Jessep and Department of Family and Community Services

[2001] AATA 478

DECISION AND REASONS FOR DECISION [2001] AATA 478

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No N2000/1423

GENERAL ADMINISTRATIVE DIVISION        )          
           Re      Hazel Jessep         
  Applicant
           And    Secretary to the Department of Family and Community Services         
  Respondent

DECISION

Tribunal       Dr J D Campbell     

Date4 June 2001 

PlaceSydney

Decision       The decision under review is affirmed.

[sgd] Dr J D Campbell
  Member
CATCHWORDS
Social Security - Newstart Allowance - Part/Time
Employment - Business Activity - Declaration of fortnightly earnings - issue of business  losses - overpayment - debt - administrative error - waiver

Social Security Act 1991, Sections 8, 1072, 1075 1223, 1224, 1237 1237AAD

Secretary, Department of Family and Community Services v Cantley [2000] FCA 345
Re Callaghan and Secretary Department of Social Security (1996) 45 ALD 435
Secretary, Department of Social Security v Hales (1998) 51 ALD 695 

REASONS FOR DECISION

Dr J D Campbell, Member                    

1. Mrs Hazel Jessep  (the Applicant) in this matter, seeks a review of the decision of the Social Security Appeals Tribunal ("SSAT") dated 2 August 2000, which affirmed the decision of a Centrelink delegate dated 9 August 1998, as varied by a further decision dated 23 September 1999 of a Centrelink delegate that the Applicant had receivd an overpayment of Newstart allowance of $943.00 during the period 18 May 1998 to 26 July 1999.  This latter decision was reviewed and affirmed in a decision dated 10 March 2000 by an authorised review officer.

2. A hearing was held before the Tribunal at Orange on 5 March 2001 at which the Applicant and her ex husband, Mr Jessep, attended and presented oral evidence.  The Respondent was represented by Mr Cox, a solicitor from the Advocacy and Administrative Law Team at Centrelink.

1. The following material was placed into evidence before the Tribunal:
   Exhibit No                   Description Date   
   T1-T50 pp1-126 Documents prepared pursuant to section 37 of the Administrative Appeals Tribunal Act 1975
   R1      Respondent's statement of facts and contentions        21 February 2001   
   R2      Statement of Earnings of the Applicant for the period 14 December 1998 to 8 February 1999  

ISSUE

1. The relevant issue in this matter is whether the Applicant received an overpayment of Newstart Allowance of $943.20 during the period 18 May 1998 to 26 July 1999, and if so whether a debt of this amount is due and owing by the Applicant to the Commonwealth.
   legislation

2. The relevant legislation is this matter is the Social Security Act 1991 ("the Act') and in particular sections 8(1), 658, 1072, 1075(1), 1223(5), 1224(1), 1237, 1237AAD.
   background

3. The Applicant had been in receipt of Newstart Allowance from 1996 to the present, and throughout this period she had worked as a part-time employee at the Mayne Nursing Home and Hostel.

4. On 20 March 1998 an Employment Declaration Form Match was conducted between Centrelink and the Australian Taxation Office.  The match indicated that the Applicant signed an Employment Declaration Form on 1 January 1998 concerning employment with Moyne Eventide Home (T5).

5. On 14 April 1998 Centrelink sent the Applicant a notice informing her of the data match and requested that the Applicant confirm employment details to ensure the correct amount of Newstart Allowance was paid (T6).  On 8 May 1998 Moyne Eventide Home provided details of the Applicant's employment to Centrelink, together with a print out of the previous two weeks earnings (T9).  On 2 June 1998 a debt of $733.25 was raised for repayment of Newstart Allowance for the period 15 December 1998 to 4 May 1998 (T10, T16).  The Applicant was advised of this debt together with the reason (failure to declare correct income from Moyne Eventide Home) (T16).

6. On 26 August 1998, the Applicant detailed the methodology used in calculating the income given to Centrelink, and stated that she had been advised by Social Security Officers to offset business losses against total income (T18).  On 15 September 1998, Centrelink advised the Applicant that it is not correct that all expenses were allowed to be claimed against the Moyne income.  Further it was explained to the Applicant that any losses from business could not be deducted from income received from employment.  The reply further instructed the Applicant that:

   "Income from employment (ie. wages) needs to be declared on a fortnightly basis.  Please note that you need to declare the gross amount of income (ie. before tax) and any other deduction".T19).

7. On 19 September 1998 the Applicant phoned Centrelink to query if there were any exceptions to the rule that farm income could not be offset against earnings.   A Centrelink Officer explained to the Applicant that it could not be done (T20).

8. On 24 September, Mr Jessep rang Centrelink and was advised that they would recalculate the overpayment excluding uniform allowance (T21).  The recalculation was undertaken on 6 October 1998, but there was no change in the overpayment as the amount entitled for the period remained at Nil (T22).

9. On 2 December 1998 a notice was sent by the Respondent to the Applicant informing her that her first debt was now finalised and included details of repayments and adjustments for the period 3 June 1998 to 2 December 1998.

10. On 7 July 1999 the Respondent sent a notice to the Applicant informing her that as a result of a data matching exercises, the Australian Taxation Office had notified Centrelink that the Applicant had a level of income for financial year 1997/98 of $19,135 compared with what the Applicant had advised Centrelink, namely $10,478.82 (T25).  On 6 August 1999 Centrelink received further employment details including details of wages paid to the Applicant for the period 17 May 1998 to 25 July 1999 from Moyne Eventide Home (T29).

11. On 9 August a debt of $1013 was raised for the period 18 May 1998 to 26 July 1999.  On 18 September the Applicant again wrote disputing an amount for uniform purchases in the wage totals and further seeking to having primary production losses offset against general income.(T34).  On 23 September 1999 the second debt was recalculated to exclude uniform allowances, with the debt being reduced to $943.20 (T36-T39).

12. The debt owed by the Applicant of $943.20 was confirmed on 20 January 2000 by the original decision maker (T45); on 10 March 2000 by the authorised review officer (T49) and on 2 August 2000 by the SSAT (T2).
    evidence of the applicant

13. The Applicant informed the Tribunal that at some stage some three to four years ago, before the Centrelink office changed from Cowra to Orange, she was basically told that you could offset farming losses against other income.  In relation to the first debt, the Applicant stated that she appealed to the AAT, but withdrew after a conference at the AAT.  In relation to the second debt (current debt), she remains convinced that Centrelink are in error.

14. The Applicant stated that she has worked part-time at the Nursing Home to assist in providing income for the farming property.  She stated that she works 22 hours a fortnight at the nursing home and many more hours on the 27 acre property which she runs in partnership with her son Andrew  (28%) and other members of the family, owning 23%, 15% and 3% respectively.  The Applicant was unsure as to her percentage in the partnership.  The property is both a horse stud (six to eight horses), cattle and loosen growing enterprise, with Andrew and the Applicant undertaking much of the day to day activities, and the Applicant's ex-husband undertaking activities in relation to the horses.

15. Mr Jessep, told the Tribunal that partnership income was derived from selling cattle, leasing of horses, Brood Mare Fees, and winnings from horses.  Expenses were associated with the write-off of stallions ($4,000 over five years), food, fertiliser, tractor usage, veterinary fees, rates and taxes, and that he calculated fortnightly losses on a "rule of thumb method".

SUBMISSIONS
The Applicant

1. The Applicant contended that it is appropriate for her to offset farm losses against other income, and that, if this is not permitted, she has been wrongly advised by Centrelink in the past and her debt has arisen as a consequence of sole administrative error on behalf of the Commonwealth.  Further, in such circumstances, the debt should be waived.  In the alternate the Applicant argued that she received the money in good faith and that special circumstances exist, because of the manner in which she has been advised, and that the debt should be waived.
   The Respondent
   The Respondent submitted that the Applicant had consistently under reported her gross fortnightly income to Centrelink, as evidenced by the reporting of earnings declared to Centrelink at T12, T13, T17, T24, and that stated as paid by Moyne in their report to Centrelink at T29.  It was the Respondent's contention that this is a consistent and deliberate under-reporting of income, and that this has continued despite being clearly informed that losses from her business could not be deducted from her earned income in the letter from Centrelink of 15 September 1998.  Further the Respondent submitted that the Applicant also misled Centrelink as to her expected length of employment with Moyne when she repeatedly answered that her work was unlikely to last more than 12 weeks at T29, 31, 41 and 51.  It is also evident that the Applicant's employment with Moyne commenced in 1985 (T29/61).

2. The Respondent contended that the Applicant's income was ordinary income as defined by section 8 of the Act, and further defined in section 1072 of the Act. Further, section 1075(1) of the Act is particular in defining that a person's ordinary income from the business is to be reduced by particular losses and outgoings of the business.

3. The Respondent further contended that as a consequence of the Applicant's under-reporting of income from Moyne, an overpayment of Newstart Allowance occurred, with such overpayment resulting directly from a false statement made by the Applicant, as well as failing to comply with section 658 of the Act to provide information about her income. It is the Respondent's contention that this overpayment constitutes a debt pursuant to sections 1224(1) and/or 1223(5) of the Act. Further the Respondent contends that the debt amount is $943.20.

4. The Respondent contended that the debt was created by the actions of the Applicant in failing to properly declare income from Moyne, despite being told to do so. Accordingly, waiver for sole administrative error by the Commonwealth is not available to the Applicant, nor is waiver available to the Applicant pursuant to section 1237AAD of the Act.

consideration and findings

1. The Tribunal, in preliminary consideration, notes that the major issue in this matter is not the quantum of the debt, but whether there should be a debt at all, for it is the Applicant's contention that business losses should be able to be considered as deductible expenses from other income.

2. The Tribunal in considering all the material placed before it makes the following findings of fact:
   a.        the Applicant was an employee on a part-time basis with Moyne Eventide Nursing Home during the period to which the debt relates.  Further the Applicant has been a part-time employee of that organisation since 1985 and continues to be so employed at the rate of 22 hours per fortnight;
   b.        the Applicant carried on a business of a horse and cattle farming enterprise in partnership with her son and other members of the family.  The actual percentage of the partnership owned by the Applicant was not known by the Applicant at the day of hearing before the Tribunal, but would seem to be at least 25%.  There is no contention with the fact that the Applicant spent a considerable number of hours per week working the farm enterprise;
   c.        the Applicant held a belief that she had been informed by a Centrelink officer for some years that she would be able to offset farm losses against the income;
   d.        the Applicant was informed in writing on 15 September 1998 that it is not correct that all expenses were allowed to be claimed against income from her part-time employment at Moyne.  Further the Applicant was advised that income (eg. wages) from employment needs to be declared on a fortnightly basis and that the gross amount of income, ie before tax and any other deduction must be declared.  The Applicant was also advised of such requirements in a telephone call on 17 September 1998;
   e.        the Applicant was advised that income from self employment is generally assessed using income tax returns, with the Applicant being advised to forward such a notice of taxation assessment to Centrelink within 14 days of receipt;
   f.         the Applicant continued to deduct or offset farming expenses against her employment expenses during the period 18 May 1998 to 26 July 1999 as noted in fortnightly returns ending 15 June 1998, 29 June 1998, 13 July 1998 and 22 February 1999;
   g.        as a consequent of the Applicant's offsetting of farm income against employment income, the Applicant under-reported the amount of gross employment earnings to Centrelink on a fortnightly basis;
   h.       this under-reporting of gross employment earnings resulted in the Applicant receiving overpayment of Newstart Allowance of $943.20 during the period 18 May 1999 to 26 July 1999, an amount which took account of monies paid during the period for uniform allowances;

1. expenses associated with carrying on the business of a farming enterprise, where in part calculated using a rule of thumb method and spreading the expenses over a 52 week period; and
   j.         the Applicant did and does continue to believe that such farming losses are able to be offset against gross employment income, as is allowed for taxation purposes.

statutory framework

1. The following statutory framework details the legal circumstances in which this matter must be considered.

a.Section 8(1) of the Act defines income and ordinary income as:

"…

"Income", in relation to a person, means:

(i)        an income amount earned, derived or received by the person for the person's own use of benefit; or

(ii)       a periodical payment by way of gift or allowance; or

(iii)      a periodical benefit by way of gift or allowance;
"Income amount" means:

(i)        valuable consideration; or

(ii)       personal earnings; or

(iii)      moneys; or

(iv)      profits;
(whether of a capital nature or not);
"ordinary income" means income that is not maintenance income or an exempt lump sum
…"

b. Section 658 of the Act details that the Respondent may seek information from an Applicant by way of a questionnaire form about matters which could have an affect on the Applicant's payments, further there is a responsibility for the Applicant to answer the questions correctly.
c. Section 1072 of the Act further defines the concept of ordinary income

"1072. A reference in this Act to a person's ordinary income for a period is a reference to the person's gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A."

d.        Division 1A has the heading Business Income, with the relevant section for this matter being Section 1075:

"1075. (1) Subject to subsection (2), if a person carried on a business, the person's ordinary income from the business is to be reduced by:

(i) losses and outgoings that relate to the business and are allowable deductions for the purposes of section 51 of the Income Tax Assessment Act 1936 or section 8-1 of the Income Tax Assessment Act 1997, as appropriate; and

(ii) depreciation that relates to the business and is an allowable deduction for the purposes of subsection 54(1) of the Income Tax Assessment Act 1936 for Division 42 of the Income Tax Assessment Act 1997; and

(iii) amounts that relate to the business and are allowable deductions under subsection 82AAC(1) of the Income Tax Assessment Act 1936.
1075(2)  If, under Division 1B, a person is taken to receive ordinary income on a financial investment, that ordinary income is not to be reduced by the amount of any expenses incurred by the person because of that investment.

1. In considering the factual matters defined earlier in this decision against the statutory framework so far outlined, the Tribunal concludes that the Applicant did earn income and ordinary income from her employment at the Moyne Eventide Nursing Home during the period in question. Further pursuant to Section 1072 of the Act such an amount is the gross ordinary income from all sources without any reduction, other than a reduction under Division 1A.

2. In considering the effect of section 1075(1) of the Act, the Tribunal concludes that the Applicant's ordinary income from the business can be offset by losses and outgoings that relate to the business, depreciation that relates to the business and other allowable deductions that relate to the business.

3. The Tribunal in noting the particulars of section 1075(1) of the Act that in effect only business losses may be offset against business income, concludes that the exemption to the general rule is not permissive of allowing the Applicant to offset nett income loss from the farming enterprise against other forms of gross ordinary income from employment. In reaching this conclusion, the Tribunal notes that section 1072 of the Act defines the concept of ordinary income for a period is a reference to a person's gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A – in essence a reduction of ordinary business income by losses, outgoings, depreciation and other allowable deductions for the carrying on of a business. Further the Tribunal notes that income is defined as an income amount earned, derived or received. This in the Tribunal's view does not incorporate a concept of a negative income, as an income amount is defined as a valuable consideration, personal earnings, money or profits, with no mention made of losses as falling within the concept of income. The Tribunal, notes that the matter of Secretary Department ofFamily and Community Services v Cantlay [2000] FCA 345 carries the issue no further than determining that when a person is found to be carrying on a business, the person would be allowed to reduce his ordinary business income by business deductions allowable under the Income Tax Assessment Act. In particular circumstances the Tribunal could envisage that such a person could have a negative ordinary business income for a particular period, which in essence is a business loss. Nevertheless such a business loss does not fall within the concept of ordinary income as it is not an income amount for the purposes of the Act, as defined in Section 8(1), and as such is not available to be considered when calculating a person's gross income from all sources.

4. As a consequence of the Tribunal's findings, the Tribunal does conclude that while the Applicant's losses and outgoings, depreciation and other allowable expenses from carrying on the business of a farm enterprise are available to offset ordinary business income pursuant to sections 1075(1) of the Act, they are not available to be used either as a direct offset to other ordinary income. If as a consequence a nett business ordinary income loss is derived, such a business loss cannot be offset directly against other ordinary income. Further, in terms of the Act, such a loss is not considered to be income and therefore is not available to be considered as gross ordinary income for a period for the purposes of calculating an allowance entitlement under the Act.

5. The Tribunal therefore finds that in this matter the Applicant has received an overpayment of Newstart Allowance of $943.20 for the period of 18 May 1998 to 26 July 1999 and this has resulted from the Applicant under-reporting her gross income from employment at the Nursing Home.  The Tribunal, in noting that the Applicant held a belief that she could offset business expenses in the manner in which she did against general employment income, and continued to hold such a belief despite being informed that it was not correct, concludes that the Applicant has misrepresented her gross earnings from employment at the Nursing Home during the period in question, and this has resulted in the incorrect calculation of Newstart Allowance.

1. The Tribunal, in noting that the Applicant has received an overpayment of Newstart Allowance, further finds pursuant to sections 1233(5) and/or 1224(1) of the Act that this overpayment is a debt due and owing by the Applicant to the Commonwealth.

2. The Tribunal, in considering whether the debt of $943.00 should be waived, notes that the Applicant contends that any error in this matter is that arising from advise given to her by Centrelink some years ago. No evidence of such apart from the statement by the Applicant, was placed before the Tribunal. Further, it is evident to the Tribunal that even when advised that the approach she was adopting in declaring her gross employment income less farm enterprise deductions was incorrect, the Applicant continued to do so. In such circumstances the Tribunal is unable to conclude that sole administrative error was made by the Commonwealth and accordingly waiver of the debt is not available pursuant to section 1237(1) of the Act.

3. Finally the Tribunal, in noting that the debt did result wholly or partly from the Applicant providing what in essence could be seen as false statements and/or alternatively failing to comply with a provision from the Act, namely section 658, in not declaring fully her gross income from employment at the Nursing Home and that the failure was knowingly done by the Applicant, concludes that waiver of the debt of $943.20 is not available pursuant to section 1237AAD of the Act. The Tribunal would also note that no material has been placed before the Tribunal, which would allow a finding of special circumstances in this matter.
   determination

4. The Tribunal determines that the decision under review be affirmed

   I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Dr J D Campbell, Member

   Signed:         .....................................................................................
     Associate

   Date/s of Hearing  5 March 2001
   Date of Decision  4 June 2001
   Counsel for the Applicant        Self-represented  
   Solicitor for the Respondent    Mr A Cox