Johns and Secretary, Department of Social Services
[2015] AATA 662
•2 September 2015
Johns and Secretary, Department of Social Services [2015] AATA 662 (2 September 2015)
Division
General Division
File Number
2014/3844
Re
Yvonne Johns
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Mr S Webb, Member
Date 2 September 2015 Place Sydney The decision under review is set aside. The matter is remitted to the Secretary to write off Ms Johns’ Age pension debts, subject to periodic assessment of her financial capacity to repay the debts by deduction once she has repaid her daughter’s funeral expenses.
......................[sgd]..................................................
Mr S Webb, Member
CATCHWORDS
SOCIAL SECURITY – Age Pension – data matching – taxable income exceeds declared income – applicant denies undeclared income – overpayment – debt – discretion to write off exercised – decision set aside and remitted
LEGISLATION
Social Security Act 1991 ss 43, 1064, 1223, 1236, 1237
REASONS FOR DECISION
Mr S Webb, Member
2 September 2015
Yvonne Johns receives the Age Pension. Several years ago Centerlink conducted data-matching exercises with the Australian Tax Office. These revealed ‘earned income’ that Ms Johns had not declared to Centrelink. Age Pension overpayment debts were raised against her. Ms Johns requested cancellation of her Age Pension and she did not challenge the overpayment debts. Years passed. She made a further claim for Age Pension, which was granted. It was in this context that she sought review of the original decision to raise two overpayment debts. Ms Johns strenuously denies earning the income that gave rise to these debts.
ISSUES
The issues for determination are:
(a)whether Ms Johns was overpaid Age Pension in respect of income years 1999-2000 and 2000-2001; and if so
(b)the amount of resulting overpayment debts due to the Commonwealth; and
(c)whether there are sufficient grounds to write-off or waive all or part of the debts in the particular circumstances.
WHETHER MS JOHNS WAS OVERPAID AGE PENSION
The Secretary submits that Ms Johns failed to declare income she earned in employment during the 1999-2000 and 2000-2001 income years. Support for this proposition is drawn from Ms Johns’ tax records for each year. In the Secretary’s submission two data-matching exercises conducted under the Data matching Program (Assistance and Tax) Act 1990 (the Data-matching Act) revealed taxable income specified in tax returns lodged in Ms Johns’ name for each income year that was not declared to Centrelink. The tax returns in Exhibit A1 reveal the gross amount of Ms Johns’ earnings in employment and the amount of tax contributions paid by her employer. In the Secretary’s submission this evidence is reliable, and it should be preferred over Ms Johns’ denials.
In support of this, the Secretary says that Ms Johns failed to declare earned income to Centrelink on other occasions. This is not disputed. The Secretary says that her repeated failure to comply with her legal obligations to notify Centrelink of her income from employment stands against her credit and the reliability of her evidence.
The Secretary maintains that the paucity of relevant tax records is attributable to the effluxion of time between the raising of debts against Ms Johns and her action to challenge those decisions more than 10 years later. Inaction for such a long period, so the argument goes, and Ms Johns’ voluntary cancellation of Age Pension, suggests that she did not have cause to challenge the veracity of the debt decisions. In the Secretary’s submission it does not matter whether Ms Johns was employed by ‘Mr R Smith – Smith’s Diamonds’, as the tax return for the 1999-2000 income year suggests, or by a different, unnamed, employer. The important point is that the income specified in the tax returns for 1999-2000 and 2000-2001 was not declared to Centrelink. This gave rise to an overpayment of Age Pension in each of those years, and those overpayment amounts are debts due to the Commonwealth.
Ms Johns says that she did not earn the taxable income declared in tax returns lodged in her name for the 1999-2000 and 2000-2001 income years. She stoutly denies that she authorised those tax returns, or that she attended the tax agent Income Tax Professionals (ITP) in Parramatta for that purpose. She firmly rejects the proposition that she was employed and paid income by ‘Mr R Smith – Smith’s Diamonds’. She says that she has never heard of Mr R Smith or Smith’s Diamonds, although she conceded that her ex-partner was a jeweller. And she is adamant that she did not earn income from any employer of the magnitude recorded in those tax returns.
The matter is to be decided under the Social Security Act 1991 (the Act) with regard to relevant provisions of the Social Security (Administration) Act 1999 (the Administration Act).
The rate of a person’s Age Pension is to be calculated under the rate calculator pursuant to s 1064 of the Act. The person’s ordinary income is to be taken into account.
For the tax years ending on 30 June 2000, 30 June 2001 and 30 June 2002, Ms Johns declared no earned income to Centrelink.
Nonetheless, it appears that she earned income in employment by Myer Grace Brothers from 26 September 2001 to 20 June 2002 and in the employment of Donald and Donald from 13 March 2002 to 20 June 2002. As she failed to declare her earnings from these employers to Centrelink, overpayment debts were raised against her. She did not challenge these decisions, and the debts were repaid.
Counsel for Ms Johns attempted to make something of a discrepancy in the amount of an alleged overpayment debt and the amount of undeclared earnings in the 2002 tax year – both amounts being $455. It may well be that a mistake was made, but even if it was, it does not bear on the matter that must now be determined. The existence of a debt calculation error in one year, if proved, is not itself sufficient to establish or infer a debt calculation error in another year, more is required. The present materials do not establish a pattern of debt calculation errors from 1999 to 2002.
Furthermore, arguments based on reduced earning relativity are not compelling – there may be many reasons why a person may be motivated to move from one employment to another lower paid employment, if the first employment came to an end for example. Similarly, a person may be motivated to move from higher intensity employment, in terms of hours, to employment of lower intensity, if that is the only employment the person can obtain for example.
In June 2003 and June 2004, Centrelink conducted data-matching exercises with the Australian Tax Office in respect of Ms Johns. These exercises revealed that Ms Johns had failed to declare taxable income disclosed in tax returns for tax years ending on 30 June 2000 and 30 June 2001.
The tax return for the 2000 tax year shows her gross taxable income was $15,297 from which $5,199.30 was paid in PAYG instalments to the Tax Office by her employer, ‘Mr R Smith – Smiths Diamonds’. Her address was recorded in Pyrmont Bridge Road, Camperdown. A Notice of Amended Assessment, recording these amounts, was issued on 24 February 2005. As can be seen, the Amended Assessment was different than the previous Assessment by $970 credit.
The absence of Australian Securities and Investment Commission information in respect of Smiths Diamonds does not mean that a business using this name and conducted by Mr Smith did not exist in the past. Duval Johns’ evidence is that it did.
The tax return for the 2001 tax year shows her gross taxable income to be $16,986 from which an amount of $5,674.35 was deducted as PAYG contributions. No employer or address details are shown in this return. On 12 August 2002, the ATO issued a Notice of Assessment reflecting these amounts.
These tax return documents are unsigned printouts of electronic lodgement records. The documents do not bear Ms Johns’ signature. They were lodged by ITP. There is no primary evidence that Ms Johns, personally, attended the ITP Parramatta tax practice or that she authorised lodgement of the 1999-2000 and 2000-2001 taxation returns that were lodged in her name. I understand that ITP has no record other than electronic copy of the returns that were lodged.
I accept that the effluxion of time has meant that relevant source documents, including direct identity evidence in the form of signatures, are no longer in existence or cannot be found. This is most unfortunate. It causes prejudice to both parties and difficulty for the Tribunal.
Ms Johns’ explanation for her delay in challenging decisions to raise debts against her based on tax records she now asserts are false is not especially compelling, but this was allowed to remain untested by recovery action from Centrelink for many years. Why no recovery action was taken has not been explained.
In the usual course, one would expect to place heavy reliance on the records held by the ATO in respect of a taxpayer. But the ATO is reliant upon the integrity of the tax returns lodged by registered tax agents, especially insofar as the identity of the taxpayer is concerned. And in this case there are questions about who authorised ITP to lodge tax returns for 1999-2000 and 2000-2001 in Ms Johns’ name and how those returns came to be made.
On the one hand, if Ms Johns’ sworn evidence is accepted and she is believed over the prima facie tax return evidence, it was not she who authorised lodgement of the returns and the undeclared taxable income they disclose was not income of hers. If that is accepted then she is entitled to succeed, despite vexing questions about how the returns came to be lodged fraudulently, by whom and in what circumstances. On the other hand, if Ms Johns’ sworn evidence is not accepted and she is not believed, with greater weight being given to the tax records, the returns and the undeclared income they disclose will be treated as hers and overpayment debts will arise for which she is liable.
It is important to say immediately that the evidence before me is not sufficient to establish that the returns were lodged fraudulently – that is simply not established as a fact, although the possibility, even the strong possibility, lies open. Ms Johns pointed to the possibility, impliedly at least, that her previous partner, who has been comatose for a number of years, or her daughter, who was drug-affected and is now deceased, may have had something to do with it.
The belated evidence of her son, Duval Johns, a jeweller, is not conclusive, but it sheds some light on parts of the background involving ‘Mr R Smith – Smith’s Diamonds’. Duval Johns says that he knew of Raymond Smith and his business, Smith’s Diamonds, but he believes that Mr Smith is now dead. His says that his father worked for Mr Smith and he believes that his sister, Angelique, did so too for a short time and that she may have received a group certificate. He says that to the best of his knowledge, Ms Johns never worked for Mr Smith. But Duval Johns acknowledges that there have been times when he was estranged from his mother.
I do not consider the periods of employment to be short – from 25 June 1999 to 20 June 2000, and from 21 June 2000 to 19 June 2001. This is not indicative of ‘a short period’ in which Duval Johns suggests that his sister may have worked for Mr Smith. It is conceivable that Mr Johns, Ms Johns’ former partner, who was a jeweller, was employed by Mr Smith. It is possible that Mr Johns had something to do with lodging tax returns in Ms Johns’ name. But if he did, which is not presently established, it is also not established that he did so without her knowledge. And to my mind, as the return was lodged through ITP and it took the form of an amendment to an earlier tax assessment, this is a remote possibility.
Ms Johns argued that her circumstances at the time weigh against her working for and earning income from employment in a jewellery business. She told me that she experienced health problems with her feet at about this time, and she found it difficult to walk. That may be so, but even if she did experience difficulties with her feet in 1999 to 2001, it does not follow that she could not have undertaken sales assistant duties in a jewellery shop where she may have been able to be seated.
There is little firm ground. Relevant documents no longer exist or cannot be found. People who may have been able to shed light on what took place have died or are incapable of giving evidence. So much of Ms Johns’ account is clouded by the passage of time and shrouded in speculation. There is little purpose delving further into conjecture.
Ms Johns struck me as a reasonably straight-forward witness, but she had difficulty remembering things from, what is now, many years ago. While perhaps not surprising, it goes, nonetheless, to the reliability of her evidence. Furthermore, the fact that she failed to declare income in the 2002 tax year weighs against her credit.
On balance, it is not presently established by primary evidence that it was not she who authorised preparation and lodgement of the returns for 1999-2000 and 2000-2001 in her name, and it is not established that it was not she who earned the income set out in each of the disputed tax returns. The ATO tax return records weigh heavily in the balance. On these it may be inferred that Ms Johns earned the disputed income and authorised lodgement of the tax returns. Her account is not made out.
Even though Ms Johns’ evidence is quite compelling, if she did not earn the income and she did not lodge the tax returns in her name for 1999-2000 and 2000-2001, it is curious that she did not seek to challenge the debt decisions against her many years ago, at the time.
For these reasons, even though she staunchly denies it, I will proceed on the basis that Ms Johns did earn and receive the benefit of the income shown in the 2000 and 2001 tax returns lodged in her name.
It follows that she has been overpaid amounts of Age Pension. The precise overpayment amounts are not seriously challenged.
OVERPAYMENT DEBTS
I am reasonably satisfied that Ms Johns was overpaid $6,322.81 in respect of the 2000 tax year, and $5,732.43 in respect of the 2001 tax year.
Under ss 1222A and 1223(1) of the Act, the overpayment amounts are debts due to the Commonwealth for which she is liable.
WRITE OFF
As to discretion to write-off Ms Johns’ overpayment debts, the Secretary maintains that exercise of the discretion is not justified in the particular circumstances.
Ms Johns says that if she is forced to repay the debts it will cause her to suffer severe financial hardship, and for this reason the debts should be written off.
This issue is to be decided under s 1236 of the Act:
1236 Secretary may write off debt
(1) Subject to subsection (1A), the Secretary may, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise.
(1A) The Secretary may decide to write off a debt under subsection (1) if, and only if:
(a) the debt is irrecoverable at law; or
(b) the debtor has no capacity to repay the debt; or
(c) the debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or
(d) it is not cost effective for the Commonwealth to take action to recover the debt.
…
(1C) For the purposes of paragraph (1A)(b), if a debt is recoverable by means of:
(a) deductions from the debtor’s social security payment; or
(b) deductions under section 84 of the A New Tax System (Family Assistance) (Administration) Act 1999; or
(c) setting off under section 84A of that Act;
the debtor is taken to have a capacity to repay the debt unless recovery by those means would result in the debtor being in severe financial hardship.
…
The sole issue pressed by Counsel for Ms Johns is her lack of financial capacity to repay the debts raised against her. A summary of her financial position was tendered. This was not challenged. It clearly shows that she is in very difficult financial circumstances. It appears, and I accept, that she is struggling with other debts that she is attempting to repay, arising from the death of her daughter for example, and that her low level of income is not sufficient to meet her expenses. She has no significant assets.
The test for the purposes of s 1236(1A)(b) is that there is taken to be capacity to repay by deduction unless recovery of the debt by those means would result in ‘severe financial hardship’.
The term ‘severe financial hardship’ is given meaning in s 19C of the Act, such that the liquid assets of a person are lower than the maximum rate of a specified pension or benefit. But the definition does not apply to Age Pension. Thus, while the defined meaning in s 19C indicates a measure of financial hardship in the kinds of cases specified, it is not a determinative test in the present circumstances. That said, the definition is indicative of the level of financial hardship that may meet the description ‘severe’. Clearly enough, the term ‘severe financial hardship’ refers to a degree of hardship that is greater than minimal and less than extreme. At this point it is appropriate to observe that the Act is beneficial legislation that must be construed according to its text in a manner consistent with its purposes.
To my mind, in circumstances such as those facing Ms Johns, where she is already struggling and failing to make ends meet on a weekly basis, and where she has no assets to speak of, recovery of the debts for which she is liable by deduction from her Age Pension, even by small amounts, is likely to render her already difficult financial situation severe and untenable. It is not the purpose of the debt recovery provisions of the Act to render someone in her circumstances destitute.
To this the Secretary says that it is open to Ms Johns to seek a reduction, or even a temporary stop, on the recovery of debts by deduction. In this way, in the Secretary’s submission, severe financial hardship may be avoided.
That may be so, temporarily. On the materials before me, there is no prospect of improvement in Ms Johns’ financial circumstances, at least until she has repaid amounts she owes, in respect of her daughter’s funeral expenses for example.
I am reasonably satisfied that recovery of the debts she owes to the Commonwealth by deductions from her Age Pension are likely to result in her being placed in severe financial hardship for the purposes of s 1236(1) of the Act. In those circumstances, I would write off the debts, subject to assessment of her financial capacity to repay the debts by deduction once she has repaid her daughter’s funeral expenses.
WAIVER
As regards waiver of the debts Ms Johns owes to the Commonwealth, I am not persuaded that these can be waived on grounds of sole administrative error. To my mind, there is no Commonwealth error to which the debts are solely attributable. Notices were issued by Centrelink informing Ms Johns of her legal obligations to advise of changes in her income. Ms Johns failed to do so.
If Ms Johns did not earn the income in question, as she presently asserts, it does not follow that the debts were solely attributable to Commonwealth error. The ATO responded to tax returns apparently lodged by Ms Johns. Centrelink responded to the income specified in those returns following a data-matching exercise. If the returns were not authorised or lodged by Ms Johns, a fraud may have been perpetrated, but that is not an error of the Commonwealth.
The debts cannot be waived under s 1237A of the Act.
As to the discretion to waive a debt if special circumstances exist that make it appropriate to do so, this is only enlivened if the debtor did not fail or omit to comply with a provision of the Act or the Administration Act. Ms Johns failed to notify Centrelink of her income, as she was required to do under s 68 of the Administration Act. In these circumstances, the discretion to waive a debt in special circumstances is not enlivened.
Even if I was to accept Ms Johns account that she did not earn the income specified in the 2000 and 2001 tax returns lodged in her name, the doubts she has raised about the veracity of those returns are no more than possibilities. This is not sufficient to establish ‘special circumstances’ that render it appropriate to waive the debts to the Commonwealth that have been raised against her.
DECISION
The decision under review is set aside. The matter is remitted to the Secretary to write off Ms Johns’ debts, subject to periodic assessment of her financial capacity to repay the debts by deduction once she has repaid her daughter’s funeral expenses.
I certify that the preceding 49 (forty -nine) paragraphs are a true copy of the reasons for the decision herein of Mr S Webb, Member
................................[sgd].......................................
Associate
Dated 2 September 2015
Date of hearing 10 June 2015 Date final submissions received 24 June 2015 Counsel for the Applicant Mr D Alexander Solicitors for the Respondent Department of Human Services
1
0
1