Khanji and Secretary, Department of Social Services (Social services second review)

[2019] AATA 4258

Khanji and Secretary, Department of Social Services (Social services second review) [2019] AATA 4258 (18 October 2019)

Division:GENERAL DIVISION

File Number(s):      2017/7547

Re:Bassima Khanji

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Mrs J C Kelly, Senior Member

Date:18 October 2019

Place:Sydney

The Tribunal sets aside the reviewable decision and remits the matter for recalculation in accordance with the findings set out at paragraph 23.

...........................[SGD].............................................

Mrs J C Kelly, Senior Member

CATCHWORDS

SOCIAL SECURITY – overpayment of carer payment – calculation of Applicant’s partner’s income - parties agreed on method of calculating income from family day care business – parties agreed on business deductions from the family day care business – parties agreed on amount of income earned from Modern Air Conditioners Pty Ltd in the year ended 30 June 2014 – whether income in financial year ended 30 June 2015 from Modern Tradies Pty Ltd properly characterised as wages – consideration of contemporaneous corroborating evidence - no argument to write off or waive the debt - reviewable decision set aside and matter remitted for recalculation in accordance with the Tribunal’s findings.

LEGISLATION

Social Security Act 1991 (Cth) s 1075

Social Security (Administration) Act 1999 (Cth)

CASES

Drake v Minister for Immigration and Ethnic Affairs [1979] FCA 29; (1979) 2 ALD 60

SECONDARY MATERIALS

Social Security Guide Instruction 4.3.3.50

REASONS FOR DECISION

Mrs J C Kelly, Senior Member

18 October 2019

Background

1. Mrs Khanji is disputing a debt to the Commonwealth that was raised against her in relation to overpayment of carer payment for the period 3 March 2014 to 30 June 2016 (the debt period). At all relevant times Mrs Khanji was a member of a couple. Mr Khanji was her partner.

2. The debt arose because Mrs Khanji was running a family day care business under the auspices of Candy Kids Family Day Care Scheme Pty Limited (Candy Kids) commencing 9 March 2014. Mr Khanji received the income from Candy Kids and from other sources which was not disclosed to the Secretary. Mr Khanji did all the paper work.

3. On 11 October 2016, a debt of $15,527.51 was raised against Mrs Khanji. On 6 April 2017 an authorised review officer (ARO) changed the decision, increasing the debt to $23,826.45 because Mr Khanji’s income was revised. On 20 October 2017, the Social Services and Child Support Division of this Tribunal (AAT1) set aside the ARO’s decision and remitted the matter for recalculation in accordance with its findings. The decision of AAT1 is the reviewable decision in this Tribunal.

4. As at 6 November 2018 the outstanding balance of the debt was $8,705.50.

   The relevant law and policy

5. The law and policy applicable in this case are the Social Security Act 1991 (Cth) (the Act), the Social Security (Administration) Act 1999 (Cth) and the Social Security Guide (the Guide).

   The position of the parties at the hearing

6. At the hearing, Dr Thompson, appearing for the Respondent, sought to amend the Statement of Issues, Facts and Contentions dated 6 November 2018 (SoIFCS) in two respects. The amendments were not allowed because they contradicted concessions the Respondent had made and which had been relied upon by Mrs Khanji.

7. The Respondent conceded in the SoIFCS at paragraph 6.7 that it accepted all of the business deductions claimed in Mr Khanji’s amended income tax returns for the 2014, 2015 and 2016 financial years, excluding the claimed deduction of wages in the tax returns for the 2014 and 2015 financial years. The Tribunal did not understand Mrs Khanji’s counsel, Mr Robison, to disagree with the latter point. For certainty, the Tribunal finds that any wages paid either to Mrs Khanji or Mr Khanji by the family day care business they ran, was income for the purpose of assessing Mrs Khanji’s entitlement to carer payment and not deductions.

8. At paragraph 6.9 of the SoIFCS, the Respondent accepted that it is not necessary to apply the formula contained at Instruction 4.3.3.50 of the Guide in order to assess the family day care deductions because of its concession in paragraph 6.7. That formula is applied to determine the percentage of the household costs that can be attributed to the business if a person does not provide evidence for the level of deductions.

9. Despite those clear statements in the SoIFCS by the Respondent and the Tribunal’s ruling that the SoIFCS could not be amended at the hearing, Dr Thompson submitted that none of the interest deduction claimed, which relates to the joint home loan, should be allowed, and that a lesser amount should be allowed for motor vehicle expenses. Those submissions cannot be taken into account. The Respondent accepted all deductions claimed, except for wages, as stated above. As the Respondent’s concession made in paragraph 6.7 was otherwise unqualified, the Tribunal understands it to mean that those accepted deductions are permissible deductions under s 1075 of the Act.

10. In addition to the above, the parties agreed that the gross income from the family day care business for the debt period is to be calculated using the Educator Payment History Report (EPHR) record of payments under the column headed “Scheme Payment” (T6, pages 92 to 94).  The Applicant found discrepancies in the EPHR which it set out in MFI A1 which was provided at the hearing. However, on close examination of the EPHR and Mr Khanji’s bank account, the Tribunal found further discrepancies, including payments into Mr Khanji’s bank account from Candy Kids of $3,221.27 on 5 November 2014 and $3,242.78 on 24 December 2014 which do not appear in the EPHR or MFI A1.  The total business income disclosed in Mr Khanji’s amended tax returns for the financial years 2014, 2015 and 2016 accurately reflect the income from Candy Kids paid into Mr Khanji’s bank account.  

11. The Tribunal has to make the correct or preferable decision.[1] It is apparent that the Respondent assumed that the EPHR was correct.  The exercise carried out by Mrs Khanji’s solicitor shows that it was not and that is reinforced by the detailed examination undertaken by the Tribunal.  The accurate record of Mr Khanji’s income from Candy Kids is demonstrated by the deposits into his bank account which in turn are set out in his amended tax returns.    

    [1] Drake v Minister for Immigration and Ethnic Affairs (1979) [1979] FCA 29; 2 ALD 60 at 68 (Bowen CJ and Deane J).

12. Mrs Khanji accepted that Mr Khanji received income from Modern Air Conditioners Pty Ltd in the amount of $13,400 in the 2014 financial year.

13. The parties asked the Tribunal to make findings on matters that remain in dispute. They have agreed that the reviewable decision should be set aside and the matter remitted for reconsideration in accordance with the matters agreed and the Tribunal’s findings on the matters remaining in dispute.  

14. Taking into account the parties’ concessions, the remaining matter in dispute is whether the amount of $14,650 that Mr Khanji received from Modern Tradies Pty Ltd (MT) during the financial year ending 30 June 2015 was income or a loan repayment(s).

15. Is the amount of $14,650 that Mr Khanji received from Modern Tradies Pty Ltd during the financial year ending 30 June 2015 income or a loan repayment(s)? In his tax return for the financial year ending 30 June 2015, Mr Khanji declared that he had earned $14,650 from MT. The case for Mrs Khanji is that that was an error and there was no evidence to support a finding that Mr Khanji had received that income. Mr Khanji lodged an amended return for that year which omitted that amount. It was submitted that AAT1 gave insufficient consideration to the fact that Mr Khanji’s returns and financial documents had been audited and amended by a practising accountant.

16. Mr Khanji said that he was a licensed electrician and builder and the inclusion of $14,650 in his 2014/2015 income tax return was an error which he has corrected in the amended tax return because it was a loan repayment. He said that MT was his daughter’s company. He loaned MT $50,000 in 2012 or 2013. If his daughter recorded wages, she meant loan repayments. He conceded that he was involved with MT as a tradesman and said that he would have declared any wages if he had earned any. He said that he was not paid weekly wages. If the company was making lots of profit he would get paid as he had in the financial year ending 30 June 2014. He received $18,149 that year.

17. Mr Khanji said that he lent his daughter money which she lent to the company as a director’s loan and referred to what he said was the 2014 tax return for MT which was a document printed out from an on-line business centre with handwritten annotations made by Mr Khanji. One of the annotations under liabilities was “Directors loan 69,854”. He said that the loan contract was with the accountant. Later he said that there was no written loan agreement. He said that the total loan was $69,000 paid in various amounts to MT and not to his daughter. He did not charge interest. There was no loan period. The source of the funds was redraws from the joint home loan.  He referred to various transfers, deposits and redraws to support his claim. He said that he will get the money back when MT makes a profit. That is why he was repaid $14,650 during 2014-2015.

18. Mr Khanji’s NAB bank account recorded deposits of wages from MT of:

Deposit Amount	Date of Deposit
$1,000	30 July 2014
$2,500	3 September 2014
$2,500	2 October 2014
$1,000	30 October 2014
$3,000	29 June 2015
Total: $10,000

1. When questioned about the deposit on 30 July 2014, Mr Khanji was asked if he had a group certificate. He said that the tax office would have it and if it was on his group certificate it might not be a mistake.

2. The ARO recorded that he spoke to Mr Khanji on 24 March 2017 and he “confirmed that he worked for” MT “for 14/15 over the whole year earning $14,650”. Mr Khanji said that he was driving and facing a red light, had to pull over and had no documents to refer to. He said that he does earn that amount but that amount is not what he earned as wages. He agreed that the amounts he paid to MT were cash injections to meet bills and maintained they were loans. He said that he had profit and loss accounts for MT on the computer.

3. Mr Khanji’s evidence about the financial dealings between himself and his daughter and MT was unpersuasive, as was his explanation about his conversation with the ARO. The claim about the loan was made after Mrs Khanji had been notified of the debt. He conceded that he did work for MT, but was only paid when there was a profit. That is consistent with the payments in the 2015 financial year. The contemporaneous reporting of wages paid by MT in his original 2014/2015 tax return and his corroborative statement to the ARO support the finding that the amount of $14,650 was income and not repayment of a loan.  

   Whether the debt can be written off for a period or waived?

4. The Applicant did not argue that the debt should be written off or waived.

   Decision

5. The Tribunal sets aside the reviewable decision and remits the matter for recalculation in accordance with the following findings:

   (a)The gross income from the family day care business for the debt period is to be calculated using the business income set out in Mr Khanji’s amended tax returns for the financial years 2014, 2015 and 2016:

   (i)The gross income for the 2014 financial year was $7,010.  

   (ii)The gross income for the 2015 financial year was $54,864.

   (iii)The gross income for the 2016 financial year was $48,685.

   (b)The amount of $14,650 received by Mr Khanji from Modern Tradies Pty Limited in the 2015 financial year is income and not repayment of a loan.

   (c)Mr Khanji received income from Modern Air Conditioners Pty Ltd in the amount of $13,400 in the 2014 financial year.

   (d)Any wages paid either to Mrs Khanji or Mr Khanji by the family day care business run by Mrs Khanji and Mr Khanji, are income for the purpose of assessing the amount of carer payment to Mrs Khanji.

   (e)The business deductions for the child care business are the business deductions claimed in Mr Khanji’s amended income tax returns for the financial years 2014, 2015 and 2016, as follows:

Financial Year ending 30 June 2016	$(000’s)
Interest expenses within Australia	4281
Depreciation expenses	2968
Motor Vehicle expenses	7400
Consumable	1018
Council	469
Power	1000
Food	6109
Gas	320
Insurance	258
Internet	600
Office need	375
Insurance	527
Phone	545
Toys	93
Waste	223
Water	682
Total	26,868
Financial Year ending 30 June 2015	$(000’s)
Interest expenses overseas	5224
Motor vehicle expenses	7400
Consumable	1018
Council	469
Electricity	1000
Food	3054
Insurance	320
Internet	600
Insurance	527
Phone	545
Waste	223
Water	107
Total	20,487
Financial Year ending 30 June 2014	$(000’s)
Interest expenses within Australia	1714
Motor vehicle expenses	3700
Consumable supplies	254
Council	117
Power	250
Food	573
Gas	80
Insurance	64
Internet TV	150
Phone	136
Training	1045
Waste Service	56
Total	8,139

I certify that the preceding 23 (twenty-three) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member.

..............................[SGD]..........................................

Associate

Dated: 18 October 2019

Date(s) of hearing:	29 March 2019
Counsel for the Applicant:	Mr L Robison
Solicitors for the Applicant:	Mr O Khanji, Gardner Ekes Lawyers
Solicitors for the Respondent:	Dr S Thompson, Department of Human Services