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

[2007] AATA 1338

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1338

ADMINISTRATIVE APPEALS TRIBUNAL           )

)No      N 2006/851 and   N 2006/855

GENERAL ADMINISTRATIVE DIVISION		)
Re		RICHARD HOWARD and BEVERLY HOWARD

Applicant

And

SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

and

SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal  Ms N Bell, Senior Member

Date 18 May 2007

Place Sydney

Decision The Tribunal affirms the decision under review.

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

Ms N Bell  Senior Member  

COMPENSATION – Age Pension – Raise and Recover Debts – Overpayment of Disability Support Pension and Age Pension – Family Company – Monies from Directorship is Considered Income – No Special Circumstances – Part of the Debt Waived due to Sole Administrative Error – The Decision under Review is Affirmed.

Social Security Act 1991

REASONS FOR DECISION

1.      Mr and Mrs Howard are age pensioners.  In 2005, Centrelink raised, and sought to recover, two debts against Mrs Howard for overpayment of disability support pension and age pension and one debt against Mr Howard for overpayment of carer pension and age pension.  The debts arose because the full amount of income received by Mr Howard from the family company and from his Doyalson-Wyee RSL directorship was not taken into account in the calculation of the rates of their pensions.  After closer examination by an Authorised Review Officer, recovery of some portions of the debt was waived because the Officer accepted some of the overpayments as Centrelink’s fault, but the vast bulk of the debts remained for recovery.

2.      When the Social Security Appeals Tribunal reviewed the decisions it decided to waive recovery of 25% of the debts because a combination of circumstances affecting Mr and Mrs Howard are “special” within the meaning of the Social Security Act 1991 and make it desirable to waive that proportion of the debts.

3.      Mr and Mrs Howard consider that recovery of the whole of their debts should be waived on this basis.  The Secretary disagrees, but does not object to waiver of recovery of 25% of the debts.

background to the issues

4.      Mrs Howard received disability support pension from July 1996 and was paid on the basis that her and Mr Howard’s income from repayments of a loan made by them to their family company, Toveety Pty Ltd, amounted to $7,718.90 per annum.  Later, in 1997, Mrs Howard told Centrelink that her husband received $1,523.00 in salary from Toveety and, over the following years, she provided various information to Centrelink about his salary from the family company.  Consequently her pension payment was adjusted from time to time.

5.      In March 2002, Mr Howard began to receive carer pension and disclosed, in his claim, that he was being paid a salary of $703.00 per week from Toveety.  In May 2002, Mrs Howard transferred to age pension and Centrelink advised her that she would be paid that pension on the basis that her combined annual income was $24,335.04.  In September 2003, Mr Howard claimed age pension and again disclosed to Centrelink his salary of $703.00 per week from Toveety.

6.      After protracted inquiries, Centrelink raised debts against Mrs Howard in September 2005 in the sum of $11,447.63 for June 1999 to May 2002 and in the sum of $6,525.65 for May 2002 to July 2004.  Centrelink also raised a debt of $6,781.13 against Mr Howard for the period March 2002 to July 2004.

7.      On internal review, an Authorised Review Officer waived portions of Mrs Howard’s debts, effectively reducing them to $11,089.85 and $4,102.45 because the officer considered some of the overpayments had been solely due to Centrelink’s administrative error.  The Authorised Review Officer also decided to waive recovery of a portion of Mr Howard’s debt, effectively reducing it to $6,186.50, for the same reason.

Issues

8.      With the exception of one matter, there is no dispute that Mrs Howard has debts of overpayment of $11,089.85 and $4,102.45 and Mr Howard has a debt of overpayment of $6,186.50.

9.      A source of income used to calculate the amount of Mr Howard’s overpayment was an allowance he received for being a Director of Doyalson-Wyee RSL Club.  Mr and Mrs Howard considered these payments to be in the nature of re-imbursement for travelling expenses rather than fees.  I note that the Club issued group certificates in relation to these payments and Mr Howard’s accountant has always included them as income in tax returns.  I also note a letter from Mr Howard’s accountant, Richard Collins, dated 20 March 2007, advising that directors are considered to be employees for the purpose of PAYG legislation, that the payments are by way of reimbursement and that a Director is able to claim “these reimbursements as a tax deduction within the guidelines issued by the Australian taxation Office”.   I see no alternative but to regard these payments as income.

10.     All that remains to be decided is whether the debts should be recovered.

11.     The Act allows for waiver of a debt in certain circumstances. Where it is found that the debt is attributable solely to an administrative error made by the Commonwealth and the payment was received in good faith, the Secretary must waive the debt under section 1237A.

12.     Alternatively, the Secretary may waive recovery of a debt under section 1237AAD if satisfied there are special circumstances that make it desirable to do so.

was the debt attributable solely to administrative error?

13.     The power to waive recovery under section 1237A has already been exercised in part by the Secretary in relation to each of the debts.  Mr and Mrs Howard consider that its application should be extended.

14.     Once it became apparent that Mr Howard was receiving a regular and substantial income from the family company, Centrelink began to request details of Mr Howard’s income from the family company and details of Toveety’s income.  These requests, and the investigations that accompanied them, continued for some years.  Not surprisingly, it sometimes took Mrs Howard, who was the person who conducted the couple’s dealings with Centrelink, some time to obtain all of the financial information Centrelink required at various times.

15.     Mrs Howard’s evidence was that she made income tax and company returns available to Centrelink as soon as she received them from her accountant.  She also said she spoke to Centrelink officers on the telephone many times to discuss Mr Howard’s income.  I accept this evidence and I accept that Centrelink sometimes did not act quickly enough to adjust her payments and those of Mr Howard when she made information available.  Indeed, Centrelink recognises this and waived some portions of the debts as a result.

16.     However, debts may only be waived when they are attributable solely to administrative error.  It may be that Centrelink’s errors extended beyond those periods in respect of which it has exercised waiver but the essential question is whether, during those periods, there was any conduct or omission by Mr and Mrs Howard that contributed to the overpayments.  This is where Mr and Mrs Howard face problems.

17.     During the period of the payments, Centrelink sent letters at various times to Mr and Mrs Howard setting out the amount of income it took into account in calculating their payments.  At various times that amount was incorrect.   This, the dates of the letters and that they were sent to the Howards is not in dispute.  Mr and Mrs Howard did not act on these letters and did not advise Centrelink that the amounts quoted in them were incorrect.  Mrs Howard’s evidence was that she would occasionally look at the back of the letters she received from Centrelink but took the view that she had already given them the information she was required to give anyway.  In cross examination, she said that where the letters had referred to “your income” she thought it meant only “her” income and did not refer to her and Mr Howard’s combined income.  She noted that, for some 18 months, she received no letters from Centrelink.

18.     Ms Kitchen, the Howards’ daughter, made submissions on their behalf.  She noted the difficulty a person might have in understanding the letters from Centrelink, given their fine print, the language used and the placement of important financial details on the back of the letters.

19.     While I appreciate the shortcomings of the letters’ format, the difficulty for the Howards is that, once they had been alerted, by receiving a letter from Centrelink, to an incorrect amount of income being used to calculate the rate of payment, their failure to inform Centrelink of that incorrectness contributed to the error.  In this way, the overpayment was not solely due to administrative error.   Those portions of the debts that Centrelink waived recovery of are amounts that were paid before letters were sent to Mr or Mrs Howard that included an incorrect amount of income.  Before those letters were sent, and the Howards were put on notice of the incorrect income amounts being used, the error was solely Centrelink’s and waiver under section 1237A is available.   During any period covered by a letter from Centrelink, waiver is not available for sole administrative error.

are there special circumstances?

20.     “Special circumstances” have been held by the Tribunal and the Federal Court to be circumstances that are unusual, out of the ordinary or exceptional.

21.     Mrs Howard gave evidence, which I accept, about her impaired and very painful arm and back.  She also gave evidence of her attempts, over the years, to keep Centrelink informed through lodgement of tax returns and financial reports whenever they became available to her from her accountant.

22.     Mr Howard gave evidence of his polymyalgia and the severe limitations it causes.  He also gave evidence of his severe sleep apnoea, high blood pressure, a knee reconstruction two years ago and gout.  I accept his evidence.

23.     The Howards’ current income comprises $200 per week in loan repayments from the family company, approximately $700 per week in wages from the company, and approximately $90 per week each in age pension.

24.     They have considerable debts including a debt of $100,000 to the Elcom Credit Union, $18,000 in credit card debt and a personal loan from GD Finance of more than $9,000.

25.     They live with their daughter and her children and others in their large four bedroom home, recently renovated, at the expense of their daughter, to accommodate the additional family.

26.     The Social Security Appeals Tribunal decided that, in combination with their medical and financial circumstances, the poor administrative procedures of Centrelink over a long period resulted in the Howards having to deal with a large debt arising from their relationship with the family company.  It considered that Centrelink was aware of the family company and its payments to Mr Howard for a long time before it acted to take the relationship, and the income it yielded, into account in the calculation of their rates of pension.  For these reasons, the Social Security Appeals Tribunal decided to waive recovery of 25% of the debts on the basis that these circumstances are special.

27.     Mr Lozynsky, for the Secretary, submitted that the Secretary seeks no departure from this conclusion as to special circumstances and waiver.  He stressed, however, that no more than 25% of the debts should be waived.

28.     I am mindful that, although the Howards have been disadvantaged by a long period of repeated error by Centrelink, they did, throughout that period, have the benefit of a higher rate of pension than which they were entitled to.  While they have a considerably higher income than many age pensioners, they have substantial debts for an aged couple and their health is very poor.  At a stretch, their circumstances are somewhat special and, although I consider waiver of recovery of 25% of the debts to be a generous exercise of the discretion, I see no reason, in the circumstances, to disturb it.

decision

29.     The Tribunal affirms the decision under review.

I certify that the 29 preceding paragraphs are a true copy of the reasons for the decision herein of Ms N Bell, Senior Member.

Signed:         ………[ Sanjiv Shah]………
  Associate

Date of Hearing  13 February 2007
Date of Decision  18 May 2007
Solicitor for the Respondent    George Lozynsky