Daniels and Anor and Secretary, Department of Family and Communit Y Services

[2003] AATA 371

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2003] AATA 371

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q2001/1158; Q2002/46

GENERAL ADMINISTRATIVE DIVISION		)
Re		LORRAINE DANIELS JANINE RICHARDS

Applicants

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Ms J Cowdroy, Member

Date24 April 2003

PlaceBrisbane

Decision The Tribunal affirms the decisions under review. 

(Sgd) J Cowdroy
  Member

CATCHWORDS

SOCIAL SECURITY – family allowance – overpayment – actual income exceeded estimated income by more than 110% - whether debt properly raised – whether the repeal of section 885 of the Social Security Act 1991 affects the Department’s right to recover the debt

Social Security Act 1991

A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No 1) 1999
A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No 2) 1999

Youth Allowance Consolidation Act 2000
Acts Interpretation Act 1901

Re Rowe and Secretary, Department of Family and Community Services [2002] AATA 245
McDonald v Commissioner of Business Franchises [1993] 2 VR 632
Esber v The Commonwealth (1902) 174 CLR 430
The Director of Public Works v Ho Po Sang [1961] AC 901
Free Lanka Insurance Co Ltd v Ranasinghe [1964] AC 541
Ogden Industries v Lucas (1967) 116 CLR 537

REASONS FOR DECISION

24 April 2003 Ms J Cowdroy, Member    

History of the Application

1.      Both applicants received family allowance payments during the 2000 financial year, based on estimates of income they each provided during that year.  Ultimately, the income that was received was more than 110 per cent of the estimates provided.   

2.      After 30 June 2000, the respondent raised a debt equivalent to the difference between the amount of family allowance payments that each of the applicants had received and the amount that would have been payable to each of them if their incomes had been accurately estimated, with provision being made for the 10 per cent leeway.  

3.      In the case of Mrs Richards, a decision was made by Centrelink on 11 May 2001 to raise and recover an overpayment of  $2777.53 for the period 17 November 1999 to 5 June 2000; and in the matter of Mrs Daniels, a decision was made by Centrelink on 3 August 2001 to raise and recover an overpayment of $2238.90 in respect of the period 8 October 1999 to 30 June 2000. 

4.      Both those decisions were the subject of review before the Social Security Appeals Tribunal (“the SSAT”). In Mrs Richards’ case, the SSAT affirmed the debt of $2776.53, and waived recovery of $871.33. In Mrs Daniels’ case, the SSAT affirmed the debt of $2238.90.  Both applicants applied to this Tribunal for a review of those decisions.

5.      The sole issue to be determined by this Tribunal is whether the repeal of certain sections of the Social Security Act 1991 (“SS Act”) has resulted in there being no debt recoverable by the respondent.

Hearing

6.      Because of the commonality of issues, the matters were heard together.  Mr D Williams of counsel appeared for the applicants, and Mr D O’Sullivan of counsel appeared for the respondent.

7. The T-documents, lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975, were admitted into evidence (as E1), as well as the following exhibits:

E2Supplementary T-documents

E3Applicant’s supplementary documents

E4Extract of legislative provisions

E5Re Rowe and Secretary, Department of Family and Community Services [2002] AATA 245

E6McDonald v Commissioner of Business Franchises [1993] 2 VR 632

8.      The matters were decided on the basis of the written material and the oral submissions of both parties.  

Legislation  

Prior to 1 July 2000

9. Prior to 1 July 2000, the rate of family allowance was calculated by using the rate calculator in section 1069 of the Social Security Act 1991 (“the SS Act”). Once the rate was calculated, the section provided:

“… the rate of family allowance payable to the person only has to be worked out again during that calendar year if:

(a)     …

(b)     …

(c)     …

(ca)   …

(d)the person revises an estimate of his or her income; or

(e)the person has underestimated his or her income; or

(f)the Commissioner of Taxation changes an assessment of the person’s taxable income.”

10. A determination as to the rate of family allowance payable continued unless certain specified events occurred. One of those events is provided for in section 885 of the SS Act, which states that a person’s rate of family allowance is to be recalculated if taxable income has been underestimated by 10 per cent or more. It provides:

“(1)  If

(a)in working out the rate of family allowance payable to a person, regard is had to the person’s income for a tax year; and

(b)the income to which regard was had consisted of an amount estimated by the person; and

(c)the person’s income for that tax year is more than 110% of the amount of the income on which the determination of the rate of family allowance was based;

the person’s rate of family allowance is to be recalculated on the basis of that income.”

11. Section 891 of the SS Act sets out the manner for determining the date of effect of a determination made where a person has underestimated income. It states:

“If

(a)the Secretary makes a determination of a person’s rate of family allowance; and

(b)in making the determination, the Secretary had regard to the person’s income for a tax year; and

(c)the income to which regard was had included an amount or amounts estimated by the person; and

(d)the person’s income for the tax year is more than 110% of the amount of the income on which the determination referred to in paragraph (a) was based; and

(e)the Secretary makes a determination varying the person’s rate of family allowance, or cancelling the person’s family allowance, to give effect to the recalculation required by section 885;

the later determination takes effect on the day on which the earlier determination took effect.”

12. Section 1223(3) and (4) of the SS Act provide that overpayments of family allowance are debts due to the Commonwealth:

“(3) Subject to subsection (4), if:

(a)an amount (the ‘received amount’) has been paid to a person by way of family allowance; and

(b)the person’s rate of family allowance is recalculated under:

(i)section 884 (amendment of assessable income); or

(ii)section 885 (underestimate of income); or

(iii)section 886 (failure to notify notifiable event); or

(iv)section 886A (overestimate of child maintenance expenditure); and

(c)the received amount is more than the amount (the ‘correct amount’) of the family allowance payable to the person;

the difference between the amount and the correct amount is a debt due to the Commonwealth.

(4) If:

(a)a family allowance is paid to a person in a tax year; and

(b)apart from this subsection an amount of family allowance would become recoverable under subsection (3) before the end of the tax year; and

(c)the amount would be recoverable because of:

(i)     an increase in the person’s income; or

(ii)     an underestimate of the person’s income;

the amount is recoverable only after the end of the tax year.”

From 1 July 2000

13.     A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No 1) 1999 (“NTS No 1”) repealed Part 2.17 of the SS Act, including sections 885 and 1069, with effect from 1 July 2000. Sections 1223(3) and (4) of the SS Act were repealed by A New Tax System (Family Assistance) (Consequential and Related Measures) Act (No 2) 1999 (“NTS No 2”).

14.     Subsequently, the Youth Allowance Consolidation Act 2000 (“YAC Act”) purported to repeal sections 1223(3) and (4) of the SS Act (despite it having already been repealed by the NTS No 2), and substituted new provisions which state:

“(3) Subject to subsection (4), if

(a)an amount (the received amount) has been paid to a person by way of youth allowance or family allowance; and

(b)either of the following subparagraphs applies:

(i)…

(ii)the person’s rate of family allowance is recalculated under section 884 (amendment of assessable income), 885 (underestimate of income) or 886 (failure to notify notifiable event);

(c)the received amount exceeds the amount (the correct amount) of the … family allowance … payable to the person;

the excess is a debt due to the Commonwealth.

(4) If:

(a)… family allowance is paid to a person in a tax year; and

(b)an amount of … family allowance is recoverable under subsection (3) from the person; and

(c)apart from this subsection the amount would be recoverable before the end of the tax year;

the following paragraphs have effect:

(d)…

(e)if the amount of family allowance that is recoverable because of:

(i)     an increase in the person’s income; or

(ii)     an underestimate of the person’s income;

it is recoverable only after the end of the tax year.”

15. Regard must also be had to section 8 of the Acts Interpretation Act 1901 (“the AI Act”) in determining the status of section 885 after its repeal. That section provides:

“Where an Act repeals in the whole or part a former Act, then unless the contrary intention appears the repeal shall not:

(a)…

(b)…

(c)affect any right, privilege, obligation or liability acquired, accrued or incurred under any Act so repealed; or

(d)…

(e)affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid;

and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and such penalty, forfeiture or punishment may be imposed, as if the repealing Act had not been passed.”

Submissions

16. The applicants submitted that under the current legislation, section 1223(3) of the SS Act does not create a debt. This is because any liability due to the Commonwealth is contingent upon the happening of certain express contingencies. They include the payment of family allowance and the re-calculation of the rate payable under section 885. The repeal of section 885 means that there are simply no re-calculation provisions available for a comparison to be made. Whilst section 885 allows for a re-calculation as soon as a person’s income for the tax year is more than 110 per cent of the amount on which the determination of the rate of family allowance was based, the reality is that such re-calculation happens after the financial year.

17. Until the re-calculation occurs, it cannot be known whether the actual income is more or less than the estimate. For liability to arise under section 1223(3) of the SS Act, there must first be a re-calculation under section 885 of the SS Act.

18.     The applicant relied on Esber v The Commonwealth (1902) 174 CLR 430 as authority for the proposition that section 8 of the AI Act protects “anything that may truly be described as a right, although that right might be inchoate or contingent” (at 440). The majority in Esber relied on The Director of Public Works v Ho Po Sang [1961] AC 901 and Free Lanka Insurance Co Ltd v Ranasinghe [1964] AC 541 at 552.

19. If the Act preserves an inchoate liability as well as inchoate rights, then the question becomes whether there was an inchoate liability existing prior to the repeal. The AI Act also refers to “liability” and the applicant submitted that Ho Po Sang supports its proposition that there is no acquired, accrued or incurred liability upon which section 8 of the AI Act might operate.

20.     The applicants relied on the distinction made in Ho Po Sang between an investigation in respect of a right and an investigation which is to decide whether some right should or should not be given.  The Privy Council found that, “[u]pon repeal the former is preserved by the Interpretation Act. The latter is not” (at 921).

21. The applicants acknowledged that in the 1999/2000 taxation year the respondent had a right to conduct the section 885 calculation, but future events were required to create any completed liability pursuant to section 1223(4). There could be no inchoate liability until the calculation occurs. The decision in Re Rowe and Secretary, Department of Family and Community Services [2002] AATA 245 was said to be incorrect because it assumes the existence of a debt prior to the repeal of the legislation when the point of the calculation provisions is to determine whether a debt exists in the first place.

22. Whilst the respondent contends that the re-calculation process is an investigation in respect of a right, and points to the mandatory provisions of section 885 regarding re-calculation which give it the flavour of an automatic process, the applicants argued that, applying the reasoning in the case of McDonald v Commissioner of Business Franchises [1993] 2 VR 632, would result in it being classified as a mere power rather than an accrued right.

23.     In McDonald the issue turned on whether the applicant was, before 1 December 1988, under a liability to be assessed under a section of the Act and whether this liability was not affected by the amendment of the section conferring the power.  It was held that the Commissioner’s power was a mere power to give a notice rather than an accrued right.      

24.     The applicants submitted that the view taken by Deputy President Forgie in Rowe (in para 33), that a liability arose each and every time that family allowance was paid, is erroneous in that the entire function of section 885 is to work out whether a debt exists. Whilst section 885(1) uses the words “the person’s rate of family allowance is to be recalculated on the basis of that income”, it does not follow that its mandatory tone means that it is an automatic process. It still requires the utilisation of section 885 to achieve the re-calculation and does not occur spontaneously.

25. The applicants take issue with the respondent’s argument that section 8 of AI Act can be broad enough to include contingent liabilities and includes a liability to have the family payment recalculated. To adopt this stance would mean that anything that potentially had adverse consequences would be preserved.

26. In respect to the SSAT’s utilisation of section 1223(5) of the SS Act, which creates a debt due to the Commonwealth “for any reason”, the applicants contended that as sections 1223(3) and (4) are specific provisions to permit recovery of family allowance debts, it was inappropriate to utilise a general provision when provisions specific to the subject matter existed. Additionally, if subsection (5) had application, then the recipient of family allowance would not receive the benefit of the 10 per cent leeway between estimated income and actual income.

27. The respondent argued that the repealed provisions created a liability that continues by virtue of section 8 of the AI Act. It effectively continues the effect of section 885 of the SS Act in a number of alternative or cumulative ways, namely:

§To preserve the accrued liability of each of the applicants to repay the overpayments and the corresponding accrued right to recover those overpayments as a debt by the respondent; and/or

§To preserve the accrued or incurred right or obligation to carry out any re-calculation necessary to permit such a recovery

28. It disputed the applicants’ argument that each criterion in section 885 had not come into effect by the time of the repeal. There was agreement that subsections (a) and (b) had been fulfilled, in that:

(a)the rate of family allowance had been calculated; and

(b)that rate was based on an estimate of income provided by the applicants.

29.     This leaves consideration of subsection 885(c):

“the person’s income for that tax year is more than 110% of the amount of the income on which the determination of the rate of family allowance was based;”

30. Whilst the applicants contends that subsection (c) is not satisfied, the respondent argued that, at the time of repeal of section 885, (c) was satisfied, in that, by 30 June 2000, the income for that financial year was a fixed and determined amount, notwithstanding that it may not have been calculated. The situation is analogous to the “past event” referred to by Windeyer J in Ogden Industries v Lucas (1967) 116 CLR 537 at 584.

31. Applying that argument, each of the events had occurred and the recalculation was merely an automatic mathematical calculation. Such calculation is a process of quantification and an investigation in respect of a right. Viewed in this manner, the existence and the right to recover the debt is not dependent upon the effective substitution of the subsections in the YAC Act, as the liability to have the payments recalculated would survive the repeal of section 1223(3).

32.     By 30 June 2000 the facts were capable of ascertainment and were not dependent upon future events to create a completed liability (relying on Rowe (at para 34)). 

33. In relation to section 1223(5), the respondent submits, there is nothing that requires interpretation of the term “correctly calculated” to be limited to a calculation that is correct at the time that it is made. The provision favours a construction of the term as encompassing a situation where the calculation, although correct at the time that it was made, proves to be incorrect once the actual income becomes known.

Consideration

34.     It is not in dispute that each of the applicants received family payments during the 2000 financial year based on the estimates of income they provided. The income that the applicants actually received was more than 110 per cent of the estimates they provided. 

35. It is not disputed that, if section 885 of the SS Act had not been repealed, the respondent would be entitled to recover the overpayments as a debt pursuant to section 1223(3) of the SS Act.

36. It was not argued that the YAC Act, which purported to substitute subsections 1223(3) and (4) of the SS Act, was ineffective. The new section 1223(3) creates a debt to the Commonwealth upon the happening of certain events. One of those events is the re-calculation of the rate of family allowance under section 884 or 885 and a discrepancy being found between the two sums.

37. As there were no re-calculation provisions in effect due to the repeal of sections 884 and 885, the issue then becomes whether section 8 of the AI Act operates to continue the effect of section 885 of the SS Act.

38.     The various arguments which were utilised by the parties in this matter are identical to the issues raised in the matter of Rowe, in which Deputy President Forgie extensively canvassed the relevant authorities and formed the view that:

“As soon as a person’s entitlement had been assessed and the amount of the payment calculated and paid, a liability also arose.  It was a liability to pay the difference between the amount paid to a person and the correct amount payable to that person.  The liability could be determined by references to facts which, although not necessarily known at the time, could be ascertained by fixed reference points.  The estimate of income, was, of course, known.  The actual income might not have been known but could be ascertained, even if at a later time, by reference to a fixed reference point in the form of the assessment of that income by the Commissioner of Taxation.  Therefore, the facts were capable of being ascertained and did not depend upon future events to create a completed liability.”

Later: 

“It seems to me that this obligation arose each time a payment of Family Allowance was made to a person and that payment was calculated on the basis of an estimate of income.  The obligation could not be fulfilled immediately for the actual income that a person receives in a tax year would often not become apparent until after the end of that year but it remained an obligation to do so when it did.  As an obligation, it was not affected by its repeal unless a contrary intention appeared.”

39.     With the greatest respect to Deputy President Forgie, I have difficulty with the proposition that a liability arose each time a family allowance payment was made as, if that view is correct, it makes no allowance for the situation where a person in receipt of family allowance may have been earning substantially more than expected at the beginning of the year, then ceased work for whatever reason, and did not earn anything for the rest of the year.  In such a case, there would be no overpayment once the actual income for the financial year had been calculated and consequently there would be no obligation each time a family allowance payment was made. 

40. However, it is significant that the repeal of section 885 occurred on 1 July 2000. At such time, the income earned by the applicants in the year 2000 is ascertainable and fixed notwithstanding the fact that it may not have been calculated. As such, it was not dependent upon future events to create liability. Consequently, if in the financial year 2000, the applicants earned more than 110 per cent of their estimated income, then each of the applicants had accrued liability to repay the overpayments. Section 8 of the AI Act would operate, in relation to the repeal of the relevant sections of the SS Act, to preserve the accrued right of the respondent to carry out any recalculation necessary as well as preserving the right to recover any overpayment. This approach corresponds with that taken by Deputy President Forgie in Rowe, as discussed in paragraph 38 above.

41.     That being the case, the Tribunal finds that the decisions to raise and recover debts of $2776.53 and $2238.90 for Mrs Richards and Mrs Daniels respectively were correct and the Tribunal affirms the decisions under review.  The Tribunal notes that the Social Security Appeals Tribunal waived recovery of $871.33 in respect of Mrs Richards’ debt.  The issue of waiver was not argued before the Tribunal and consequently I have not addressed it.  

I certify that the 41 preceding paragraphs are a true copy of the reasons for the decision herein of Ms J Cowdroy, Member

Signed:         Sarah Oliver
  Associate

Date of Hearing  20 September 2002
Date of Decision  24 April 2003
Counsel for the Applicant         Mr Williams
Solicitor for the Applicant          Welfare Rights Centre
Counsel for the Respondent     Mr O'Sullivan
Solicitor for the Respondent     Australian Government Solicitor