KERRIE SPARK and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

[2009] AATA 636

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 636

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/5728

GENERAL  ADMINISTRATIVE  DIVISION		)
Re		KERRIE SPARK

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Mr B H Pascoe, Senior Member

Date27 August 2009

PlaceMelbourne

Decision The Tribunal varies the decision under review to the extent of finding that the debt in respect of family tax benefit is to be calculated on a taxable income of $56,932 for the year ended 30 June 2007 and remits the matter to the respondent to recalculate the debt accordingly.

(sgd) B H Pascoe

Senior Member

SOCIAL SECURITY - family tax benefit - receipt of arrears of compensation entitlements - taxable income in year of receipt - resultant debt for overpayment - legal expenses incurred to recover compensation payment - allowable deduction against income - reduction in taxable income - special circumstances to waive part of debt

A New Tax System (Family Assistance) Act 1999
A New Tax System (Family Assistance) (Administration) Act 1999
Income Tax Assessment Act 1997

Romanin v Commissioner of Taxation (2008) FCA 1532 (16 October 2008)

REASONS FOR DECISION

27 August 2009 Mr B H Pascoe, Senior Member  

1.      This is an application to review a decision of the Social Security Appeals Tribunal (SSAT) which affirmed a decision of the respondent to raise and recover a family tax benefit (FTB) from the applicant, Ms K Spark, of $3,427.31 in respect to the year ended 30 June 2007.

2.      At the hearing Ms Spark was unrepresented and appeared by telephone.  The respondent was represented by Ms A Bramley, an advocate with Centrelink.

3.      The origin of the dispute was a decision of the Magistrates Court of Victoria of 14 December 2006 awarding workers’ compensation payments to Ms Spark from 1 June 2005.  This resulted in her receiving arrears in a lump sum and ongoing weekly amounts.  As a consequence, her taxable income for the year totalled $63,416 being $32,446 relating to the period from 1 June 2005 to 30 June 2006 and $30,970 relating to the period from 1 July 2006 to 30 June 2007.

4.      In January 2007, Ms Spark had provided an estimate of taxable income of $35,000 for the year ended 30 June 2007 and payments of FTB were made to her on the basis of that estimate.  In February 2008, Centrelink reassessed her entitlement based on the actual taxable income of $63,416 which resulted in an overpayment of the $3,427.31.  Formal notice of the resulting debt was issued on 6 March 2008.

5.      While the accountants for Ms Spark argued in a letter provided to Centrelink that $32,446 should not be taken into account when calculating taxable income for the year ended 30 June 2007, it is clear that this amount was properly included in her income tax return for that year being the year of receipt, and assessed as taxable income in that year of receipt by the Australian Taxation Office.  There is no provision within the income tax legislation which allows income of a taxpayer such as Ms Spark to be included in any year other than the year of receipt.

6.      Entitlement to FTB is governed by the A New Tax System (Family Assistance) Act 1999 and A New Tax System (Family Assistance) (Administration) Act 1999 (Administration Act).  Under the legislation a persons rate of FTB is based on adjusted taxable income.  In the case of Ms Spark it is based on her actual taxable income for that year. 

7.      Ms Spark argued that she had at all times sought to comply with all of the requirements for receipt of benefits.  Her estimate of income in January 2007 was made on the basis of the then resumed compensation payments and was a conservative estimate.  She was unable to understand how the arrears relating to prior years could be regarded as income in the 2007 year.  She was strong in her argument that, if not for the work related injury, she would not be seeking any welfare payments and would prefer to be self reliant.  She said that most of the lump sum of arrears received was used in legal fees of $6,484 and repayment of $21,193 to Centrelink for the pension payments from June 2005 to January 2007.  As a consequence she is in debt and reliant on assistance from her family.

8.      Unfortunately for Ms Spark, the payment of FTB is specifically linked to taxable income.  As indicated earlier the lump sum representing arrears of compensation is clearly taxable income in the year of receipt.  However, one issue does arise for consideration.  Ms Spark incurred expenditure of $6,484 in legal fees relating to the proceedings she instituted to obtain reinstatement of the weekly compensation entitlement.  In the case of Romanin v Commissioner of Taxation (2008) FCA 1532 (16 October 2008) legal expenses incurred in successfully pursuing the payment of remuneration in lieu of notice were held to be deductible under s 8-1(1) of the Income Tax Assessment Act 1997.  On the same basis it would appear that Ms Spark was entitled to deduct her legal costs against the compensation income received in consequence of the legal action.  

9.      The respondent argued that FTB is required to be based on taxable income as assessed by the Australian Taxation Office and there is no basis for adopting any figure other than that which appears on a notice of assessment.  However, the FBT legislation defines taxable income  to have the same meaning as in the Income Tax Assessment Act 1997.  As a consequence it would appear clear that if the Tribunal can be satisfied that actual taxable income for a relevant year is more or less than that shown on an income tax assessment, that actual amount is the one to be used for the purpose of FTB entitlement.  It was submitted for the respondent that the appropriate course would be for Ms Spark to seek to amend her 2007 income tax return to claim the deduction.  When and if such amendment is accepted by the Australian Taxation Office, an amended assessment would be issued and Ms Spark can then claim any resulting entitlement to FTB.  The problem with that is potential time limits on amending income tax assessments and the delay in Ms Spark receiving her additional FTB.  In my view, it is appropriate for this Tribunal to find that the taxable income of Ms Spark for the year ended 30 June 2007 was $56,932 not $63,416.

10.     Even if the Tribunal is wrong in making such a finding, the circumstances are such that the part of the debt attributable to the inclusion of $6,484 in taxable income of the year ended 30 June 2007 should be waived pursuant to s 101 of the Administration Act.  In my view the debt did not result from Ms Spark knowingly making a false statement or omitting to comply with a provision of the law and there are special circumstances relating to this amount.  In general. the circumstances of Ms Spark are not unusual, out of the ordinary or different from normal compared with other recipients of FTB.  However, the failure to claim an allowable deduction in her income tax return I am prepared to find constitutes a special circumstance.

11.     It follows from the foregoing that the decision under review should be varied and the matter remitted to the respondent with a direction to recalculate the debt based on a taxable income for the year ended 30 June 2007 of $56,932.

I certify that the eleven [11] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B H Pascoe, Senior Member

Signed: ...Dianne Eva
  Clerk

Date/s of Hearing  19 August 2009
Date of Decision  27 August 2009
Applicant Self Represented     Ms K Spark
Advocate for the Respondent   Ms A Bramley, Centrelink Legal Services