Bailey and Secretary, Department of Education, Employment and Workplace Relations
[2009] AATA 173
•17 March 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 173
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/3664
GENERAL ADMINISTRATIVE DIVISION ) Re ROBERT BAILEY Applicant
And
SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS
Respondent
DECISION
Tribunal Robin Hunt, Senior Member Date17 March 2009
Heard East Maitland
PlaceSydney
Decision The decision of the Social Security Appeals Tribunal dated 3 July 2008, imposing an income maintenance period under the Social Security Act 1991 from 7 September 2008 to 23 August 2008, is affirmed.
....................[sgd].....................
Ms R Hunt
Senior Member
CATCHWORDS
SOCIAL SECURITY – application for Newstart Allowance - income maintenance period – employment redundancy - termination payment received from employer – part of payment used to pay mortgage debt – applicant now in severe financial hardship – consideration of how termination payment expended – not all spending for period unavoidable or reasonable expenditure – large portion of payment used to pay outstanding mortgage debt – value of liquid assets exceeds allowable limit – decision under review affirmed.
Legislation considered:
Social Security Act 1991 sections 14(1) - (2), 19C(3) - (4), 1068-G7AH – 1068-G7AM
Cases considered:
New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR 179; 5 ATD 36
REASONS FOR DECISION
17 March 2009 Ms Robin Hunt, Senior Member summary
1. Robert Bailey is unemployed and has applied for Newstart Allowance under the Social Security Act 1991 (“the Act”). An officer employed by Centrelink, which is the agency for the Secretary to the Department of Education, Employment and Workplace Relations (“the Secretary”), refused his application. Instead of receiving assistance, Centrelink informed Mr Bailey that, as a result of receiving a termination payment, he was subject to an income maintenance period. The termination payment he received when his employment became redundant had resulted in imposition of the period and this prevented his receiving Newstart Allowance until the period ended. Mr Bailey sought review of this decision and argued that he had spent his termination payment on unavoidable or reasonable expenses and was now in severe financial hardship so that the income maintenance period should be shortened in his case.
issue
2. The issues are:
· Should Mr Bailey be subject to an income maintenance period;
· If so, for what duration is Mr Bailey unable to receive Newstart Allowance;
· Am I satisfied Mr Bailey is in severe financial hardship?
· If so, is Mr Bailey in severe financial hardship because he has incurred unavoidable or reasonable expenditure while subject to the income maintenance period?
background
3. Mr Bailey’s employment with the NSW Rail Infrastructure Corporation was terminated on 7 September 2007 after about 20 years of service. His Employment Separation Certificate states he received the following payments:
- final gross redundancy payment (excluding leave): $93,130.00
- 49 days annual leave: $10,358.27
- 39 days long service leave: $3,289.73
4. On 31 January 2008, Mr Bailey registered his intention to claim Newstart Allowance and, on 11 February 2008, he lodged a claim for the allowance. On the day of Mr Bailey’s formal application for the allowance, 11 February 2008, a Centrelink officer considered his circumstances and decided to impose an income maintenance period which prevented payment to him of Newstart Allowance until 14 September 2009. Centrelink advised Mr Bailey in writing that he could not be paid the allowance before this date because of the income maintenance period which was calculated on the basis of his termination payment and unused leave entitlements.
5. On 25 February 2008, a Centrelink officer reconsidered Mr Bailey’s claim and changed the commencement date of the period. Centrelink decided the correct income maintenance period operated from 7 September 2007 to 23 August 2009. The previous start date was incorrectly recorded as 13 September 2007 instead of 7 September 2007. On 22 April 2008, an Authorised Review Officer affirmed the decision of 25 February 2008. On 3 July 2008, the Social Security Appeals Tribunal (“the SSAT”) affirmed the decision and Mr Bailey then applied to the present tribunal.
applicant’s case
6. Mr Bailey argues that Centrelink failed to advise him of the existence of an income maintenance period and its implications for his finances, so he should not be punished for making reasonable spending decisions before he applied for Newstart Allowance. He is in severe financial hardship despite living frugally since his redundancy. He argues that he is in this position because he incurred unavoidable or reasonable expenditure while the income maintenance period applied to him and, therefore, the period should not have been imposed or should be shortened.
RESPONDENT’S CASE
7. The Secretary’s case is that the income maintenance period is imposed as mandated by legislation and is appropriate in Mr Bailey’s circumstances.
CONSIDERATION
8. Sections 1068-G7AH to1068-G7AR of the Act set out provisions relating to imposition of an income maintenance period. In summary, these provisions detail how various types of employee payments are treated as ordinary income which prevents payment of social security assistance for a disqualifying period. This period is known as the income maintenance period or IMP.
Should an IMP have been imposed on Mr Bailey?
9. Sections 1068-G7AH to1068-G7AR of the Act set out provisions relating to the income maintenance period or IMP. In summary, they detail how various types of received employee payments are considered as ordinary income and contribute to an IMP. Pursuant to section 1068-G7AH of the Act, if a person receives an employment termination payment, then the payment may be deemed to be ordinary income for an “income maintenance period” equal to the period to which the payment relates.
10. The income maintenance period is determined from the date a person, Mr Bailey in this case, is paid leave entitlement or redundancy. For redundancy payments, the number of weeks taken into account is determined by dividing the redundancy payment by the relevant weekly wage and then rounding down this figure to a whole number using a five day working week. I am satisfied that the period was so calculated and was properly imposed.
Should the whole or part of the IMP not apply?
11. The Secretary or this Tribunal, on review, may determine that the whole, or any part of the income maintenance period does not apply, if satisfied that Mr Bailey is in “severe financial hardship” because he has incurred “unavoidable or reasonable expenditure” while the period applies to him (section 1068-G7AM of the Act). I have considered these criteria in relation to Mr Bailey below.
Is Mr Bailey is in severe financial hardship?
12. For section 1068-G7AM purposes, subsection 19C(2) of the Act defines what is meant by “severe financial hardship” for a person who is not a member of a couple, and subsection 19C(4) of the Act defines “unavoidable or reasonable expenditure”. In addition, the meaning of “severe financial hardship” is entwined with the concept of “liquid assets” owned by the applicant pursuant to subsections 14A(1) and (2).
13. Under section 1068-G7AKA, the income maintenance period starts on the day the person is paid the termination payment. Mr Bailey received this payment on 7 September 2007. Pursuant to sections 1068-G7AL and 1068-G7AQ of the Act, an income maintenance period applies to Mr Bailey’s claim for Newstart Allowance from 7 September 2007 to 23 August 2009 inclusive. This period is calculated according to the prescribed formula. Based on termination income Mr Bailey received, the Secretary’s delegate calculated the days covered for the IMP amount to 513, comprising 49 days annual leave, 39 days long service leave, and 425 days redundancy. Further, 425 days divided by 5 (working) days equals 102 weeks. This calculation is unchallenged and, on balance, I find it is correct. I have already found that the period was properly imposed.
14. The Secretary argued before me that I may only consider Mr Bailey’s circumstances at the date of application. I have not made a finding on this point although I have some doubts about its correctness. However, on the evidence, I am not satisfied that Mr Bailey was in “severe financial hardship” at any time during the income maintenance period, up to the date of hearing, according to the legislative definition of the term. While Mr Bailey is now in a debt position, his current financial hardship does not meet the definition of “severe financial hardship” because he has some assets and these must be taken into account, as I have explained below.
15. I acknowledge that Mr Bailey has had a very difficult time since his employment was terminated. Mr Bailey is a 38 year old single man, born on 23 August 1970, who lives alone in his own house. He has a son and pays the boy’s mother child support. Since he lost his job, Mr Bailey has suffered some other setbacks. He had a motor cycle accident requiring a trip to hospital by ambulance and an operation. He has a steel pin in his leg as a result of the accident. He also had mental health problems and was prescribed anti-depressants. Mr Bailey was medically unfit for work in the opinion of the review officer who considered his case in April 2008. He has since improved but is still not fully fit. Although Mr Bailey was diagnosed with a mental illness in August 2007, he later obtained a positive report from another psychiatrist who found he currently suffered no mental illness in February 2008. Mr Bailey told the Tribunal that he no longer takes medication although he still has bouts of depression. The SSAT accepted Mr Bailey’s evidence that since receiving the termination payment he suffered two injuries which prevented him from working from February 2008 to June 2008 and I agree with this finding.
16. When questioned, Mr Bailey agreed he had paid off the mortgage on his house out of his termination payment. He thought it wise to pay off the mortgage on his house as this saved interest on the debt. Out of the termination money, Mr Bailey also paid for work on his house. He replaced his fences as they were in bad condition with wood rot, painted the house and spent more money on repairs. Mr Bailey was unable to do many of these tasks himself because of the injuries he suffered in his motor cycle accident in February 2008 soon after he was made redundant.
17. He also agreed that he had drawn on a portion of his superannuation to the extent the trustees of the fund had allowed him. He also said he had some savings when he was made redundant. Mr Bailey said that, after he paid off the mortgage of $103,000, he had about $40,000 to live on. The SSAT recorded that Mr Bailey had accessed $40,000 from his superannuation. Mr Bailey thought he took this money out of the fund in about November 2007 and that there had been about $150,000 remaining but it was now down to about $90,000 due to the present financial crisis. He gave oral evidence that the trustees of the fund advised him he could not access any more of his superannuation moneys.
18. Mr Bailey gave further oral evidence that he had not been aware of possible imposition of an income maintenance period. He simply had supported himself until he ran out of funds and only applied for Newstart because he needed assistance. He thought he had about $30,000 left at the time when he applied to Centrelink.
19. Because of his mental health, Mr Bailey did not have a driver’s licence in late 2007 and part of 2008. He told me he regained his licence in late 2008 and this enabled him to perform some casual work in November 2008. In November 2008, he earned about $8,000 for 10 weeks work. He used some of this money for child support payments, which had been in arrears. The SSAT found Mr Bailey owed $2,000 in child support in July 2008 and he produced to me a statement showing he was still in arrears in October 2008. He gave oral evidence that he made full payment of his child support obligations and more when he was working in November 2008.
20. Mr Bailey gave evidence to the effect that he had survived on about $200 per week since his redundancy He had also stripped and sold some car parts on eBay. Otherwise, he had lived on his termination payment. He had two bank accounts but no money in either of these at the time of the hearing. He had a credit card debt of about $4,300 and borrowed $2,500 from his aunt. By the time of the hearing, he had no more financial resources. He now was unable to continue child support for his son as he had no income.
21. Mr Bailey’s further oral evidence, which I accept, in view of his explanation and some supporting documentation in the form of bank statements and household bills, is that he has no cash. Mr Bailey has been unable to pay an ambulance bill arising from the motorcycle accident. He is also unable to pay the latest instalment on his house insurance and owes council rates. He uses his credit card to buy groceries and gave evidence that he owes about $4,500 on this account.
22. Mr Bailey has tried hard to make the best of his situation and has not wasted any money according to the evidence before me. He has tried to find work since he lost his job and he paid his own way to do a course which improved his skills with a view to do contract track maintenance work on the railways. I am satisfied that Mr Bailey now is in severe financial hardship, according to the ordinary meaning of this phrase, but this was not the case at the time he applied for Newstart Allowance. I also must bear in mind that severe financial hardship has a special meaning for the purposes of the Act and is affected by further provisions.
23. Mr Bailey’s evidence is that he still had some funds at the time he applied for the allowance. As well, the legislation requires me to examine whether his outlays during the income maintenance period have been incurred on “unavoidable or reasonable expenditure” according to the legislative definition of that term. This further involves “liquid assets” pursuant to the legislation.
24. The effect of subsection 19C(2) of the Act is that Mr Bailey will be in severe financial hardship only if the value of his liquid assets (within the meaning of subsections 14A(1) and (2) of the Act) is less than twice the fortnightly amount of the maximum payment rate for the allowance he sought, that is, Newstart.
25. Subsections 14A(1) and (2) of the Act define liquid assets, with subsection (1) applying in Mr Bailey’s case because he is not a member of a couple. The provision reads, in part:
14A(1) “liquid assets”, in relation to a person, means the person’s cash and readily realisable assets, …
26. The definition excludes some assets such as certain superannuation or directed payments and fees associated with courses of study. The term “realisable assets” is not defined. The Secretary’s advocate argued that Mr Bailey owned two cars, a motor cycle and a house and that these would fall within the description of realisable assets.
27. I find that Mr Bailey does have liquid assets in the form of his second motor vehicle and his motorbike. Mr Bailey did not deny this but does not wish to part with these assets. They are not of great value. Mr Bailey said his second car is unregistered and the bike was a gift. He told the Tribunal that he values the car and bike at approximately $4,000 and $3,000 respectively but he can’t bring himself to sell them because vehicles are his passion. There is no sufficient evidence before me to contradict his estimate of value of these vehicles so I accept Mr Bailey’s values as reasonable. This means he has $7,000 in liquid assets.
28. I do not agree with the Secretary’s contention that Mr Bailey should sell his house and both his cars. Mr Bailey told the Tribunal that he was able to find work in November 2008 only once he obtained his driver’s licence and could drive a car. He was unable to find any work that did not require driving to the location. He had been unable to work sooner as he had lost his driver’s licence when he was certified unfit to drive earlier in 2008. He had later regained his licence when he overcame the certification. Nevertheless, Mr Bailey said he is presently unemployed and again unable to find work.
29. I have reached the conclusion that the car Mr Bailey drives is not a liquid asset that should be taken into account for the purposes of the test in subsections 14A(1) and hence 19C(2), as other provisions of the Act make it plain that a person in Mr Bailey’s predicament is not expected to strip themselves of the house in which he or she lives or to sell their only means of transport. I reach this conclusion because of the provisions about what amounts to “unavoidable or reasonable expenditure” and to “reasonable costs of living” for the purposes of determining when to exercise discretion to reduce an income maintenance period.
30. Pursuant to section 19C(4), unavoidable or reasonable expenditure, in relation to a person to whom an income maintenance period applies, includes, but is not limited to, reasonable costs of living that the person is taken to have incurred in respect of an income maintenance period . As well, unavoidable or reasonable expenditure includes such items as the costs of essential repairs to the person's car or home; premiums in respect of vehicle or home insurance; expenses in respect of vehicle registration; essential medical expenses; and other costs that the Secretary determines are unavoidable or reasonable expenditure in the circumstances in relation to a person.
31. Many of Mr Bailey’s expenses were incurred in connection with maintenance of his house and car and may come within the definition of unavoidable or reasonable expenditure. In addition, insurance premiums in respect of vehicle or home insurance and expenses in respect of vehicle registration are allowable. It follows in my view that he should be permitted to keep his house and car without these affecting the discretion to reduce the income maintenance period or being taken into account for the liquid assets test.
32. The phrase “[r]easonable costs of living” is also defined pursuant to subsection 19C(5) and includes, but is not limited to food costs; mortgage payments; regular medical expenses; rates, water and sewerage payments; gas, electricity and telephone bills; costs of petrol for the person's vehicle; public transport costs; and any other cost considered reasonable. Many of Mr Bailey’s expenses come within these allowable costs. If he is allowed to spend money on petrol, this again suggests he should not be required to sell the car that he depends on for transport.
33. Paragraph 19C(8)(a) provides that for the purposes of subsection 19C(2), the maximum payment rate in relation to Newstart is worked out at Step 4 of Module A of the rate calculator. The “maximum payment rate” of Newstart Allowance as at the date of the Centrelink decision on 18 February 2008 was approximately $429.80 per fortnight. Twice this rate equals $859.60. On the basis of $14,363 in liquid assets, which was the value estimated by Centrelink as at the date of Mr Bailey’s application in January 2008, the assets exceeded the maximum payment rate.
34. For reasons explained above, I do not agree that Mr Bailey has or had liquid assets to the value of $14,363 as estimated by Centrelink as at the date of Mr Bailey’s application in January 2008. His liquid assets, being his second car and motor bike, according to Mr Bailey’s evidence, are worth around $7,000. I need not be more precise, as $7,000 still exceeds the test that the value must be less than twice the customer’s fortnightly maximum payment rate. With the fortnightly amount of the maximum payment of Newstart Allowance being approximately $429.80 per fortnight, even if the liquid assets value is reduced to $7,000, Mr Bailey’s liquid assets vastly exceed the allowable amount of $859.60.
35. Although Mr Bailey produced evidence that he was in debt and had no means of making payment of various bills, including future child income support payments, which he has until now made in advance, his liquid assets of $7,000 mean that I cannot find that Mr Bailey is in severe financial hardship for the purposes of subsection 19C(2).
36. Section 1068-G7AM of the Act allows for the whole or a part of an income maintenance period not to apply to a claimant. This discretion can only be exercised if the claimant is in severe financial hardship through unavoidable or reasonable expenditure (as defined in subsection 19C(4) of the Act) during the period. As I have concluded that Mr Bailey does not meet this test at any time during the period, I cannot find that the period should be reduced in whole or in part.
37. I think there is some merit in Mr Bailey’s argument that he had incurred a mortgage debt during the income maintenance period and made a reasonable decision in paying the debt out of his termination payment rather then run the risk of being unable to meet interest payments in the future. The Oxford English dictionary gives the meaning of “incur” as “To run, flow, fall, or come to or into”. The Macquarie dictionary gives a similar meaning and a second meaning of “to become liable or subject to through one’s own action”. A debt is incurred when liability exists and is not necessarily apportioned according to payment of agreed instalments. Dixon J in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR 179 at 207; 5 ATD 36 at 49 cautioned that, “[i]t is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened, or expected." However, Mr Bailey’s claim cannot succeed because his liquid assets exceed the permissible value as I have found above.
DECISION
38. The decision of the Social Security Appeals Tribunal dated 3 July 2008, imposing an income maintenance period under the Social Security Act 1991 from 7 September 2008 to 23 August 2008, is affirmed.
I certify that the 38 preceding paragraphs are a true copy of the reasons for the decision herein of Ms R Hunt, Senior Member.
Signed: .............................[sgd]...............................................
Associate
Date of Hearing: 18 February 2009
Date of Decision: 17 March 2009
Appearance for the Applicant: Self-represented
Appearance for the Respondent: Ken Bullock, Centrelink Legal Services
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