Garvey v Secretary, Department of Social Security

[1990] HCATrans 62

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No Bl of 1990

B e t w e e n -

ROBERT JOSEPH BARRY GARVEY

Applicant

and

SECRETARY, DEPART:t1ENT OF

SOCIAL SECURITY

Respondent

Application for special
leave to appeal

MASON CJ DAWSON J

TOOHEY J

Garv~y· -

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 6 APRIL 1990, AT 10.48

Copyright in the High Court of Australia

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MR W. SOFRONOFF, QC:  May it please the Court, I appear

with my learned friend, MR M.R. BLAND, for the

applicant. (instructed by Cannan & Peterson)

MR S.L. DOYLE:  May it please the Court, I appear for the

respondent. (instructed by Australian Government

Solicitor)

MASON CJ:	Yes, Mr Sofronoff.
MR SOFRONOFF:	Your Honours, the case concerns the meaning

of the term "income" in the SOCIAL SECURITY ACT.

If Your Honours will go to page 22 of the record,

the definition of "income" in the Act appears on

that page at the top. Your Honours, a number of

the pensions and benefits provided by the
SOCIAL SECURITY ACT are means tested and the means
test in each case involves a consideration of what
is the income of an applicant and "income", in

section 3(1) of the Act is defined, as it appears on

page 22 of the application book:

"'income', in relation to a person, means
personal earnings, moneys, valuable

consideration or prof its" -

and so on. Your Honours will see that the Act,

itself, does not indicate in the definition whether

net or gross income is meant but it has been accepted

that net income is meant, nor does it give any

indication in the section or elsewhere in the Act

what expenditure in earning such income is to be

taken into account.

Your Honours, the respondent Department has

taken the view that the manner in which one calculates

income is first to determine what are the discrete

sources of such income, where there are a number of

such sources. Secondly, then, to subtract from each

such discrete source of income the expenditure

incurred in earning such income and then, in respect

of each such source, if the subtraction results in a	loss, a negative figure, one ignores that source and
one treats that as simply yielding no income. The
result then is that notwithstanding that a person's
true net income in real terms may place him below
the means test for a particular benefit the calculation as adopted by the respondent, and its
calculation that has been endorsed by the
Full Federal Cour~ would result in that person being
taken to have funds available that he does not, in
fact, have.

Your Honours, Mr Justice Spender, at first

instance, had held that such an approach was wrong

in that it led to a distorted result. Could I take

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Your Honours first to the reasons of the Full Court at page 48 of the record? After dealing with the cases that concern the subject - I say concern the subject because none of them deal with this point - Their Honours, at line 15, went on to put down what,

I submit, is the kernel of their judgment:

In defining "income" the Act was concerned with what amount was available to a pensioner to meet commitments and

outgoings after the pensioner had drawn

together the net returns of various sources

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.

(Continued on page 4)

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MR SOFRONOFF (continuing):

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.

Your Honours, we submit that that reasoning is wrong and because, firstly, there is no logical
way of defining sources of income. If, for

example, a person has two houses producing

rental property and also earns a wage, does one

consider the two houses one source of income and

the wage a second source, or does one consider

the two houses each to be a source of income.

The mathematical result at the end will differ

depending upon which way one proceeds.

Could I take Your Honours to page 34 of the

application book where Mr Justice Spender dealt

with this aspect. At line 8, or thereabouts,

the paragraph beginning there, His Honour said:

In my opinion there is no distinction sensibly to be made between the moneys received by way of dividend and moneys received by way of rentals. If the Act is concerned with net income, as

HALDANE-STEVENSON makes plain, it seems

to me right to take into account the

outgoings in respect of the rental

properties as being associated with the

moneys received by way of rentals. The

fact that the expenses associated with the

rental properties exceeded the rental

receipts from them, seems to me to be a

highly relevant factor in the determination

of the income of Mr Garvey.

And that, of course Your Honours, on the respondent's

method of calculation is precisely what is ignored.

TOOHEY J: Is that right,Mr Sofronoff? The fact that the

expenses associated with the rental properties

exceeded the rental receipts may well be relevant

in the sense that in respect of a particular

asset which might be thought to be income-producing,

namely a house, it said, "Well, there is no income

derived from this house because the outgoings

relating to it exceed the moneys that come in ,

and therefore there is no income to be taken into

account." It is quite a different step .. then to

go on to say, "But in the calculation of the

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applicant's income one transfers, as it were,

any loss flowing as a result of negative

gearing or whatever may be the reason, from

that asset to the assets in general of the

applicant",which is really what is sought to be

done in this case, is it not?

MR SOFRONOFF:  No, Your Honour. What Your Honour has said,

with respect, is correct once one assumes the
correctness of an approach that permits the

treatment of sources of income as independent

units, but if one treats a person's income as simply

his income and recognizes that there may be

expenditure incurred in the deriyation of that

income, or the earning of that income, then the

approach will be not to transfer the loss or the

expenditure from one source to the other but merely
to take it into account in answering the question,

"What is this person's net income and is his net income such as to put him in a position where he

requires assistance?~·.

Your Honour, the assumption can be readily

drawn wrongly that_to construe the Act and to _

the calculation in the manner that the applicant

suggests is correct, is simply to aid capitalists

who have a lot of property and who, as far as the

policy of the Act is concerned, do not deserve the

pension. Could I say two things about that; the

first is that a person in the position of having

a lot of property will be caught by the property

means test, not the income means test, in any event;

but, secondly, one can readily imagine cases where

a poor person - - -

TOOHEY J : c.an I just stop you there.

MR SOFRONOFF: Yes, Your Honour.

TOOHEY J: Is that right, muld the person. be caught by

property disqualification if1 in fact, the properties
were heavily mortgaged?	·

(Continued on page 6)

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MR SOFRONOFF: It depends, Your Honour. It depends what

equity he has, the Act - - -

TOOHEY J: That is the point,,is it not? If an applicant

for a pension engages in extensive negative

gearing, the likely consequence is that neither

the property test nor the income test would touch
that person on the approach that you are inviting

us to take.

MR SOFRONOFF:  Yes, and that might be so in a particular case.

It does not follow though that in every case an

applicant for a pension, who incurs a loss in one

activity, is thereby a person whom the Act would

demand ought to get rid of that activity. Could I

give Your Honour an example? One can take the

case of a woman who would otherwise be entitled

to a supporting parent's benefit and who instead

earned some wages during the day and works as a

seamstress during the night in her home and in

order to do the sewing at home she leases some

professional sewing equipment. Now, her income

from the wages, let us assume, is above the

means test in any event, but that is also

supplemented by her seamstress activities,

notwithstanding that she incurs expense in

earning the seamstress payments. If she suffers

an injury to her hand, let us say, that will

reduce her capacity to sew for a period of, say,

six to nine months. The Act would not dictate that

in that event she ought to relinquish her losing

activitiest she ought to sell her equipment.· The

Act would not reasonably require that on any interpretation and she would, in such an event, be

in the position where the lease payments on her

home machinery still have to be met and might well

reduce her wages to a point below the means test.

Now that person is caught by the respondent's

method of calculation, because the losses are, so

it is said, quarantined, and yet, in my submission,

the Act does not require that on any rational

basis, granted that the basis of the Act is

income supplementation.

MASON CJ:	Mr Sofronoff, is not your problem this, that the statutory definition of income makes no provision for losses or deductions to be taken into account
in assessing what is income?
MR SOFRONOFF:	Your Honour, that is not a problem, because

if one read the section literally, and one remarked
upon that feature of it, one would get the

impression that what is meant is gross income and

yet the Full Federal Court has held that what is

meant is net income,necessarily so, because otherwise

it would make a nonsense of the Act - - -

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~SON CJ: Yes, but we can only deal with the case by

looking at what is the statutory definition.

But when you look at the statutory definition,
it is creating a regime under which income seems

to be the sum total of a number of receipts. And

the only word that is used in that definition,

which involves taking into account expenditure or

losses, is the word "profits" and it rather

suggests that if you were looking at the income

of a person who had personal earnings, for example,

and in addition had profits from, say, a business

or from investments which involved outgoings,

you would add two things:  cne, the personal

earnings and two, whatever the profits were, but

you would ~ot be able to deduct the losses from

the business or from the investment from personal

earnings.

MR SOFRONOFF:	Could I put this kind of example to Your Honours?
MASON CJ: Yes.

MR SOFRONOFF: If,~ad of having wages, there is a man with

two pieces of. property earning income - rental

property acquired by a person over his working life,

which he hopes will support him in his retirement,

thereby not require him to go on the pension - one

of them is mortgaged to an extent so that the

interest payments are in excess of the rental.	The
other is not.	Now if one simply adds together the

two sets of income and subtracts from that total the interest payment, you might get a positive figure of one order, but it one takes them separately, you

would get a positive figure of a different order.

(Continued on page 8)

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MR SOFRONOFF (continuing):	Now the Act does not guide us

when one uses the respondent's method of calculation

in determining which is correct. The applicant's

contention would be that one would simply ask,

"Well what is his income at the end of the day?".

His income at the end of the day is the combination

of receipts less the combination of expenditure

incurred in actually earning income.

DAWSON J:  But would the definition require you to consider

whether the two houses should be considered as

one enterprise for the purpose of calculating profits?

MR SOFRONOFF:  If one accepts the respondent's contention

that first-one does that, then that would be so but

•· there is nothing in the Act, in my submission, that
militates in favour of that sort of approach.

DAWSON J:  It uses the word "profits" and you can only arrive

at a profit by determining what is the enterprise

in relation to which you are calculating the profits.

MR SOFRONOFF:  Yes, Your Honour, but the difficulty then

arises on that approach in trying to determine

whether houses, rental income,is the enterprise or

whether each house is an enterprise, whereas,

in our submission, what the Act strives to achieve

is a determination what is the income, whether

it is from personal exertion, profits or otherwise.

What is the income? And one can only arrive at that

by asking, "well, what do you have left, at the end

of the day, after you have added together your

gross receipts on the one hand and subtracted your

expenditure on the other hand?".

Your Honours, I have given you one example of

a case where a person who is by no means a capitalist

would be caught by the respondent's method of

calculation, nothwithstanding that her true income

position is below the means test. Could I take

Your Honours to page 49 of the application book.

I am sorry, Your Honours, I meant page 48, at the

foot of the page:

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.

Your Honours, that seems, in our submission, to be

the key consideration that moved Their Honours to

decide that a person in the position of my client

who has some residential properties that he acquired

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while he was able to work, ought to unload those

properties. But the result of that form of

consideration leads to a method of calculation that

affects not only people who might be in that

position and might, one has to concede, justifiably
be said to be persons who are not entitled, ought

not be entitled, morally to apply under the Act.

TOOHEY J:  One would not have to agree with that proposition

to agree with the conclusion arrived at by the

Full Court of the Federal Court?

MR SOFRONOFF:  No, that is so, Your Honour.

TOOHEY J: Really the crux of the Full Court's decision is

that one looks at what are said to be sources of

income, looks at them one by one and decides in each

case whether there is income resulting from that

source. In some cases there will be; some cases

there will not be. There may indeed be a loss but it is a loss which simply goes to point up

that there has been no income derived from that

source. And that is the role that that loss plays.

It does not have any wider role to play than that.

MR SOFRONOFF:  Your Honour, once one assumes that that is the

correct method of approach, and the Act expressly

does not say that that is the correct method of

approach, once one assumes, however, that that is

so, then everything that Your Honour has said follows.

But if one assumes differently that the purpose of

the Act is to maintain income and in order to assess

what is the income that requires maintenance

one asks what is the income and if one then goes

to the definition section, section 3(1), the

definition itself does not oblige one to consider

sources of income, whatever they may be separately,

nor does it give any assistance in determining what

are discrete sources and what are to be lumped

together.

(Continued on page 10)

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MR SOFRONOFF (continuing): It is simple in the case of

wages on the one hand and interest-bearing deposits

on the other hand to separate them. It may not

be so ample in the case of a man who runs,part time,

a home handyman business on the one hand, that earns
him a net profit, and a gardening business on the
other hand from which he suffers a loss. Now, an
aged pensioner that does each af those two things, depending

upon how a particular officer of the Department

decides ~o view those two so-called sources of income,

will either have the·pension or not, notwithstanding

that in actual fact he needs the pension.

TOOHEY J: Would your argument equate income under the

SOCIAL SECURITY ACT with net income under the TAX ACT?

MR SOFRONOFF:  No, Your Honour, there have been cases,

HALDANE-STEVENSON is one, which have said and we do not

cavil with it, that the TAX ACT has its own regime

and this Act has its own regime - - -

TOOHEY J: Yes, I appreciate that, but would that be a

conclusion from your argument that the income under the

SOCIAL SECURITY ACT equates with net income under the

INCOME TAX ASSESSMENT ACT?

MR SOFRONOFF:  Your Honour, I cannot answer that comprehensively

because then therewill be, and I suspect there would

be,expenditure allowable under the TAX ACT for

reasons peculiar to the TAX ACT that I am not truly -

depreciation, for example.

TOOHEY J: Yes, I see.

MR SOFRONOFF:  So, one cannot compare them. Your Honours, in

our submission, the decision of the Full Court is not

so claarly right that this application ought to be

rejected for that reason. Mr Justice Spender found

in our favour and the question, what is the true

method of calculating income in such cases, is one

that affects applicants for a wide variety of pensions:

supporting parents benefits, care pensions, wives	invalid pension, aged pension, sickness benefits,
pensions, and so on, unemployment benefits, and so
we submit that a question of importance is raised.
Your Honours, those are our submissions.

MASON CJ:  Thank you, Mr Sofronoff. The Court need not trouble you,

Mr Doyle. In the opinion of the Court the decision

of the Full Court of the Federal Court is not attended

with sufficient doubt to justify the grant of special

leave to appeal. The application is therefore refused.

Do you resist an order for costs, Mr Sofronoff?

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·earvey

MR DOYLE: Your Honour, I am instructed not to ask

for costs of the application - - -

MASON CJ: Yes. Mr Sofronoff?

MR SOFRONOFF:  I cannot resist one, Your Honour, but since

no order is asked for, I would ask that no order be

made.

MASON CJ:  The application will be refused and there will be no

order for costs.

AT 11.09 AM THE MATTER WAS ADJOURNED SINE DIE

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