Haldane-Stevenson v Director-General of Social Security

[1985] FCA 250

Re: JAMES PATRICK HALDANE-STEVENSON
And: DIRECTOR-GENERAL OF SOCIAL SECURITY
No. ACT G. 9 of 1985
Social Security

COURT

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
McGregor J.
Davies J.
Pincus J.

CATCHWORDS

Social Security - age pension - applicant in receipt of income - whether expenses incurred in writing book deductible - meaning of "income" - whether nett or gross income

Social Security Act 1947 (Cth) ss.18, 28

Income Tax Assessment Act 1936 (Cth)

Harris v Director-General of Social Security (1985) 59 ALJR 194

HEARING

CANBERRA
#DATE 7:6:1985

ORDER

1. The appeal is dismissed.

2. The appellant pay the costs of the respondent.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

McGregor and Pincus JJ. This is an appeal by James Patrick HALDANE-STEVENSON (appellant) from a decision of a Judge of this Court given on 1 February 1985 affirming an earlier decision of the Administrative Appeals Tribunal which had, in turn, upheld a decision of the DIRECTOR-GENERAL OF SOCIAL SECURITY (the respondent).

Relevant facts include that during the period from 18 December 1981 to 6 August 1983 the appellant, then an unmarried person who had attained the age of 70 years, was qualified to receive, and did receive, an age pension under the Social Security Act 1947 Part III. Later that pension was varied but for our purposes we do not need to discuss those variations.

In determining the rate of pension payable the respondent took into account amounts described as follows by the learned primary Judge -

"amounts received by way of retiring allowance as an ordained clergyman within the Church of England, by way of a United Kingdom pension and as interest on an investment and an amount representing the value of free lodgings."

The learned primary Judge noted that the appellant did not dispute that it was proper that these amounts should have been taken into account but said that the aggregate of those amounts should have been reduced by the amount of certain expenditure, estimated by him at $10.00 per week, incurred during the period mentioned in connection with research for, and the writing of, a book yet to be published on the future of the monarchy in Australia under the title "Monarchy in Crisis".

Under the Social Security Act certain stipulated amounts are to be paid as pension but are liable to suffer a reduction by reason of "income", as defined in s.18, received by the pensioner. With respect to the appellant, s.28(2AB) had the effect that the annual minimum rate of pension was $2675.40 per annum. The sum of $10 per week referred to above included such things as postage, telephone expenses, photocopying and travelling. We are not concerned with the details of that, for it is accepted by the respondent that if the appellant's arguments succeed, the sum of $10 per week is a correct estimate of the expenditure.

In our view, the question depends ultimately upon the definition of "income" in s.18 which is in the following terms:-

"'income', in relation to a person, means any personal earnings, moneys, valuable consideration or profits earned, derived or received by that person for his own use or benefit by any means from any source whatsoever, within or outside Australia . . . . "

The definition then set out certain payments or benefits which are to be included and some which are not to be included in "income". It is not necessary for us to discuss them, as they do not appear to throw any light on the question raised. The primary Judge came to the conclusion that nothing in the definition required or permitted the reduction of amounts of income derived from sources having no connection with the writing of the book by reference to items of expenditure incurred in pursuing that activity, being one which has not yet produced any monetary gain.

It will be noted that the definition of "income" makes no reference to expenses or deductions. It leaves uncertain the answer to the question whether gross income or nett income is meant. Having regard to the purpose of reducing the pension by reference to income earned, we are of the view that, at least in general, nett income is meant. That does not, however, bring in its train the conclusion that the process of ascertainment of income is to be approached in the same way as, for example, "taxable income" is determined under the provisions of the Income Tax Assessment Act 1936. More particularly, we are of the view that, whatever might happen for the purposes of the Income Tax Assessment Act, deductions of the kind here sought to be taken into account are not to be considered unless there is income with which they are associated. We have found assistance in this matter in the reasons of the majority of the High Court in Harris v. Director-General of Social Security (1985) 59 A.L.J.R. 194, although the facts there were significantly different from those we are considering. Their Honours said at p.197 -

"Income can be derived from various sources, as the definition of 'income' in s.18 makes clear. Some items of income may be received at frequent and regular intervals during a year (for example, weekly or fortnightly wages paid to an employee), some intermittently (for example, profits of a business) and others at lengthy intervals (for example, annual dividends on shares). Subject to the exceptions stated in the s.18 definition and subject to the limitations expressed in s.29, no income derived from any source is to be left out of account in ascertaining the annual rate of income. 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 what each of those sources would yield over the period of a year assuming the current yields from those sources were to continue."

This statement and our own appreciation of the definition of income suggest to us that there must be income and not notional or anticipated income, which a court may have regard to, before account is to be taken of deductions referable to that income which may then determine the true rate of that income. From a consideration of s.28(2) it is necessary to calculate an annual rate of income. "Profits" also implies a fixed period during which gains and losses may be contrasted. So it may be necessary then to have regard to a pensioner's sources of gross receipts less deductions to ascertain the annual rate of income; or to deduce profits. And just as "no income derived from any source is to be left out of account" so no presently non-existing income, particularly one not capable of estimation, can be considered. In our opinion, the $10 per week figure for the book production may not be offset against any of the headings of income (to which such a deduction is unrelated) which were available to the appellant in the period mentioned.

In a subsidiary argument, at least to the primary Judge, the appellant submitted that expenditure in what he described as scholarly writing as part of his community service, to which reference has been made, was properly deductible from Church emoluments received by him in the form of stipend fees or a pension, as being an expenditure incurred in gaining or producing those emoluments. We are not persuaded that by any process of reasoning or evidence the expenditure referred to could be said to have been incurred in earning the income he received by way of a pension from the Church of England. The amount of the pension, as we understand it, is payable whether or not the appellant writes or writes a book or otherwise derives income from writing. Nothing we have said is intended to bear upon the determination of income from a business regularly conducted by the pensioner; that does not arise here.

It may well be that in the future, assuming that some income or fee is received by the appellant from the publisher for the sale or use of the book, "Monarchy in Crisis", which income the respondent may be disposed or required to take into account in arriving at the rate of pension, the respondent should have regard to sums of money which have been expended in producing that income; and in calculating annual rate of income there may not necessarily be any warrant for the strict adherence to periodicity which is required in, for example, company accounting, or determining profits. But these matters have not been fully argued and we express no final opinion on them.

The orders we make are as follows -

1. The appeal is dismissed.

2. The appellant is to pay the costs of the respondent.

JUDGE2

DAVIES J : During the relevant period, December 1981 to August 1983, the appellant, The Reverend J.P. Haldane-Stevenson, was in receipt of an age pension under the Social Security Act 1947 (Cth) ("the Act").

Section 28 of the Act provided a maximum rate of pension. The appellant's pension was fixed at that rate subject to any reductions required by s. 28. Sections 28(2) and 28 (2AB) required that the annual rate of pension should be reduced by reference to the annual rate of income of the pensioner. They provided as follows:

"28.(2) The annual rate at which an age or invalid pension is determined shall, subject to sub-section (2AA), be reduced by one-half of the amount (if any) per annum by which the annual rate of the income of the claimant or pensioner exceeds -

(a) in the case of an unmarried person - $1,040 per annum; or

(b) in the case of a married person - $897 per annum.

. . . . .

(2AB) Notwithstanding sub-section (2), where a claimant or pensioner -

(a) has attained the age of 70 years; and

(b) is in receipt of, or is qualified to receive, an age pension,

the annual rate at which that pension is determined shall not be less than -

(c) in the case of a person referred to in paragraph (1A) (a) - $2,675.40 per annum; or

(d) in any other case - $2,230.80 per annum.

The meaning of those provisions was examined by the High Court of Australia in Harris v Director-General of Social Security (1985) 59 ALJR 194. Gibbs CJ, Brennan, Deane and Dawson JJ explained that the deduction was not discretionary. Their Honours said, at pp.195-6 :

". . . The deduction from the s.28(1) rate that occurs when 'the annual rate of . . . income' exceeds the specified amounts per annum does not depend on any decision by the Director-General. The calculation required by sub-s.(2) has two variables : the s.28(1) rate and the annual rate of income of the pensioner. The result of the calculation may be called 'the s.28(2) rate'. The s.28(2) rate determines 'the annual rate of the pension' for the purposes of s.41(2) and therefore determines the amount payable to a pensioner each fortnight. Section 41(2) provides :

Subject to this section, the amount of a fortnightly instalment of a pension shall be ascertained by dividing the annual rate of the pension by twenty-six.

In cases where the pension is paid at intervals determined by the Director-General pursuant to s.135W(2), no less than in cases where it is paid pursuant to s.41(2), the pension is payable in instalments (s.135W(7)) and the amount payable on the pension payday is necessarily governed by the annual rate of the pension. To ascertain the amount that should be paid by way of pension on any pension payday, the s.28(2) rate must be known and that rate can be known only when the variables of the s.28(2) calculation are known.".

Their Honours explained, at page 196, the essential character of an annual rate of income. Their Honours said :

"The distinction between an annual amount of income and an annual rate of income is critical to an understanding of s.28(2). If annual amount of income were a component in the s.28(2) calculation, it would be necessary to identify a commencing date of the income year in order to ascertain what receipts fell into one year and what into the next. But a rate of income, like a rate of interest, may vary within any annual period though it is expressed as an annual rate. It is a current rate of income, expressed as so much per annum. An annual rate of income may not subsist for a year : an annual rate of income that obtains in one week may change in the week following. Annual income is the sum of the products of each annual rate of income that obtained during any part of the year multiplied by the fraction of the year during which it obtained."

Their Honours explained, at page 197, the means of working out the annual income in these terms :

". . . 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 what each of those sources would yield over the period of a year assuming the current yields from those sources were to continue. It is not necessary to predict whether the pensioner will retain his sources of income for the year or whether the current yields will be maintained, for the annual rate of income is the current rate of income though it is calculated and expressed as an annual rate. If the current income from a current source is receivable as so much per week or per month, it must be calculated and expressed as an amount per annum. But an annual rate of income is not ascertained merely by extending to a year the income receipts of a shorter period without considering the period in respect of which the particular item of income has been received. A pensioner whose only income apart from his pension is $1,000 paid annually as a dividend on an investment has an annual rate of income of $1,000. It is wrong in law as it is absurd in fact to say that he has an annual rate of income of $52,000 in the week in which he receives the dividend and a nil annual rate of income for 51 weeks of the year. His investment, the source of his income, yields an annual sum and, so long as the pensioner retains the investment, his annual rate of income from that source will be $1,000. If that source of income were lost, the annual rate of income from that source would be reduced to nil from the time of the loss. When a pensioner is in receipt of weekly wages from employment, however, his annual rate of income from that source is calculated on the assumption that his earnings at the current rate will continue for the year. If he were to retire from work, that source of income would be gone and the annual rate of income attributable to that source would be nil. In cases where pensioners or claimants are employed intermittently, it may be appropriate in some cases to treat the intermittent work as a continuing source of income and to take an average of earnings over a period as the yield from that source, and in other cases to treat each employment as a separate source of income yielding its particular amount of earnings. The former method would establish a comparatively constant annual rate of income; under the latter method, the annual rate of income would change as the pensioner or claimant went into and out of employment. The circumstances of the particular case would show which method is more appropriate."

At page 197, their Honours concluded their examination by stating :

"An annual rate of income, at whatever time it is ascertained for the purposes of s.28(2), is the aggregate of those income payments which would be received by the pensioner during 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. . . . ".

From the above, several principles can be derived. First, it is necessary to calculate not the annual amount of income but the current rate of income of the pensioner and to express that current rate of income as so much per annum. Secondly, in calculating the annual rate of income, one has regard to all the pensioner's sources of income at that time and finds what each of those sources would yield over the period of a year assuming the current yields from those sources were to continue. Thirdly, the annual rate of income is the aggregate of the income payments that would be received by the pensioner during 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.

Mr Haldane-Stevenson had been a minister of the Anglican Church and had been and was a writer. In former years he had received some royalties and other rewards for his authorship but had received none after 1974/75. He retired in 1980, but thereafter received a pension and had other income. His pension for the subject period was calculated accordingly and there is no dispute as to it save in one respect. During the relevant period he was engaged in writing a book "Monarchy in Crisis", which he hoped to have published in 1987 or 1988 and from which he expected to derive royalties. During the subject period he incurred expenses in relation to such writing, the quantum being agreed at $10 per week. It was his submission that his annual rate of income should be reduced by the $520 per year which he was then expending in writing the book which he expected to bring in income some years later. His claim was rejected by the respondent and by the Administrative Appeals Tribunal and on appeal by a single Judge of this Court. It is from the last-mentioned judgment that this appeal is brought.

Having stated the principles to be applied and the facts, it is immediately apparent that Mr Haldane-Stevenson's appeal must fail. In the first place, he was not currently receiving income from his writing and did not expect to do so during the ensuing year. Therefore, there was no income from his writing, either gross or net, to bring into the calculation. Secondly, the calculation of annual income is concerned only with the aggregation of income from all sources. It is not concerned with items that do not bear upon the current annual rate of income. Mr Haldane-Stevenson's expenditure of $10 per week was not related to that income. It was incurred with respect to the royalties anticipated in later years after the publication of his work. Those royalties did not and could not form part of any calculation of his annual rate of income during the subject period. They were remote from it.

Mr Haldane-Stevenson put an alternate submission to the Court in the event that the Court was of the view that the future royalties should not be taken into account. He submitted that the expenses of $10 per week incurred in writing the book were a cost of earning his pension as a minister of religion. He submitted that it was the duty of a minister to write and to inform. I would conclude, however, that the task of writing "Monarchy in Crisis" was unconnected with Mr Haldane-Stevenson's duties as an Anglican minister. There was no sufficient connection between that book and his duties as to permit the $10 per week to be treated as a cost of or proper deduction from his pension.

For these reasons, I am of the view that the appeal must fail.

However, I should not close without commenting upon one of the submissions put by Mr I. Bermingham, counsel for the respondent. Mr. Bermingham referred to the definition of income in s.18 of the Act which read, inter alia,

"18. In this Part, unless the contrary intention appears - . . . . . 'income', in relation to a person, means any personal earnings, moneys, valuable consideration or profits earned, derived or received by that person for his own use or benefit by any means from any source whatsoever, within or outside Australia, and includes any periodical payment or benefit by way of gift or allowance from a person other than the father, mother, son, daughter, brother or sister of the first-mentioned person, but does not include - . . . . .".

The words with which we are concerned are "any personal earnings, moneys, valuable consideration or profits earned". Mr Bermingham submitted that while any calculation of profits, which he took to be income from a trade or business, required a balance to be drawn from receipts and expenditure, the other items of income, "personal earnings, moneys, valuable consideration", were to be brought to account as gross items without deduction.

However, there is underlying this submission the fallacy that the terms "personal earnings", "moneys", "valuable consideration" and "profits" refer to discrete categories of income. The terms are not used by way of separation or contradistinction but are complementary to each other. The term "personal earnings" is particularly appropriate to the circumstance where a pensioner is in employment and the term "profits" is appropriate where the income-earning activity is clearly a trade or business. But there will be many circumstances where a pensioner outside an employment situation will receive earnings and yet not engage in a trade or business. The Act does not require any distinction to be drawn between personal earnings and profits. In each case, the Act is concerned with the net return.

Similarly, the Act does not intend that valuable consideration should be brought in as a gross figure without regard to the cost of that for which the valuable consideration was given or that income by way of moneys, such as interest, dividends and rents, be brought to account without regard to costs such as commission paid for collection. After all, the Social Security Act is an Act which provides for income maintenance. It would not be consistent with this concept to bring into account gross income rather than net income, the latter being the sum which is available for the maintenance of the pensioner.

The term "income" in the Social Security Act does not have the meaning which appears in the Income Tax Assessment Act 1936 (Cth). The latter Act draws a clear distinction between assessable income and taxable income. In the Social Security Act no such distinction is drawn. In my opinion, the Act is concerned with net earnings, moneys, valuable consideration and profits and it is the net income from each source which is to be taken into account in the calculation of a pensioner's annual rate of income.

However, for the reasons I have given, I would dismiss the appeal with costs.