Gutierrez and Secretary, Department of Social Services (Social services second review)

[2020] AATA 4351

Gutierrez and Secretary, Department of Social Services (Social services second review) [2020] AATA 4351 (2 November 2020)

Division:GENERAL DIVISION

File Number(s):      2019/5818

Re:Brenda Gutierrez

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Mr S Evans, Member

Date:2 November 2020

Place:Sydney

The reviewable decision dated 27 August 2019 is affirmed.

..................................[sgd].....................................

Mr S Evans, Member

CATCHWORDS

SOCIAL SECURITY – parenting payment – whether Applicant was overpaid parenting payment – whether the overpayment is a debt due to the Commonwealth – whether the debt due can be written off or waived – debt not recoverable – administrative error – special circumstances – decision under review affirmed

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth)
Social Security Act 1991 (Cth)
Social Security Administration Act 1999 (Cth)

CASES

Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435
Davy and Secretary, Department of Employment and Workplace Relations (2007) 94 ALD 693
Secretary, Department of Social Security v Hales (1998) 51 ALD 695
Skinner and Secretary, Department of Social Services [2015] AATA 569

SECONDARY MATERIALS

Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017
The Guide to Social Security Law

REASONS FOR DECISION

Mr S Evans, Member

2 November 2020

INTRODUCTION

1. Brenda Gutierrez (“Mrs Gutierrez”) applied for and was granted parenting payment (“PP”) on 10 February 2012. In 2019 the Secretary of the Department of Social Services (“the Respondent”) determined that Mrs Gutierrez was overpaid PP because she did not declare her and her husband’s combined income. A debt was raised against Mrs Gutierrez to recover the overpayment. Mrs Gutierrez contends that the Respondent has miscalculated her debt and her circumstances are such that the debt should be waived.

   Background

2. Mrs Gutierrez and her husband have both been in receipt of Centrelink benefits at various times. Relevantly, in July 2012 Mr Gutierrez submitted a claim for newstart allowance. On 21 November 2018 Mrs Gutierrez responded to a random sample survey and submitted a private company form in which she declared Mr Gutierrez’s interest in a private company called “M.A.G. Australia Enterprises Pty Ltd” (“the Company”). Since 1999 Mr Gutierrez has been the sole director and secretary of the Company.

3. Until the submission of the private company form, the Respondent submits she was not aware of the Company. Having determined that the Applicant and her husband had received income from the Company and having calculated that Mrs Gutierrez had been overpaid PP between 11 July 2012 and 30 June 2017 (“the debt period”), the Respondent decided to raise and recover a debt against her of $24,008.90 on 28 February 2019. Mrs Gutierrez sought review of the decision and on 7 June 2019 a Centrelink Authorised Review Officer (“ARO”) varied the decision in light of additional information from Mrs Gutierrez and the Australian Taxation Office, increasing the debt to $24,486.89. On 26 June 2019 Mrs Gutierrez again sought review of the decision and it was considered by the Social Services and Child Support Division (“AAT1”) of this Tribunal. On 27 August 2019 the decision of the ARO was affirmed by the AAT1 and Mrs Gutierrez sought review by the General Division of the Tribunal.

   Hearing

4. The matter was heard on 14 August 2020. Mrs Gutierrez and Mr Gutierrez appeared via Microsoft Teams and the representative for the Secretary appeared via telephone in accordance with the COVID-19 Special Measures Practice Direction issued under section 18B of the Administrative Appeals Tribunal Act 1975 (Cth).

5. For the reasons which follow, the decision under review will be affirmed.

   ISSUES TO BE DETERMINED

6. The issues to be determined are:

   (a)whether Mrs Gutierrez was overpaid PP during the debt period; and if so

   (b)whether the overpayment is a debt to the Commonwealth; and if so

   (c)whether the whole or part of the debt should be written off or waived.

   RELEVANT LEGISLATION AND GUIDELINES

7. The relevant legislation is contained in the Social Security Act 1991 (Cth) (“the Act”) and the Social Security Administration Act 1999 (Cth) (“the Administration Act”) and the Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2017 (“the Principles”). The Guide to Social Security Law (“the Guide”) contains relevant policy.

8. Section 1068B of the Act provides that a person’s rate of PP is to be worked out using the rate calculator at the end of the section. The rate calculator includes an income test (Module D) which reduces eligibility for PP when a person’s income or their partner’s income exceeds specified thresholds.

9. Section 8 of the Act defines income as being an amount earned, derived or received by the person for their own use or benefit. Section 1072 of the Act provides that a person’s ordinary income is their gross ordinary income from all sources for the period without any reduction (except allowable business reductions).

10. If a debt is owed, the Secretary may waive the right to recover or may write off all or part of the debt in certain circumstances.

    Debt not recoverable

11. Section 1236 of the Act specifies the requirements in order for the Secretary to write off debts. It relevantly states:

    (1A)The Secretary may decide to write off a debt under subsection (1) if, and only if:

    (a)the debt is irrecoverable at law; or

    (b)the debtor has no capacity to repay the debt; or

    (c)the debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or

    (d)it is not cost effective for the Commonwealth to take action to recover the debt.

    …

    Administrative error

12. Section 1237A of the Act provides for waiver of a debt or portion of a debt that is due solely to administrative error. Relevantly, subsection 1237A(1) states:

    (1)Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.

    Special circumstances

13. Section 1237AAD of the Act provides for waiver of a debt due to special circumstances. It provides:

    The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:

    (a)       the debt did not result wholly or partly from the debtor or another person knowingly:

    (i)        making a false statement or a false representation; or

    (ii) failing or omitting to comply with a provision of this Act, the Administration Act or the 1947 Act; and

    (b)       there are special circumstances (other than financial hardship alone) that make it desirable to waive; and

    (c)       it is more appropriate to waive than to write off the debt or part of the debt.

    EVIDENCE

14. Mr Gutierrez is the sole director and shareholder of a private company called “M.A.G. Australia Enterprises Pty Ltd”. The Company was incorporated in 1999 and continues to trade.

15. Mr Gutierrez told the Tribunal that at times during the debt period the Company was in existence but not generating income as he and Mrs Gutierrez had had regular employment elsewhere. He said that his financial affairs were managed by his accountants and confirmed that the amounts of income included in his tax returns was correct.

16. In a written submission dated 10 August 2020 Mrs Gutierrez writes in part:

    My husband and I have received our tax return and notice statement for the 2019-2020 financial years… [i]n this world of constant changes, my husband and I find ourselves once again in uneasy times with our business.

    Since we have made the last application for review, we have had to sell the only asset the company had, the vehicle. We had to sell our company van and make preparations to cover the home loan and cost with 3 growing children.

    If this pandemic reaches levels like those in Melbourne, our door business will not exist, and with no current training in any other field of work, I’m not sure how my husband will be able to be re-trained to exist in a post Covid 19 Sydney.

    It now seems that my husband has to have surgery on his left hand wrist… [o]ur health cover doesn’t cover joint operations and by the quote we have received by the surgeon and [hospital], we will be out of pocket a further close to $7500.00.

    Some people would say to go the public system and wait, unfortunately with my husband been the main bread winner, waiting is not an option. The surgeon has advised that a splint in required for 6-8 weeks followed by rehab.

    We understand there is a debt, we don’t believe the amount is correct. We have never ever lead anyone with intent to mislead or cheat… We have openly allowed the department to have access to all our tax files and bank accounts.

    We do hope this outcome can be resolved with compassion.

    [errors in original]

17. The Respondent contends that Mrs Gutierrez has been overpaid $24,486.89 during the debt period and that the debt should be recovered in full. It is submitted that the debt arose because Mrs Gutierrez and Mr Gutierrez failed to declare an interest in the Company and that as a consequence the full extent of their combined income was not used to calculate Mrs Gutierrez’s rate of PP.

18. Mr Gutierrez told the hearing that the debt as calculated was incorrect but that he was unable to explain how he had determined this to be the case or nominate a correct figure.

19. Mrs Gutierrez was taken by the representative of the Respondent to her original claim for PP dated 10 February 2012. She confirmed that she had marked the box ‘no’ next to the question ‘Are you or have you (and/or your partner) been involved in a private company?’. She said that at that time the Company was a ‘sole trader’, though it is noted that she also marked ‘no’ next to the question ‘Are you (and/or your partner) involved in any type of business? Include: farming, self employed, sole trader, partnership, sub-contractor’. She conceded that this was incorrect though she noted that she was not employed by the Company at that time.

20. In 2018 Mrs Gutierrez was required to participate in a random sample survey which included a form relating to private companies. In completing the survey Ms Gutierrez confirmed the existence of the Company, that it was incorporated in 1999 and that Mr Gutierrrez was shareholder and director. She explained during the hearing that the private company form was completed with the aid of her husband as their financial affairs were confusing for her. When asked, she could not explain why she did not declare this information prior to the completion of the survey.

21. Also in evidence is Mr Gutierrez’s 16 July 2012 application for newstart allowance. In the application he declared that he did not have a trust or company interest at the time, which he conceded at the hearing was not correct. In a subsequent claim for newstart allowance dated 21 March 2013 Mr Gutierrez submitted he had a net income per annum of $2,244.00 and again confirmed that he did not have an interest in a trust or company. He submitted during the hearing that he perceived there to be a difference between having an interest ‘in another business’ and having an interest in his own company.

22. Mr Gutierrez drew the Tribunal’s attention to a business details form which was lodged with Centrelink on 16 July 2012 in which he provided details of the Company. The business details form is separate to his newstart allowance claim documentation but was submitted along with his application for newstart allowance.

23. In reference to the debt period Mr Gutierrez told the Tribunal that he would have submitted his tax returns to the Respondent if ‘they would have asked for [it]’. The Respondent did not receive Mr Gutierrez’s tax returns for the debt period until November 2018 following completion of the survey.

    CONSIDERATION

24. I accept that Mr Gutierrez was genuine when he said that he is unable to explain why the debt as calculated by the Respondent is incorrect. Before the Tribunal is nearly 2,000 pages of T-documents plus other relevant materials and submissions.

25. It is apparent from the evidence that Mrs Gutierrez was paid PP based on her husband being a sole-trader with the Company as subsequently confirmed in his 16 July 2012 newstart allowance claim form. Mr Gutierrez argues that he submitted details of the Company in the business details form which was submitted as part of his newstart allowance claim. Whilst this is correct, his declaration in the business details form that he had no trust or company interests nor an interest in any business run by a private company was not correct. At that time Mr Gutierrez was the sole shareholder of the Company and his failure to complete the form correctly negates its potential to alert the Respondent to alternative sources of income.

26. The Applicant and Mr Gutierrez’s rates of income support payments were calculated on the basis of Mr Gutierrez’s self-employment income alone. Similar information was provided by Mr Gutierrez in his March 2013 newstart allowance customer declaration form. He specifically declared in that application that his net income was $2,244.00 and that he had no other income.

    Does Mrs Gutierrez owe a debt?

27. The Respondent’s calculation of the debt is based on Mr Gutierrez’s tax returns for the debt period, the financial statements of the Company, Mrs Gutierrez’s “Pay As You Go” summary from the company records and additional information received from the Australian Taxation Office.

28. A person’s rate of PP is determined using the rate calculator in section 1068B which contains an income test in Module D. The rate at which Mrs Gutierrez was paid PP was determined by the information she provided to the Respondent. That information did not include details of the Company, which was a source of income including director’s fees and wages. Based on the couple’s tax returns and profit and loss statements from the Company, Mrs Gutierrez and her husband received undeclared assessable income in the form of director’s fees and wages of $26,422.00 in 2012-13, $52,000.00 in 2013-14, $26,000.00 in 2014-15, $21,000.00 in 2015-16 and $44,692.00 in 2016-17. In addition, the Company received income of $1,011.00 during 2013-14 and $718.00 in the 2014-15 financial years. This income was not included in the calculation of Mrs Gutierrez’s PP.

29. The Respondent contends that the Company’s income should be attributed to Mr Gutierrez. Part 3.18 of the Act provides for the attribution of income and assets of a private company to an individual. Section 1207N provides a definition of a designated private company which the Company satisfies. Section 1207Q provides that the company must be a controlled private company in relation to the individual and section 1207X provides that the individual must be an attributable stakeholder of the company. Mr Gutierrez meets these requirements in relation to the Company.

30. When taking into account the full extent of Mrs Gutierrez and Mr Gutierrez’s combined incomes, the Respondent submits that the Applicant was entitled to receive $33,847.54 of PP throughout the debt period, rather than $58,334.43 which she actually received. The difference of $24,486.89 constitutes a debt to the Commonwealth.

31. Based on the calculations in the T-documents I am satisfied that Mrs Gutierrez has been overpaid PP during the debt period to the value of $24,486.89 and that this amount constitutes a debt to the Commonwealth.

    Can the debt be written off or waived?

32. Under the Act, debts may be written off under section 1236 or waived under sections 1237A or 1237AAD in certain circumstances.

33. French J observed in Secretary,Department of Social Security v Hales (1998) 51 ALD 695 at 695-696 that where there is discretion to waive debts due to overpayment of benefits, the expectation in the first instance is that overpayments should be recovered:

    From time to time in the administration of social security benefits overpayments occur. Sometimes these are the result of innocent non-compliance with the requirements of the law which can be affected by the stress associated with the circumstances that led to the receipt of benefits in the first place. The taxpayer is entitled to expect that in the ordinary course money paid to people which they are not entitled to receive will be recovered, albeit in a way appropriate to the circumstances which led to the overpayment and the circumstances of the persons concerned. However, the confining of a recovery regime by rigid rules, particularly in this area of the law, is likely to be productive of unfair or harsh outcomes in some of the great variety of fact situations that can arise. There are provisions in the Act which recognise that reality. They relate to the writing off and the waiver of debts otherwise due to the Commonwealth.

    [Emphasis added]

34. I am satisfied that Mrs Gutierrez’s debt cannot be written off under section 1236 as none of the prerequisite criteria set out in subsection 1236(1A) are satisfied. The debts are recoverable at law. She has some capacity to repay the debt, albeit one which is limited by her current financial circumstances. Her whereabouts are known, and it is cost effective for the Commonwealth to recover the debt.

35. Waiver of the debts under section 1237A only arises in respect of ‘the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt’.

36. The Respondent argues that in Mrs Gutierrez’s case the debt has arisen because Mrs Gutierrez and her husband did not disclose Mr Gutierrez’s interest as a sole director of the Company. Nor did they provide up to date financial information in relation to the Company or correctly report their combined income during the debt period.

37. There is no indication or evidence of administrative error on the part of the Respondent before the Tribunal. The Respondent’s explanation for the debt arising is supported by both Mrs Gutierrez’s original PP claim and Mr Gutierrez’s newstart allowance claim. I am satisfied that the waiver of any or all of the debt under section 1237A is not appropriate.

38. The sole remaining issue is whether any part of the debt for which Mrs Gutierrez is liable may be waived on the grounds of special circumstances under section 1237AAD. This section allows debts to be waived provided the applicant did not knowingly make a false statement or a false representation or fail to comply with a provision of the Act.

39. The Respondent contends that Mrs Gutierrez is unable to satisfy either paragraph 1237AAD(a)(i) or (ii) of the Act as there is evidence that the debt arose wholly from Mr Gutierrez knowingly making a false statement and failing or omitting to comply with the provisions of the Act.

40. In considering if Mrs Gutierrez knowingly made a false statement, the Respondent directs the Tribunal’s attention to the decision in Callaghan and Secretary, Department of Social Security (1996) where Deputy President Forgie observed the difference between presumed and actual knowledge when considering waiving a debt for special circumstances under 1237AAD at [48]:

    There is nothing in section 1237AAD which suggests that the word “knowingly” should be given any meaning other than that a person has actual knowledge, rather than constructive knowledge, that he or she is making a false statement or representation or that he or she is failing or omitting to comply with a provision of the Act. That actual knowledge is to be ascertained by reference to the statements of the person as to his or her actual state of knowledge at the time and to events surrounding the false statement or the act or omission.

41. I accept that if the criteria set out in Callaghan is applied it follows that Mr Gutierrez’s declarations in 2012 and 2013 stating he had no trust or company interests, and no interest in any business run via a private company and Mrs Gutierrez’s similar declarations in her application for PP constitute either knowingly making a false statement or failing or omitting to comply with the provisions of the Act. Consequently, the debt waiver provisions in section 1237AAD are not applicable.

1. Nonetheless, in the interests of completeness, I have considered Mrs Gutierrez’s circumstances and whether waiver of the debt under the special circumstances provision may have been appropriate. In addition to the circumstances detailed earlier in this decision, the Applicant and her husband provided insight into some of their current financial challenges to the Tribunal during the hearing. Mr Gutierrez told me that he is currently receiving approximately $640.00 each fortnight in Family Tax Benefit and is receiving $3,000.00 each month in jobkeeper allowance.

2. Mrs Gutierrez has not completed a financial circumstances statement. The couple told the Tribunal at the hearing they work on two-week budgets and ‘pay the bills when they come in’. They have three children under 16 years of age who are attending school. They have $416,000.00 owing on a mortgage on their home which currently costs them approximately $2,000.00 each month in repayments. They sold their company van and they have one vintage vehicle and one family car which they still owe $8,000.00 on. They have a credit card and owe $15,000.00 on it which they say they try and pay $800.00 each month towards. They have an additional credit card on which they owe $3,500.00.

3. The couple also have a tax debt of $5,068.00 and Mr Gutierrez is due for surgery on his wrist which it is submitted will cost approximately $7,000.00 in out of pocket expenses.

4. Mr Gutierrez told the Tribunal that the amount of time it took for the debt to be raised caused additional problems for him. He submitted that if he knew about the debt earlier, he could have delayed expenditures. He is concerned about paying for his children to attend school next year and recently had to take one of their children out of a private school to save money.

5. The term ‘special circumstances’ is not defined in the Act but has been extensively considered in case law. In Davy and Secretary, Department of Employment and Workplace Relations (2007) 94 ALD 693, Deputy President Forgie noted at [80] the relevance of an individual’s personal circumstances and the consideration of the general administration of the social security system when considering ‘special circumstances’.

6. As the Tribunal observed in Skinner and Secretary, Department of Social Services [2015] AATA 569:

   It is important to recognise the need to ensure the integrity of the social security system and the public interest. This means that those recipients who have received monies to which they are not entitled, are generally expected to repay those monies unless the repayment is in the specific circumstances unjust, unreasonable or inappropriate.

7. Paragraph 1237AAD(b) of the Act makes clear that there must be more than financial hardship alone for special circumstances to exist. Whilst Mrs Gutierrez would prefer that her financial circumstances were different, there is nothing unjust, unreasonable or inappropriate in her repaying the debt.

8. Having determined that Mrs Gutierrez does not satisfy subparagraph 1237AAD(1)(a)(ii) of the Act, the discretionary power to waive the debts on the basis of special circumstances cannot be exercised. Even if this were not the case, I am not satisfied that circumstances exist which would warrant the exercise of the special circumstances provision in relation to the debt.

   CONCLUSION

9. In the hearing, Mr Gutierrez told the Tribunal that if there is a debt it needs to be repaid. The Tribunal is satisfied that Mrs Gutierrez was overpaid PP and owes a debt of $24,486.89. It is, as Mr Gutierrez suggested, appropriate that it is repaid. It can be repaid through a reasonable withholding of Mrs Gutierrez’s benefits, as a portion of the couple’s combined debt has been similarly withheld to date.

   DECISION

10. For the reasons stated above, the reviewable decision dated 27 August 2019 is affirmed.

I certify that the preceding 51 (fifty-one) paragraphs are a true copy of the reasons for the decision herein of Mr S Evans, Member

..................................[sgd]....................................

Associate

Dated: 2 November 2020

Date(s) of hearing:	14 August 2020
Advocate for the Applicant:	Mr Gutierrez
Solicitors for the Respondent:	Ms C Campbell