FNPQ and LFHF; Secretary, Department of Social Services and (Social services second review)
[2023] AATA 42
•24 January 2023
FNPQ and LFHF; Secretary, Department of Social Services and (Social services second review) [2023] AATA 42 (24 January 2023)
Division: GENERAL DIVISION
File Number(s): 2022/5766, 2022/5767, 2022/5762 & 2022/5765
Re:Secretary, Department of Social Services
APPLICANT
AndFNPQ and LFHF
RESPONDENT
Decision
Tribunal:Senior Member K Millar
Date:24 January 2023
Place:Adelaide
The decision to cancel FNPQ and LFHF’s age pension is affirmed.
The decision to set aside the rejection of FNPQ and LFHF’s claims for age pension is affirmed.
The Tribunal varies the decision under review by remitting the matters to the Secretary for reconsideration in accordance with the direction that s 1073A of the Social Security Act 1991 does not apply to employment income received by FNPQ on 12 February 2021, 1 April 2021 and 29 April 2021.
..........................[sgnd]...........................................
Senior Member K Millar
Catchwords
SOCIAL SECURITY – pensions - age pension – application of s 1073a of the Social Security Act 1991– decisions under review affirmed
Legislation
Acts Interpretation Act 1901 (Cth)
Administrative Appeals Tribunal Act 1975
Social Security Act 1991 (Cth)
Social Security (Administration) Act 1999 (Cth)
Social Services and Other Legislation Amendment (Simplifying Income and Reporting and Other Measures) Act 2020
Cases
Carr v State of Western Australia [2007] HCA 47
Certain Lloyd’s Underwriters v Cross [2012] HCA 56
Drake v Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Harris v Director General of Social Security [1985] HCA 1
Independent Commission Against Corruption v Cunneen [2015] HCA 14
Project Blue Sky Inc v Australian Broadcasting Authority (1998) HCA 28
Secretary, Department of Family and Community Services v Geeves [2004] FCAFC 166
Secretary, Department of Family and Community Services v Rolley [2000] FCA 806
STALZ v Minister for Immigration and Border Protection [2017] HCA 34
Secondary Materials
Social Security (Administration) (Class of Persons – Intent to Claim) Determination 2018 (Cth)
Commonwealth, Parliamentary Debates, House of Representatives, 20 February 1991
REASONS FOR DECISION
Senior Member K Millar
24 January 2023
INTRODUCTION
FNPQ (“Ms X”) was receiving an age pension when as a result of an audit of her employer it was discovered her wages had been significantly underpaid. This led to three lump sum payments to Ms X on 15 February 2021, 1 April 2021, and 29 April 2021.
The Secretary assessed the lump sums as income from the date they were paid and apportioned these payments forwards, finding sums paid to Ms X on 1 April 2021 and 29 April 2021 resulted in a nil rate of pension for both Ms X and her husband, LFHF (“Mr Y”).
As a result, Ms X and Mr Y’s age pensions were cancelled on 16 June 2021. Neither Ms X nor Mr Y dispute that their pensions were correctly cancelled.
Ms X and Mr Y lodged new claims for an age pension on 18 June 2021, two days after their pensions were cancelled. Both claims were refused because a delegate of the Secretary considered their combined income exceeded the allowable limit. This is the subject of dispute. Ms X and Mr Y submit that the correct application of the legislation means that after their pensions were cancelled, the provision that attributes the back payment of wages into the future no longer applies, with the practical effect that the new claims should have been considered against their income and assets at the date of their claim.
The Secretary contends that the correct application of the legislation means that where a person is receiving a social security benefit or a social security pension and receives money due to employment, the period in which the income is attributed continues across a new claim for a pension. The practical effect of the Secretary’s construction is that the applicants could not be granted age pension when they lodged a new claim on 18 June 2021.
The Social Services and Child Support Division (“AAT1”) affirmed the decision to cancel Ms X and Mr Y’s age pensions. It set aside the decisions to refuse their claims for an age pension and in substitution decided that the lump sum payments made to Ms X on 4 February 2021, 1 April 2021 and 29 April 2021 were not to be included as income when assessing the applicants’ rates of age pension.
The Secretary has applied for a review of this decision, and sought a stay under s 41(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”). The stay was granted by the Tribunal (differently constituted) on 1 August 2022.
As the decisions in relation to Ms X and Mr Y turn on the same facts and issues, a combined hearing was held of the cancellation of both pensions and the refusal of both new claims for an age pension.
FACTUAL BACKGROUND
The facts of this matter are not in dispute. Ms X and Mr Y were in receipt of age pension when it was identified by Ms X’s previous employer that she had been significantly underpaid.
Advice from her previous employer,[1] and the payslips provided, show Ms X received the following payments:
[1] T2, 27, T20, 407.
Date Paid
Amount
Prior to which the payment relates
Payslip folio
29 April 2021
6,737.50
7 May 2013 – 30 June 2013
T20, 408
“
28,748.48
1 July 2013 – 30 June 2014
T20, 409
“
35,066.07
1 July 2014 – 30 June 2015
T20, 410
1 April 2021
37,588.02
1 July 2015 – 30 June 2016
T20, 411
“
35,867.89
1 July 2016 – 30 June 2017
T20, 413
“
32,735.19
1 July 2017 – 30 June 2018
T20, 415
12 February 2021
8,166.56
1 July 2018 – 30 April 2019
T20, 417
As properly emphasised by the Secretary, there is no suggestion that Ms X and Mr Y have acted other than with honesty and transparency in this matter. These amounts were promptly reported to Centrelink.
THE LEGISLATIVE FRAMEWORK
The provisions that relate to qualification and payability of an age pension are set out in Part 2.2 of the Social Security Act 1991 (Cth) (“the Act”). Subdivision A sets out the requirements to be qualified for age pension, and Subdivision B sets out the requirements for payability.
It is common ground that Ms X and Mr Y met the qualification requirements for an age pension at all relevant times.
If a social security payment is no longer payable to a person, it must be cancelled or suspended under s 80 of the Social Security (Administration) Act 1999 (Cth) (“the Administration Act”). Subject to an exception that does not apply in this case, age pension is not payable if the person’s rate would be nil.[2]
[2] s 44 Administration Act.
On a new claim for an age pension being lodged, to be granted age pension, under the person must be qualified for the payment and the payment must be payable.[3]
[3] s 37 of the Administration Act.
In issue is whether age pension remained payable to Ms X and Mr Y or was payable when they made new claims for age pension. This in turn requires a calculation of the rate to determine if it is greater than nil.
Section 55 of the Act sets out how to calculate a person’s rate of age pension. If the person is not blind, the rate is worked out using Pension Rate Calculator A at the end of section 1064 of the Act.
Chapter 3 of the Act contains general provisions relating to payability and rates. Pension Rate Calculator A is contained in Part 3.2 of Chapter 3.
Section 1064-A1 of the Act sets out the method of calculating a person’s rate. In summary this requires first calculating a maximum payment rate, then applying an ordinary income test to calculate any income reduction resulting in an “income reduced rate”. An assets test is then applied to calculate an “asset reduced rate”. The lower of the income reduced rate and the asset reduced rate is the “provisional annual payment rate”. The rate of pension is the provisional annual rate with some adjustments which do not apply in this case.
Under s 1064-A2 of the Act, where two people are members of a couple, they will be treated as pooling their income and assets and sharing them on a 50/50 basis.
The ordinary income test is set out in s 1064-E1 of the Act. Step 1 of the method is to work out the amount of the person’s ordinary income on a yearly basis. For members of a couple, the couple’s ordinary incomes are added and divided by two to work out the amount of the person’s ordinary income.
“Ordinary income” is defined in s 8(1) of the Act as income that is not maintenance income or an exempt lump sum.
The term “income”, as defined in s 8(1) of the Act, includes income amounts that are earned, derived or received for the person’s own use and benefit. The term “earned derived or received” is further defined in s 8(2) of the Act as an income amount earned, derived or received by any means and from any source.
Part 3.10 of Chapter 3 contain general provisions relating to the ordinary income test, and Division 1AA contains the employment income attribution rules, and includes s 1073A of the Act, which is in issue in this matter.
SECTION 1073A OF THE ACT
Section 1073A of the Act was inserted by the Social Services and Other Legislation Amendment (Simplifying Income and Reporting and Other Measures) Act 2020 (“the Amending Act”), which commenced on 7 December 2020.
The transitional provisions in Schedule 1, Item 72 of the Amending Act states s 1073A of the Act applies to employment income paid to or for the benefit of a person on or after the commencement date.
Section 1073A of the Act states:
(1)This section applies if:
(a)a person is receiving a social security pension or a social security benefit; and
(b)the person's rate of payment of the pension or benefit is worked out with regard to the income test module of a rate calculator in this Chapter; and
(c)one or more amounts of employment income, each of which is in respect of a particular period or periods (each period is an employment period ), are paid in an instalment period of the person to or for the benefit of the person by the same employer.
Note 1: If the person has multiple employers, this section applies separately in relation to each employer.
Note 2: If a person is receiving a social security pension and is paid employment income monthly, section 1073B may apply to that income instead of this section.
Note 3: Section 1073BA deals with the payment of employment income that is not in respect of a particular period.
(2)The person is taken to have received the employment income over a period (the assessment period) that consists of the number of days that is equal to the sum of the number of days in each employment period, where the assessment period begins on the first day of the instalment period in which the amounts of employment income are paid.
Example: On 3 June a person is paid $756 employment income for work the person performed in the period beginning on 9 May and ending at the end of 29 May. The number of days in the employment period is 21.
Assume the instalment period begins on 1 June. The person is taken to have received the $756 over the period beginning on 1 June and ending at the end of 21 June (a period of 21 days).
“Employment income” is defined in s 8(1) of the Act as ordinary income that comprises employment income under s 8 (1A) or 8 (1B) of the Act. To be employment income, the amounts must be ordinary income for remunerative work of the person as an employee in an employer/employee relationship. This is subject to some exceptions which do not apply in this case.
The amounts paid to Ms X fall within the definition of ordinary income in s 8(1) of the Act, and it is common ground that the amounts paid to Ms X were employment income. The payments made to Ms X in the table above occurred after 7 December 2020, and s 1073A of the Act applies to these payments.
Section 1073A(1)(a) of the Act requires that the person is receiving a social security pension or a social security benefit. A social security pension includes an age pension.[4]
[4] s 23 of the Act.
At the time Ms X received the payments both she and Mr Y were receiving an age pension, and this provision applies at that time.
An issue is whether the period calculated under s 1073A of the Act continued to apply after their pensions were cancelled and should be applied in assessing their new claims for an age pension.
SUBMISSIONS OF THE PARTIES
The Secretary submits that a period calculated under s 1073A of the Act continues to apply after Ms X and Mr Y’s pensions were cancelled and precluded the grant of age pension when a new application was made. In summary, the Secretary argues this is because:
(a)As a result of s 1073A(1)(a) and (c), s 1073A of the Act applies when a person is receiving a social security pension and receives amount s of employment income which are paid in an instalment period. These requirements were satisfied and s 1073A applied.
(b)There is nothing in the terms of s 1073A of the Act that suggests that because the provision only applies if the person is receiving a social security payment at the time the income was received, the attribution of income cannot be considered at a later point in time. It is contended that once income is attributed under s 1073A of the Act, it applies throughout the relevant period calculated.
(c)The scheme of the Act supports a construction that an amount attributed under s 1073A of the Act can be considered on a fresh application for an age pension because:
(i)In calculating a rate under Module E of s 1064 of the Act, the Secretary is required to work out the amount of the person’s ordinary income on a yearly basis, which it is contended means that the income is required to be worked out on an annual basis rather than at a particular time.
(ii)The requirements in s 1073A(1)(b) of the Act indicate that the person’s rate of payment be “worked out with regard to the income test module of a rate calculator”. This chapter shows that s 1073A of the Act exists to inform the application of provision such as s 1064-E1 of the Act. The approach of AAT1 applied an impermissibly segmented approach to s 1073A of the Act by giving primacy to s1064-E1A of the Act. A holistic and harmonious construction of the statue requires income is to be worked out on a yearly basis.
(iii)The construction advanced by the Secretary is consistent with the deeming function in s 1073A(2) of the Act, in particular that this states that the person is “taken to” have received the employment income over a period.
(d)Items (d) to (f) of the Secretary’s statement of facts issues and contentions relate to the submission that the construction adopted by AAT1 would lead to practical consequence unlikely to have been intended by the legislature; and (in summary):
· This is because a person could avoid the consequences of a cancellation after receiving a large income amount simply by making a new claim in a later instalment period.
· This would result in an economic windfall inconsistent with the legislative scheme, which is to adjust age pension entitlements to reflect income received in accordance with s 1064-E1 of the Act.
· As a practical example, a payment of $180,000 would not be brought to account by way of a debt and may only be brought to account on a forward-looking basis. If it is not attributed over a 12-month period, it will only be taken into account in the instalment period in which it was paid.
In considering these arguments, the starting point is the construction of s 1073A which requires these submissions to be considered in a different order. The construction of s 1073A addresses the arguments in (a), (b) and (c)(ii). The Tribunal then considered the submissions on calculating a yearly rate of income at a particular juncture rather than at a particular point time in (c)(i), then the deeming provision argument in (c)(ii) before addressing submissions regarding the economic windfall in (d).
In a Statement of Facts Issues and Contentions prepared by Victoria Legal Aid for Mr X and Ms Y, it is submitted:
· There is equally nothing in s 1073A of the Act, which suggests that because the provisions applied while a person is receiving a social security payment at the time the income is received, the attributions of income under s 1073A can be included at a later point in time to determine eligibility for a social security payment. If this were so there would be a de facto income maintenance period.
· The construction suggested by the Secretary imposes a new requirement before a claim can be granted. The Secretary would be required to ascertain if the person received a lump sum payment of employment income in the past, for whatever period the Secretary wishes, to ascertain if attribution of the lump sum applies to the current period, and it is unlikely this was the intention of the legislature.
· In responding to the Secretary’s submissions regarding the need to calculate ordinary income on an annual basis, the respondents rely on Harris v Director General of Social Security[5] in support of the construction that a yearly rate of income is the aggregate of income payments which would be received during the ensuing year on the assumption that all income sources of income are retained and continue to yield income at the current level. This applies until a source of income is gained or lost.
· In response to the argument that s 1073A of the Act is a deeming provision, it is submitted that this interpretation of the Act has never been contemplated by the legislature and would create the scope for any income to be assessed by deeming. It is submitted “deeming” has a particular meaning in the Act and should not be confused with the income a person is taken to have received.
· If it were the intention of the legislature to include any backpay in the form of a lump sum received in the previous 12 months in the calculation of income, it would have been included in the legislation. It cites Secretary, Department of Family and Community Services v Geeves,[6] which supports the submission that the applicants should not be affected unintentionally because the Act has made specific provision for what must be a common situation.
[5] [1985] HCA 1.
[6] [2004] FCAFC 166.
CONSIDERATION
Both parties argue that the proper construction of s 1073A of the Act and the intention of the legislature favours their case. At the centre of this matter is the interpretation of s 1073A of the Act, and the starting point is the construction of this section.
Purpose and object of the Act
Under s 15AA of the Acts Interpretation Act 1901 (Cth):
In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.
In looking at the terms of the legislation and the meaning of s 1073A of the Act, in construing the effect of this provision, the Tribunal must look at the ordinary meaning of the text together with the context in which it appears. In STZAL v Minister for Immigration and Border Protection,[7] Kiefel CJ, Nettle and Gordon JJ state at [14]:
The starting point for the ascertainment of the meaning of a statutory provision is the text of the statute, whilst at the same time, regard is had to its context and purpose. Context should be regarded at this first stage and not at some later stage and it should be regarded in its widest sense. This is not to deny the importance of the natural and ordinary meaning of a word, namely how it is ordinarily understood in discourse, to the process of construction. Considerations of context and purpose simply recognise that, understood in its statutory, historical or other context, some other meaning of a word may be suggested, and so too, if its ordinary meaning is not consistent with the statutory purpose, the meaning must be rejected.
[7] [2017] HCA 34.
This approach has also been adopted in previous decisions of the High Court in Project Blue Sky In v Australian Broadcasting Authority,[8] which was cited with approval in Certain Lloyd’s Underwriters v Cross,[9] and Independent Commission Against Corruption v Cunneen[10]:
The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined 'by reference to the language of the instrument viewed as a whole'. ...
A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions.
[8] (1998) HCA 28 at [69].
[9] [2012] HCA 56 at [24].
[10] [2015] HCA 14 at [31].
The purpose of the Act
As stated by Gleeson CJ in Carr v State of Western Australia[11]:
… In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act is to be preferred to a construction that would not promote that purpose or object. As to federal legislation, that approach is required by s 15AA of the Acts Interpretation Act 1901 (Cth) ("the Acts Interpretation Act"). … That general rule of interpretation, however, may be of little assistance where a statutory provision strikes a balance between competing interests, and the problem of interpretation is that there is uncertainty as to how far the provision goes in seeking to achieve the underlying purpose or object of the Act. Legislation rarely pursues a single purpose at all costs. Where the problem is one of doubt about the extent to which the legislation pursues a purpose, stating the purpose is unlikely to solve the problem. For a court to construe the legislation as though it pursued the purpose to the fullest possible extent may be contrary to the manifest intention of the legislation and a purported exercise of judicial power for a legislative purpose.
To take an example removed from the present case, it may be said that the underlying purpose of an Income Tax Assessment Act is to raise revenue for government. No one would seriously suggest that s 15AA of the Acts Interpretation Act has the result that all federal income tax legislation is to be construed so as to advance that purpose. Interpretation of income tax legislation commonly raises questions as to how far the legislation goes in pursuit of the purpose of raising revenue. In some cases, there may be found in the text, or in relevant extrinsic materials, an indication of a more specific purpose which helps to answer the question. In other cases, there may be no available indication of a more specific purpose. Ultimately, it is the text, construed according to such principles of interpretation as provide rational assistance in the circumstances of the particular case, that is controlling.
[11] [2007] HCA 47 at [5] – [6].
The Act does not specify its purpose and objects. Much like the Income Tax Assessment Act, the Social Security Act requires a balance between competing interests, in supporting those who do not have an income and in the prudent use of taxpayer funds. The emphasis on competing considerations is delicate and is a matter for the legislature. A consideration of the purpose of the social security legislation as a whole does not assist in this case.
Looking then at the purpose of the Amending Act, the explanatory memorandum states:
This Bill changes the way employment income is used to determine a person’s rate of payment under the social security law. Currently, the Social Security Act 1991 assesses employment income in the social security instalment period in which it is earned, derived or received. In practice, because employment income is usually earned before it is paid, a person is required to estimate and report the amount of employment income they have earned in a social security instalment period, with this estimate being used to determine their rate of payment. In most cases, a person will not know exactly how much employment income they will be paid for an instalment period until they are paid at a later date. This frequently results in social security recipients over-estimating or under-estimating their total employment income for an instalment period, with the consequence that recipients are either underpaid or overpaid their social security entitlements.
This Bill amends the Social Security Act 1991 to ensure that employment income is assessed once it is paid to a social security recipient. This will provide a more accurate picture of the amounts of employment income paid to social security recipients and minimise the number of social security overpayments resulting from misreported employment income.
A stated aim of the Amending Act is to ensure employment income is assessed once it is paid to a social security recipient. It does not specify whether it is to continue to apply after the person has ceased being a social security recipient, or that it should apply to people who have received employment income before applying for a social security payment.
The stated aim is also to minimise the number of over-payments or under-payments made to social security recipients. This aim is met if income is assessed at the time it is received, and it is unnecessary to extend the operation of the provision to apply to a new application to meet this aim.
The purpose of the Amending Act does not explicitly support a broader application of this provision to a new claim.
The context of s 1073A
The social security legislation provides a pathway from a claim being lodged to the grant or refusal of a claim. On receiving a new claim, the Secretary must determine that a claim is granted if the person is qualified for the payment and the social security payment is payable.[12] Qualification and payability are two different components, both of which must be met for a claim to be granted.
[12] s. 37 of the Administration Act.
An assessment of the claim, and whether the person is qualified for the payment and the payment is payable, must be conducted at the time the claim is lodged or within 13 weeks, otherwise it is deemed to have been refused.[13] A social security payment becomes payable to a person on the person’s start date,[14] which requires an applicant to be qualified for the payment.[15]
[13] s.39 of the Administration Act.
[14] s.41 of the Administration Act
[15] See Schedule 2, item 3.
Payability of an age pension is defined by exception in s 44 of the Act. This states that an age pension is not payable if the person’s rate of age pension would be nil.
Section 55 of the Act requires the rate of age pension to be calculated using Pension Rate Calculator A at the end of s 1064 of the Act. It follows that s 1064 of the Act is the starting point for a rate calculation.
The method statement for s 1064 of the Act is provided in s 1064-A1 Step 5 of this process is to work out a person’s ordinary income using Module E. Step 1 of s 1064-E1 requires the decision maker to work out the ordinary income of the person on an annual basis. Section 1073A of the Act then informs how ordinary income is calculated. Section 1073A(1)(a) of the Act specifies that it only applies if the person is receiving a social security pension or social security benefit.
When a new claim is lodged, it must be determined at that point in time whether the payment claimed is payable to the person. To determine if an age pension is payable, a determination must be made at the time the claim is lodged (or is deemed to be lodged) about whether the rate is greater than nil. Section 55 of the Act requires the rate to calculated by reference to s 1064E of the Act. Section 1064E of the Act requires a calculation of the person’s ordinary income. A person’s ordinary income at that point in time is determined in part by the operation of s 1073A of the Act.
The legislative pathway in determining a claim requires the steps to be taken in this order unless there is a provision that specifies otherwise.
Section 1064 of the Act appears in Chapter 3 of the Act “General provisions relating to payability and rates”. The Chapter commences with the steps in a rate calculation at s 1062E of the Act before going on to the rate calculators in Part 3.2. Section 1073A of the Act appears in the later Part 3.10 “General provisions relating to the ordinary income test”. The sequence of the legislation shows that in context, the rate calculator in s 1064 of the Act is to be applied before looking to later definitions about how ordinary income is calculated.
In context, and promoting the unity of all the statutory provisions, s 1073A of the Act is accessed from Step 1 in s 1064-E1 of the Act. The submission of the Secretary that primacy cannot be given to s 1064 of the Act is rejected as the legislative pathway requires an assessment of the rate to determine if a payment should be granted, and in this case s 55 of the Act requires the application of s 1064 before the application of s 1073A.
This legislative pathway requires a rate to be determined at the point in time a new claim is made in determining if the claim should be granted or rejected.
Construction of 1073A according to the ordinary and extended legislative meaning
Section 1073A of the Act requires that the person is receiving a social security pension or social security benefit. This is expressed in the present tense and the ordinary meaning is that it requires the person to be currently receiving a social security pension or social security benefit.
The circumstances in which a person is taken to be receiving a social security pension or benefit is set out in s 23 of the Act. Section 23 of the Act was amended by the Amending Act to reflect the new concept of employment income, and amendments were made in light of the insertion of s 1073A of the Act.
Subsections 23(2), (4), (4A) and (4AA) of the Act state:
(2) For the purposes of this Act (other than section 735), a person is taken to be receiving a payment under this Act from the earliest day on which the payment is payable to the person even if the first instalment of the payment is not paid until a later day.
(4) For the purposes of this Act, a person is taken to be receiving a social security payment until the latest day on which the payment is payable to the person even if the last instalment of the payment is not paid until a later day.
(4A) Despite subsection (4), if:
(a) a person is receiving a social security pension or social security benefit; and
(b) the person's rate of payment of the pension or benefit is worked out with regard to the income test module of a rate calculator in Chapter 3; and
(e)the person or the person's partner has employment income; and
(f)the person would, but for this subsection, cease to be receiving the pension or benefit on and from a day (the cessation day):
(i)if paragraph (d) applies to the person--because of the employment income of the person (either alone or in combination with any other ordinary income earned, derived or received, or taken to have been earned, derived or received, by the person); or
(ii)if paragraph (d) applies to the partner--because of the employment income of the partner (either alone or in combination with any other ordinary income earned, derived or received, or taken to have been earned, derived or received, by the partner); and
(g)but for the employment income, or the combined income, referred to in paragraph (e), the pension or benefit would continue to be payable to the person on and from the cessation day; and
(h)the person continues to be qualified for the pension or benefit on and from the cessation day;
then, for the purposes only of the provisions of this Act that are specified in subsection (4AA), the person is taken to be receiving the pension or benefit until:
(i)12 weeks after the end of the instalment period in which the cessation day occurs; or
(j)the day the pension or benefit would cease to be payable to the person for a reason other than the employment income, or the combined income, referred to in paragraph (e); or
(k)the day the person ceases to be qualified as mentioned in paragraph (g);
whichever happens first.
(4AA) For the purposes of subsection (4A), the following are the specified provisions of this Act:
(a)provisions in Chapter 2 that provide for an increase in a person's rate of payment by an amount to be known as the approved program of work supplement;
(ac) Part 2.6B (2020 economic support payments);
(ad) paragraph 313(2)(a);
(ae) Part 2.13 (remote engagement program payment);
(af) Part 2.6D (2022 cost of living payment);
(b)section 1048;
(c)section 1061PJ;
(d)section 1061Q;
(e)subsection 1061ZK(5);
(f)1070W;
(g)1070X;
(h)provisions within the income test module of a rate calculator in Chapter 3 prescribing the partner income free area or the partner income excess for a person.
The term “employment income” as it appears in s 23(4A)(d) of the Act includes ordinary income that is for remunerative work as an employee in an employer/employee relationship. It does not certain amounts such as superannuation. It is not in issue that the income Ms X received was employment income.
While Ms X and Mr Y do have an income test module that applies for the purposes of s 24(4AA)(h), the concepts of a partner income free area and a partner income excess do not apply to pension rate calculator A. These concepts apply to the rate of youth allowance and Austudy and s 23(4AA)(h) does not apply.
According to the definitions in s 24 of the Act, as they apply to Ms X and Mr Y, except for the purposes of:
· Additional economic support payments (s 313(2)(a))
· Eligibility for 2022 cost of living payments (s 316, Part 2.6D)
· Pensioner education supplement (s 1061PJ)
· Telephone allowance (s 1061Q)
· Rent provisions (s1070W and 1070X)
Ms X and Mr Y are taken to be receiving an age pension until the latest day on which the payment was payable to them. The last day their age pensions were payable was 23 March 2022.[16]
[16] T10, 271 and T36, 666.
For additional economic support payments, 2022 cost of living payments, pensioner education supplement, telephone allowance and certain rent provisions they are taken to be receiving an age pension until 12 weeks after the end of the last instalment period in which age pension was payable.
According to the ordinary meaning of “is receiving” and applying the definition in s 23(4), (4A) and (4AA) of when a person is taken to be receiving a pension or benefit, Ms X and Mr Y were not receiving a social security pension or social security benefit[17] at the time they lodged their new claim for an age pension on 18 June 2021.
[17] The term ‘social security benefit” is defined in s 23 as youth allowance, Austudy, jobseeker payment, special benefit, benefit PP (partnered) or parenting allowance. It does not include any of the allowances specified in s23(4AA).
Can a rate be determined using income received in the past?
Step 1 of the method for working out the effect of a person’s ordinary income on the payment rate is:
Work out the amount of the person’s ordinary income on a yearly basis.
The Secretary submits this requires the application of s 1073A at the time it applies, and that s 1073A continues to apply after a person ceases to receive a social security payment.
In Harris v Director-General of Social Security,[18] (“Harris”) the High Court considered the phrase “the annual rate of the income of the claimant or pensioner” in s 28(2) of the now repealed Social Services Act 1947 (the 1947 Act), and the majority stated:
At the time when an annual rate of income is ascertained, it is necessary to have regard to the pensioner’s sources of income at that time and to find out what each of those sources would yield over the period of a year assuming the current yields from those sources were to continue.
…
An annual rate of income, as whatever time it is ascertain for the purpose of s 28(2), is the aggregate of those income payments that would be received by the pensioner in the ensuing year on the assumption that he retains all his current sources of income for the year and that they continue to yield income at the current level.
[18] [1985] HCA 1.
This passage relates to the precursor 1947 Act. When enacted, the object of the current Act was to replace the complexities of the 1947 Act with a new plain English version and was not to involve any major policy initiatives.[19] As it was intended to re-enact the 1947 Act, it was not the object of the Act to substantially change the 1947 Act.[20]
[19] Commonwealth, Parliamentary Debates, House of Representatives, 20 February 1991 (‘Social Security Bill’).
[20] Secretary, Department of Family and Community Services v Rolley [2000] FCA 806.
at [13],[19] and [21].
In Secretary, Department of Family and Community Services v Rolley[21] (Rolley) Justices French, Kiefel and Dowsett considered this step as it applies to the age pension in the current Act, and concluded Harris continues to apply. The Court approached the task of determining ordinary income on a yearly basis on a prospective basis, looking to the income the person would receive in the year.[22]
[21] [2000] FCA 806.
[22] Ibid at [19] – [20].
While Harris and Rolley, pre-date the insertion of s 1073A, this does not detract from the proposition that working out a person’s ordinary income on a yearly basis involves a prospective approach, and not the retrospective approach required to account for income received in the past. It would require express words such as those in s 1073 for an income maintenance period, or s 1170 for a compensation preclusion period, to depart from the approach that involves looking to income the person will received in the future rather than amounts that have been received in the past.
As a result, the Tribunal considers that Step 1 in s 1064-E1 requires that at the time the rate is calculated this calls for a consideration of the person’s ordinary income on a yearly basis for income anticipated to be received in the coming year. Unless income received in the past is an indication of income that will be received in the future, past income does not assist in determining the person’s ordinary income on a yearly basis.
Payments of underpaid wages, as occurred with Ms X, cannot generally be anticipated to predict future income, and do not assist in determining her ordinary income on a yearly basis at the time she and Mr Y applied for age pensions.
It is submitted on behalf of the Secretary that in applying Module E of s 1064, he is required to work out the amount of a person’s income on a yearly basis and that this requires income to be calculated on an annual basis rather than at a particular juncture. This submission requires it to be accepted that a yearly income can be calculated retrospectively to allow s 1073A to apply to a new claim. As s 1064-E1 requires a determination of the income the person will receive in the future, this submission is rejected.
A person’s income is to be calculated on a yearly basis on a prospective basis, with each change to a person’s income taken into account in assessing a new rate, and the submission that s 1064-E1 requires the Secretary to work out income in respect of an annual period rather than at a particular juncture is rejected.
The deeming argument
The Secretary points to the introductory words of s 1073A(2) that a “person is taken to have received the employment income over a period (the assessment period)” and states this is a deeming provision, and that s 1073A creates a statutory fiction with respect to the income receives by a person.
While s 1073A creates a statutory fiction regarding the period in which employment income is taken to be received, it operates in the context of s 1073A(1) of the Act which states it applies if a person is receiving a social security pension or social security benefit. It can be contrasted with other sections such as s 1072A which does not include a requirement to be receiving a social security pension or social security benefit and which expressly states it applies if the person applies for a social security payment, and s 1169 which requires a person to either be receiving or to have claimed particular types of social security payments.
As it is not accepted that this section applies when a person is no longer receiving a social security pension or social security benefit, this argument cannot succeed.
The windfall submission
The Secretary submits that:
· A person would be able to avoid the consequences of cancellation following receipt of large income amount simply by making a fresh claim for a social security payment in a later instalment period;
· A person who receives a large income amount could be expected to obtain a significant net economic windfall inconsistent with the statutory intent of the scheme
The Secretary provides as an example a person who receives $180,000 for underpayment of income. This is not brought to account by way of a debt for a past period and can only be brought to account on a forward-looking basis. If the social security recipient was able to “escape” the application of Module E on a forward-looking basis they could be expected to receive a significant economic windfall. The notes to this step state the treatment of the ordinary income of members of a couple if governed by point 1064-E2 which requires the income of each member of the couple to be added and divided by two to work out each person’s ordinary income.
The Tribunal does not agree that a construction of s 1073A that does not apply to a new claim necessarily results in a windfall to the applicant as this ignores the operation of the assets test and the provisions for disposal of ordinary income in the last 5 years.
Unless dissipated or otherwise exempted from the assets test, such as payment for the person’s principal home,[23] the amounts paid will appear as an asset and will be subject to the assets test in s 1064-G1 to 1064-G7 and Part 3.12 of the Act.
[23] Section 1118 of the Act.
Given that past employment income may be considered in a new claim by applying the assets test or under disposal of income provisions, and given the construction of s 1073A in context, there is little force in the argument that it could not have been the intention of the legislature.
Nothing to suggest it cannot be considered at a later point in time
For completeness, the Secretary submits there is nothing to prevent the attribution of income from being applied when a new claim is made. In submissions provided for the respondents, it is pointed out there is equally nothing to suggest it does apply to a subsequent claim.
This are, however, other provisions which specifically provide for income received in the past to be considered in assessing a new claim. These methods were available to the legislature if it was intended that the provisions apply to a new claim. That the legislature did not chose to do so does not support that this was intended.
CONCLUSION – CONSTRUCTION OF SECTION 1073A OF THE ACT
Section 1073A of the Act applies if the person receives employment income while he or she is receiving a social security pension or a social security benefit. It does not apply if the person has received employment income in the past and has made a new claim for a social security payment.
APPLICATION OF SECTION 1073A
Turning then to the application of this construction to the decisions under review. These are the decision to cancel Ms X and Mr Y’s age pensions and the decisions to refuse their new claims for an age pension.
CANCELLATION DECISIONS
Ms X and Mr Y were each advised on 1 June 2021 that their pensions had been cancelled from 16 June 2021.
According to s 44 of the Act, an age pension is not payable to a person if the person’s rate of pension would be nil.
Under s 80 of the Act, if the Secretary is satisfied that a social security payment is being or has been made to a person to whom the payment is not, or was not, payable, the Secretary is to determine the payment is to be cancelled or suspended.
The steps in considering cancellation involve determining:
· Did Ms X or Mr Y’s have a nil rate of pension, and, if so from which date; and
· Should their pension be cancelled or suspended?
Did Ms X or Mr Y have a rate of age pension of nil?
Section 55 of the Act sets out how to work out a person’s rate of age pension, and in this case this is calculated using Pension Rate Calculator A at the end of s 1064 of the Act.
In summary, Pension Rate Calculator A involves applying both an income test and an assets test to determine a rate of age pension. The lower of the two rates applies, subject to some modification. In this case the income test applies.
Where a person is a member of a couple, s 1064-A2 requires the members of the couple to be treated as pooling their income and assets and sharing them on a 50/50 basis. Section 1064-E2 requires a couple’s ordinary income to be calculated on an annual basis and divided by two to work out each person’s ordinary income.
Determining a rate involves determining an income free area and then looking to whether the person’s ordinary income exceeds the income free area. The excess of income over the income free area is used to calculate the reduction in rate due to ordinary income.
Part 3.10 of the Act sets out the general provisions relating to the ordinary income test. This includes in Division 1AA the employment attribution rules.
Section 1073A applies because Ms X and Mr Y meet s 1073A(1) of the Act because they were receiving a social security pension, and had a rate of payment worked out with regard to the income test module of Pension rate Calculator A. Ms X received employment income in respect of particular periods.
Under s 1073A(2) of the Act they are taken to have received the employment income over a period (the assessment period) for the number of days equal to the sum of the number of days in each employment period. The assessment period begins on the first day of the instalment period in which the amounts of employment income were paid.
The employment income amounts taken to be received are set out in s 1073A(3) of the Act as the total amount of employment income received divided by the number of days in the instalment period.
Ms X received a payment of $8,166.56 on 12 February 2021.[24] This was for a period of 10 months from 1 July 2018 - 30 April 2019.[25] This is a period of 303 days, and Ms X is taken to have received approximately $26.95 per day in that period. This is attributed to Ms X and Mr Y on a 50/50 basis as required by s 1064-A2 of the Act, or approximately $13.47 per day. It was not suggested by the Secretary that this amount resulted in Ms X or Mr Y having a nil rate.
[24] T20, 417.
[25] T20, 407.
The amounts that did result in a nil rate for both Ms X and Mr Y were paid on 1 April 2021. The first day of the instalment period in which these payments were made was 23 March 2021. These were the amounts of $37,588.02 for the 2016 financial year, $35,867.89 for the 2017 financial year and $32,735.19 for the 2018 financial year.
Each of these periods are an employment period (s1073A(1)(c) of the Act). According to s 1073A(6) of the Act, and for the instalment period commencing 23 March 2021, Ms X is taken to have received the sum of these payments (over $106,000) divided by the number of days in the employment period (being 365 days). This results in an amount of approximately $290 per day, which in turn means that both Ms X and Mr Y have a nil rate of pension from 23 March 2021.
Should their pensions be cancelled or suspended?
Section 80 of the Act provides a discretion on whether the payment is cancelled or suspended, and as it applies in this case states:
(1)If the Secretary is satisfied that a social security payment is being, or has been, paid to a person:
(a) who is not, or was not, qualified for the payment; or
(b) to whom the payment is not, or was not, payable (other than because of the operation of Division 3AA);
the Secretary is to determine that the payment is to be cancelled or suspended.
This allows the Secretary to either cancel or suspend the payment. Where a discretion is provided, policies on this area can provide guidance.[26] The policy on whether an age pension is suspended or cancelled is set out in the Social Security Guide[27] which states that payment of age pension is suspended while the recipient or their partner has a short period (up to 3 months) of employment income that reduces the payment to a nil rate. The policy states that the payment should be cancelled if the rate becomes nil due to the recipient’s income or assets. The policy draws a distinction between period up to 3 months and period that exceed 3 months.
[26] Drake v Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634.
[27] Version 1.299 – Released 29 September 2022 at 3.4.1.60.
The reason for the cancellation was that they had not been paid for the last 12 weeks because of the income received. Ms X and Mr Y contended that there was no power to suspend their payments, and their pensions should have been cancelled from an earlier date.
Cancelling or suspending the payment of age pension was open to the delegate in the case, and each decision is correct. It then falls to which is preferable. With the benefit of hindsight, cancelling the pension at the time would have been consistent with the policy as the payments were not payable for a period of more than 3 months.
However, the decision under review is the decision to cancel their pensions on 16 June 2021. It is not disputed these decisions were correct.
The Tribunal affirms the decision to cancel Ms X and Mr Y’s age pensions on 16 June 2021.
THE REFUSAL DECISIONS
Ms X and Mr Y lodged new applications for an age pension on 18 June 2021. Their applications were refused because it was considered their combined income exceeded the income test for a pensioner couple. This was because the lumps sums paid to Ms X were assessed as income in assessing their new claims.
As s 1073A of the Act does not apply in assessing a new claim, the Tribunal affirms the decision by AAT1 to set aside the decision to reject their claims for age pension.
AAT1 decided in substitution that their claims be assessed on the basis that the payments made to Ms X are not included as income. The decisions under review are to reject their claims, and if a decision were to be substituted it must be to grant the claim. There is insufficient information before the Tribunal to assess their income and assets, nor would it be appropriate to do so in reviewing a decision to reject their claims.
Instead, the Tribunal sets aside the decisions to reject their claims for age pension and remits the matters to the Secretary for reconsideration in accordance with the direction that s 1073A does not apply to employment income received by Ms X on 12 February 2021, 1 April 2021 and 29 April 2021.
DECISION
The Tribunal affirms the decisions to cancel Ms X and Mr Y’s pension.
It affirms the decisions to set aside the rejection of Mr X and Ms Y’s claims for an age pension and varies the decisions under review by remitting the matters to the Secretary for reconsideration in accordance with the direction that s 1073A does not apply to employment income received by Ms X on 12 February 2021, 1 April 2021 and 29 April 2021.
113. I certify that the preceding one hundred and twelve (112) paragraphs are a true copy of the reasons for the decision of Senior Member K Millar
...................[sgnd]............................
Legal Associate
Dated:
Date of hearing:
24 January 2023
27 September 2022
Advocate for the Applicant: Matt Sherman
Sixth Floor Selborne/Wentworth Chambers
Advocate for the Respondents: Self-Represented
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