Faulkner and Secretary, Department of Family and Community Services

[2002] AATA 502

DECISION AND REASONS FOR DECISION [2002] AATA 502

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No T2002/06

GENERAL ADMINISTRATIVE DIVISION          )          
           Re      KAREN FAULKNER         
  Applicant
           And    SECRETARY, DEPARTMENT OF FAMILY & COMMUNITY SERVICES  
  Respondent

DECISION

Tribunal       Mr J. Handley, Senior Member    

Date21 June 2002

PlaceHobart

Decision      The decision under review is affirmed.   
  ............Sgd J Handley.......
  Senior Member
CATCHWORDS
Social Security - Parenting payment - whether losses and outgoings in a year of income may be offset against income in the subsequent year when calculating a rate of partnered parenting payment - Decision affirmed.
Social Security Act 1991
Income Tax Assessment Act 1997
Federal Commissioner of Taxation v Brown (1999) 99 ATC 4600
Secretary, Department of Social Security v Garvey (1989) 19 ALD 348
Read v Commonwealth of Australia (1988) 15 ALD 261
ReSzuts and Director General of Social Security (1984) 5 ALD 358
Re Smith and Director General of Social Security (1984) 5 ALN 237
ReHaldane-Stevenson v Director General of Social Security (1985) 7 ALD 467
ReDirector General of Social Security v Harris (1985) 7 ALD 277
ReTosswill and Repatriation Commission (1991) 22 ALD 304

REASONS FOR DECISION

21 June 2002   Mr J. Handley, Senior Member

1. The applicant applies to review the Social Security Appeals Tribunal ("SSAT") decision made on 12 December 2001. The SSAT then affirmed a decision previously made by an Authorised Review Officer ("ARO").

2. The decisions concern the amount of income of the applicant's husband declared in the 2000/2001 income year, for the purposes of calculating the rate of partnered parenting payment.  Mr Fawkner declared a net profit, with respect to his self-employment, in the 2000/2001 year of $22,377. 

3. There is no quarrel between the parties with respect to this amount.  Mr Fawkner submits that he is entitled to offset the above income by the sum of $16,441 being losses incurred in the previous year of income. 

4. The hearing proceeded in Launceston on 30 May 2002. Mr Fawkner appeared on behalf of his wife who is the applicant in these proceedings. Ms Bradley appeared on behalf of the Respondent. Documents were lodged by the Respondent pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 and were received into evidence.
   Legislation

5. For the purposes of parenting payment regard is to be had to a persons "ordinary income".

6. Section 1072 of the Social Security Act 1991 ("the Act") provides-

   "A reference in this Act to a person's ordinary income for a period is a reference to the person's gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A. 

Section 1075, contained within Division 1A of the Act, provides-

"Subject to sub-section (2), if a person carries on a business, the persons ordinary income from the business is to be reduced by -

(a)losses and outgoings that relate to the business and are allowable deductions for the purposes of section 51 of the Income Tax Assessment Act 1936 or s.8-1 of the Income Tax Assessment Act 1997, as appropriate; and

(b)……..

(c)amounts that relate to the business and are allowable deductions under sub-section 82AAC(1) of the Income Tax Assessment Act 1936."

1. Section 51 of the Income Tax Assessment Act 1936 is concerned with certain amounts of income which are 'exempt". This section is not helpful in the analysis required for this application. Section 8-1 of the Income Tax Assessment Act 1997 is relevant and it reads as follows-

   "(1)     You can deduct from you assessable income any loss or outgoing to the extent that-

   (a)it is incurred in gaining or producing your assessable income; or

   (b)it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

   (2)      However you can not deduct a loss or outgoing under this section to the extent that;

   (a)it is a loss or outgoing of capital or of a capital nature; or

   (b)it is a loss or outgoing of a private or domestic nature; or

   (c)it is incurred in relation to gaining or producing your exempt income; or

   (d)a provision of this act prevents you from deducting it."

Conclusion & Reason For Decision

1. At the conclusion of the hearing, I attempted to deliver oral reasons for my decision.  Mr Fawkner objected to part of my decision as it was being delivered.  He commented and urged alternate interpretations upon my findings of fact and my interpretation of the law.  This was unfortunate because I felt as if the decision and the process of reasoning was not understood.  I am not critical of Mr Fawkner, because I accept that he was in an unfamiliar environment.  Additionally, whilst I acknowledge that he is not obliged to accept my decision and is of course entitled to appeal it, I have decided to deliver these reasons in the hope that the decision is at least recorded and capable of being understood.

2. As indicated earlier, there is no quarrel between the parties with respect to the sum of $22,377 being the net profit from Mr Fawkners business in the 2000/2001 year of income. That sum was calculated having regard to allowable deductions against his gross profits in his self-employment. It is an amount meeting the provisions of s. 1072 and s.1075 of the Act. That is to say, for reasons which follow, I am satisfied that it is against that sum only that partnered parenting payment should be calculated.

3. The loss of $16,441 in the 2000 year is not a "loss or outgoing …. incurred in gaining assessable income" in the 2001 year.  It was a loss in the 2000 year.  Any loss or outgoing can only be incurred and be permitted as a deduction insofar, only, as it relates to the production of assessable income in the same year.  The sums of money giving rise to the aggregate of $16,441 in the 2000 year were not losses or outgoings that Mr Fawkner was obliged to pay, nor did they have a sufficient connection with his business operations in the 2001 year (refer Federal Commissioner of Taxation v Brown 1999 99 ATC 4600). Additionally, I would add that the losses from the previous year were not "necessarily incurred in carrying on a business for the purpose of gaining or producing ….. assessable income", so far as that income is to be assessed in the subsequent year (refer s.8-1(1)(b) of the Income Tax Assessment Act 1997).

4. It follows that I am not satisfied that the applicant is permitted to have the benefit of the previous years losses offset against the 2001 income year, for the purposes of calculating "ordinary income".

5. Insofar as the beneficial nature of Social Security Legislation should be observed, a Full Federal Court in Secretary, Department of Social Security v Garvey (1989) 19 ALD 348 decided the definition of income within the meaning of the 1947 Social Security Act. With respect to the intent and purpose of the Social Security Act, the Court recorded at 351-352 in a discussion on the definition of "income"-

   "It was not concerned with what amount was left in the pensioner's hands after that income had been received and had been applied to various commitments and outgoings including the losses of business activities that had produced no net income.  There would have been an expectation underlying the Act, that any applicant for income assistance in the form of a pension would have corrected or relinquished any such activities which occasioned loss.  The purpose of the relevant part of the Act was very clear, namely to maintain a basic level of income for those who were unable to receive sufficient income to provide for themselves.  It was not the purpose of the Act to provide a further source of income for a person who had applied his or her income to maintain a business conducted at a loss or upon outgoings incurred in acquiring or maintaining assets (see Read v Commonwealth of Australia (1988) 15 ALD 261)."

6. In Read v Commonwealth (1988) 15 ALD 261, the High Court was concerned with the meaning of the word "income", as found within the Social Security Act 1947. The definition differs from what presently appears in the current Act. Nonetheless, Brennan and Toohey JJ, although being the minority, affirmed a principle applying in welfare legislation namely, "public expenditure is directed at those that stand in actual need …." (at 268).

7. This principle ensures that welfare legislation should be treated beneficially, being mindful of persons in need having to be supported by a limited public purse.  Interpretations of legislation, which are more likely to be heard when considering the Income Tax Assessment Act have no place when calculating the rate of income related pensions or benefits.  Losses in one year of income, if capable of being offset against the income of a subsequent year, have no place in the interpretation of Social Security Legislation (refer ReSzuts and Director General of Social Security (1984) 5 ALD 358; Re Smith and Director General of Social Security (1984) 5 ALN 237; ReHaldane-Stevenson v Director General of Social Security (1985) 7 ALD 467; ReDirector General of Social Security v Harris (1985) 7 ALD 277; ReTosswill and Repatriation Commission (1991) 22 ALD 304).

8. In all of the circumstances, I am satisfied that the decision under review should be affirmed.

I certify that the 15 preceding paragraphs are a true copy of the reasons for the decision herein of Mr J. Handley, Senior Member

Signed:         Katherine Navarro
  Associate

Date/s of Hearing  30 May 2002
Date of Decision  21 June 2002
Counsel for the Applicant        Mr Faulkner
Solicitor for the Applicant          
Counsel for the Respondent    Ms R Bradley
Solicitor for the Respondent