Furphy and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs

[2008] AATA 571

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 571

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No Q200700057

GENERAL ADMINISTRATIVE DIVISION		)
Re		COLIN FURPHY and DEIRDRE FURPHY

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Senior Member Bernard J McCabe

Date3 July 2008

PlaceBrisbane

Decision The Tribunal affirms the decision under review.

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

Senior Member

CATCHWORDS

Social Security – Income Test – Term life insurance policy surrendered – Whether “exempt lump sum” – No determination that surrendered life insurance policy exempt lump sum – Tribunal declines to make such a determination – Whether income taken to be received over 12 months or over longer period – Tribunal has no discretion to treat income as being received over period longer than 12 months – Decision affirmed

Social Security Act 1991 (Cth), ss 8, 1072, 1073

Re Strauss and Secretary, Department of Family and Community Services [2005] AATA 608; (2006) 88 ALD 176

Re Beer and Repatriation Commission [2006] AATA 395

Re Varcoe and Secretary, Department of Family and Community Services [2000] AATA 1002; (2000) 4(7) SSR 88

Re Reye and Secretary, Department of Family and Community Services [2003] AATA 1293; (2003) 79 ALD 648

REASONS FOR DECISION

3 July 2008 Senior Member Bernard J McCabe         

1.      Mr Colin Furphy and his wife, Mrs Deirdre Furphy, are locked in a dispute with the Secretary for the Department of Families, Housing, Community Services and Indigenous Affairs over the application of the income test under the Social Security Act 1991 (“the Act”). The dispute relates to the proper treatment of an amount of money the couple received when they surrendered a term life insurance policy. The Secretary says the whole amount of the surrender value of a term life insurance policy less the premiums must be counted as income for the purposes of the income test under s 1073 in the year in which the surrender occurred. The applicants say the amount should be spread over a much longer period.

2.      The legislation and the relevant case law compel me to accept the Secretary’s arguments about the proper application of the income test. I explain my reasons below.

The facts

3.      The facts in this case are not really in dispute. The applicants were largely self-employed throughout heir working lives. Mr Furphy took out a term life insurance policy in 1953. He and his wife explained at the hearing that they regarded the policy as a form of superannuation. I understand this was a common practice for self-employed people in the days before formal superannuation arrangements became commonplace.

4.      Over the course of the next 40 years or so, Mr Furphy paid regular premiums totalling $7416. The policy was surrendered in April 2006. Mr Furphy received a payout on surrender in the amount of $51,506. The net surrender value (that is, the total surrender value less the amount of premiums paid over the years) was $44,090.

5.      The money was paid into a bank account to clear business debts. Mr and Mrs Furphy say that needs to be taken into account. As a practical matter, they say they did not receive the benefit of the money and it seems odd to them that it should be taken into account when assessing their entitlement to the aged pension and under the Pension Bonus Scheme.

The legislation: section 8 and definitions of income

6. Section 8 of the Act defines words and expressions for the purposes of the income test. I shall refer to the definition of “exempt lump sum” in s 8(11) first. If an amount qualifies as an exempt lump sum, it is not included in a claimant’s income for the purposes of the income test. The Act includes examples of classes of payment that are typically found to be exempt lump sums, including lottery winnings and one-off gifts and bequests. Importantly, an amount may not be treated as an exempt lump sum unless the Secretary makes a determination to that effect.

7. The applicants formally wrote to the Secretary on 28 January 2007 and requested that the surrender payment under consideration be treated as an exempt lump sum under s 8. The Secretary declined to make a determination. He notified the applicants of his decision in a letter dated March 2007. The letter also set out the Secretary’s policy. A copy of the letter was provided to the Tribunal with the submissions of Mr Hamilton, the Centrelink advocate.

8.      Mr Hamilton says the Tribunal is unable to review the Secretary’s decision not to make a determination. I disagree, although I accept the question is a difficult one. Downes J in Re Strauss and Secretary, Department of Family and Community Services [2005] AATA 608; (2006) 88 ALD 176 proceeded on the basis that the Secretary’s power to make a determination under s 8(11) was reviewable by the Tribunal. I propose to review the decision on that basis.

9.      The decision in Strauss is obviously persuasive. It is a recent decision by the President of the Tribunal dealing with similar facts. The President was asked to consider whether bonus payments under endowment life assurance policies should be regarded as exempt lump sums. His Honour referred to the Secretary’s policy manual which did not favour the exercise of the discretion. He concluded (at [43]):

I consider that the preferable decision would be to decline to make the determination. That is consistent with the policy of the Act. It is consistent with the policy of the Secretary and the Department. There are no countervailing considerations which mean that the preferable decision in the present case is otherwise.

10.     I note the Secretary in this case has also referred to the Department’s consistent policy. The policy was set out in part in the letter to Mr and Mrs Furphy in March 2007 explaining that a determination would not ordinarily be made in relation to payments that were expected or anticipated. This aspect of the policy was discussed in Strauss. Downes J referred (at [34]) to a policy that contemplated exemptions being made in respect of “receipts over which the recipient has no control as to entitlement.”

11.     The applicants referred me to several other decisions, including Re Beer and Repatriation Commission [2006] AATA 395, Re Varcoe and Secretary, Department of Family and Community Services [2000] AATA 1002; (2000) 4(7) SSR 88 and ReReye and Secretary, Department of Family and Community Services [2003] AATA 1293; (2003) 79 ALD 648. I note Beer endorses the decision in Strauss. I accept Varcoe and Reye reach different conclusions.

12.     I am not bound to follow the President’s decision in Strauss, but I would ordinarily do so in the absence of compelling reasons to take a different view. His Honour carefully considered the reasoning in the contrary authorities and reached a clear conclusion. I adopt his reasoning. I am not aware of any other matters that would make it appropriate to reach a different conclusion. As a result, I agree with the Secretary’s decision that a determination under s 8(11) should not be made. In those circumstances, it seems that the payout must be treated as “ordinary income” for the purposes of the income test: s 1072.

The legislation: s 1073

13. The only hope for the applicants is if the income test can apply to the lump sum amount received in 2006 as if the amount were received over a number of years (eg, the life of the policy) rather than all of it being received in the course of 2006. Unfortunately for the applicants, s 1073 effectively makes that result impossible. The section clearly states that the lump sum amount must be treated as if it were received in 52 equal amounts over the course of a year. There is no allowance for the fact the money has been used for a legitimate business purpose or to retire debt. I am not afforded any discretion to treat the payment in a different way.

Conclusions

14.     Mr Hamilton acknowledged this was a hard outcome for the applicants. I am also sympathetic to their plight, but the legislation says what it says. I have no alternative but to affirm the decision under review.

I certify that the 14 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe

Signed: ...............................[Sgd]......................................................
  Michael Buckingham, Associate

Dates of Hearing  23 November 2007
  26 March 2008
Date of Decision  3 July 2008
Applicants were self-represented, assisted by Mr F Houlihan     
Advocate for the respondent    Mr B Hamilton, Centrelink