Cairns and Secretary, Department of Family and Community Services

[2007] AATA 1121

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1121

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2005/622

GENERAL ADMINISTRATIVE DIVISION		)
Re		GERALD CAIRNS & RUTH CAIRNS

Applicants

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Mr SC Fisher, Member

Date12 March 2007

PlaceBrisbane

Decision

The Tribunal sets aside the 6 December 2005 decisions made by the Respondent and remits these decisions to the Respondent in accordance with the directions: That the Respondent review the operation of section 1208B of the Social Security Act 1991 and the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001 to the circumstances of the Applicants and recalculate any attributable income of Cairns Corporation Pty Ltd to the Applicants for the 2002/2003 and 2003/2004 financial years. That the Respondent cause to be issued to the Applicants a Statement of Financial Circumstances document which, if completed and returned by or on behalf of the Applicants to the Respondent, is to form the basis of a review of the waiver of any age pension debt payable by the Applicants remaining after Direction 1 is discharged for the purposes of section 1237AAD of the Social Security Act 1991.

...................[Sgd]...........................

Member

CATCHWORDS

SOCIAL SECURITY – age pension – attributed income of private companies – operation of Part 3.18 of the Social Security Act 1991 – private company income properly attributed – unclear whether permissible reductions under the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001had been made – decision set aside and remitted for further consideration

Social Security (Administration) Act 1999 (Cth) s 180, 234, Part 4 Division 5
Social Security Act 1991 (Cth) ss 1207, 1207N, 1207Q, 1207R, 1207T, 1207X, 1207Y, 1208, 1208C, 1208D, 1209E, 1237AAD
Administrative Appeals Tribunal Act 1975 (Cth) ss 37, 43
Corporations Act 2001 (Cth) s 161
Income Tax Assessment Act 1936 (Cth)
Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (Cth) clause 25
Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001 (Cth) clause 4(1)(b) and Part 2 of Schedule 1
Income Tax Assessment Act 1997 (Cth) s 8-1
A New Tax System (Family Assistance) (Administration) Act 1999 (Cth) s 101
Federal Court Rules Order 21, rule 15(2)

Secretary, Department of Social Security v Murphy (1998) 52 ALD 268
Ajka Pty Ltd v Australian Fisheries Management Authority (2003) 74 ALD 21
Bantick and Secretary, Department of Family and Community Services [2003] AATA 472
Bramwell v Repatriation Commission (1998) 51 ALD 56
Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598
Hanrick and Secretary, Department of Family and Community Services (2003) 75 ALD 231
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Beadle v Director-General of Social Security (1985) 60 ALR 225
Green and Secretary, Department of Social Security (1990) 21 ALD 772
Re Ivovic and Director-General of Social Services (1981) 3 ALN N95
Re Krzywak and Secretary, Department of Social Security (1988)15 ALD 690
Trimboli v Secretary, Department of Social Security (1989) 86 ALR 64
Groth and Secretary, Department of Social Security (1995) 40 ALD 541
Dranichnikov v Centrelink (2003) 75 ALD 134
Ryde v Secretary, Department of Family and Community Services [2005] FCA 866
Haidar v Secretary, Department of Social Security (1998) 52 ALD 255
Kertland v Secretary, Department of Family and Community Services (1999) 95 FCR 64
Secretary, Department of Family and Community services and Danielsen-Jensen (2004) 86 ALD 790
Secretary, Department of Family and Community Services and SRKKKK (2005) 86 ALD 396
Ubachs v Secretary of the Department of Family and Community Services [2004] FCA 310
Jazazievska v Secretary, Department of Family and Community Services (2000) 65 ALD 424
Secretary, Department of Employment and Workplace Relations and Carabott (2006) 89 ALD 726
McAliney and Secretary, Department of Family and Community Services (2005) 83 ALD 316
Strang and Secretary, Department of Employment and Workplace Relations [2006] AATA 51

REASONS FOR DECISION

12 March 2007  Mr SC Fisher, Member

Introduction and background

1.      Mr Gerald Cairns and Mrs Ruth Cairns are in receipt of age pension payable by Centrelink (the Respondent).

2.In outline form, the background to this appeal is as follows:

A.On 5 November 2004, Centrelink made decisions to reduce Mr and Mrs Cairns' rates of age pension.

B.On 14 June 2005, Centrelink made a decision to recover an age pension debt of $2,483.57 for the period 22 November 2002 – 24 February 2005 from Mr Cairns.

C.On 14 June 2005, Centrelink made a decision to recover an age pension debt of $2,483.57 for the period 22 November 2002 – 24 February 2005 from Mrs Cairns.

D.These four decisions were affirmed by an authorised review officer on 17 January 2005 (age pension reduction) and on 29 July 2005 (debt recovery).

E.Mr and Mrs Cairns appealed to the Social Security Appeals Tribunal on 20 July 16 May 2005.

F.On 22 August 2005 the Social Security Appeals Tribunal varied the decisions below by deciding to set aside those decisions under review, and sending the matter back to settling for reconsideration in accordance with directions that the debts owed by Mr and Mrs Cairns be recalculated, that the decision to reduce their age pension be reconsidered, on the basis that there was no income attributable to either of them from Cairns Corporation Pty Ltd for the 2004/2005 financial year.  The Social Security Appeals Tribunal further directed that any debts owing by Mr and Mrs Cairns be recovered by deductions from the age pension of not more than $50 per fortnight each.

G.On 29 September 2005, Mr and Mrs Cairns appealed to this Tribunal.

H.On 6 December 2005, the Respondent substituted fresh decisions under section 180 of the Social Security (Administration) Act 1999 to the effect that Mr Cairns and Mrs Cairns each owed an age pension debt of $1,961.80 spanning the period 22 November 2002 -- 1 July 2004 and that each of Mr Cairns and Mrs Cairns had been underpaid age pension in an amount of $1,505.12 for the period 5 November 2004 -- 24 February 2005.

Jurisdiction

3. In a procedural sense, the Tribunal has jurisdiction in this appeal by virtue of Part 4, Division 5 of the Social Security (Administration) Act 1999 (“the Administration Act”). In a substantive sense, the merits of this appeal are governed by the Social Security Act 1991 (“the Act”).

The Decision under Review

4. The decisions under review are decisions identified above which were made by the Social Security Appeals Tribunal on 22 August 2005 relating to age pension reduction and age pension debt recovery. Substituted decisions (identified above) were made by the Respondent on 6 December 2005 under section 180 of the Administration Act.

The Role of the Tribunal

5. The role of the Tribunal is to review the merits of the decision before it: section 43 of the Administrative Appeals Tribunal Act 1975 and Secretary, Department of Social Security v Murphy (1998) 52 ALD 268. The Tribunal is guided by the norm that it should reach the “correct and preferable decision on the basis of the material before it”: Ajka Pty Ltd v Australian Fisheries Management Authority (2003) 74 ALD 21 at 31. “The Tribunal is required to stand in the shoes of the original decision-maker and consider all evidence anew, bearing in mind statutory provisions and any significant legal precedent”: Bantick and Secretary, Department of Family and Community Services [2003] AATA 472 at [23]. The Tribunal proceeds de novo: Bramwell v Repatriation Commission (1998) 51 ALD 56 at 60 per Weinberg J. The Tribunal must base its decision upon the material that is logically probative of the existence of facts that emerge from the evidence before it: Collins v Minister for Immigration and Ethnic Affairs(1981) 36 ALR 598 at 601.

The Material Before the Tribunal

6.The following documentary evidence was before the Tribunal:

Exhibit 1 Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act (documents T1 – T 98).

Exhibit 2Complex Assessment Officer’s Report (undated).

Exhibit 3Debt Determination and Submission in relation to Mr Gerald Cairns dated 25 January 2006.

Exhibit 4Debt Determination and Submission in relation to Mrs Ruth Cairns dated 25 January 2006.

Exhibit 5Respondent's letter dated 4 April 2006 to the Tribunal Registry.

Exhibit 6Applicants' written submissions dated 5 June 2006.

Exhibit 7Applicants' e-mail to the Tribunal Registry dated 11 April 2006.

Exhibit 8Applicants e-mail to the Tribunal Registry dated 27 March 2006.

Exhibit 9Applicants' e-mail to the Tribunal Registry dated 15 November 2005 with PDF enclosure of a bearing machine.

Exhibit 10Applicants' e-mail to the Tribunal Registry dated 7 March 2006 relating to commercial use of an invention.

Exhibit 11Applicants' e-mail to the Tribunal Registry dated 19 February 2006 concerning teratogenic effects of organic-phosphate poisoning of piglets in utero.

Exhibit 12Applicants' e-Mail to the Tribunal Registry dated 16 February 2006 concerning the damage done to the Applicants by the New South Wales Government.

Exhibit 13Applicants' e-Mail to the Tribunal Registry dated 9 February 2006 concerning Queensland Rail.

Exhibit 14Applicants' e-Mail to the Tribunal Registry dated 9 February 2006 concerning Queensland Rail and the Queensland Government.

Exhibit 15Income Tax Returns of the Applicants (2004/2005 Financial Year) and Financial Report for Cairns Corporation Pty Ltd (Financial Year Ended 30 June 2005).

Exhibit 16Applicants' e-Mail to the Tribunal Registry dated 9 December 2005.

7.      The Applicants were self-represented. The Applicants provided detailed written submissions (Exhibit 6) and Supplementary Submissions (received 7 July 2006).  Exhibits 6 – 16 were lodged on behalf of the Applicants.

8. The Respondent lodged documents T1 to T 98 under s37 of the Administrative Appeals Tribunal Act 1975.  These documents were taken into evidence as Exhibit 1.  Exhibits 1 – 5 were lodged on behalf of the Respondent.

9.      The Respondent was represented by Ms Sarah Oliver a departmental advocate.  The Respondent’s advocate provided a Statement of Facts and Contentions to the Tribunal.

10.     Both parties lodged an outline of submissions with the Tribunal after the hearing in accordance with its direction to that effect. The Tribunal considered carefully all of the documentary and oral evidence before it.

Evidence

11.     Neither party called any evidence.  The parties were content for the Tribunal to proceed on the basis of the documentary evidence before it and on the oral and written submissions which were made to the Tribunal.

Issues

12.     There are two major issues in this case.  The first issue in this case is whether the income of the company Cairns Corporation Pty Ltd in the 2002/2003 and 2003/2004 financial years is attributable to the Applicants.  The second issue is whether the Respondent should recover all or part of the age pension debt raised against the Applicants.

Documentary material and evidence

13.     From the documentary material in evidence before the Tribunal, the following findings can be made and conclusions reached.

14.     Mr Cairns has been a director and the secretary of Cairnscorp Holdings Pty Ltd (ACN 065 975 662) since 21 September 1994.

15.     Mrs Cairns has been a director of Cairnscorp Holdings Pty Ltd (ACN 065 975 662) since 31 July 1998.

16. Cairnscorp Holdings Pty Ltd has had several name changes before 3 December 1998, previous iterations (with relevant dates of change) being Cairns Corporation Pty Ltd (12 November 1998), G & R Cairns Holdings Pty Ltd (24 September 1998) and Cairns Mansfield Holdings Pty Ltd (8 August 1994). The initial Statement of Facts and Contentions of the Respondent (para 3(c)) are in error in asserting that Cairnscorp Holdings Pty Ltd owned 100% of the shares in Cairns Corporation Pty Ltd (in turn, this was based on the Complex Assessment Officers Report, Exhibit 2). Based upon the Historical Company Extract provided by the Respondent to the Tribunal after the hearing, Cairnscorp Holdings Pty Ltd is one and the same entity as Cairns Corporation Pty Ltd. Because of section 161 of the Corporations Act 2001, the changes of name of Cairnscorp Holdings Pty Ltd recounted above do not create a new legal entity, or affect its existing property, rights or obligations (reading "obligations" as a synonym for duties; technically: "obligations" are a composite "right-and-duty" construct), or, for that matter, render defective any legal proceedings by or against the company.

17.     There appears to be a separate company, also called Cairns Corporation Pty Ltd (ABN 95 060 358 189).  There was no ASIC Historical Company Extract for this company in evidence before the Tribunal.  The Tribunal's own research disclosed that it has an ACN of 060 358 189, that it was registered on 2 June 1993 and was formerly known as Benrie Pty Ltd (presumably its shelf company name). From the 2002/2003 financial statements, the Applicants are the directors of this corporation and its paid-up capital is $2.00 with the identity of the shareholders not revealed in the balance sheet, but presumably the shareholders are the Applicants.  However, there was no evidence before the Tribunal which identified the shareholders of Cairns Corporation Pty Ltd.  The Respondent’s Statement of Facts and Contentions referred to Cairnscorp Holdings Pty Ltd owning 100% of the issued capital in Cairns Corporation Pty Ltd.  The same assertion is made in the Complex Assessment Officers Report (Exhibit 2).  The Tribunal will assume that this assertion can be made into a categorical statement of fact.

18.The share capital of Cairnscorp Holdings Pty Ltd is as follows:

Shareholder	No of shares	Date of acquisition
JA Coombes	111	16/01/2001
Corrosion Management Australasia Pty Ltd	1200	05/08/2001
Wyee Investments Pty Ltd	2689	05/08/2001
M Zabik	445	23/06/2004

19.     The total issued capital in Cairnscorp Holdings Pty Ltd is 4445 ordinary shares.  An annual return dated 31 July 2002 for Cairnscorp Holdings Pty Ltd for the 2002 financial year provided by the Applicants to the Tribunal after the hearing disclosed that these shares are paid to $100,039.99.  The same document discloses that all of these shares are beneficially owned.

20.     The Applicants are the sole shareholders of Wyee Investments Pty Ltd.

21.     As at the date of the hearing, Wyee Investments Pty Ltd owns 60.49% of the issued capital of Cairnscorp Holdings Pty Ltd.  In connection with the 2002/2003 and 2003/2004 financial years, Dr M Zabik was not a shareholder of Cairnscorp Holdings Pty Ltd during those times (at least according to the ASIC Historical Company Extract provided to the Tribunal by the Respondent after the hearing concluded).

22.     Dr M Zabik became a shareholder on 23 June 2004 according to document number 0E9 994 390, at which was lodged with ASIC on 23 June 2004.  In Supplementary Submissions, the Applicants contended that Dr M Zabik became a shareholder of Cairnscorp Holdings Pty Ltd on 27 March 2000 and on 18 September 2000 and that ASIC had made some kind of administrative error in not correctly recording the date of acquisition of Dr M Zabik’s shareholdings.

23.     The Tribunal prefers to rely upon official documentation such as those issued by ASIC.  There is an administrative procedure for correction of errors on the ASIC database, and if there are any errors in the shareholdings recorded in Cairnscorp Holdings Pty Ltd, then it is for the Applicants to activate the relevant machinery to correct those errors.

24.     If Dr M Zabik became a shareholder by transfer, then the relevant percentages of the shareholders in Cairnscorp Holdings Pty Ltd would not change.  If Dr M. Zabik became a shareholder by a fresh share issue of the 445 shares issued in his name on 23 June 2004, then the shareholding of Wyee Investments Pty Ltd in Cairnscorp Holdings Pty Ltd would be 2689/4000, or 67.23%.  On the best evidence before it, the Tribunal finds that Wyee Investments Pty Ltd holds 60.49% of the issued capital of Cairnscorp Holdings Pty Ltd for the purposes of the 2002/2003 and 2003/2004 financial year.

25.     Cairnscorp Holdings Pty Ltd derived income from the 2002/2003 and 2003/2004 financial years as result of performing a contract with Queensland Rail (this contract began on 22 November 2002). 

26.     The Company Tax Return for Cairns Corporation Pty Ltd for the 2003/2004 financial year disclosed total income of $42,995.

27.     The corresponding financial report of Cairns Corporation Pty Ltd for the 2002/2003 financial year disclosed a net operating profit of $28,466.15.  For the same period, taking into account an accumulated loss of $63,016.77, this left a deficit of $34,550.62.

28.     In relation to Cairns Corporation Pty Ltd, its company tax return for the 2002/2003 financial year disclosed total income of $87,329 against total expenses of $59,155, resulting in a net operating profit of $28,174.

29.     For the 2003/2004 financial year, Cairns Corporation Pty Ltd (ABN 95 060 358 189) derived consulting fee income of $24,955.86.  Overall, its net operating profit for this financial year was $4,064.04, leaving an accumulated deficit of $30,486.58.

30.     In connection with Wyee Investments Pty Ltd, the Private Company module document received by Centrelink on 24 September 2001 discloses that each of the Applicants owns 6 ordinary $1.00 shares paid up to $1.00 in the issued capital of the company.

31.Accordingly, the chain of company share ownership appears to be as follows:

§The Applicants each owns 6 ordinary shares in the issued capital of Wyee Investments Pty Ltd.

§Wyee Investments Pty Ltd owns 60.49% of the issued capital of Cairnscorp Holdings Pty Ltd.

§Cairnscorp Holdings Pty Ltd owns 100% of the issued capital in Cairns Corporation Pty Ltd.

Applicant’s Submissions

32.The submissions of the Applicant were to the following effect:

A.The Tribunal considered the oral submissions made by the Applicants during the hearing, the written submissions made by the Applicants to Centrelink as well as other material contained in Exhibit 1 and Exhibits 6-16 filed on their behalf.  The Tribunal considered also the written Supplementary Submissions made by the Applicants to the Tribunal after the hearing.

B.What follows is an abbreviated summary of what the Applicants contend.

C.The Applicants pointed to their positive contributions to generating employment and adding to the intellectual capital of Australia through their work and their inventions as constituting some kind of off-set for any debt which they might owe Centrelink.

D.The Tribunal did not understand the Applicants to dispute the debt calculations (particularly after Centrelink substituted earlier income attribution and debt recovery decisions with the decisions made on 6 December 2005 by its letter of 4 April 2006). The objection of the Applicants was really based on the principle, as they viewed the matter, that the Government should not be chasing them for an age pension overpayment under (essentially) Part 3.18 of the Act (to condense the argument of the Applicants).

E.The Applicants disputed the overpayment, given that Cairnscorp Holdings Pty Ltd was a loss-making company.  The Tribunal understood the Applicants to say that Centrelink really should have taken into account losses and expenses not just pure income in making income-attribution decisions.

F.The Applicants disputed the percentage of shareholding in Cairnscorp Holdings Pty Ltd which was attributed to them by Centrelink, contending that figure should be 60.49% instead of 67.23%.  [The Tribunal notes parenthetically that Centrelink has agreed with this through the substituted decision of 4 April 2006 and the subsequent repayment to the Applicants of age pension debt repayments made by them to Centrelink].

G.The Applicants complained about their inability to access information on the ASIC databases in order to ascertain and determine the correct shareholdings in Cairnscorp Holdings Pty Ltd.

H.The Applicants contended that their circumstances were sufficiently special such that the debt should not be recovered, pointing to an absence of cash flow in Cairnscorp Holdings Pty Ltd.  The Tribunal had regard to material on the papers (in particular but not confined to Exhibit 1) indicating their relative poor state of health.

I.The Applicants complained about the incongruity between income tax and accounting concepts of profits and losses and the social security treatment of profits and losses and income.

J.The Applicants complained about their discriminatory treatment at the hands of regulatory agencies administering the Act, the Income Tax Assessment Act1936, and the Corporations Act 2001.

K.The Applicants referred to their legal dispute with the New South Wales Government concerning compensation payable for the resumption of land in New South Wales.

L.Many of these contentions were replicated in Exhibit 6.

Respondent’s Submissions

33.The submissions of the Respondent were these.

34. The Respondent contended that any income from a "controlled private company" is to be attributed to the Applicants so long as the "control test" set out in section 1207Q(2) of the Act applied to them.

14.The Social Security Act 1991 (“the Act”) provides that, for the purposes of the Act, any income from a “controlled private company” is to be attributed to certain individuals, where those individuals pass the “control test” set out in section 1207Q(2) of the Act.

15.In this case, Mr and Mrs Cairns are the sole shareholders of Wyee Investment Pty Ltd.  As Mr and Mrs Cairns:

a.hold more than 50% of the voting interest of the company (s1207Q(2)(a));

b.have the direct control interests in the company (s 1207Q(2)(b));

c.can sufficiently influence the company (s 1207Q(2)(c)); and

d.are in a position to exercise control over the company (s 1207Q(2)(d));

they pass the “control test” in section 1207Q(2) of the Act and Wyee Investments is a “controlled private company” for the purposes of the Act (s 1207Q(1)).

16.     During the relevant period, Wyee Investments Pty Ltd owned 67.23% of the shares in Cairnscorp Holdings Pty Ltd, and Cairnscorp Holdings Pty Ltd held 100% of the shares in Cairns Corporation.

17. Because Wyee Investments Pty Ltd holds a direct voting and controlling interest in Cairnscorp Holdings Pty Ltd, and Cairnscorp Holdings Pty Ltd holds a direct voting and controlling interest in Cairns Corporation, sections 1207R(2) and 1207T(4) operate such that Mr and Mrs Cairns pass the “control test” in relation [to] these companies. The Secretary contends that these companies are “controlled private companies” of the applicants for the purposes of the Act.

18. As Mr and Mrs Cairns hold 50% each of the share in Wyee Investments Pty Ltd, they have been treated has [sic] holding 50% each of the interest held by Wyee Investments Pty Ltd in Cairnscorp Holdings Pty Ltd, and, likewise, 50% each of the interest held by Cairnscorp Holdings Pty Ltd in Cairns Corporation. The Secretary contends that this approach is consistent with the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000.

19.     Where an individual pass[es] the control test in relation to a company, they are an “attributable stakeholder” of the company (s 1207X(1)).

20. Pursuant to section 1207X(1) of the Act, the income and assets of any “controlled private company” is to be attributed to the “attributable stakeholder/s” of the company. The value of the income and assets is to be attributed to the stakeholder/s on the basis of their “attribution percentage” (s 1207X(1)(b) and (c)).

21. In this case, for the purposes of the Act:

a.100% of the income of Cairns Corporation is attributed to Cairnscorp Holdings Pty Ltd;

b.67.23% of the income of Cairnscorp Holdings Pty Ltd (which includes the income of Cairns Corporation) is attributed to Wyee Investments Pty Ltd;

c.100% of the income of Wyee Investments Pty Ltd (which includes 67.23% of the income (including attributed income) of Cairnscorp Holdings Pty Ltd) is attributed to the “controller/s” of the company;

d.As Mr and Mrs Cairns each hold 50% of the share in Wyee Investments Pty Ltd, they are attributed 50% each of the income of Wyee Investments Pty Ltd (which includes the attributed income passed from Cairnscorp Holdings Pty Ltd and Cairns Corporation).

In Summary

22. Cairns Corporation is part of a group of interrelated companies. Under the provisions of the Act, income and assets from linked organisations flow to each other in the direction of attribution, before flowing to the ultimate controller of the organisations. In this case, Mr and Mrs Cairns are the ultimate controllers of Cairns Corporation. The Secretary therefore contends that the income of the company must be attributed to Mr and Mrs Cairns under the provisions of the Act.

23.     As the income of the company is attributed to Mr and Mrs Cairns, this income must be taken into account in calculating the rate of pension payable to them (s1207Y).  As the correct amount of attributable income was not taken into account during the relevant period, Mr and Mrs Cairns were overpaid age pension during some periods and underpaid age pension in other periods (as set out in paragraph 1 above).

Recovery of the Debt

24.As the correct amount of Cairns Corporations’ attributable income was not taken into account when calculating the rate of age pension payable to Mr and Mrs Cairns during the period 22 November 2002 to 1 July 2004, Mr and Mrs Cairns received more social security benefits than they were entitled to receive. The Secretary contends that the amount of these overpayments ($1,961.80 each) is a debt due to the Commonwealth by virtue of section 1223 of the Act.

25.The right to recover debts owed to the Commonwealth can be waived in only limited circumstances.

26.Debts can be waived where the debt has arisen solely due to administrative error on the part of the Commonwealth (s 1237A).  The Secretary contends that the debt in this case arose and is not attributable to any administrative error and therefore section 1237A cannot apply in this case.

27.The right to recover debts due to the Commonwealth may also be waived in cases where there are “special circumstances” (pursuant to s 1237AAD).  Whilst the Act does not define “special circumstances”, it has long been accepted that “special circumstances” are circumstances which are “unusual, uncommon or exceptional” (Re Beadle and Director-General of Social Security (1984) 6 ALD 1) which make the case “markedly different” (Beadle) or “distinguishes the case in consideration  from the usual case”, (Dranichnikov v Centrelink (2003) 75 ALD 134 at 148) such as to justify the exercise of the discretion.

28.The Secretary contends that there is nothing “unusual, uncommon or exceptional” in Mr and Mrs Cairns’ circumstances which distinguishes their case from the usual or ordinary case, such as to warrant the exercise of the discretion to waive the Commonwealth’s right to recover the overpayments.

Arrears of Pension

29. Because Centrelink had proceeded, in its determination of 5 November 2004, on the incorrect basis that Wyee Investments Pty Ltd held 100% of the shares in Cairnscorp Holdings Pty Ltd (rather than 67.23% of the shares), Mr and Mrs Cairns received less age pension during the period 5 November 2004 to 24 February 2005 than was payable to them.

30.      During this period, Mr and Mrs Cairns were underpaid $1,505.12 each.

31. Even though the applicants are not entitled to the payment of these arrears by virtue of the operation of subsection 152(4) of the Social Security (Administration) Act 1999, in that they did not apply to the SSAT for a review of the authorised review officer’s decision of 17 January 2005 within 13 weeks of being notified of that decision, in fairness to the applicants, Centrelink has offset the amount of these arrears against the debts owed by Mr and Mrs Cairns.

32. In the circumstances, the net amount of the debts owed by Mr and Mrs Cairns has been reduced to $456.68 each.  This amount has been fully recovered.”

The Legislation

35. Part 3.18 of the Act (“MEANS TEST TREATMENT OF PRIVATE COMPANIES AND PRIVATE TRUSTS”) affects the way that individuals can continue to be eligible for and receive income support payments under the Act when they utilise private trusts and private companies for asset-protection purposes or for maximising income support entitlements.

36. Section 1207 is found within Part 3.18 of the Act. Section 1207 contains a simplified outline of this part of the Act, which is set out, in part, next:

•For an asset or income to be attributed to an individual:

(a)the company must be a designated private company or the trust must be a designated private trust (sections 1207N and 1207P); and

(b)the company must be a controlled private company in relation to the individual or the trust must be a controlled private trust in relation to the individual (sections 1207Q and 1207V); and

(c)the individual must be an attributable stakeholder of the company or trust (section 1207X).

•A company or trust will be a controlled private trust or a controlled private company if the individual passes a control test or a source test.

•An individual will not be an attributable stakeholder of a trust if the trust is a concessional primary production trust in relation to the individual.

•The asset deprivation rules and the income deprivation rules are modified if attribution happens.

37. In the case of private companies, the asset and income attribution rules are contained within sections 1207N, 1207Q and 1207X of the Act. The first two of these provisions read:

“1207N  Designated private companies

(1)For the purposes of this Part, a company is a designated private company at a particular time if:

(a)the company satisfies at least 2 of the following conditions in relation to the last financial year that ended before that time:

(i)the consolidated gross operating revenue for the financial year of the company and its subsidiaries is less than $10 million;

(ii)the value of the consolidated gross assets at the end of the financial year of the company and its subsidiaries is less than $5 million;

(iii)the company and its subsidiaries have fewer than 50 employees at the end of the financial year; or

(b)the company came into existence after the end of the last financial year that ended before that time; or

(c)the company is a declared private company (see subsection (2));

and the company is not an excluded company (see subsection (5)).

Declared private company

(2)The Secretary may, by legislative instrument, determine that each company included in a specified class of companies is a declared private company for the purposes of this section.

(3)A determination under subsection (2) has effect accordingly.

Excluded companies

(5)The Secretary may, by legislative instrument, declare that each company included in a specified class of companies is an excluded company for the purposes of this section.

(6)A declaration under subsection (5) has effect accordingly.

Definitions

(8)   In this section:

consolidated gross operating revenue has the same meaning as in section 45A of the Corporations Act 2001.

financial year, in relation to a company, means:

(a)       a period of 12 months beginning on 1 July; or

(b)       if some other period is the company’s tax year—that other period.

value of consolidated gross assets has the same meaning as in section 45A of the Corporations Act 2001.

1207Q  Controlled private companies

(1)For the purposes of this Part, a company is a controlled private company in relation to an individual if the company is a designated private company and:

(a)      the individual passes the control test set out in subsection (2);

or

(b)       the individual passes the source test set out in subsection (3).

Control test

(2)For the purposes of this section, an individual passes the control test in relation to a company if:

(a)       the aggregate of:

(i)the direct voting interests in the company that the individual holds; and

(ii)the direct voting interests in the company held by associates of the individual;

is 50% or more; or

(b)       the aggregate of:

(i)the direct control interests in the company that the individual holds; and

(ii)the direct control interests in the company held by associates of the individual;

is 15% or more; or

(c)       the company is sufficiently influenced by:

(i)        the individual; or

(ii)       an associate of the individual; or

(iii)      2 or more entities covered by the preceding subparagraphs; or

(d)the individual (either alone or together with associates) is in a position to exercise control over the company.

Source test

(3)For the purposes of this section, an individual passes the source test in relation to a company if:

(a)the individual has transferred property or services to the company after 7.30 pm, by standard time in the Australian Capital Territory, on 9 May 2000; and

(b)the underlying transfer was made for no consideration or for a consideration less than the arm’s length amount in relation to the underlying transfer.

No double counting

(4)In calculating the aggregate referred to in paragraph (2)(a), a direct voting interest held because of subsection 1207R(2) is not to be counted under subparagraph (2)(a)(i) to the extent to which it is calculated by reference to a direct voting interest in the company that is taken into account under subparagraph (2)(a)(ii).

(5)In calculating the aggregate referred to in paragraph (2)(b), a direct control interest held because of subsection 1207T(4) is not to be counted under subparagraph (2)(b)(i) to the extent to which it is calculated by reference to a direct control interest in the company that is taken into account under subparagraph (2)(b)(ii).

1207R  Direct voting interest in a company

!1)An entity holds a direct voting interest in a company at a particular time equal to the percentage of the voting power in the company that the entity is in a position to control at that time.

(2)If:

(a)an entity holds a direct voting interest (including a direct voting interest that is taken to be held because of one or more previous applications of this subsection) in a company (the first level company); and

(b)the first level company holds a direct voting interest in another company (the second level company);

the entity is taken to hold a direct voting interest in the second level company equal to the percentage worked out using the formula:

where:

first level percentage means the percentage of the direct voting interest held by the entity in the first level company.

second level percentage means the percentage of the direct voting interest held by the first level company in the second level company.

1207TDirect control interest in a company

(1)An entity holds a direct control interest in a company at a particular time equal to the percentage of the total paid‑up share capital of the company in which the entity holds an interest at that time.

(2)An entity also holds a direct control interest in a company at a particular time equal to the percentage that the entity holds, or is entitled to acquire, at that time of the total rights to distributions of capital or profits of the company to its shareholders on winding‑up.

(3)An entity also holds a direct control interest in a company at a particular time equal to the percentage that the entity holds, or is entitled to acquire, at that time of the total rights to distributions of capital or profits of the company to its shareholders, otherwise than on winding‑up.

(4)     If:

(a)an entity holds a particular type of direct control interest (including a direct control interest that is taken to be held because of one or more previous applications of this subsection) in a company (the first level company); and

(b)the first level company holds the same type of direct control interest in another company (the second level company);

the entity is taken to hold that type of direct control interest in the second level company equal to the percentage worked out using the formula:

where:

first level percentage means the percentage of the direct control interest held by the entity in the first level company.

second level percentage means the percentage of the direct control interest held by the first level company in the second level company.

1207XAttributable stakeholder, asset attribution percentage and income attribution percentage

Company

(1)For the purposes of this Part, if a company is a controlled private company in relation to an individual:

(a)the individual is an attributable stakeholder of the company unless the Secretary otherwise determines; and

(b)if the individual is an attributable stakeholder of the company—the individual’s asset attribution percentage in relation to the company is:

(i)100%; or

(ii)if the Secretary determines a lower percentage in relation to the individual and the company—that lower percentage; and

(c)      if the individual is an attributable stakeholder of the company—the individual’s income attribution percentage in relation to the company is:

(i)        100%; or

(ii)if the Secretary determines a lower percentage in relation to the individual and the company—that lower percentage.

1207Y  Attribution of income

(1) For the purposes of this Act, if:

(a)during a particular derivation period of a company or trust, the company or trust derives an amount that is ordinary income; and

(b)an individual is an attributable stakeholder of the company or a trust throughout the attribution period that relates to the derivation period of the company or trust; and

(c)the attribution period begins on or after 1 January 2002; and

(d)if that amount:

(i)had been derived by the individual instead of by the company or trust; and

(ii)in the case of income accounted for on an accrual basis as mentioned in subsection (5)—had been so derived by the individual on a cash basis;

that amount would have been ordinary income of the individual; and

(e) that amount is not excluded income (see subsection (2));

then, in addition to any other ordinary income of the individual, the individual is taken to receive, during that attribution period, ordinary income at an annual rate equal to the individual’s income attribution percentage of the amount worked out using the formula:

Excluded income

(2)The Secretary may, by writing, determine that, for the purposes of the application of subsection (1) to a specified individual and a specified company or trust, a specified amount is excluded income.

(3)     A determination under subsection (2) has effect accordingly.

(4)In making a determination under subsection (2), the Secretary must comply with any relevant decision‑making principles.

Accrual v. cash accounting

(5)If the income of a company or trust is accounted for on an accrual basis for the purposes of section 6‑5 of the Income Tax Assessment Act 1997, the ordinary income of the company or trust is accounted for on an accrual basis for the purposes of this section.

(6)If the income of a company or trust is accounted for on a cash basis for the purposes of section 6‑5 of the Income Tax Assessment Act 1997, the ordinary income of the company or trust is accounted for on a cash basis for the purposes of this section.

1208  Ordinary income of a company or trust

(1)For the purposes of this Division, the ordinary income of a company or trust is to be worked out as if:

(a)exempt lump sums were not excluded from the definition of ordinary income in subsection 8(1); and

(b)each reference in section 8 to a person included a reference to a company or trust; and

(c)the following provisions had not been enacted:

(i)        subsection 8(7A);

(ii)       subsection 8(8);

(iii)      subsection 8(11);

(iv)      Part 3.10.

(2) Paragraphs (1)(a) and (c) have effect subject to paragraph 1207Y(1)(d).

(3)A reference in this Division to the ordinary income of a company or trust is a reference to the company’s or trust’s gross ordinary income from all sources calculated without any reduction, other than a reduction under section 1208A or 1208B.

…

1208BPermissible reductions of business and investment income

(1) For the purposes of this Division, if a company or trust carries on a business or holds an investment, the company’s or trust’s ordinary income from the business or investment is to be reduced by:

(a)losses and outgoings that relate to the business or investment and are allowable deductions for the purposes of section 8‑1 of the Income Tax Assessment Act 1997; and

(b)amounts that relate to the business or investment and can be deducted in respect of plant (within the meaning of the Income Tax Assessment Act 1997) under Division 40 of that Act; and

(c)amounts that relate to the business or investment and are allowable deductions under any other provision of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997.

(2) However, the rule in subsection (1) does not apply to:

(a)      an ineligible deduction (see subsection (3)); or

(b)      an ineligible amount (see subsection (4)); or

(c)      an ineligible part of a deduction (see subsection (5)).

(3) The Secretary may, by legislative instrument, determine that a specified deduction is an ineligible deduction for the purposes of this section.

(4) The Secretary may, by legislative instrument, determine that a specified amount is an ineligible amount for the purposes of this section.

(5)The Secretary may, by legislative instrument, determine that a specified part of a specified deduction is an ineligible part of the deduction for the purposes of this section.

(6) A determination under subsection (3), (4) or (5) has effect accordingly.

1208C  Derivation periods

(1) For the purposes of this Part:

(a)if a company or trust was in existence throughout a tax year of the company or trust—the tax year is a derivation period of the company or trust; and

(b)if a company or trust was in existence during a part of a tax year of the company or trust—that part of the tax year is a derivation period of the company or trust.

(2)     Subsection (1) has effect subject to subsection (3).

(3)The Secretary may, by writing, determine that, for the purposes of the application of this Division to a specified individual and a specified company or trust, a specified period is a derivation period of the company or trust.

(4)A determination under subsection (3) has effect accordingly.

(5)In making a determination under subsection (3), the Secretary must comply with any relevant decision‑making principles.

(6)To avoid doubt, for the purposes of the application of this Division to a particular individual and a particular company or trust, it is not necessary that the individual be an attributable stakeholder of the company or trust throughout a derivation period of the company or trust.

(7)A derivation period may begin or end before the commencement of this Part.

1208DAttribution periods

(1)The Secretary may, by writing, determine that, in the event that a specified individual is an attributable stakeholder of a specified company or trust at a specified time (the start time):

(a)a period beginning at the start time and ending at whichever is the earlier of the following times:

(i)        the later time specified in the determination;

(ii)the time when the individual ceases to be an attributable stakeholder of the company or trust;

is an attribution period for the purposes of the application of this Part to the individual and the company or trust; and

(b)that attribution period relates to a specified derivation period of the company or trust.

(2)A determination under subsection (1) has effect accordingly.

(3)The Secretary must ensure that, if an individual is an attributable stakeholder of a company or of a trust at a particular time on or after 1 January 2002, that time is included in an attribution period.

(4)An attribution period may, but is not required to, overlap (in whole or in part) the derivation period to which it relates.

(5)An attribution period does not have to be of the same length as the derivation period to which it relates.

(6)     Attribution periods do not have to be of the same length.

(7)In making a determination under this section, the Secretary must comply with any relevant decision‑making principles”.

38.The Tribunal also considered the debt waiver provisions under sections 1237 – 1237AAD of the Act.

Tribunal’s Reasons

39.     It has been recognised by this Tribunal that there may be unintended and unforeseen consequences for some income support claimants when those claimants have utilised private trusts and private companies for asset-protection purposes or for maximising income support entitlements. In Hanrick and Secretary, Department of Family and Community Services (2003) 75 ALD 231, the Tribunal said this:

“If one is to make use of complicated structures in the course of managing one’s affairs in order to take advantage of the legal consequences of those structures, one cannot ignore the structure and its consequences when it suits one to do so” (at p. 235, para [20]).

40. The simplified outline of Part 3.18 of the Act in section 1207 provides the framework within which to resolve the critical issue in this appeal.

41. The first question to be resolved is whether Cairns Corporation Pty Ltd, Cairnscorp Holdings Pty Ltd and Wyee Investments Pty Ltd are "designated private companies" within the meaning of section 1207N of the Act. From the extensive evidence before the Tribunal in the shape of Exhibit 1 (in particular financial reports for these corporations), the Tribunal is satisfied that each of these companies meet the relevant qualification criteria set out in section 1207N(1)(a). This aspect was not in dispute in any case. For its part, the Tribunal is satisfied that for each of these three companies, there were no determinations in force under sections 1207N(2) – (4) or any declarations in force under sections 1207N(5) – (7) such as to remove each of these companies from the category of "designated private company" under section 1207N.

42. The second question is whether Cairns Corporation Pty Ltd, Cairnscorp Holdings Pty Ltd and Wyee Investments Pty Ltd are controlled private companies within section 1207Q. This provision houses the "control test" and the "source test" (section 1207Q(2) and section 1207Q(3) respectively). Only one of these two tests needs to be satisfied in the case of each of the Applicants. In short, the chain of reasoning is this: Cairns Corporation Pty Ltd, Cairnscorp Holdings Pty Ltd and Wyee Investments Pty Ltd (shown to be "designated private companies" within section 1207N) are controlled private companies in relation to each of the Applicants if they pass the control test under section 1207Q(2) or the source test under section 1207Q(3) in connection with these companies.

43. Taking Wyee Investments Pty Ltd first, the evidence before the Tribunal establishes that the Applicants between them own 100% of the issued capital of this company (each Applicant owns 50% of the issued capital of this company). The Applicants are the directors of this company. The Applicants hold 50% or more of the aggregate of the direct voting interest in that company within section 1207Q(2)(a)(i). Alternatively, the Applicants hold a direct control interest in this company above a threshold of 15% or more within section 1207Q(2)(b). As the sole shareholders of the company, the Applicants sufficiently influence Wyee Investments Pty Ltd within section 1207Q(2)(c). As the sole directors of the company, the Applicants are in a position to exercise control over Wyee Investments Pty Ltd within section 1207Q(2)(d). The Tribunal is satisfied that for the purposes of section 1207Q(2)(d), the Applicants are "associates" of each other such as to satisfy the position to exercise control element of the control test. Given this reasoning, the Tribunal did not need to examine the source test under section 1207Q(3) in relation to Wyee Investments Pty Ltd.

44. The evidence before the Tribunal satisfies it that Wyee Investments Pty Ltd holds 60.49% of the issued capital of Cairnscorp Holdings Pty Ltd. As stated previously, Centrelink has recognised this fact and this led to the decision of 6 December 2005 being substituted by the later decision of 4 April 2006 using the machinery contained in section 180 of the Administration Act. In practical terms, this resulted in a recalculation of the age pension debt (resulting in the reduction of that debt) and also a refund to the Applicants of the age pension debt overpayment.

45. Wyee Investments Pty Ltd's 60.49% shareholding of the issued capital of Cairnscorp Holdings Pty Ltd means that Wyee Investments Pty Ltd holds a direct voting interest in Cairnscorp Holdings Pty Ltd within section 1207R.

46. There was sufficient evidence before the Tribunal for it to be satisfied that Cairnscorp Holdings Pty Ltd owns 100% of the issued capital in Cairns Corporation Pty Ltd. The significance of this fact is that Cairnscorp Holdings Pty Ltd is a first level company within section 1207R(2)(a) in relation to Cairns Corporation Pty Ltd (the second level company within section 1207R(2)(b)) to the quantum of 100%. It also follows that Cairnscorp Holdings Pty Ltd holds a direct control interest in Cairns Corporation Pty Ltd within section 1207T(1) of 100%. The application of section 1207T(4) to the positions of Cairns Corporation Pty Ltd, Cairnscorp Holdings Pty Ltd and Wyee Investments Pty Ltd means that Wyee Investments Pty Ltd is the "entity" within section 1207T(4), Cairns Corporation Pty Ltd is the "first level company" within section 1207T(4) and Cairnscorp Holdings Pty Ltd is the "second level company" within section 1207T(4). In short, Wyee Investments Pty Ltd holds a 60.49% direct control interest in Cairnscorp Holdings Pty Ltd.

47.     The Respondent relied on the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 (C’wlth.) (an instrument in force under section 1209E of the Act) to attribute 50% of their relevant shareholdings between the corporate chain of shareholdings flowing through Wyee Investments Pty Ltd, Cairns Corporation Pty Ltd and Cairnscorp Holdings Pty Ltd to each of the applicants personally. While no particular provision of those Principles was relied on by the Respondent to justify this contention, the Tribunal considered that it was appropriate for the Respondent (and hence for this Tribunal on appeal) to make a determination that the income attribution percentage of each Applicant is not 100% but 50% (refer in particular to clause 25 of the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000).

48. The third major question in this case then becomes whether each of the Applicants are attributable stakeholders of Cairns Corporation Pty Ltd, Cairnscorp Holdings Pty Ltd and Wyee Investments Pty Ltd within section 1207X of the Act.

49. For its part, the Tribunal is satisfied that the income attribution percentage to each of the Applicants personally is 50% within the meaning of section 1207X(1)(a). Taking into account the relationships and shareholdings between Cairns Corporation Pty Ltd, Cairnscorp Holdings Pty Ltd and Wyee Investments Pty Ltd, the Tribunal is satisfied that each of the Applicants should be attributed with 50% of the income of Wyee Investments Pty Ltd (which in turn is attributed with 60.49% of the income derived by Cairnscorp Holdings Pty Ltd which in turn is attributed with 100% income derived by Cairns Corporation Pty Ltd). The Tribunal understood the Applicants to contest the principles behind income attribution. The Tribunal does not of course have a discretion or power to sidestep or supplant income attribution rules under Part 3.18. The only mechanism for making decisions which modify Part 3.18 is the power the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 gives to the Respondent (and on appeal, this Tribunal).  In this case, the income attribution percentages have been changed from 100% to 50%, reflecting the position of the Applicants as equal equity interest holders in Wyee Investments Pty Ltd.  The Tribunal was satisfied that the Respondent made the correct decisions in that regard.  The Tribunal sees no basis on which to disturb these decisions in so far as they apply to the Applicants (which were otherwise favourable, in any event).

50. The fourth major question in this case is the application of the income attribution rules in section 1207Y of the Act. The Applicants contended that it was unfair or unjust for the Respondent to attribute the income of Cairns Corporation Pty Ltd to them personally (as inter-mediated via Cairnscorp Holdings Pty Ltd and Wyee Investments Pty Ltd) without also taking into account the expenses incurred in deriving that income. This brings into play sections 1208 – 1208D. This particular contention of the Applicants invokes section 1208B.

51. The scheme of section 1208B is to designate reductions from the ordinary income of the company in the nature of losses and outgoings incurred by a company carrying on business (here, Cairns Corporation Pty Ltd) which are otherwise allowable deductions for the purposes of section 8 – 1 of the Income Tax Assessment Act 1997 (C’wlth). Exceptions exist under sections 1208B(2) - 1208B(5) (as supplemented by the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001 made under sections 1208B and 1209C of the Act.

52. In Exhibit 1 (T84, Folio 357), there is the Complex Assessment Officers Report in relation to Cairns Corporation Pty Ltd. This document discloses that there has been an adjustment under section 1208B for the income of Cairns Corporation Pty Ltd for the period 1 July 2004 – 31 March 2005. Leaving aside a one-day overlap (1 July 2004), this particular adjustment stands outside the relevant debt period (22 November 2002 – 1 July 2004).

53.     In Exhibit 1 (T30, Folio 237), there is another Complex Assessment Officers Report in relation to Cairns Corporation Pty Ltd, this time based on the 2002/2003 financial year, which straddles the relevant debt period.  This document discloses that R&D deductions in an amount of $206 have been removed from the Profit & Loss Statement of Cairns Corporation Pty Ltd.

54.     The relevant portions of the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001 are clauses 4 (1)(b) and Part 2 of Schedule 1. From the evidence before the Tribunal, the Tribunal could not determine whether the Respondent has properly taken into account the permissible reductions from the business income of Cairns Corporation Pty Ltd for the 2002/2003 and 2003/2004 years of income allowed by the combined operation of section 1208B and clauses 4 (1)(b) and Part 2 of Schedule 1 of the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001.

55. The Tribunal notes that the Respondent did not address the Tribunal orally or in writing concerning the operation of section 1208B and the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001. This is unsatisfactory, particularly in an adversarial system. In the opinion of the Tribunal, this makes it necessary for the decisions under review to be set aside and to be remitted to the Respondent for reconsideration in the light of the operation of section 1208B and clauses 4 (1)(b) and Part 2 of Schedule 1 of the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001.

56.     In view of the conclusion just expressed, this makes it unnecessary for the Tribunal to consider the second major issue in this case, namely debt recovery.  The Tribunal did not have before it in evidence a Statement of Financial Circumstances document.  Nevertheless, in deference to the very brief oral and written submissions made to it by the parties on the issue of debt recovery, the Tribunal thought it would consider this issue.

57. "Special circumstances" is used within income support law at various points in which to cushion or temper the exercise of a discretion relating to a power or liability in order to signify or demarcate a particular threshold of circumstances relevant to income support recipients where the adjudication of a decision must take place. "Special circumstances" is also deployed in debt waiver provisions such as section 1237AAD of the Act and section 101 of the A New Tax System (Family Assistance) (Administration) Act 1999 (Cth) (compare Order 52 r 15(2) the Federal Court Rules which uses the cognate expression “special reasons”).

58.     In Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 it was said that "... ‘special circumstance’ is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional." In the appeal [(1985) 60 ALR 225 at 228], it was said that "...special circumstances must include events which would render [a happening or eventuality]... unfair or inappropriate... We do not think it is possible to lay down precise limits or precise rules... The phrase ’special circumstances’, although lacking precision, is sufficiently understood in our view not to require judicial gloss".

59.     In Green and Secretary, Department of Social Security (1990) 21 ALD 772, this Tribunal collected a series of factors that it thought provided guidance concerning the exercise of the discretion conditioned upon the predicate of "special circumstances" in what is now Section 1184 of the Act. The Tribunal said at 773:

“In Re Ivovic v Director-General of Social Services (1981) 3 ALN N95 the tribunal identified a number of principles which could be applied in deciding whether special circumstances existed to warrant the exercise of the discretion contained in s 156 of the Act. In that decision, which concerned the liability of the Applicant to repay an amount of sickness benefit paid to him, the Tribunal commented at N97.

·The use of the word ‘special’ is ‘intended to allow the decision maker the fullest opportunity to consider the particular circumstances of each case’.

·‘Hardship is a relevant consideration’ but regard must be had to the way in which the hardship arose.

·There must exist ‘factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes’.

·The decision maker must have regard to whether, by exercising the discretion in a particular case he/she will be ‘achieving or frustrating ends or objects which are comfortable with the scope and purpose of the Social Security Act’.

·‘The decision maker must be prepared to respond to special circumstances of any particular case by reason of which strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise inappropriate.’"

60.     The principles set out in Ivovic were approved by the Administrative Appeals Tribunal in Re Krzywak and Secretary Department of Social Security (1988) 15 ALD 690 which has been followed generally by the Tribunal.

61.     In Trimboli v Secretary, Department of Social Security(1989) 86 ALR 64 at p. 73 Hill J. described a similar discretion to waive under special circumstances as one that:

“… is extremely broad and which is not to be confined, save in accordance with usual principles, namely, that it is to be exercised bona fide and for the purposes for which the discretion is conferred, such purposes being determined by reference to the policy and purpose of the Social Security Act: cf. Giris Pty Ltd v FCT (1969) 119 CLR 365 at 384.”

62.     Later in Groth v Secretary,  Department of Social Security (1995) 40 ALD 541 at 545 it was stated:

“... [Special circumstances] would require something to distinguish... [the] case from others, to take it out of the usual or ordinary case ... It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary".

63.     In Dranichnikov v Centrelink (2003) 75 ALD 134, the Federal Court held at 148 that for a finding of special circumstances to be made (or for “special reasons” to exist):

"...what is required will be circumstances which distinguish the case in consideration from the usual case. There will be a requirement that the circumstances are such that takes the case out of the ordinary..."

64.     In Dranichnikov v Centrelink (2003) 75 ALD 134 at 148, Hill J (Kiefel & Hely JJ concurring) said the following concerning the “unusual, uncommon or exceptional” gloss:

“ The Full Court in Beadle comprising Bowen CJ, Fisher and Lockhart JJ, however, was of the view that it was not possible to lay down precise rules as to what constituted special circumstances under the then s 102(1)(a) of the Social Security Act 1947 (Cth). Their Honours point out that the question whether there were special circumstances was one for the decision maker (in that case the Director-General) bearing in mind the purpose for which the power was given. The reference to the first instance decision from which the words “unusual, uncommon or exceptional” come was not actually affirmed by the Full Court.”

65.     A similar observation was made by Branson J in Ryde v Secretary, Department of Family and Community Services [2005] FCA 866 at [25]. The Dranichnikov approach seems to represent a retreat from the position Hill J took in Haidar v Secretary, Department of Social Security (1998) 52 ALD 255 (see also Kertland v Secretary, Department of Family and Community Services (1999) 95 FCR 64).

66.     The explanation of the “unusual, uncommon or exceptional” trilogy made by the Full Court of the Federal Court in Dranichnikov v Centrelink (2003) 75 ALD 134 does not appear to have affected or limited the use of this particular trilogy by this Tribunal (see for example, Secretary, Department of Family and Community Services and Danielsen-Jensen (2004) 86 ALD 790 and Secretary, Department of Family and Community Services and SRKKKK (2005) 86 ALD 396) and by the Federal Court (see Ubachs v Secretary of the Department of Family and Community Services [2004] FCA 310 and Jazazievska v Secretary, Department of Family and Community Services (2000) 65 ALD 424). The Groth formula (which has also enjoyed wide citation in income support law: see Secretary, Department of Employment and Workplace Relations and Carabott (2006) 89 ALD 726; McAliney and Secretary, Department of Family and Community Services (2005) 83 ALD 316 and Strang and Secretary, Department of Employment and Workplace Relations [2006] AATA 51), with respect, should also be seen as an attempt to paraphrase "special circumstances". This Tribunal is of the view that these paraphrases cannot supplant the statutory language, while at the same time recognising that these paraphrases elucidate the meaning of the statutory language.

67.     The clear thrust of some of the authorities discussed above (see, in particular, Dranichnikov v Centrelink (2003) 75 ALD 134 and Ryde v Secretary, Department of Family and Community Services [2005] FCA 866) is that "special circumstances" should not be interpreted according to synonyms (and, in particular, not confined by them). The Tribunal considers that the clear and ordinary meaning of the words "special circumstances" is the meaning that should be assigned to them. The Tribunal also considers that it is important not to approach "special circumstances" against an a priori set of established factual circumstances or recurring factual patterns which have been recognised in the authorities as supporting or generating special circumstances, or which, in fact, exclude special circumstances (compare Dranichnikov v Centrelink (2003) 75 ALD 134 at 148 and Green and Secretary, Department of Social Security (1990) 21 ALD 772). Accordingly, for any adjudicator to state or conclude that special circumstances precludes the exercise of a power and discretion under section 1237AAD simply because the circumstances of an income support recipient are commonplace is to misconceive and misapply the provision.

68. As stated previously, there was no Statement of Financial Circumstances of the Applicants in evidence before the Tribunal. Such a document is usually prepared, and is it is usual to see this document in hearings before this Tribunal so that this Tribunal can properly consider the application of its discretion under section 1237AAD.

69.     From the material before the Tribunal, it is able to agree with the observation made by the Social Security Appeals Tribunal in relation to the Applicants that their "current financial circumstances are strained" and also they have health problems (which are ongoing, according to a supplementary submission made by the Applicants to the Tribunal after the hearing concluded).  The Tribunal took into account in a global sense the material about the life circumstances of the Applicants contained in Exhibits 6 – 16, as well as the supplementary material provided by the Applicants to the Tribunal after the hearing concluded.  Much of this material did not have a direct bearing on the debt waiver issue, and neither did it elucidate it.

70. As the Tribunal considers that the Respondent should reconsider the operation of section 1208B and the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001 in the circumstances of the Applicants, the Respondent should also reconsider the debt waiver aspect of this case by eliciting from the Applicants a Statement of Financial Circumstances and deciding whether or not it should waive any debt remaining. The Tribunal is satisfied that this course of action is justified by section 43(1)(c)(ii) of the Administrative Appeals Tribunal Act 1975.

Tribunal’s Conclusion

71. Based upon the material before it, and for these Reasons, the Tribunal concludes that the correct or preferable decision is that the Respondent should reconsider the operation of section 1208B and the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001 in the circumstances of the Applicants.

Tribunal’s Order

72.     The Tribunal sets aside the 6 December 2005 decisions made by the Respondent and remits these decisions to the Respondent in accordance with the directions:

1) That the Respondent review the operation of section 1208B of the Social Security Act 1991 and the Social Security (Attribution of Income -- Ineligible Deductions) Determination 2001 to the circumstances of the Applicants and recalculate any attributable income of Cairns Corporation Pty Ltd to the Applicants for the 2002/2003 and 2003/2004 financial years.

2) That the Respondent cause to be issued to the Applicants a Statement of Financial Circumstances document which, if completed and returned by or on behalf of the Applicants to the Respondent, is to form the basis of a review of the waiver of any age pension debt payable by the Applicants remaining after Direction 1 is discharged for the purposes of section 1237AAD of the Social Security Act 1991.

I certify that the 72 preceding paragraphs are a true copy of the reasons for the decision herein of Member SC Fisher

Signed:   ………………………….
               Legal Research Officer

Date/s of Hearing  5 June 2006
Last submission received         7 July 2006
Date of Decision  12 March 2007
For the Applicant  Self-represented
For the Respondent                  Ms S Oliver, Departmental Advocate