Batts and Secretary, Department of Social Services (Social security)

[2025] ARTA 1281

Batts and Secretary, Department of Social Services (Social security) [2025] ARTA 1281 (9 June 2025)

Applicant/s:  Mr Batts

Respondent:  Secretary, Department of Social Services

Chief Executive Centrelink    

Tribunal Number:   2025/A192761 

Tribunal:  Member A Treble

Place:Melbourne

Date:09 June 2025

Decision:The Tribunal affirms the decision to raise and recover a newstart allowance debt of $13,360.91 for the period 14 September 2010 to 12 September 2011, however the interest charge that has arisen in accordance with the Social Security Act 1991 is not to be applied to the debt.

The Tribunal affirms the decision to raise and recover a debt of family tax benefit in the sum $832.50 for the year 2010/2011, noting that this debt has already been recovered.

Statement made on 09 June 2025 at 11:42am

CATCHWORDS

SOCIAL SECURITY – Newstart allowance – recovery of a debt to the Commonwealth – arrears payments of compensation and income protection – payments made years after the period to which the payment related – treatment of lump sums – lump sum not advised to Centrelink – special circumstances for waiver – applying interest charges – 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. The issue in this case is whether Mr Batts owes debts to the Commonwealth, and if so, whether the debts should be recovered from him.

2. On 6 June 2014, a Services Australia (Centrelink) officer made the decision to raise and recover a debt of $13,360.91 being newstart allowance said to be overpaid to Mr Batts during the period 14 September 2010 to 12 September 2011. The debt arose because Mr Batts received a payment of $24,396 from [Super Fund 1] on 14 September 2010, which represented income protection payments he was entitled to for a past period, namely 1 December 2005 to 30 November 2007. Centrelink regarded Mr Batts as being taken to receive one fifty-second of the amount of $24,396 as ordinary income during each week in the 12 months following the date of the payment.

3. On 28 October 2014, a Centrelink officer decided to raise and recover a family tax benefit debt of $5,363.90 in respect of the 2010/11 financial year, because Mr Batts had not lodged a tax return for that year, and therefore his actual taxable income could not be reconciled, as required for family tax benefit purposes. On 17 July 2014, Mr Batts’s actual taxable income for 2010/11 of $37,485 was provided by the Australian Taxation Office. Mr Batts’s entitlement to family tax benefit was then reconciled taking into account this information, and the debt was reduced to $832.50.

4. Mr Batts requested a review of the decisions to raise and recover these debts. On 28 October 2014, an authorised review officer reviewed and affirmed the decisions.

5. On 9 January 2025, Mr Batts lodged an application with the Administrative Review Tribunal seeking an independent review of the authorised review officer’s decision.

6. The matter was heard on 29 April 2025. Mr Batts spoke to the Tribunal via Microsoft Teams audio and gave evidence on affirmation.  The Tribunal also had regard to documents provided by Centrelink (pages 1-550), which had also been provided to Mr Batts prior to the hearing.

7. Following the hearing, the Tribunal requested further documents from Centrelink, and Mr Batts was granted time, at his request, to make further submissions.

8. In making a decision, the Tribunal took into account Mr Batts’s evidence on the day of the hearing, the documents provided by Centrelink in advance and post the hearing date, and Mr Batts’s written submissions received after the hearing.

CONSIDERATION OF THE TRIBUNAL

The newstart allowance debt

1. The law that applies, in respect of the newstart allowance debt, is contained in the Social Security Act 1991 (the Act) and the Social Security (Administration) Act 1999 (the Administration Act).

1. According to the file material, Mr Batts commenced receiving newstart allowance on 14 November 2005. His payments ceased on 1 June 2012 when he voluntarily surrendered them, as he had returned to work.

2. There is very little information on the Centrelink file about the circumstances in which Mr Batts claimed and received income protection payments.  In a document dated 29 April 2010, Centrelink contacted Mr Batts to enquire about a tax file declaration he had signed with [Super Fund 1]. He advised that this related to the compensation he had previously received, and the file enquiry was closed on 18 May 2010. In a document dated 5 October 2010 enquiries were again made of Mr Batts due to a tax file declaration with “[an earlier name of Super Fund 1]” signed on 5 March 2010. This enquiry was closed on 14 October 2010. According to Centrelink, the enquiry in October was not pursued, given the earlier contact in April/May 2010.

3. In a document dated 8 July 2014, Mr Batts advised Centrelink that he was receiving monthly payments of $1000 from 1 December 2005 to 1 December 2006, then monthly payments of $1033 from 1 December 2006 to 30 November 2007, which were declared to Centrelink.

4. The only other document on the Centrelink file is from [Super Fund 1] stating that Mr Batts received a lump sum of income protection payment of $24,396 for the period 1 December 2005 to 30 November 2007 with the payment being made on 14 September 2007. The author of this document later clarified that the payment was made on 14 September 2010. The Tribunal finds therefore that Mr Batts received $24,396 on 14 September 2010.

How is an arrears payment of income protection treated for social security purposes?

1. Newstart allowance is subject to an income test. The income test is affected by particular provisions relating to different types of income. There are, in addition, particular provisions of the Act which determine how compensation payments are to be treated. The first issue to consider is how the payment of $24,396 received by Mr Batts is to be treated under the social security legislation.

2. Section 8 of the Act contains definitions related to the income test:

   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).

3. Compensation is also defined to mean in section 17 to mean:

   (a)         a payment of damages; or

   (b) a payment under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme; or

   (c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or

   (d)        any other compensation or damages payment;

   (whether the payment is in the form of a lump sum or in the form of a series of periodic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury.

4. At subsection 17(2A), the Act goes on to state that paragraph (d) above does not apply to a compensation payment if:

   (a) the recipient has made contributions (for example, by way of insurance premiums) towards the payment; and

   (b)        either:

   (i) the agreement under which the contributions are made does not provide for the amounts that would otherwise be payable under the agreement being reduced or not payable because the recipient is eligible for or receives payments under this Act that are compensation affected payments; or

   (ii) the agreement does so provide but the compensation payment has been calculated without reference to the provision.

5. In the decision of QX2006/11 and Secretary, Department of Employment and Workplace Relations [2006] AATA 969, the Administrative Appeals Tribunal concluded that income protection payments fell within the definition of section 8 of the Act and were ordinary income, if they could not otherwise be treated as compensation.

6. Centrelink’s Guide to Social Security Law (the Guide) at 4.13.3.10 states in relation to payments from an income protection policy that the payments are either treated as compensation or ordinary income:

   Periodic payments from an income protection policy

   Payments from income protection policies or sickness and accident policies, including payments in respect of a sporting injury that are due to lost earnings or lost capacity to earn are compensation unless they meet the exemption in the legislation. If this exemption is met these payments are treated as ordinary income…

   Note: Disability pensions paid from superannuation funds, whether or not there is an offset clause, are NOT compensation. This includes payments made under a sickness and accident policy and/or income protection policy when paid from a superannuation fund, whether funded by the person, or another party (for example, their union or employer).

7. The Guide indicates that income protection payments, when paid from a superannuation fund, are not compensation but ordinary income. Mr Batts’s file confirms that the payment of income protection from [Super Fund 1] has been treated as ordinary income by Centrelink.

8. However, in the present case, Mr Batts received the payment of $24,396 on 14 September 2010, many years after the period to which that payment related. It represented income protection payments owed to him for the period 1 December 2005 to 30 November 2007.

Over what period is the ordinary income to be applied?

1. There are two relevant provisions relating to the treatment of lump sums under the Act.

2. The first is section 1072A which provides:

   1072A  Treatment of certain lump sum payments

   (1) This section applies if:

   (a) a person has claimed a social security pension or a social security benefit; and

   (b) on or after the first day of the period of 12 months ending at the end of the day the person made the claim, the person receives an amount of income in the form of a lump sum payment of arrears of periodic payments; and

   (c) the lump sum payment is not income within the meaning of Division 1B or 1C of this Part; and

   (d) the lump sum payment is not in relation to remunerative work undertaken by the person; and

   (e) the lump sum payment is not an exempt lump sum; and

   (f) the lump sum payment is not a payment of compensation.

   (2)  The Secretary may determine that the person is taken to have received the lump sum payment over such period, not exceeding 52 weeks, as the Secretary determines.

   (3)  The period determined by the Secretary must begin on the day on which the person received the lump sum payment.

   (4)  For each day in the period determined by the Secretary, the person is taken to have received an amount of ordinary income worked out by dividing the amount of the lump sum payment by the number of days in that period.

3. The Tribunal notes that section 1072A applies in the limited circumstances where a person makes a claim for a social security payment and, within the 12 months prior to the date of claim, receives a lump sum that is in the form of arrears of periodic payments, that is not income from remunerative work undertaken by the person, an exempt lump sum or compensation. The Guide at 4.3.1.10 applies this provision specifically to arrears of income protection payment paid in the form of a lump sum within the 12 months prior a social security claim. The Guide goes on to state:

   Application of this rule under section 1072A of the SSAct differs from section 1073 of the SSAct in that this rule applies to lump sums that comprise of past periodic non-remunerative payments. Whereas, section 1073 applies to lump sum payments that are non-remunerative payment, that do not reflect periodic payments.

4. Section 1073 is in similar terms but is not tied to the date of claim and unlike section 1072A where there appears to be a discretion as to whether the person is taken to receive the lump sum over a period of up to 52 weeks, it applies to any lump sum that is caught under the provision. It states:

   1073  Certain amounts taken to be received over 12 months

   (1)  Subject to points 1067G‑H5 to 1067G‑H20 (inclusive), 1067L‑D5 to 1067L‑D16 (inclusive), 1068‑G7AF to 1068‑G7AR (inclusive), 1068A‑E2 to 1068A‑E12 (inclusive) and 1068B‑D7 to 1068B‑D18 (inclusive), if a person receives, whether before or after the commencement of this section, an amount that:

   (a) is not income within the meaning of Division 1B or 1C of this Part; and

    (b) is not:

   (i) income in the form of periodic payments; or

   (ii) ordinary income from remunerative work undertaken by the person; or

   (iii) an exempt lump sum.

   the person is, for the purposes of this Act, taken to receive one fifty‑second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount.

5. Centrelink has applied section 1073 of the Act in Mr Batts’s case. Accordingly, Mr Batts was treated as if he had ordinary income of $938.30 per fortnight for the purposes of working out the rate of newstart allowance to which he was entitled for the period 14 September 2010 to 12 September 2011. This approach is consistent with the Guide at 4.3.9.30 where it states:

   If a lump sum is received instead of future periodical payments and the lump sum is calculated at a set weekly, fortnightly or monthly rate over a specific prospective period, the payment is treated as if periodical payments were being made throughout the relevant period. Otherwise, if a lump sum is received from a sickness and accident policy that is to be assessed as ordinary income, the lump sum is assessed under SSAct section 1073, whereby the amount is assessed for 12 months commencing on the day on which the person becomes entitled to receive that amount.

6. It is noted that there are divergent views as to how an arrears payment of income protection, paid as a lump sum, is to be treated for social security purposes.

7. One view is that section 1073 does not apply to such a payment because it is income in the form of periodic payments, even if paid as a lump sum. In some circumstances, an arrears payment of income protection, paid as a lump sum, has instead been applied as ordinary income for the past period to which the payment relates.

8. This approach is said to be consistent with Centrelink’s usual treatment of periodic compensation payments, which are still regarded as periodic, even if paid in a lump sum. In this respect Centrelink’s Guide states at 4.13.1.20 under the heading “Treatment of compensation/compensatory payments” that: “If a lump sum is received instead of periodical payments and the lump sum is calculated at a set weekly, fortnightly or monthly rate over a specific period, the payment is treated as if periodical payments were being made throughout the relevant period.” However, this approach must be considered in the context of section 118 of the Administration Act which refers to the date of effect of an adverse decision (as defined in section 117), that is, a rate reduction under section 79 or a cancellation decision. While subsections 118(3) and (4) refer to arrears of periodic compensation (and specify that a rate reduction takes effect from the first day of the period to which the compensation relates), there are no provisions dealing with arrears of income protection payments (ordinary income) such as in this case, that would allow a rate reduction to be backdated to the period to which the income protection payments relate.

9. The alternative view is that the application of section 1073 to such a payment is correct because is it not paid in the “form” of periodic payments, even if it represents periodic payments. It is further argued that the application of section 1073 in the circumstances of such a payment is consistent with the overarching purpose of social security law, which is to provide income support at the time at which the person is in need.

10. The Tribunal notes that section 1072A is clearly intended to capture lump sum amounts, paid within the period of 12 months before a claim, that represent payment of arrears of periodic payments. Parliament’s intention is that such a lump sum is to be treated as ordinary income over a period of up to 52 weeks, commencing from the date the lump sum is received. That is, the amount is not treated as referable to the past period for which the arrears were paid.

11. Different wording is used in section 1073, as it no longer refers to a “lump sum payment of arrears of periodic payment” but to “an amount” that is not “income in the form of periodic payments”. It thus catches a broader range of lump sum payments, but the intention is the same as that sought to be achieved in section 1072A, namely to treat a lump sum as income over a 52 week period. The Tribunal concludes that Parliament’s intended an amount that is not part of a series of regular payments and is not paid in that “form”, to be treated as ordinary income over the following 52 weeks. This is so even if the payment represents or reflects an entitlement to past periodic payments. Had Parliament intended otherwise, it would have made provision under the Administration Act for a rate reduction to be applied to that past period.

12. The Tribunal therefore accepts that Mr Batts was overpaid newstart allowance in the sum of $13,360.91 during the period 14 September 2010 to 12 September 2011.

Does Mr Batts owe a debt to the Commonwealth?

1. The effect of section 1222A of the Act is that an amount paid to a person may only be considered a debt if, and only if, a specific provision of the Act expressly provides that it is. Subsection 1223(1) of the Act states that where a social security payment is made and a person who obtains the benefit of the payment was not entitled to receive it, the amount paid is a debt due to the Commonwealth.

2. As it has been found that during the period 14 September 2010 to 12 September 2011 Mr Batts was overpaid newstart allowance, the Tribunal concludes that there is a debt due to the Commonwealth in the sum of $13,360.91.

Is the debt owed to the Commonwealth recoverable?

1. Certain sections of the Act permit the waiving of recovery of a debt. Waiving recovery of a debt means that although the debt exists, a decision is made to forgo the legal right to recover the monies. This means that no recovery action is possible, and the debt cannot be pursued at a later date.

2. Section 1237A of the Act covers waiver of debts arising from administrative error. This section provides that a debt must not be recovered in situations where the overpayment was received in good faith, and the cause of the debt is attributable solely to administrative error.

3. On 4 June 2010, Mr Batts was sent a letter that required him, among other things, to advise Centrelink within 14 days if he received any money from any source. According to Centrelink, Mr Batts did not tell Centrelink when he received $24,396 from his superannuation fund. There is no clear evidence within Centrelink’s documentation that he did so on his file, although Mr Batts said at the hearing that he was sure he would have told Centrelink.

4. The Tribunal finds that section 1237A is inapplicable in the circumstances of this case, as there is insufficient evidence to show that Mr Batts advised Centrelink when he received the sum of $24,396 from [Super Fund 1].

5. The Tribunal also considered section 1237AAD of the Act which enables the Secretary to waive a debt, or part of a debt, if three conditions are met. Those conditions are:

   ·     that the debt did not result wholly or partly from the debtor or another person knowingly making a false statement or a false representation, or knowingly failing or omitting to comply with a provision of the family assistance law;

   ·     that there are special circumstances (other than financial hardship alone) that make it desirable to waive the debt; and

   ·     that it would be more appropriate to waive than write off the outstanding debt or part of the debt.

1. Mr Batts told the Tribunal that he believed he would have advised Centrelink when he received the funds from [Super Fund 1]. He said that he was well aware of the need to tell Centrelink of any change of circumstances, otherwise debts can arise. He could not think of any reason why he might have failed to notify Centrelink. On the other hand, he could not recall how he advised. Nor could he recall talking to anyone about the payment. It is not surprising, given the passage of time, that Mr Batts is unable to recall whether he advised Centrelink or not. Whilst there is no evidence that he did so in September 2010, the records do indicate there were earlier discussions about income protection and the signing of an Employment Tax Declaration with [Super Fund 1] earlier in the year. On balance, the Tribunal accepts that Mr Batts was unlikely to have knowingly or intentionally failed to advise Centrelink when he received $24,396 from [Super Fund 1] in September 2010.

2. Accordingly, the Tribunal considered whether there were special circumstances in Mr Batts’s case that warranted waiver of the debt.

3. The term “special circumstances” is not defined in the legislation; however the Federal Court and the Administrative Appeals Tribunal have considered the issue of special circumstances on a number of occasions.  In every case, the individual circumstances of the case were examined to determine whether the circumstances were such that it would be unjust, unreasonable or inappropriate for the debt to be recovered.  In particular, the Full Federal Court in the matter of Dranichnikov v Centrelink (2003) FCAFC 133 determined that whether there are special circumstances in a particular case is dependent on whether there are circumstances that would distinguish the case from the usual case. Further, for special circumstances to exist there must be some factors, apart from financial hardship alone, which distinguish the case and set it apart from other similar cases.

4. In considering this waiver provision, the Tribunal is also mindful of the purpose of the social security system, Parliament’s intention that payments are made on the basis of need and that debts should generally be recovered unless there are special circumstances.

5. Regarding his circumstances, Mr Batts said that he ceased receiving newstart allowance in 2012, when he returned to work. However, he was later injured at work in 2017 and had five operations on his neck. Payments from the employer’s insurer were cut off several times. He became severely depressed and did not open his mail for a number of years, given there were demands for payment of bills from multiple sources. He threw all of his mail in the bin.

6. Mr Batts also questioned why the debt was not raised until 2014. He did not know that repayments had been deducted from family tax benefit. He said he was not aware he was being pursued for repayment by Centrelink.

7. Mr Batts said he will never be able to work again, however he did not provide information about his current financial circumstances. Ultimately, Mr Batts said he did not disagree with the debt itself, rather he disagreed with the interest charged on the debt.

8. On balance, the Tribunal was unable to find there were special circumstances that warranted waiver of the debt under section 1237AAD of the Act. Nor was there sufficient information to consider whether the debt should be temporarily written off for a period.

Should interest be applied?

1. Section 1229A of the Act empowers Centrelink to apply an interest charge if there is no repayment arrangement in effect for a debt, while section 1229B empowers Centrelink to apply an interest charge if the debtor fails to comply with, or terminates, a repayment arrangement. Section 1229D governs the rate of interest that can be charged.

2. Section 1229E provides for the circumstances in which a person is not liable to pay an interest charge that would otherwise arise under section 1229A or 1229B, for example if a person is receiving a social security payment or family tax benefit.

3. Section 1229F provides that the Secretary (and this Tribunal standing in the shoes of the Secretary) has a discretion to determine that interest is not payable or is not payable for a particular period, The circumstances in which such a decision can be made include if the Secretary is satisfied that the person has a reasonable excuse for either failing to enter into an arrangement to pay or having entered into an arrangement, failing to make a payment in accordance with that arrangement.

4. According to the Centrelink documents, soon after the debt was raised in 2014, Centrelink recovered some of the sum owed by way of withholdings from Mr Batts’s family tax benefit. This continued until January 2018. However, Mr Batts ceased receiving Centrelink payments, and it is evident that he could not be contacted for repayment thereafter for a considerable period. Centrelink therefore applied interest from 1 January 2019 and as a result the debt climbed from $12,563.46 to $17,588.23.

5. The Tribunal accepts Mr Batts’s evidence that he became severely depressed after a work place injury in 2017 and that he destroyed his letters as a consequence of his poor mental health.  The Tribunal also accepts his evidence that he was unaware he was being pursued for payment from 2019 onwards, and that, in any event, his financial state was dire, given his workplace payments were cut off several times. According to Mr Batts’s evidence, which the Tribunal accepts, he only recently became aware that he still owed funds to Centrelink.

6. The Tribunal is satisfied that Mr Batts had a reasonable excuse for ceasing a payment arrangement and for not entering into a new payment arrangement in respect of the debt, given his poor mental health and parlous financial circumstances. Accordingly, the Tribunal is satisfied an interest charge should not be applied to the debt.

The family tax benefit debt

55.  The legislation relevant to the family tax benefit debt is found in the A New Tax System (Family Assistance) Act 1999 (the FA Act) and the A New Tax System (Family Assistance Administration) Act 1999 (the FA Administration Act).

56. A person’s rate of family tax benefit is subject to an income test that takes into account the adjusted taxable income of the person. An individual's adjusted taxable income for a particular income year is defined in Schedule 3 of the FA Act to be the sum of the following amounts:

• the individual's taxable income for that year;

• the individual's adjusted fringe benefits total for that year;

• the individual's target foreign income for that year;

• the individual's total net investment loss (within the meaning of the Income Tax Assessment Act 1997) for that year;

• the individual's tax-free pension or benefit for that year;

• the individual's reportable superannuation contributions (within the meaning of the Income Tax Assessment Act 1997) for that year;

less the amount of the individual's deductible child maintenance expenditure for that year.

57.  The provisions of the FA Administration Act allow payments such as family tax benefit to be paid in a number of different ways – including as an ongoing fortnightly payment (that is, payment by instalments – section 16) or in a lump sum at the end of the financial year (past period entitlement – section 17). If a person requests that their family tax benefit is paid by instalments, the rate of their payments will have to be based on an estimate (or estimates) of their adjusted taxable income, in accordance with section 20. That section specifically refers to the situation where a person’s actual taxable income is not known until after the end of the relevant financial year (that is, until the Australian Taxation Office has issued an assessment of taxable income for the relevant year). A person can therefore be paid fortnightly instalments of family tax benefit based on an estimate they have given of their income for the current year.

58.  Subsections 105(1) and (4) of the FA Administration Act provide that, if there is sufficient reason, a decision about the rate of family tax benefit may be reviewed and changed. In summary, the rate of family tax benefit is recalculated once there is an assessment by the Australian Taxation Office of the actual taxable income of each person whose taxable income is relevant to the determination of a person’s rate of family tax benefit. 

59.  In this case, Mr Batts was paid family tax benefit for the financial year 2010/11 based on an estimate of combined adjusted taxable income ($10,000) that was less than actual combined income as assessed by the Australian Taxation Office ($37,495). The Tribunal is satisfied that the legislation required a reassessment of Mr Batts’s entitlement to the family tax benefit that he was paid in the financial year 2010/11, and that the overpaid amount for that year has been correctly calculated by Centrelink when actual adjusted taxable income, as assessed by the Australian Taxation Office, is taken into account.

Does Mr Batts owe a debt to the Commonwealth?

60.  Section 71 of the FA Administration Act provides that if a person was not entitled to family tax benefit in respect of a period or they were paid too much, the difference between the received amount and the amount they were entitled to receive is a debt due to the Commonwealth by the person. Therefore the amount overpaid by way of family tax benefit in the financial year 2010/11 is a debt that Mr Batts owes to the Commonwealth.

Should the debt be recovered?

61.  The FA Administration Act also includes provisions which allow for waiver or write-off of a debt in certain circumstances. However, this particular debt has been fully recovered and the Tribunal is not satisfied that any of those provisions are therefore applicable.

DECISION

The Tribunal affirms the decision to raise and recover a newstart allowance debt of $13,360.91 for the period 14 September 2010 to 12 September 2011, however the interest charge that has arisen in accordance with the Social Security Act 1991 is not to be applied to the debt.

The Tribunal affirms the decision to raise and recover a debt of family tax benefit in the sum $832.50 for the year 2010/2011, noting that this debt has already been recovered.

Date of hearing: Tuesday, 29 April 2025