Carolina David and and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
[2013] AATA 181
[2013] AATA 181
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2012/2521
Re
Carolina David
APPLICANT
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
File Number(s)
2012/2523
Re
Jose David
APPLICANT
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
DECISION
Tribunal Senior Member A K Britton
Date 28 March 2013 Place Sydney Decision Summary
The tribunal sets aside the decisions under review, and remits the matter to the respondent for reconsideration in accordance with the directions of the tribunal as set out in its reasons for this decision.
.....................[SGD]...................................................
Senior Member A K Britton
CATCHWORDS
SOCIAL SECURITY—Disability support pension and age pension—Rate of pensions determined by income—Whether overseas pension shortfall which is not received is “derived” income—Meaning of “derived”— Reviewable decision set aside
LEGISLATION
Social Security Act 1991 (Cth) – s 1064;
Social Security Act 1947 (Cth)
CASES
Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307
Read v Commonwealth (1988) 167 CLR 57
Rose v Secretary, Department of Social Security (1990) 21 FCR 241Secretary, Dept of Employment and Workplace Relations v Richards (2007) 98 ALD 310
Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35
REASONS FOR DECISION
Senior Member A K Britton
28 March 2013
Married couple Carolina and Jose David migrated to Australia twenty five years ago. Both worked for the Portuguese civil service and now receive a pension from the Portuguese pension fund, the Caixa Geral de Aposentações. Each also receive an Australian pension: Mrs David receives the disability support pension (DSP); Mr David receives the age pension. The rate of their respective Australian pensions is determined by, among other things, their “income” including any overseas income.
The Davids seek review of the decisions made by the Secretary, and affirmed by the Social Security Appeals Tribunal, to count the full rate of the Portuguese pension as Mrs David’s income. They contend that only the much lesser sum Mrs David actually receives from the Caixa should count towards her income. The amount of Mrs David’s income is relevant not only to the calculation of her rate of DSP, but also to her husband’s rate of age pension as the income of a person’s partner is taken into account in the calculation of their rate of pension.
Background
The following is based on information provided by the Davids and is not disputed by the Secretary. It includes a letter from the Caixa dated 28 October 2011 addressed to Mrs David and an English translation of that letter.
To be eligible to receive a retirement pension, Portuguese civil servants must contribute to a pension fund. The fund is currently managed by the Caixa.
The rate of pension payable to a person who has contributed to the Caixa is based on a formula that takes into account, among other things, the person’s age and the amount of contributions made. A nominated figure must be contributed before a person becomes entitled to receive the full rate of pension (the contribution figure).
Once a person who has contributed to the fund reaches pensionable age they are entitled to receive a pension irrespective of whether, as in Mrs David’s case, the amount contributed to the fund falls short of the contribution figure. Where a shortfall exists, the rate of pension paid to the person is reduced (according to a formula) and the difference between that figure (the actual pension) and the full rate of pension is notionally credited towards the person’s contribution figure. The full rate of pension is paid to the person only when, or if, the contribution figure is reached.
Mrs David has been advised by the Caixa that an additional contribution of €34,000 must be made to the fund before the contribution figure is reached. Caixa has notified Mrs David that she will be ineligible to receive the full rate of pension for about 15 years and, throughout that period, the amount she will receive from the fund will be about €270 per month less than the full rate of pension. From the available information it would appear that if Mrs David does not survive for a further 15 years, neither she nor her estate will benefit from any notional contributions made throughout the period, from the date she first received the Portuguese pension to the date of her death.
Relevant legislation
The rate of the age pension and disability support pension is calculated by applying the Pension Rate Calculator A in s 1064 of the Social Security Act1991 (Cth) (the Act). That calculator operates to reduce a pensioner’s maximum rate of pension by the amount, if any, of the pensioner’s “ordinary income”.
“Ordinary income” is defined to mean a person’s gross ordinary income from all sources for the period calculated without any reduction (s 1072). “Ordinary income” is further defined in s 8 (1) to mean income that is not maintenance income or an exempt lump sum. The same section defines “income” to include:
(a) an income amount earned, derived or received by the person for the person’s own use or benefit.
Section 8(2) provides that a reference in the Act to an “income amount earned, derived or received” is a reference to:
(a) an income amount earned, derived or received by any means; and
(b) an income amount earned, derived or received from any source (whether within or outside Australia).
An “income amount” is defined to mean:
(a) valuable consideration; or
(b) personal earnings; or
(c) moneys; or
(d) profits;
(whether of a capital nature or not).
Does the shortfall amount constitute income?
The question to be determined is whether the difference between the full rate of the Portuguese pension and the actual amount received by Mrs David (the shortfall amount), constitutes “income” within the meaning of paragraph (a) of the definition given in s 8(1) of the Act.
There is no issue that the shortfall amount was not received or earned by Mrs David. The Secretary however contends that it was “derived” by Mrs David for her benefit.
To fall within paragraph (a) of the definition of income the shortfall amount must be:
·An income amount
·Earned, derived or received by Mrs David
·For Mrs David’s own use and benefit
The definitions of “income” and “income amount” as used in the Act are terms of wide application (Read v Commonwealth (1988) 167 CLR 57 at 69; Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35 at 42). In Secretary, Department of Employment and Workplace Relations v Richards (2007) 98 ALD 310; [2007] FCA 1710 at [34] Collier J summarised the authorities relating to the concept of income being “earned, derived or received”:
·the use of the verbs “earned”, “derived” and “received” in juxtaposition in the definition of “income” in the Act suggests that each was intended to have a different meaning: Sheppard J in Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307 at 311.
·income cannot be “earned, derived or received” unless it is also realised: Readv Commonwealth (1988)167 CLR 57 per Mason CJ, Deane and Gaudron JJ at 67.
·income can be realised — and hence received — even if temporarily it is not accessible: Rose v Secretary, Department of Social Security (1990) 21 FCR 241at 245.
·income can be “derived” within the meaning of s 8(1) even if it is not at that time received: Inguantiv Secretary, Department of Social Security (1988) 80 ALR 307 at 311.
The word “derive” is an ordinary English word and should be given its ordinary meaning in the context in which it appears. The Macquarie Dictionary defines “derive” to mean “to receive or obtain from a source or origin”. The Oxford English Dictionary offers this definition: “to draw, fetch, get, gain, obtain (a thing from a source)”.
In general terms, income may be said to have been derived when a legal entitlement to receive it arises. So, for example, trading income is derived when the right to receive the valuable consideration arises as a debt.
The Secretary argues that Mrs David became legally entitled to the full rate of Portuguese pension upon retirement and that therefore it is the full rate of that pension that ought to be assessed as income under the Act.
In my view, that is incorrect. In fact, Mrs David does not have a legal entitlement to the full Portuguese pension at all. Because: she was a Portuguese civil servant and because she has reached retirement age, she has become eligible to receive the full pension. This however, is contingent upon her meeting the condition that she make further contributions to the pension fund (approx. €34,000). Until she does so, however, her legal entitlement is the much lesser sum she currently receives from the Portuguese pension fund
The circumstances of this case are to be distinguished from Iguanti v Secretary, Department of Social Security (1988) 80 ALR 307. That case concerned the meaning of the word “derived” in the definition of “income” in an earlier version of the Act, which is not materially different to the current definition under consideration. Shepherd J found that the pensioner had “derived” an overseas pension notwithstanding that there was a delay of some 12 to 18 months between the date of payment by the Italian pension fund and receipt of the pension by the pensioner.
In contrast, there has not been a delay in Mrs David’s receipt of the full Portuguese pension, or, the pension shortfall in this case. From the available evidence it would appear that each time a pension payment is paid to Mrs David the amount of the pension shortfall is simply credited towards her contribution figure (the source of which is unclear). She has no entitlement to any benefit that might flow from that amount until such time as the additional €34,000 is “credited” on her behalf. Even if that event occurs, Mrs David will have no entitlement to that money: her entitlement will simply be to receive the full rate of Portuguese pension applicable at the time.
In my view, Mrs David could not be said to have derived the full rate of the Portuguese pension until such time as she satisfies all the conditions of eligibility and entitlement. Until that entitlement is crystallised it cannot be said that she has derived the full rate of pension for her “own use and benefit”. In my opinion only the actual amount received by Mrs David from the Caixa counts as income for the purposes of s 8(1) of the Act.
For all these reasons, the decisions made by the SSAT about the proper calculation of Mr and Mrs David’s rate of pension, are in error and ought be set aside. Those decisions are remitted to the Secretary for reconsideration in accordance with these reasons.
I certify that the preceding 23 (twenty -three) paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton ................[SGD]........................................................
Associate to Senior Member Britton
Dated 28 March 2013
Date(s) of hearing 25 February 2013 Applicant In person Solicitors for the Respondent Department of Human Services, Program Litigation and Review Branch