELLANT
Peter B Christensen, Solicitor
SOLICITORS FOR RESPONDENT
N/A
TRIBUNAL MEMBER:
Presidential Member G McCarthy
DATE OF HEARING:
28 June 2017
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