Hughes and Secretary, Department of Families, Community Services and Indigenous Affairs
[2007] AATA 1544
•13 July 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1544
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2005/701
GENERAL ADMINISTRATIVE DIVISION ) Re JANINE HUGHES Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Dr EK Christie, Member Date13 July 2007
PlaceBrisbane
Decision The decision under review is affirmed.
...................[Sgd]...........................
Member
CATCHWORDS
SOCIAL SECURITY – family tax benefit – child care benefit – estimation of taxable income – family tax benefit and child care benefit estimate debts – bankruptcy of applicant – overpayment – waiver for special circumstances – provable debt in bankruptcy – words and phrases: “obligation incurred” – decision affirmed
Administrative Appeals Tribunal Act 1975 (Cth) s 37
Bankruptcy Act 1966 (Cth) ss 82, 149
A New Tax System (Family Assistance) (Administration) Act 1999 (Cth) ss 20, 32C, 70, 71, 71C, 101, 105A New Tax System (Family Assistance) Act 1999 (Cth) Schedule 3, clause 2
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
Dranichnikov v Centrelink (2003) 75 ALD 134
Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435
Civitareale and Secretary, Department of Family and Community Services (1999) 57 ALD 451
Re Secretary, Department of Families, Community Services and Indigenous Affairs and Pollock (2006) 92 ALD 501
Official Trustee in Bankruptcy v CS and GJ Handby (1989) 21 FCR 19
Commissioner of Taxation v Jones (1999) 86 FCR 282
Re Hide; Ex parte Llynvi Coal and Iron Co (1871) 7 Ch App 28
Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848
Jones (as Trustee of the Bankrupt Estate of Graham) v Deputy Commissioner of Taxation (1998) 157 ALR 349
Lyford v Carey (1985) 3 ACLC 515
Gaffney v Commissioner of Taxation (1998) 81 FCR 574
Lofthouse v Commissioner of Taxation (2001) 164 FLR 106
Re Kavich; Kavich v Official Trustee in Bankruptcy (1995) 58 FCR 82
Re McLaren; Ex Parte Aboriginal and Torres Strait Islander Commission, Federal Court, 22 May 1997, 397/1997
Pyramid Building Society (in Liq) v Terry (1997) 148 ALR 174
Commissioner of Taxation v Kavich (1996) 68 FCR 519REASONS FOR DECISION
13 July 2007 Dr EK Christie, Member 1. This is an application for review of the following decision (of the Social Security Appeals Tribunal (the “SSAT”) made on 27 September 2005 that decided to raise and recover an overpayment of family tax benefit (“FTB”) in the amount of $3,354.57 and child care benefit (“CCB”) in the amount of $2,359.54 for the period 1 July 2002 to 30 June 2003.
2. The evidence before the Tribunal comprised the documents filed pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (the “T” Documents) [Exhibit 1] and the various exhibits lodged by the parties.
3. The applicant was represented by Mr C Coulsen (day 1) and Mr D Marks (day 2) of Counsel. The respondent was represented by Mr M Murray, Senior Executive Lawyer, AGS.
Issues Before The Tribunal
4. There was no dispute between the parties that there were debts due to the Commonwealth arising from the overpayments of FTB and CCB made to Mrs Hughes. The issue was the recoverability of such debts. Accordingly, the questions for the Tribunal to decide were:
(i)Whether the overpayments of FTB and CCB could be waived for “special circumstances”; and
(ii)Whether the debt could be recovered under the family assistance law - notwithstanding Mrs Hughes’ bankruptcy on 13 November 2002.
5. The applicant’s case is that the time the overpayment is discovered is not relevant where a person is not entitled to receive a benefit from the day payments of benefits commence. An obligation to repay arises when a person receives a benefit to which they are not entitled – not when it is discovered that the person is not entitled to that benefit.
6. The respondent’s case is that Mrs Hughes’ debt occurred after the date of bankruptcy and is not a provable debt in that bankruptcy. It is the respondent’s view that there was no relevant obligation of which Mrs Hughes was in breach that created a liability before the date of bankruptcy.
Facts
7. On the basis of the evidence before it the SSAT made the following Findings of Fact [T2, Folio 8]:
“(i)Mrs Hughes was paid family tax benefit and child care benefit in the 2002/2003 financial year on the basis of an initial estimate of annual income for herself of $32,000 and nil for her husband.
(ii)Mrs Hughes provided a new estimate of her annual income of $40,000 on 13 November 2002.
(iii)On 20 November 2002, Mrs Hughes provided Centrelink with a new estimate of annual income of $40,000 for herself and $45,000 for her husband.
(iv)Mrs Hughes’ combined annual income for the 2002/2003 financial year was $79,218.
(v)Mrs Hughes is an undischarged bankrupt having been declared bankrupt on 13 November 2002.
(vi)Mr and Mrs Hughes are in full-time employment. They have two children aged seven and five. They have no assets.”
8.FTB and CCB entitlements to Mrs Hughes commenced on 1 July 2002.
9. Mrs Hughes was notified by Centrelink on 17 January 2004 and 28 January 2004 that she had received overpayments of CCB and FTB, respectively, during the 2002/2003 financial year. As a consequence, debts had accrued which could be recovered. Internal reviews by the respondent on 25 February 2005 and 17 March 2005 resulted in the decision.
10. Pursuant to s 149 of the Bankruptcy Act 1966, Mrs Hughes was discharged from bankruptcy on 14 November 2005.
11. The above chronology indicates that overpayments of FTB and CCB occurred both prior to and during bankruptcy. The “debt was raised” during bankruptcy, when a reconciliation exercise was undertaken following an income tax assessment for the 2002/2003 financial year being lodged by the applicant and the assessment notice issued on 20 January 2004.
Statutory Requirements And Case Law: Waiver for Special Circumstances
12. The Tribunal has applied the following legal requirements and principles in its interpretation of the law in its consideration of waiver for special circumstances to Mrs Hughes’ factual situation.
13. In this application for review the “special circumstances” provision is an issue in dispute for the Tribunal to decide. Section 101 of the A New Tax System (Family Assistance) (Administration) Act 1999 [the “FAA Act”] provides for a debt due to the Commonwealth to be waived, either in part or in full, because of “special circumstances”:
“101 Waiver in special circumstances
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 the family assistance law; 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.”
14. For this section of the FAA Act to apply to the consideration of waiver to Mrs Hughes’ factual situation, there must be “special circumstances”. In addition, Mrs Hughes must not have “knowingly” made a false statement or false representation or “knowingly” failed to have complied with a provision of the FAA Act. Both these requirements must be satisfied for Mrs Hughes to succeed under the “Waiver in Special Circumstances” provision.
15. The common law meaning and application of the expression “special circumstances” has been considered by the Federal Court and the Tribunal on many occasions. The relevant legal principles that have emerged, over time, that have been applied to provide a meaning for “special circumstances” can be summarised as follows:-
(i)“An expression such as ‘special circumstances’ is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. …This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special.”
[See Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 (Tribunal emphasis)]
(ii)“…would require something to distinguish [the case to be decided] from others, to take it out of the usual or ordinary case…It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.”
[See Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545 (Tribunal emphasis)]
(iii)“To some extent the question whether there were special circumstances must depend on how it came about that the error occurred …There will be a requirement that the circumstances are such that takes the case out of the ordinary…”
[See Dranichnikov v Centrelink (2003) 75 ALD 134 at 148 (Tribunal emphasis)]
16. The meaning of the term “knowingly” has been considered by the Tribunal in Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435 where the Tribunal stated (at 445):
“There is nothing in s 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.”
And later,
“Knowingly omitting them is something different from fraudulently omitting them and I draw a distinction in this case” [Tribunal emphasis].
Findings of fact and Consideration of the Issues
17. It is not in dispute that Mrs Hughes has acted honestly at all times with Centrelink in providing income estimates for the 2002/2003 financial year. It is quite clear that Mrs Hughes did not, in any way, seek to defraud the Commonwealth.
18. In understanding how the overpayments arose, it is clearly evident that the problem arose in Mrs Hughes’ attempts to correctly predict what her and her husband’s combined adjusted taxable income would be in 2002/2003. She made three updates for estimated income. The third, on 20 November 2002, was a substantial increase to $85,000, as at this time, her husband had found alternative employment following the end of their sporting business. Mrs Hughes’ evidence was that she had purposely “overestimated” the combined income, at this time, in order to avoid the possibility of getting overpaid entitlements.
19. However, the following analysis of estimates of income for 2002/2003 against the income of $79,218 used by Centrelink to calculate Mrs Hughes’ entitlements, reveals the following data:
a) 1 July 2002 – 13 November 2002 (19 weeks): Estimated income for the period of $32,000 was approximately 40% of actual annual income ($79,218.06);
b) 13 November 2002 – 20 November 2002 (1 week): Estimated income for the period of $40,000 was approximately 50% of actual annual income ($79,218.06);
c) 20 November 2002 – 30 June 2003 (32 weeks): Estimated income for the period of $85,000 was approximately 107% of actual annual income ($79,218.06).
20. The above analysis indicates that the overpayment problem arose because Mrs Hughes, in correcting her income estimates on 20 November 2002, should have increased the amount to a larger value than $85,000 to “correct” for the 20 week period (1 July 2002 – 20 November 2002) when the income estimates relied on significantly lower amounts than the actual income. The over estimates from 20 November 2002 were not large enough to buffer the under estimates prior to 20 November 2002. It was this failure to increase the estimate at 20 November 2002 to a higher value than $85,000 that has led to the overpayment. This error was that of Mrs Hughes.
21. Because the error that led to the overpayments was caused by Mrs Hughes, the debts cannot be waived for “special circumstances” as there is nothing “unusual”, “uncommon” or “exceptional” in the facts that would make Mrs Hughes’ case be “out of the ordinary”. She was aware of the need to increase the predicted amount. The difficulty was to correctly predict the amount against a background of actual income that would be received – a common and complex problem for social security recipients who do not work fixed hours each week of the year.
22. In incorrectly estimating her income in advance, I conclude there has been no element of fraud on the part of Mrs Hughes. Taking all the evidence into account, there has been no deliberate dishonesty or recklessness, in any way, without regard to whether her estimates were true or false: see Civitareale and Secretary, Department of Family and Community Services (1999) 57 ALD 451.
Statutory Requirements And Case Law: Provable Debt In Bankruptcy
23. The relevant provisions of A New Tax System (Family Assistance) (Administration) Act 1999 [“FAA Act”] to this application for review can be summarised as follows:
· Section 20 provides for the rate of FTB entitlements to be based on an estimate of adjusted taxable income, which the Secretary considers the estimated amount to be reasonable;
· When the adjusted taxable income figure for the relevant financial year is available, the actual entitlement for the FTB and CCB recipient is determined;
· Section 70 provides for the amount of a debt due to the Commonwealth to the extent it is provided for under the FAA Act or a data-matching program;
· FTB and CCB estimate debts arise when the amount of benefits received is greater than the correct amount that should have been paid to the social security recipient; the difference in amount is a debt due to the Commonwealth: section 71(2) and 71C.
· Section 105 provides the Secretary with statutory power to review original decisions, in a process referred to by Centrelink as reconciliation. In its decision, the SSAT described this process (T2, folio 11) as follows:
“24. When a person has been paid instalments based on estimated income, Centrelink reviews the person’s entitlement after the financial year has ended, immediately after the person has lodged their tax return (if the person is required to lodge one). Centrelink does this pursuant to the Secretary’s review powers contained in section 105 of the Administration Act. Centrelink calls this process a reconciliation. It uses…the person’s correct amount of family tax benefit for the financial year. Almost invariably this will differ from the amount the person received on the basis of the estimate. If the correct amount is more than the received amount, a ‘top-up’ is paid. If it is less, a debt is raised.
25. When a person is paid family tax benefit by fortnightly instalments during a financial year, the correct amount of benefit cannot be ascertained until the financial year has ended. This is because the components of adjusted taxable income are all income or expenses ‘for that year’ and cannot be accurately quantified until the year has run its course. For example, the amount of a person’s taxable income will depend on how much assessable income they receive, the level of deductions, whether they incur business losses, and so on. An estimate can be quite different to the actual income because of changed circumstances as, for example, the case at hand, a partner obtains employment and the payment recipient obtains additional work.” (Emphasis added).
24. Clause 2(1)(a) of Schedule 3 of the A New Tax System (Family Assistance) Act 1999 defines “Adjusted taxable income” as follows:
“Adjusted taxable income
(1) For the purposes of this Act and subject to subclause (2), an individual’s adjusted taxable income for a particular income year is the sum of the following amounts (income components):
(a) the individual’s taxable income for that year;
…”
25. In Re Secretary, Department of Families, Community Services and Indigenous Affairs and Pollock (2006) 92 ALD 501, Deputy President Purvis concluded that “the nature of the decisions that may be reviewed as per s 104 of the [FAA] Act is wide enough to cover the exercise reconciling payments made pursuant to estimates provided by a recipient against adjusted taxable income”.
26. Instalment payments of FTB and CCB were based on income estimates provided by Mrs Hughes throughout 2002-2003. Once actual taxable income was known e.g. an income tax assessment notice, a reconciliation process (a Data-Matching Program) was undertaken to determine whether she had been properly paid. The reconciliation process under the FA law is a “double-edged” sword as the outcome can either be the raising of a debt – or arrears being paid, depending on the accuracy in predicting future income over the 12 months period.
27. The statutory power to make an assessment only arises after the end of a financial year e.g. under the data-matching program, when income tax assessments have been lodged.
28. The debts provable in a bankruptcy are set out in s 82 of the Bankruptcy Act 1966:
“82 Debts provable in bankruptcy [see Table B]
(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
…
(8) In this section, liability includes:
(a) compensation for work or labour done;
(b)an obligation or possible obligation to pay money or money’s worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and
(c)an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money’s worth, whether the payment is:
(i)in respect of amount – fixed or unliquidated;
(ii)in respect of time – present or future, or certain or dependent on a contingency; or
(iii)in respect of the manner of valuation – capable of being ascertained by fixed rules or only as matter of opinion.”
Consideration
29. Section 82 has been interpreted very widely in terms of enabling bankrupts to be freed from their obligations to repay debts upon their discharge from bankruptcy e.g. Official Trustee in Bankruptcy v CS and GJ Handby (1989) 21 FCR 19; Deputy Commissioner of Taxation v Jones (1999) 86 FCR 282; and Re Hide; Ex parte Llynvi Coal and Iron Co (1871) 7 Ch App 28.
30. Given that the debt was not one Mrs Hughes was subject to at the date of her bankruptcy, there are three possibilities to consider whether the FTB or CCB estimate debts occurring prior to and during the bankruptcy of Mrs Hughes were caught by s 82 of the Bankruptcy Act 1966.
(i)Contingent debts
(ii)Future liabilities
(iii)Debts and liabilities…to which the bankrupt may become subject before her discharge by reason of an obligation incurred at or before the date of bankruptcy (s 82(1) Bankruptcy Act 1966) (emphasis added).
31. Legal principles which are relevant in considering these possibilities have been reviewed by Marshall J in Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848 at para 50, and summarised by DP Purvis in Re Secretary, Department of Families, Community Services and Indigenous Affairs and Pollock (2006) 92 ALD 501 at 507:
· a debt need not be due and payable at the date of bankruptcy to be provable in the bankruptcy, but there must be an obligation upon which the debt is founded, being an obligation which was incurred before the time of bankruptcy: Jones (as Trustee of the Bankrupt Estate of Graham) v Deputy Commissioner of Taxation (1998) 157 ALR 349 at 354;
· for a debt to be “contingent”, “there must be an obligation upon which the contingency can operate”, being an obligation which “must exist as at the date of bankruptcy”: Lyford v Carey (1985) 3 ACLC 515 at 518;
· where discretion is required to be exercised, in a way which impacts on or is relevant to a debt, there is no obligation to pay until the discretion is exercised: Lyford (supra) at 519.
· for a debt to be provable in bankruptcy, there must be: “existing circumstances which (give) rise to a contingent debt or liability, and which would crystallise by the happening of some future event”: Gaffney v Commissioner of Taxation (1998) 81 FCR 574 at 578;
· a contingent liability within section 82 of the Bankruptcy Act can include a potential liability arising from an obligation: Lofthouse v Commissioner of Taxation (2001) 164 FLR 106; and
· “[t]he questions for determination must be decided by reference to the language of the relevant statutes, rather than by resort to consequences which … would appear to produce injustice” Re Kavich; Kavich v Official Trustee in Bankruptcy (1995) 58 FCR 82 at 86-87; and
…
· “An obligation must be a recognisable one created by law and must not be some amorphous vulnerability to a possible debt”: Alekozoglou’s case.
32. In addition to these authorities, the following legal principles are also relevant considerations to the three possibilities under s 82:
· Contingent debts are a function of the occurrence of a contingency at the date of bankruptcy: “Firstly, the relevant time for assessing whether a contingent liability exists is the date of the bankruptcy: Ellis & Co’s Trustee v Dixon-Johnson [1924] 1 Ch 342. No provable debt was even on the horizon at that time. Secondly, there can be no debt, even contingently, until it crystallises into at least a possible, likely or expected amount”: Re McLaren; Ex Parte Aboriginal and Torres Strait Islander Commission, Federal Court, 22 May 1997, 397/1997.
· A future liability is one that becomes fixed at some definite time in the future: “There may be a question of whether a present debt not payable until some time in the future is one of the “debts” identified in the substituted s 82(1) as those “to which a bankrupt was subject at the date of the bankruptcy”. Such an obligation is not a ‘future debt’, that is to say a debt only to become payable on the occurrence of an event which has yet to come to pass”: Pyramid Building Society (in Liq) v Terry(1997) 148 ALR 174 at 181.
33. The following conclusions are made in relation to whether the FTB and CCB estimate debts occurring prior to and during bankruptcy are caught by s 82 of the Bankruptcy Act 1966.
34. At the date of her bankruptcy, Mrs Hughes faced the possibility of liability being imposed by statute at a future time. However, she was not subject to a liability at that stage; a future liability is one which will become fixed at some definite time in the future. However, the event – the reconciliation process by the respondent, had yet to occur: Pyramid Building Society.
35. Nor would Mrs Hughes be subject to a future liability, whether certain or contingent, at the date of bankruptcy. No provable debt was on the horizon at that time. Nor had the debt crystallised, at this time, into at least a possible, likely or expected amount: McLaren’s case; Gaffney’s case; Lyford’s case.
36. The final possibility relates to a debt or liability that Mrs Hughes would be subject to before her discharge because of an obligation incurred at or before the date of bankruptcy.
37. In Commissioner of Taxation v Kavich (1996) 68 FCR 519 (Full Federal Court), in considering “obligations”, under the Income Tax Assessment Act 1936, incurred before the date of bankruptcy, Tamberlin J observed that the term “obligation” was a very wide term. Obligations were considered over a wider spectrum of the administrative process, rather than a discrete process. A distinction was made, in this case, between the “basic obligation” to pay primary tax in respect of each financial year in which taxable income is derived and the obligation to pay additional tax – a separate and distinct obligation which only arises from the non-payment of the primary tax.
38. This approach - to give a wide interpretation to s 82 of the Bankruptcy Act 1966 by considering obligations incurred along the wider spectrum of the administrative process for FTB and CCB entitlements, is followed in this application for review.
39. In Mrs Hughes’ case the following conclusions can be made:
(i)The basic obligation was to make an application for a grant of FTB and CCB entitlements. Mrs Hughes made an application prior to the date of the bankruptcy. Mrs Hughes was properly entitled to receive some amount of FTB and CCB payments. At that time, there could be no verification that she had been paid the correct amount of FTB and CCB entitlements until considered in the context of other obligations incurred along the wider spectrum of the administrative process.
(ii)The basic obligation to make an application for a grant of FTB and CCB was necessarily dependent on any liability to pay FTB and CCB estimate debts but it did not give rise to that liability.
(iii)Two separate and distinct obligations, along the administrative process, were also incurred in Mrs Hughes’ case to ensure that Mrs Hughes received the correct FTB and CCB payments that she was properly entitled to receive.
(iv)Firstly, an obligation was incurred to provide estimates of actual income and to make periodic reviews where appropriate. This obligation was met prior to and after the date of bankruptcy.
(v)Secondly, an obligation was incurred to lodge an income tax return [s 32C, FAA Act] upon which the statutory process for reconciliation/data matching could be undertaken by the respondent. Mrs Hughes’ income tax return met this obligation after the date of bankruptcy.
40. The issue of an income tax assessment and the undertaking of the reconciliation process both occurred after the date of bankruptcy, and gave rise to the FTB and CCB estimate debt owed by Mrs Hughes. Mrs Hughes was not properly entitled to the amount that she had been paid (i.e. the “correct amount”). A debt owing to the Commonwealth arises: s 71(2), 71C FAA Act.
41. I have found, through incorrectly estimating her income in advance, that there was no element of fraud on the part of Mrs Hughes.
42. Mrs Hughes’ debt occurred after the date of bankruptcy and is not a provable debt in that bankruptcy. There was no relevant obligation incurred of which Mrs Hughes was in breach that created a liability before the date of bankruptcy.
Decision
43. For all of the above reasons, I am satisfied that a debt was raised by the respondent after the date of bankruptcy of Mrs Hughes. The amounts of FTB and CCB paid to Mrs Hughes by the respondent and in respect of which she was not properly entitled are debts due to the Commonwealth by the applicant and are not provable by the respondent in the applicant’s bankruptcy.
44. The Tribunal affirms the decision under review.
I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of Dr EK Christie, Member
Signed: .....................................................................................
Legal Research OfficerDate/s of Hearing 13 November 2006; 6 February 2007
Date of Decision 13 July 2007
Counsel for the Applicant Mr C Coulsen (3 November 2006); Mr D Marks (6 February 2007)
Solicitor for the Applicant Mr J Stannard, Welfare Rights Centre Inc.
Solicitor for the Respondent Mr M Murray, Senior Executive Lawyer, AGS
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