Hodgson and Anor and Secretary, Department of Employment and Workplace Relations

[2007] AATA 2044

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 2044

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No      W 200600395  

GENERAL ADMINISTRATIVE DIVISION		)  W 200600396
Re		KAREN HODGSON WAYNE MCGLADE

Applicants

And SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Dr J D Campbell, Member

Date7 December 2007

PlacePerth

Decision The Tribunal affirms the decisions under review.  

...........[Sgd Dr J D Campbell]...........

Member

CATCHWORDS

SOCIAL SECURITY - Overpayment Disability Support Pension - overpayment Parenting Payment - ordinary income - race horse winnings - exempt lump sums

LEGISLATION

Social Security Act 1991, Sections 8, 117, 1064, 1223, 1237R, 1237 AAD

CASES

Strauss and Secretary, Department of Family and Community Services [2005] AATA 608

REASONS FOR DECISION

7 December 2007 Dr J  D Campbell, Member            

1.      Mr McGlade and Ms Hodgson have been and remain a defacto couple since 1984/85.  Both returned to the Albany area in 1990 and purchased in joint names a property of eight acres.  Mr McGlade has held a horse training license since 1977, when he was 21 years of age.  Both Mr McGlade and Ms Hodgson have a long standing interest in racing horses.

2.      When purchasing the property where they live, it was their intention to pursue their race horse interests as well as growing and selling of vegetables from a stall, which they did up to 1995.  However, Mr McGlade’s physical health declined in 1996 and in 1996 Mr McGlade was granted disability support pension for physical conditions involving ankle (partial joint replacement), neck, shoulder and lower back.  Mr McGlade also suffers from some learning difficulties with reading and writing.

3.      Mr McGlade was granted disability support pension (DSP) on 16 December 1996.  On 13 December 2003 Centrelink advised Mr McGlade that he had a debt owing of $53,921.71 arising from overpayment of DSP between 26 December 1996 and 4 November 2003.  Such overpayments were noted to arise from monies received from his horse training activities, which were to be assessed as gross income without any allowance for business expenses.

4.      On 13 November 2003 Ms Hodgson received two notices of decisions which assessed she owed two debts, one in the amount of $6,693.74 for overpayment of parenting allowance in the period 2 January 1997 and 12 March 1998, and secondly by a debt in the amount of $42,398.13 for overpayment of parenting payment between 21 March 1998 and 4 November 2003.  Such overpayments were noted to have arisen for the same reasons given to Mr McGlade.

5.      Following further review, involving taking into account business expenses associated with the horse training activities, Centrelink on 15 March 2004 revised Mr McGlade’s debt to an amount of $2,713.07 arising from overpayment of DSP between 26 December 1998 and 4 November 2003.  On 15 March 2004 Ms Hodgson was advised that her debt arising from overpayment of Parenting Payment had been revised to $5,811.91.  It is noted that the previous debt for Parenting Allowance for the period 2 January 1997 to 12 March 1998 did not continue to exist as on 15 January 2004, the Authorised Review Officer found that Ms Hodgson had not been overpaid for that period.

6.      On 7 July 2006 the Social Security Appeals Tribunal (SSAT) set aside the decision to raise debts, namely the debt of Mr McGlade of $2,713.03 (DSP overpayment) and the debt of Ms Hodgson of $5,811.91 (Parenting Payment overpayment).  The SSAT, in doing so, requested that the debts be recalculated because of revised social security income calculations for Mr McGlade for financial years 1998/1999 and 2000/2001.  The revised calculations of $6,864 and $7,896 for the two years nominated are a consequence of revised taxation assessments for the same two years in which understatement of business expenses for those two years in question were recognised at $6,708 and $6,401 respectively, with rental adjustments of $156 and $1,495 respectively.  Such figures resulted in adjustments to Mr McGlade’s previously determined incomes of $13,282 and $13,071 respectively by $6,418 and $5,775 respectively.

7.      As a consequence of the SSAT direction, Centrelink have determined the debt owed by Mr McGlade to be $187.23 arising from overpayment of DSP between 9 July 1998 and 23 September 2003.  In relation to Ms Hodgson the debt has been recalculated to $2,106.68 arising from overpayment of parenting payment between 2 July 1998 and 3 July 2001.

ISSUES

8.      The issues in this matter have much narrowed over time with the remaining issues being:

(a)Should Ms Hodgson’s race horse winnings of $4,209 in financial year 1998/1999 and $5,940 in financial year 2000/2001 be considered ordinary income for the purposes of the Social Security Act 1991 (Cth) (‘SS Act)?

(b)Are such earnings considered exempt under section 8 of the SS Act?

(c)If the debts remain, can the debts be waived pursuant to sole administrative error by the Commonwealth or alternatively as a consequence of special circumstances being found to exist?

DECISION

9.      For the reasons nominated later in this decision, I conclude that:

(a)Ms Hodgson’s race horse winnings for the financial years nominated are ordinary earnings for the purposes of the SS Act; and

(b)Such earnings are not exempt lump sum earnings pursuant to s 8(11) of the SS Act; and

(c)The debts cannot be waived pursuant to either Sole Administrative Error by the Commonwealth or because of a finding that special circumstances exist.

(d)The debts as calculated by Centrelink remain, namely

(i)Mr McGlade owes a debt of $187.23 arising from overpayment of DSP between 9 July 1998 and 23 September 2003.

(ii)Ms Hodgson owes a debt of $2,106.68 arising from overpayment of parenting payment between 2 July 1998 and 3 July 2001.

(e)The decision under review is affirmed with the debt amounts, having been recalculated as nominated.

Background

10.     Mr McGlade and Ms Hodgson share a keen interest in owning, training and racing horses.  Ms Hodgson had a 25 per cent interest in two race horses, Galumph and Kontiki Lad in the financial years in question (1998/1999, 2000/2001).  Other shareholders in the written lease for the two horses were Mr McGlade, his mother and father.

11.     The two horses won prize money, with Kontiki Lad being the far more successful horse winning 10 races.  In the two financial years in question (98/99 and 2000/2001).  Ms Hodgson received $4,209 and $5,940 respectively as her share of the winnings (25%) for each of the two years.  Such amounts were included in Mr McGlade’s amended tax returns for the two years in question at the behest of Centrelink.

12.     Both Mr McGlade and Ms Hodgson contend that such winnings were windfall gains and should not be included in the annual ordinary income for Social Security purposes and used in defining their benefit entitlement to payments for DSP and Parenting Payments respectively.

Consideration and Findings

13.     I note that the factual circumstances as outlined are not in dispute between the parties, and in particular that the calculations are not in dispute in relation to the debts owed, apart from the issue of the winnings by Ms Hodgson and the treatment thereof causing alteration to the calculations, if Mr McGlade and Ms Hodgson contentions are upheld.

14.     I find the general factual circumstances outlined earlier to be the factual circumstances of the dispute.  Further it is my understanding that it was a Centrelink Officer, who requested that Ms Hodgson’s winnings for the two years in question be included in Mr McGlade’s income tax return for these two years.

15. The fact remains that they were included in tax returns for the financial years 1998/1999 and 2000/2001 for Mr McGlade in the sums of $4,209 and $5,940 respectively. While argument could be made that such winnings should have remained with Ms Hodgson and not be included in Mr McGlade’s tax returns for these two years, such argument does not alter the considerations necessary to decide this matter. In this matter while the earnings were accounted for in the taxation situation, the significant issue in contest is whether for social security purposes such winnings are ordinary income and not subject to exemption by virtue of the SS Act. I would observe that if the winnings were for the purpose of the SS Act be considered part of Ms Hodgson’s ordinary income for that Act, the combined income for Mr McGlade and Ms Hodgson would remain essentially unaltered in terms of the SS Act, unless there were to be some alienation of business costs from Mr McGlade’s business costs on a percentage basis relating to maintaining and running the two horses in question. This has not been argued or addressed during the hearing. I take this particular quandary no further, as I believe it will have less than a material influence in the outcome of this matter in practical financial outcomes.

16. I note the definition of income and other terms in s 8 of the SS Act.Section 8 provides:

“income in relation to a person, means:

(a)       income amount earned, derived or received by the person for the person’s own use or benefit; or

….

….

But does not include an amount that is excluded under subsections (4), (5), (7A) or (8).

Ordinary income means income that is not maintenance income or an exempt lump sum.

Income amount means valuable consideration or personal earnings or money or profits.

Section 8 (2) provides:

“a reference in this Act to an income amount earned, derived or received is a reference to

(a)       an income amount earned, derived or received by any means.”

17. Ms Hodgson received two amounts of $4,209 and $5,940, being composite amounts relating to winnings by two horses for which she had a 25% interest in financial years 1998/1999 and 2000/2001. There is no argument between the parties that such was not the case. In addressing the definition of income, income amount and ordinary income outlined above and such monetary amounts received by Ms Hodgson, I conclude that such amounts (comprising a number of lump sums) are ordinary income for the purposes of the SS Act, unless they are exempt lump sums.

18. I note s 8 (11) of the SS Act; and in particular subs (d) which provides:

“An amount received by a person is an exempt lump sum if

….

….

(d)       the amount is an amount, or class of amounts, determined by the Secretary to be an exempt lump sum.”

Note:  Some examples of the kind of lump sums that the Secretary may determine to be an exempt lump sum include a lottery win, or other windfall, or bequest, or a gift – if it is a one off gift.

19.     In addressing the contention raised, I acknowledge that Ms Hodgson’s winnings would fall into the term ‘class of amounts’, as clearly her winnings were paid to her as a consequence of the two horses winning prize money in a series of races, not one particular race.  Whether this is viewed as a series of discrete amounts of a particular class or whether it is viewed as a class of amounts does not matter in these proceedings.

20.     Initially advice was given by the respondent that the Secretary had not made any determination in relation to this section.  In such circumstances that would have been the end of the matter, for only if the Secretary, or a person to whom he has delegated such power to make such a determination and has made such a determination, can the matter be reviewed by me (Strauss and Secretary, Department of Family and Community Services [2005] AATA 608 considered and followed).

21. However shortly after the hearing was adjourned, the Respondent provided material which listed determinations which had been made by the Secretary or by persons delegated by him pursuant to either the SS Act and/or the Social Security (Administrative) Act 1999.  This was an extensive list, but on close and detailed examination, I concluded that the accrual of lump sum winnings by Ms Hodgson did not fall within any determination that had been made.

22. In the absence of the existence of such a determination I find that I do not have jurisdiction to consider whether or not Ms Hodgson‘s lump sum series of winnings for the financial years 1998/1999 and 2000/2001 is an exempt lump sum pursuant to s 8(11) (d) of the SS Act. In such circumstances Mr McGlade and Ms Hodgson contentions cannot be upheld.

23.     I would further note that Downes J in Para 34 in the Strauss matter (ibid) characterised the categories in the note to s 8(11) (d) of the SS Act “as receipts over which the recipient has no control to entitlement” Justice Downes goes on to state that “you can buy a lottery ticket, but you have no control over whether it wins”.  By analogy you can own and/or lease a race horse and you have no control over whether it wins.  In the current matter Ms Hodgson has two race horses and has shared in winnings derived from a number of races.

24. In the circumstances as outlined if Mr McGlade or Ms Hodgson wish to pursue the matter further they will need to approach the Secretary of the responsible department and seek to have him make a determination as to whether the circumstances involving the winnings as described are an exempt lump sum pursuant to s 8 (11) (d) of the SS Act.

25. As the circumstances now stand Mr McGlade has received an overpayment of $187.23 during the period 9 July 1998 and 23 September 2003. Further this is a debt owed to the Commonwealth pursuant to s 1223 of the SS Act. Similarly, Ms Hodgson has a debt due and owing pursuant to section 1223 relating to overpayment of parenting payment for the period 2 July 1998 and 3 July 2001 in the amount of $2,106.68.

26. In considering whether such amounts should be waived, I note the provisions of s 1237A(1) of the SS Act. For the amounts to be waived under this section, the debt has to arise as a consequence of sole administrative error by the Commonwealth, and whether the debtors have received such overpayments in good faith. While I note that the issues in this matter have been complex and their resolution the subject of sustained effort by both parties, I do observe and so find that both debtors contributed to their overpayments as a consequence of the failure of Mr McGlade to correctly report his earnings over years 1998 to 2003. I note such earnings and cost of earnings were finally established with the amended taxation returns for financial years 1998/1999 and 2000/2001 many years after the period to which the debts relate. While Centrelink made earlier determinations without full knowledge of all the details, I do conclude that both debts were not created as a consequence of sole administrative error by the Commonwealth. In such circumstances I conclude that neither debt can be waived pursuant to s 1237A(1) of the SS Act.

27. Section 1237AAD permits the Secretary to waive the debts in circumstances, where he considers special circumstances to exist and that the debtors have knowingly not omitted or failed to comply with a provision of the Act or not made a false statement or representation. In this matter, specific enquiry of Mr McGlade and Ms Hodgson failed to elicit any set of circumstances which could be considered to be special. While both acknowledge that their financial circumstances have been difficult in the past, currently such circumstances are not so difficult, with their property increasing in value since purchase and other monies received by way of inheritance. I note that Mr McGlade has a series of physical disabilities and a learning difficulty. I observe that he is coping well with such impairments. In such circumstances, I am unable to conclude that any circumstances of the two debtors, including the circumstances of the debt creation, could be considered special circumstances. In such circumstances, I conclude that the debts cannot be waived pursuant to s 1237AAD of the SS Act.

28.     In summary I conclude that neither debt can be waived.  This results in the decisions under review being affirmed with Mr McGlade having a debt of $187.23 accrued as a result of overpayment of DSP during the period 9 July 1998 and 23 September 2003.  Similarly, Ms Hodgson has a debt of $2,106.68, accrued as a result of overpayment of parenting payment between 2 July 1998 and 3 July 2001.

I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Dr J D Campbell, Member

Signed: ................[Sgd C Skinner]........................................
  Associate

Date of Hearing  29 November 2007
Date of Decision  7 December 2007
Representative for the Applicant     Self Represented
Counsel for the Respondent            Mr R Wright
Solicitor for the Respondent            Centrelink Legal Services Branch