Awford and Secretary, Department of Social Services Chief Executive Centrelink (Social security)

[2025] ARTA 321

Awford and Secretary, Department of Social Services Chief Executive Centrelink (Social security) [2025] ARTA 321 (12 March 2025)

Applicant/s:  Mr Awford

Respondent:  Secretary, Department of Social Services

Chief Executive Centrelink    

Tribunal Number:   2024/B191404 

Tribunal:  General Member L Manville

Place:Brisbane

Date:12 March 2025

Decision:The Tribunal affirms the decision under review.

Statement made on 12 March 2025 at 11:26am

CATCHWORDS

SOCIAL SECURITY – pensions, benefits and allowances – Age Pension – payments reduced – foreign pension income – USA-Australia convention regarding taxation – conflating the rate of age pension with taxation – ordinary income – decision under review affirmed

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted from this decision and replaced with generic information pursuant to subsection 201(1A) of the Social Security (Administration) Act 1999.

Statement of Reasons

BACKGROUND

1. This review concerns a decision of Services Australia- Centrelink (Centrelink) to reduce the rate of age pension paid to Mr Awford.

2. Mr Awford is an Australian resident who was granted age pension on 9 August 2021, effective from 18 June 2021.  He is partnered. Mr Awford’s age pension is reduced under the pension income test because he received foreign income comprising of an old age pension from the United States of America in the sum of USD1,179 per month, and a pension from [Employer 1] in the sum of USD925.40 per month (the ‘US pensions’).  Centrelink has deemed that Mr Awford’s savings and investments earnt $10,333.62 per annum and these were also taken into account when calculating his rate of age pension.

3. On 5 May 2023, Mr Awford requested an internal review of the decision to reduce his rate of age pension under the pension income test on grounds that the Convention between the Government of the United States of America and the Government of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the Convention) provides, he contends, a clause excluding his old age pension payments from the United States of America from the pension income test assessment.

4. On 11 May 2023, an authorised review officer affirmed the decision to assess Mr Awford’s rate of age pension under the pensions income test by reference to his gross pension payments from the United States of America government and [Employer 1].

5. Mr Awford made an application to the Administrative Appeals Tribunal (the AAT) on 9 October 2024, seeking independent review of the Centrelink decision.

6. From 14 October 2024, the AAT became the Administrative Review Tribunal (the Tribunal).  Under the transitional provisions in the Administrative Review Tribunal (Consequential and Transitional Provisions No. 1) Act 2024 (the Transitional Act), applications for review to the AAT that were not finalised before 14 October 2024 are taken to be an application for review to the Tribunal. The Transitional Act gives the Tribunal the authority to continue and finalise any aspect of the review not already completed by the AAT. The decision and statement of reasons is made by the Tribunal.

7. On 17 January 2025, the Tribunal made an order under subsection 63(2) of the Administrative Review Tribunal Act 2024 that the Secretary provide written submissions addressing the impact, if any, of the Double Taxation Taxes on Income Convention between the United States of America and Australia on the rate calculation applied to the applicant's age pension payments. 

8. The application was heard on 20 January 2025.  Mr Awford participated in the hearing via MS Teams video conference and gave affirmed evidence.  

9. On 14 February 2025, submissions were filed by Sparke Helmore Lawyers on behalf of Centrelink.  The Tribunal invited reply submissions to be filed by Mr Awford by 1 March 2025.  On 25 February 2025, Mr Awford lodged reply submissions with the Tribunal.

10. The Tribunal had regard to the evidence given by Mr Awford at the hearing, and the documents produced by Centrelink pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (in force at the time) numbered as pages 1 to 101 (the hearing papers). Mr Awford confirmed receipt of the hearing papers prior to the hearing. The Tribunal also had regard to the materials lodged by Mr Awford on 23 January 2025, marked A1 to A52, and the written submissions filed by Centrelink on 14 February 2025, in response to the order made by the Tribunal under subsection 63(2) of the Administrative Review Tribunal Act 2024, and the reply submissions lodged by Mr Awford on 25 February 2025.

ISSUES

1. The statutory provisions relevant to this review are contained in the Social Security Act 1991 (the Act) and the Social Security (Administration) Act 1999 (the Administration Act).

2. The Social Security Guide (the Guide) contains governmental guidelines and policy to assist Centrelink officers in their application of the social security law. The Tribunal had regard to the Guide where relevant. The Tribunal acknowledges that, whilst it may be guided by policy and it is not bound to follow it, it should consider the relevant government policy which is consistent with the provisions or objects of the Act.[1]

   [1] Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634.

3. The issue that arises in this case is whether the rate of age pension paid to Mr Awford should be reduced.  This requires consideration of whether the old age pension from the United States of America and a pension from [Employer 1] should be considered under the pension income test.

CONSIDERATION

1. Under the Rate Calculator in section 1064 of the Act, a person’s rate of age pension is subject to both an income test and an assets test, with the rate payable being the lower of the rates under the two tests. For the purposes of the income test, a person is deemed to receive income from financial assets at a set rate in accordance with provisions in Division 1B of Part 3.10 of the Act.

2. Module E within the Rate Calculator sets out the ordinary income test, which concerns what the effect of a person’s ordinary income is on their maximum payment rate (point 1064-E1 of the Act). The term “ordinary income” is defined in subsection 8(1) of the Act as income that is not maintenance income or an exempt lump sum. “Income” is defined in that section as:

   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 a gift or allowance;

   (c)A periodical benefit by way of a gift or allowance;

   but does not include an amount that is excluded under subsection (4), (5) or (8).

3. The Tribunal is satisfied that none of the exclusions in subsections 8(4), (5) or (8) have application in this review.

4. Section 1072 of the Act provides that a reference to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction (unless a reduction in relation to business income is allowed under Division 1A).

5. Section 1100 of the Act provides for how a payment in foreign currency is to be determined in circumstances where a rate is to be calculated. It provides that the value of Australian currency is calculated using the appropriate market exchange rate for the foreign currency on the fifth business day before the calculation date, adjusted monthly. For completeness, the Tribunal has reviewed the rate calculation applied to Mr Awford’s pension payments and is satisfied that the correct calculation has been applied in his case.

Applicant’s contentions

1. In his application to the Tribunal, Mr Awford contended:

   I hold two citizenships, the USA and Australia. In the USA I have two pensions:

   1- Private from my former employer, [Employer 1]. That pension is the result of a loyalty program, rewarding the executives who worked for [this employer] for at least 10 years. It is a fixed monthly payment of US$925.40 for life.

   2- The second is the government Social Security, given to citizens after completing the right age, depending on the year of birth; it is a variable sum and this month is US$1,217.00

   These pensions are today considered two times, once in the USA and Australia Centrelink requirements for my pension.

   However, it is my viewpoint that only my private pension from [Employer 1] should be considered an income for pension requirements, in Australia.

   Please allow me to humbly call your attention to the Double Taxation Taxes on Income, Convention Between The United States of America and Australia. This can be found here: clause 23 Non-discrimination, 23(1.a) reads:

   Each Contracting State in enacting tax measures shall ensure that: (a) citizens of a Contracting State who are residents of the other Contracting State shall not be subjected in that other State to any taxation or any requirement connected therewith which is more burdensome than the taxation or connected requirements to which citizens of that other State who are residents of that other State in the same circumstances are or may be subjected; 

   The discount applied to my pension in Australia because my US government pension is causing me difficulties facing the cost of living, based on clause 23(1.a) above, I politely request the revision of my Australia Centrelink pension from the beginning of the payments in 2021, which today is at least 60% reduced because disregards the clause.

   Also, reducing my Centrelink pension because of my USA pension, I understand is equivalent to an indirect tax charge on my USA pension, which is in disagreement with Article 18(2) of the agreement.

2. Mr Awford lodged documents with the Tribunal to support his contentions.  These documents comprised:

   (a)    Google printout of search term “how much is the retirement for singles in Australia 2025”, with an AI Overview of the answer to that question being “The maximum full Age Pension for a single person in Australia from September 20, 2024 to March 19, 2025 is $1,144.40 per for fortnight, or about $29,754 per year”;

   (b)    Copy of Mr Awford’s joint 2023 US Individual Tax Return.  This return included social security benefits in the sum of USD14,148 and taxable income for annuities and pensions as $20,475.  The gross income from all sources was recorded as USD20,511;

   (c)    Notice of amended assessment issued by the Australian Taxation Office for the 2021/22 financial year, issued [in] April 2023.  This document recorded an amended taxable income of $26,126. Previous taxable income was recorded as $44,495;

   (d)    Email dated 15 March 2023 from [Accountants 1] to Mr Awford, advising that his USA social security pension is not assessable Income for Australian taxation purposes;

   (e)    Centrelink Income and Assets form, undated, recording income of USA government pension and private pension from [Employer 1] and assets held in 2 bank accounts and 2 motor vehicles;

   (f)    Email dated 22 January 2025 from Mr Awford to the Tribunal Registry containing information regarding his taxation and stating, “Actually following our discussions, not even my US private retirement should be considered to discount my Centrelink retirement, because it is already included in my US tax return”; and

   (g)    Curriculum vitae of ‘Mr Awford’.

3. In evidence, Mr Awford told the Tribunal that in 2023 he received his income tax return in Australia and he had been charged taxation in Australia because  he had exceeded the minimum threshold of assessable income.  He sought review of the Commissioner’s tax assessment and was subsequently reissued with an income tax assessment from the Australian Taxation Office.  The reassessment excluded his US pension from his taxable income.   Mr Awford told the Tribunal that this prompted him to have reference to the Convention when it came to his requirement to disclose his foreign pensions for the purposes of his age pension payment. 

4. Mr Awford told the Tribunal that he considers that the reduction of his age pension by reference to his foreign pension income has the effect of reducing his rate by approximately 60% and this, he asserts, is an indirect taxation that is discriminatory.  Mr Awford told the Tribunal that he believes the Convention means that his US pensions cannot be included in the pension income test used to assess his rate of age pension.

5. When asked by the Tribunal about his taxation liability, Mr Awford told the Tribunal that his US old age pension is not taxed in the United States of America because it is under the minimum taxable assessment threshold. He understands, following his 2023 income tax reassessment, that his US old age pension is not assessable income under Australian taxation law.  

6. Mr Awford told the Tribunal that he considers that the disadvantage he experiences is because he is not eligible to receive the full amount of age pension in Australia because of his foreign income from his 2 pensions paid in the United States of America.  In a submission lodged with the Tribunal on 21 January 2025, Mr Awford wrote that his last Centrelink age pension payment was 42% lower than the maximum full age pension for a single person in Australia payable between 20 September 2024 to 19 March 2025.[2]  The Tribunal observes that Mr Awford is not a single person and subject to an income and assets test.

   [2] Folio A1.

7. Mr Awford told the Tribunal that he is experiencing financial hardship because he has recently had expensive medical treatment and all of his expenses for that treatment were not covered by Medicare.  His partner also has a [health] complaint.  Mr Awford seeks relief from financial hardship as he considers the reduction in his age pension to be “brutal”.

Respondent’s contentions

1. In summary, the Secretary contends (original footnotes omitted):

   With respect, the applicant’s contentions are misconceived. The applicant’s contentions
   conflate the reduction of his rate of age pension with taxation. However, these are two entirely
   different, and exclusive, processes. For the following reasons, the Secretary respectfully
   submits that: (i) the applicant’s US pension is income for the purpose of the SS Act; and (ii) the Convention is irrelevant to the calculation of the rate of the applicant’s age pension.[3]

   [3] Paragraphs 3.2, folio C3.

   ….

   It follows from the above that the position under Australian social security law is that a foreign
   pension will be income for the purposes, relevantly, of determining a person’s rate of age
   pension. The question that then arises is whether the text of the Convention affects that
   position? For the following reasons, the answer to that question is ‘no’. In particular, the
   Secretary respectfully submits that reducing the rate of the applicant’s age pension does not
   amount to ‘indirect taxation’, nor does it contravene Australia’s obligations under the

   Convention, because that Convention is not relevant.

   The applicant has conflated the reduction of his age pension due to his income, with the process of taxation. As explained above, a person’s rate of age pension is calculated in accordance with the provisions of the SS Act, and – in very simple terms – is reduced by a person’s income. Taxation is an entirely separate process whereby an amount of a person’s income is collected for the purpose of generating revenue for the government. It operates retrospectively on the value of something, whereas what is occurring when the rate of an age pension is reduced is the government is, in effect, avoiding expenditure in circumstances where a person is able to support themselves due to income they have earned, derived or received from another source.  The reduction in the rate of age pension lacks any of the characteristics of a tax, whether direct or indirect: there is no extraction of revenue for the Commonwealth, whether intended or not; the rate of age pension payable is a private right owed by the Commonwealth to the applicant; and, it is not a purpose of the SS Act or the SS Administration Act to create revenue for the Commonwealth in circumstances where both Acts facilitate the payment of monies from the Commonwealth to individuals. The Convention is only relevant to the taxation of the applicant’s US pension; it is not relevant to the calculation of his rate of age pension. The applicant’s purported reliance on Article 18(2) of the Convention only serves to reinforce this point because of  the way that Article distinguishes between the making of a social security payment (such as the age pension) and the application of tax to that payment.

   The applicant has not explained in any meaningful way how the reduction in his rate of age
   pension is equivalent to an indirect tax. The applicant appears to misunderstand the definition
   of indirect tax. Indirect tax is a tax passed off by the government on goods and services, such
   as GST. Reducing the applicant’s rate of age pension in accordance with the provisions of the
   SS Act is not an indirect tax: the Secretary is not ‘passing off’ any tax imposed by a taxation

   law, nor is the government collecting (taxing) any of the American pension through this process.[4]

Applicant’s reply submissions

[4] Paragraphs 3.9 to 3.10, folio C5.

1. In addressing the Secretary’s contentions, Mr Awford reiterated the Commissioner of Taxation’s position on his US pensions. He submitted that the definition in the Act is vague, creates a wide range of interpretations, and that “income was difficult to define conceptually and the definition may differ across fields”. Mr Awford maintained the contention that his US pensions were the subject of his tax return in the United States of America and that the reduction of his Australian pension is an “indirect tax, an indirect charge or a double charge”.

2. Mr Awford contended that the qualification requirements for social security retirement benefits include 10 years of work, the attainment of retirement age, and the payment of taxes.  From that perspective, he contends that his US pension is not income because he paid in advance for it so it is to be characterised as a “return of deposits” rather than a pension.  With regards to his [Employer 1] pension, Mr Awford asserts that this payment is not income but reward for lengthy employment loyalty.  Mr Awford’s reply submissions contained a comparative assessment of the differences between social security eligibility in Australia and in the United States of America.  He contends that the pension income test is a “cost avoidance” measure implemented by the Australian government to avoid expenditure.  Mr Awford concluded his submissions by reasserting that his US pensions are in conflict with Article 23 of the Convention.

The Convention

1. The Convention was signed on 6 August 1982.  Section 5 of the International Tax Agreement Act 1953 lists the current agreements that have the force of law in Australia.  Only Articles 6 and 20 of the Convention have the force of law.  The Letters of Transmittal for the Convention state that it takes into account changes in the income tax laws and tax law treaties of the two countries.  The Convention provides limits on the tax at source with respect to taxes imposed on investment income and provides rules for the taxation of capital gains, business profits, personal services income, and other income.  The Convention provides a method to avoid double taxation and for administrative cooperation between tax officials between the two countries to avoid double taxation and prevent fiscal evasion.

2. The non-discrimination clause found in Article 23, on which Mr Awford relies, provides that a Contracting State, in enacting tax measures, shall ensure that citizens who are residents of the other Contracting State shall not be subjected in that other State to any taxation or any requirement connected therewith which is more burdensome than the taxation or connected requirements to which citizens in the same circumstances are or may be subjected.  This Article is expressly excluded from having the force of law in Australia.[5]

   [5] Section 5(2) of the International Tax Agreement Act 1953.

1. After careful review of the Convention’s scope and legislative context, the Tribunal is not persuaded that it is intended to relate to anything other than taxation and taxation avoidance. The social security legislation does not contain law related to taxation and does not impose direct or indirect taxes.  The Tribunal has not been satisfied that the social security law, and the pension income test specifically, operates to impose tax directly or indirectly and the requirement to consider foreign income in assessing the rate of social security payment does not amount to an indirect tax.

2. For completeness, the evidence before the Tribunal is that Mr Awford is neither taxed in Australia nor the United States of America on his US pensions.  Rather, the highest that can be asserted is that Mr Awford is potentially exposed to taxation liability. The evidence does not support a favourable finding that his taxation obligations are more burdensome than a person in the same circumstances.  While Mr Awford asserts that he is under financial hardship as a result of a reduced age pension, this is not the test to be applied when assessing whether he is discriminated against in respect to how his foreign pensions are treated for social security purposes.

3. The Tribunal has not been persuaded that the Convention has any bearing on the definition of income and its application to the pension income test contained in the social security legislation.

The meaning of ‘income’ under the social security law

1. In Read v Commonwealth[6] the High Court of Australia distinguished the term ‘income’ used in the Act from income used for tax purposes. Brennan J said, in respect to the definition contained under the social security legislation:

   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. The definition is wide enough to embrace receipts of a capital nature as well as receipts of income, for "income" is defined to mean, inter alia, any moneys, valuable consideration or profits irrespective of the means by which or the source from which those moneys, etc. are received.

   ….

   Under the Income Tax Assessment Act the receipts of an income year are examined to ascertain whether they bear the character of income and are brought to charge accordingly, but under the Social Security Act a receipt of "income" is relevant to the determination of the rate of pension only to the extent that it affects "the annual rate of income".

   [6] (1998) CLR 57.

1. In Rose v Secretary, Department of Social Security[7] the Full Court of the Federal Court, in considering the meaning of income under the predecessor 1947 Act and a pension derived from the German Democratic Republic, said:

   The pension payments made to the appellant in the GDR are moneys "received" by him in the sense of "realised" by him in the GDR. It is not to the point that those moneys are in that sense received by him outside Australia. The payments answer the description of moneys "earned, derived or received" (in the sense of "realised") by him for his own use or benefit from a source outside Australia and fall within the definition of "income" in s. 3.

   [7] [1990] FCA 52, [20].

2. Topic 4.3.6.10 of the Guide contains general rules applying to income from overseas payments which are referred to as comparable foreign payments (CFPs). A CFP is a payment type that is available from a foreign country and is similar to a social security pension, which includes age pension under section 23 of the Act. The Guide relevantly states:

   The gross current rate of payments from overseas is generally treated as income for Social Security purposes whether the payments are made:

   ·     From overseas, or

   ·     Through an Australian agent.

   No amount is deducted for any tax deductions, bank charges or for foreign country debts deducted from the overseas payment.

   Exception: The treatment of some CFPs may be modified by Australia’s Social Security agreements with other countries. Payments may be treated as:

   ·     A direct deduction, rather than as ordinary income, or

   ·     Exempt from the income test, or

   ·     Partly assessable, with only some components of the payment, or a proportion of the payment being assessable.

3. The definition of income contained in the social security legislation is wide in order to achieve its purpose. The Tribunal has not been persuaded that Mr Awford’s potential and, in this case, speculative exposure to taxation liability has any bearing on his requirement to disclose foreign income for the purposes of assessing his rate of age pension under the Act.

4. The Tribunal is satisfied, and so finds, that both US pensions are amounts earned, derived, or received by Mr Awford for his own use or benefit and come within the meaning of ordinary income in section 8 of the Act. It was legally correct for Centrelink to take the US pensions into consideration when assessing the rate of age pension payable to Mr Awford.

5. The decision to reduce the rate of age pension paid to Mr Awford is the correct legal decision, and the Tribunal affirms the decision under review.

DECISION

The Tribunal affirms the decision under review.

Date(s) of hearing:	Monday, 20 January 2025
Representative for the Applicant:	Self-represented