Boswell and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2011] AATA 171

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 171

ADMINISTRATIVE APPEALS TRIBUNAL      )         No 2010/4959

)          

GENERAL ADMINISTRATIVE DIVISION		)
Re		CHRISTOPHER BOSWELL

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Professor RM Creyke, Senior Member

Date17 March 2011

PlaceCanberra

Decision The decision under review is affirmed.

.............................[sgd]..............................

Professor RM Creyke, Senior Member
CATCHWORDS

SOCIAL SECURITY – family tax benefit − calculation of adjusted taxable income – net rental property loss – where deductions exceed adjusted taxable income – decision affirmed

A New Tax System (Family Assistance) Act 1999 (Cth) s 21, Part 3, Schedule 1, Schedule 3

Administrative Appeals Tribunal Act 1975 (Cth) s 34J

Income Tax Assessment Act 1997 (Cth) s 4.15

Tax Law Amendment (2009 Measures No 1) Act 2009 (Cth) Part 3

Re De Rosa and Secretary, Department of Family, Community Services and Indigenous Affairs (2007) 96 ALD 204

Re Holmes and Secretary, Department of Family and Community Services [2003] AATA 888

Re Secretary, Department of Families, Community Services and Indigenous Affairs and Varela [2006] AATA 640

Re Secretary, Department of Social Security and Durkin (AAT 06376, 12 November 1990)

REASONS FOR DECISION

16 March 2011

Professor RM Creyke, Senior Member

1.       Mr Christopher Boswell has appealed a decision assessing his and his partner’s assessable income for the purposes of their joint family tax benefit (FTB) for the 2008-2009 financial year. The amount was initially assessed by Centrelink, and was revised twice by the Australian Taxation Office (ATO).

2.      The first decision was on 23 July 2009, the date of assessment of a net rental property loss when the ATO advised the actual amount for net rental property loss and the first reconciliation occurred. This reconciliation was based on an estimate of income for Mr Boswell and Mrs Boswell.

3.      The second decision was based on the actual taxable income for the two when the estimate of income for Mrs Boswell was reduced to zero. The top up amount was increased by $153.30 giving a total top up amount of $424.68.  

4.      The Family Assistance Office (FAO) on 11 August 2009 affirmed the decision to include net rental property loss in calculating Mr Boswell’s and his wife’s income. Taking into account the latest revised calculation, this decision was upheld on review by an authorised review officer on 7 September 2009. The authorised review officer later issued an amended statement correcting mathematical errors.

5.      On 19 October 2010 the Social Security Appeals Tribunal found that the FAO had correctly assessed the effect of the net rental property loss of Mr and Mrs Boswell in calculating the rate of payment and, as a consequence, Mr Boswell’s family tax benefit had been correctly reconciled for the 2008-2009 financial year.

6. On 15 November 2010, Mr Boswell appealed to the Tribunal. Following submissions by the parties and with their consent, it was agreed that the hearing would be on the papers in accordance with the Tribunal’s powers in section 34J of the Administrative Appeals Tribunal Act 1975 (Cth).

Legislation

7.      The applicable legislation is A New Tax System (Family Assistance) Act 1999 (Cth) (FA Act). The relevant terms of the FA Act are set out in the decision of the Social Security Appeals Tribunal and will not be reproduced in these reasons. Relevant provisions will be referred to as needed. The provisions are those that were in force for the 2008-2009 financial year.

Issues

8.      The issues to be considered are:

·Whether Mr Boswell’s FTB was correctly reconciled for the 2008-2009 financial year resulting in a top up payment to him of $424.68.

·Whether the net rental property loss of Mr Boswell and Mrs Boswell was correctly assessed in calculating his rate of FTB.

Background

9.      Mr Boswell and his partner Alexandra Boswell have children and are eligible for FTB.  Mr Boswell's eligibility commenced in July 2003.

10.     For the purpose of assessing his FTB income for the 2008-2009 financial year, Mr Boswell was asked by Centrelink on 15 May 2008 to provide a revised estimate of his and his partner's taxable income. Taxable income is different from a person’s adjusted taxable income for FTB purposes.

11.     In the 2008-2009 financial year, the couple had bought an investment property which produced a rental loss for that year of $29,634.  The loss was split equally between them for income tax purposes.

12.     On 27 June 2008, Centrelink issued a notice to Mr Boswell showing his FTB Part A combined adjusted taxable income as $80,048. The amount for the FTB Part B lower earner, that is, Mrs Boswell, was $4,913. As a consequence, the FTB top up payment was estimated to be low. 

13.     On 1 July 2008, Mr Boswell’s taxable income was automatically adjusted by the Australian Tax Office (ATO) to $75,135. On 28 July 2008, Centrelink issued a notice to Mr Boswell listing the income details as shown in paragraph 12 of these reasons.

14.     On 1 August 2008, following another automatic adjustment by the ATO, Mr Boswell was advised that is taxable income appeared to be higher than his estimate and he was given the option of using an adjusted taxable income comprising $79,010 for himself and $4,913 for Mrs Boswell giving a total of FTB Part A combined income of $83,923.

15.     On 23 July 2009, the ATO advised that Mr Boswell’s actual income for the 2008-2009 financial year was $84,116. On 31 July 2009, Centrelink issued a notice advising him that his FTB had been reconciled and he was entitled to a top up payment of $271.38. On 6 August 2009, the ATO revised his taxable income to $83,137 which led to his FTB being again reconciled and a further top up payment of $153.30 being sent to his account. This gave Mr Boswell a total top up payment of $424.68. On 6 August 2009 a notice was issued to him advising him of the additional payment.

16.     On 6 August 2009, Mr Boswell requested a review of the decision to assess his partner’s net rental property loss of $14,817 as income for the purposes of his FTB entitlement. On 11 August 2009, the original decision maker reconsidered the decision and affirmed it.

17.     That decision was affirmed by an authorised decision maker on 7 September 2009, following a request for further review by Mr Boswell. On 6 October 2010, the authorised review officer advised Mr Boswell that the authorised review officer had incorrectly reported the FTB top up amount but that Mr Boswell had received the correct top up amount in two instalments, totalling $424.68.

18.      On 2 September 2010 Mr Boswell appealed to the Social Security Appeals Tribunal which, on 19 October 2010, affirmed the decision under review.

19.     In October 2009 Mr Boswell decided not to question the calculations because he believed his partner was due to increase her work and the property would break even or make a small profit.

20.     However, at the beginning of 2010, his partner was diagnosed with arthritis in the neck and shoulders and had to decrease and finally cease work, which she did in August 2010.  Moreover, the property in the 2009-2010 financial year made a loss.  As a consequence he decided to appeal the decision.

21.     On 15 November 2010, Mr Boswell appealed to the Tribunal.

Consideration

22.     Mr Boswell and his partner, Alexandra Boswell have children; Mr Boswell is an Australian resident; and his rate of FTB, as calculated according to Part 4, Division 1 of the FA Act, is greater than nil.  As a consequence he is entitled to FTB.[1]  However, the couple’s net investment losses have been included in the calculation of their adjusted taxable income for FTB purposes and, unlike the position in relation to taxable income, the loss is included as income, not a deduction.

[1] A New Tax System (Family Assistance) Act1999 (Cth) (FA Act) s 21(1).

23.     Mr Boswell contests this finding.  He relies on the document put out by the FAO explaining the tests for adjusted taxable income for FTB Part A and Part B. That document specifically states that 'Benefits are based on your actual annual income'.[2] In Mr Boswell's view a net annual investment loss, cannot be ‘actual … income’.

[2] Family Assistance: The what, why and how (October 2010, assist.gov.au/_documents/fpr011_1010en.rtf (1 Feb 2010).

24.     There is no dispute as to the correctness of the FAO adjusted figures for Mr Boswell’s income.  The adjusted income was $79,010, made up of a FTB Part A combined income of $83,923 and a FTB Part B lower earner amount of $4,913. Nor was there any question that the actual income for Mr Boswell as assessed by the ATO for 2008-2009 was $84,116.

25.     There was also no dispute that the amount of $29,634 was a net investment loss for 2008-2009 on the jointly owned rental property. This loss was divided equally between the couple. That meant that $14,817 was added to Mrs Boswell’s taxable income of nil to produce an adjusted taxable income figure of $14,817.  The same amount was added to Mr Boswell’s taxable income of $53,503 to give an adjusted taxable income of $68,320.  In turn that meant that there was a finding that the total adjustable taxable income for the couple was $83,137.  It is this figure which is in dispute. 

26. The payment of FTB is governed by the provisions of the FA Act. An individual's annual rate of FTB is calculated in accordance with the Family Tax Benefit Calculator in Schedule 1 to the FA Act. Part 1 of the Schedule in broad terms sets out the process for calculating the rate of FTB. This requires an assessment of the person's and their partner's ‘adjusted taxable income’.[3]

[3] FA Act Schedule 1, clause 3(1).

27.     In accordance with section 20 of the FA Act, Mr Boswell's income was initially based on an estimate which was progressively updated. The initial payments were therefore based on the estimate and at the end of the financial year, once the actual adjusted taxable income was known, a reconciliation process to determined the correct entitlement to FTB.

28.     The FA Act was amended by the Tax Law Amendment (2009 Measures No 1) Act 2009 (Cth) which commenced on 27 March 2009. In particular, the amending Act removed clause 6 of Schedule 3 which defined ‘net rental property loss’ and replaced it with ‘total net investment loss’ as defined in the Income Tax Assessment Act 1997 (Cth). According to the Explanatory Memorandum, the amending Act was to apply in relation to income years commencing on or after 1 July 2009. That means that the amended Act does not apply to the issues in this case which relate to the 2008-2009 financial year.

29. Accordingly, applying the legislation in force at the relevant time, Schedule 3 of the FA Act deals with how to assess a figure for ‘adjusted taxable income’.  Clause 2(1) of the Schedule at the date of the decision provided that the ‘adjusted taxable income’ was the sum of the person and their partner's:

·taxable income;

·adjusted fringe benefits;

·non-taxable foreign income;

·net rental property losses; and

·tax free pensions or benefits.

From that sum is deducted the individual’s deductible child maintenance expenditure for that year.  That amount is the figure which is taken into account in assessing ‘adjusted taxable income’ for the purposes of assessing FTB.

30.     In the case of Mr Boswell it was only his taxable income and his net rental property losses which were relevant to the calculation. In the case of his partner, it was only the net rental property losses which were relevant since her taxable income was nil.

31.     ‘Taxable income’ has the same meaning as in the Income Tax Assessment Act 1997 (Cth), namely the amount of assessable income received less any allowable deductions. Net rental property loss is a deduction for the purposes of taxable income. A person does not have a taxable income if their deductions equal or exceed the assessable income.[4] In Mrs Boswell’s case her net rental property losses exceeded her income for 2008-2009 and hence her taxable income was nil.

[4] Income Tax Assessment Act 1997 (Cth) s 4.15.

32.     The individual’s ‘net rental property loss’ for the purpose of FTB is defined in clause 6 of Schedule 3 as:

(a)  if the expenses incurred by the individual on rental property during that year exceed the individual’s gross rental property income for that year—the amount by which those expenses exceed that gross rental property income; or

(b) if the expenses incurred by the individual on rental property during that year do not exceed the individual’s gross rental property income for that year—nil.[5]

[5] FA Act Schedule 3, clause 6.

33.     However, net rental property loss is not an allowable deduction for the purpose of FTB.  This is because the definition of ‘adjusted taxable income’ in clause 2 of Schedule 3 indicates, ‘net rental property losses’ are included as income. It is this issue which is central to Mr Boswell’s concerns.

34.     Relying on those provisions, the FAO assessed the revised ‘adjusted taxable income’ for Mr Boswell for the 2008-2009 financial year as $68,320. That figure comprised for Mr Boswell, taxable income of $53,503 and net rental property loss of $14,817. Mrs Boswell’s taxable income was nil and her net rental property loss was $14,817, giving her an ‘adjusted taxable income’ of $14,817. That gave a total ‘adjusted taxable income’ for the couple of $83,137.

35.     Mr Boswell contends that this is an incorrect calculation.  In his view, to add a loss to an assessment of income is not consistent with the public information available which states that the purpose of the assessment is to identify what is his ‘actual annual income'.  However, his argument fails to take into account that, having received a deduction for his net rental property loss for the purposes of calculating his assessable taxable income, his family income has already received the benefit of that loss since his assessable income was calculated taking into account that loss. A claim for the same amount of net rental property loss in relation to his FTB would be ‘double dipping’, enabling him to take that benefit into account a second time. 

36.     In Re Holmes and Secretary, Department of Family and Community Services, the interpretation of clause 2 of Schedule 3 was described by the Tribunal in these terms:

… the intent … seems clear.  A person who gains a taxation advantage by offsetting a rental property loss against other assessable income should not also be able to gain a social security advantage from the same loss, which would be the case if the person’s taxable income alone was used for calculating the amount of benefits payable.[6]

[6] Re Holmes and Secretary, Department of Family and CommunityServices [2003] AATA 888 at [40].

37.     The reference to ‘social security advantage’ is relevant since the family allowance provisions of the Social Security Act 1991 (Cth) preceded and were the equivalent to the FTB provisions in the FA Act.

38.     As Deputy President Hack noted in Re Secretary, Department of Families, Community Services and Indigenous Affairs and Varela: ‘the evident purpose of the adjustment made by Clause 2 to ascertain adjusted taxable income is to ascertain a figure of income actually available within a family’.[7] As he went on:

The legislative purpose to be served by Clause 2(1) of Schedule 3 is to prevent a person who gains a taxation advantage from negative gearing … from also gaining a social security [now FTB] advantage from the same loss (or benefit). It does so, to use the words of the Secretary’s policy manual at clause 3.2.5, by adding back the loss.[8]

[7] Re Secretary, Department of Families, Community Services and Indigenous Affairs andVarela [2006] AATA 640 at [14].

[8] Re Secretary, Department of Families, Community Services and Indigenous Affairs andVarela [2006] AATA 640 at [36].

39.     The reference, therefore to ‘actual annual income’ is accordingly to the actual amount available to the family as income after deductions are taken into account.

40.     A further argument put forward by Mr Boswell was that his partner’s taxable income should not have been assessed as nil for the purposes of assessing adjusted taxable income. Rather, he argued, as the net rental property loss exceeded any income earned Mrs Boswell’s adjusted taxable income should have been a negative amount, thus further reducing the amount allocated to net rental property loss.

41.     This argument fails to take account two matters: the inter-relating structure of the taxable income and adjusted taxable income and the need to avoid claiming a net rental property loss twice;[9] and the fact that any excess losses not taken into account for the purpose of taxable income when a person’s income is nil can be carried forward into a later financial year. That means the taxpayer can benefit from that tax loss in subsequent years. Hence the benefit of that loss is not lost in the long term.[10]  

[9] Re Secretary, Department of Social Security and Durkin (AAT 06376, 12 November 1990)

[10] Re De Rosa and Secretary, Department of Family, Community Services and Indigenous Affairs (2007) 96 ALD 204 at 227.

42.     Furthermore, there can be no suggestion that the legislative requirement that net rental property loss be taken into account as income for the purposes of assessing adjusted taxable income was not intended. 

43.     The equivalent provision – ‘total net investment loss’ - is found in the current version of the A New Tax System (Family Assistance) Act 1999 (Cth), which came into force on 27 March 2009. That Act continues the provision which includes net rental property losses as income for the purposes of assessing adjusted taxable income for FTB purposes. The Explanatory Memorandum to the Tax Laws Amendment (2009 Measures No 1) Bill 2009 which amended the A New Tax  System (Family Assistance) Act 1999 (Cth), noted:

The reference to net rental property losses in the current ‘adjusted taxable income’ definition is substituted with a reference to an individual’s total net investment loss, as the definition of ‘total net investment loss’ captures an individual’s net rental property loss.[11]

In other words the notion of investment including property losses as income for the purposes of assessing adjusted taxable income has not been removed.

[11] Explanatory Memorandum for the Tax Laws Amendment (2009 Measures No 1) Bill 2009 at [11].

44.     It is clear that both at the time of the decision affecting Mr Boswell and at present, the intention is that where net rental property loss has been taken into account in assessing a person’s taxable income, it is not intended that the person should also be able to use that loss for the purpose of assessing adjusted taxable income for FTB purposes.

45.     That means taking the amount of the net property rental loss into account as ‘income’ for in assessing Mr Boswell’s adjusted taxable income for 2008-2009 was correct. The decision under review is affirmed.

I certify that the 45 preceding paragraphs are a true copy of the reasons for the decision herein of Professor R Creyke, Senior Member.

Signed: .................[sgd]................................
  C. Baillie, Associate

Date of Decision  17 March 2011

Solicitor for the Applicant               Self-represented

Solicitor for the Respondent          George Lozynsky
  Centrelink Advocacy Branch