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

Lane and Secretary, Department of Social Services (Social services second review) [2022] AATA 2436 (13 June 2022)
AppID:Lane and Secretary, Department of Social Services

MatterType: Social services second review
Division:GENERAL DIVISION
File Number(s): 2020/1541
Re:Jennifer Lane
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

DECISION
Tribunal:Senior Member P J Clauson AM
Date:13 June 2022
Place:Brisbane

That in accordance with section 43(1) of the AAT Act 1975, the decision under review is set aside and the applicant’s PPS and NSA be recalculated using the method applied by the respondent and described in the respondent’s Statement of Facts, Issues and Contentions; that the deductions allowed by the ATO for “gifts” not be disallowed in such calculations and that the debt as recalculated be fully recovered.
........................[SGD]....................
Senior Member P J Clauson AM
Catchwords
SOCIAL SECURITY – parenting payment debt – newstart allowance debt – overpayment – is the debt recoverable – waiver – write-off – special circumstances – financial hardship – business expenses – sole owner – small business – decision set aside and substituted
Legislation
Administrative Appeals Tribunal act 1975 (Cth)
Income Tax Assessment Act 1997 (Cth)
Social Security Act1991 (Cth)
Social Security (Administration) Act1999 (Cth)
Cases
Secretary, Department of Social Services -ats- V. Hales (1998) 82 FCR 154
Secondary Materials
Guides to Social Policy Law, Social Security Guide, Version 1.294 - Released 16 May 2022
REASONS FOR DECISION
Senior Member P J Clauson AM
13 June 2022
BACKGROUND AND FACTS

On 21 June 2019, Services Australia (the Agency), formerly known as the Department of Social Services, decided that the applicant had a combined Parenting Payment Single (PPS) and Newstart Allowance (NSA) debt of $21,611.27 relating to the period from 1 July 2011 to 30 January 2017.
On 30 January 2020, the Administrative Appeals Tribunal, Social Services and Child Support Division (AAT1) set aside the decision of the Agency and decided that:
(a)In substitution thereof that the applicant’s debt was to be recalculated on the basis that all relevant business-related expenditure set out in her tax returns (ITRS) was an allowable deduction for the purposes of the Social Security Act1991 (Cth) (the Act); and
(b)The recalculated debt was to be fully recovered.
The Agency implemented the AAT1 decision with all listed expenses in the applicant’s ITRS for 2011 to 2017 accepted as valid deductions. The Agency, after implementing the AAT1 decision, determined that the applicant’s recalculated PPS and NSA debt was $21,352.17 for the period 1 July to 30 January 2017.
It is from this decision that the applicant has sought review by this Tribunal to be considered on the papers.
THE LEGISLATIVE FRAMEWORK
(a)Social Security Act1991 (Cth);
(b)Social Security (Administration) Act1999 (Cth)(the Admin Act).
The applicant had Mr Clifford Hughes, a revenue, structuring and succession practitioner, prepare pro bono for her a submission which was primarily constructed around the applicant’s contention that the debt should be written-off on a hardship premise based upon her prevailing personal, financial and health-related circumstances.[1] The submission states that it is constructed to address those matters outlined in the respondent’s Statement of Facts, Issues and Contentions document at paragraphs 89 to 92.[2]
[1] Exhibit J, applicant’s submissions.
[2] Exhibit H, Respondent’s Statement of Facts, Issues and Contentions at page 14 (‘R SFIC’).
The respondent provided a response to the applicant’s submission by way of a Supplementary Statement of Facts, Issues and Contentions dated 27 July 2021 (R SFIC 2) in which the respondent reiterated their position that the applicant is admittedly suffering from health issues and financially strained circumstances that the recovery of the debt cannot be written-off or waived in part or in full.
The applicant submitted that the debt should be written-off in part or in full based on the current facts around her circumstances pursuant to section 1236 of the Act.
The applicant contends that her family circumstances are that:
(a)She owns the residence where she lives on a half-share basis as tenants in common with her elderly mother;
(b)She is operating a family daycare business from her home which has been continuing. She is restricted to a total of four full-time equivalent children to care for per week;
(c)She does not reach full bookings every day for four children;
(d)She has to care for her elderly mother who is in poor health and has no other residential recourse;
(e)Her two sons still reside with her in the home. One is a university student receiving Commonwealth assistance and the other is serving an apprenticeship. Both make contributions of $50.00 a week when their financial circumstances permit;
(f)The applicant suffers from autoimmune disease, asthma and an anxiety condition, all of which she contends cause her difficulties;
(g)She has no other skills or qualifications which might provide the possibilities of a higher earning capacity.
The applicant also contends that based upon her payment history for quarter three of the financial year, 1 January 2021 to 31 March 2021, her gross income is a total of $14,052.70, calculated by subtracting the administration levy deducted by her services provider, Empowered Family Daycare Services (Empowered), of $2,062.50 from a total fees figure for the subject quarter of $16,115.20.[3]
[3] Attachment 1, Exhibit J, Applicant’s Submissions.
The applicant contends that her gross annualised income before tax would be $56,210.80 and that using a simplified ATO tax calculator[4], her net income would be $46,507.40, with tax of $8,735.25 to be paid or owing, but excluding Medicare levy and tax offset.
[4] Ibid, Attachment 2.
The applicant’s submission contends that the applicant’s net after tax weekly income is approximately $894.37 and that this is the relevant figure to be considered in reviewing the applicant’s circumstances.
The applicant contends further that the figure provided by her to the respondent earlier in this matter of $1,592.76 as her disposal after tax income was in fact her gross before tax income and did not represent the actual sum available to meet her financial obligations and living costs.[5]
[5] Ibid, paragraph 3.10, page 4; Attachment 4.
The applicant also contends that her 2019 tax return in fact corroborates the above contention insofar as at page 13 of her return, her gross annual income is declared to be $80,564.00, thus equating to $1,549.30 and closely approximating the $1,592.76 by $44.00 per week difference.
The applicant, it would appear, according to her submission, had been overstating her gross income by mistakenly including as rental income from the property she owns jointly with her sister, in which the sister lives and pays the jointly held mortgage. She has now been advised that from 2014 onwards this should not have been included.
The applicant’s financial obligations include five credit cards upon which, in totality, she owes at the date of her submission $54,033.36 combined. Her total minimum monthly repayment obligations are $753.39.
In addition, the applicant’s repayments on the home loan attaching to the residence which she owns and shares with her mother as tenants in common are $530.04 a fortnight. The mortgage balance of $186,794.20 attaches to the applicant’s share only and is held solely in her name.
The applicant’s contribution as regarding the situation if the house was to be sold is the balance mortgage would attach to her half share of the property only and that her mother’s share would be effectively quarantined from her creditors.
The applicant has listed in her prepared submission a spreadsheet of her income and expenses, which indicates a net weekly surplus of $104.30 for the purchase of necessities of food, clothing and general living expenses.[6]
[6] Attachment 17, Exhibit J.
The applicant contends that given the parlous state of her financial position, the fact she has no savings and little or no discretionary disposal income for the foreseeable future, she therefore has no reasonable prospects of having any capacity to repay it in part or in full.
The applicant therefore contends that the claimed debt be written-off in accordance with paragraph 1236(1)(b) of the Act.
It is noted that the applicant has made no submissions to the Tribunal which challenge the contention by the respondent that an overpayment of PPS and NSA had been made to her and was a debt owed by her to the Commonwealth.
Further, the applicant did not make any submissions or contentions regarding the respondent’s latest calculation methods applied to establishing the net income amounts for the purpose of establishing qualification to receive PPS and NSA by the applicant.
The applicant is focused solely upon the question in her submission that the debt should be written-off or waived on the basis of her circumstances and the Tribunal will address this contention as the principal tenant of the applicant’s review.
The applicant, on the basis of the submission provided, accepts that the debt exists but that it should not be recoverable by operation of a write-off or waiver.
The Tribunal therefore accepts the latest amended calculations of the applicant’s net income as put forward by the respondent in its SFIC as representing the applicant’s income for the purpose of setting the rates of PPS and NSA paid to the applicant.
The Tribunal does, however, not agree with the respondent’s contention that the deductions allowed by the Taxation Office as “gift” deduction should not, for the purpose of the financial calculations in this matter, be allowed by way of operation of Instruction 4.7.1.30 of the Social Security Guide[7] (the Guide) which provides:
“Allowable Deductions for Income Test & Taxation Purposes
SS Act section 1057(1) allows the ordinary income of a business for income test purposes, to be reduced by the amount of certain deductions which are allowable for taxation purposes. However, the deductions MUST:
relate to the business AND
be allowable under the relevant sections of the Income Tax Assessment Act of 1997.
[7] Guides to Social Policy Law, Social Security Guide, Version 1.294 - Released 16 May 2022.
The Guide, as constructed, uses the quite vague term “relate to the business”. In businesses such as that conducted by the applicant, the business owner is a sole trader. The “business” is thus the simplest and most uncomplicated of commercial structures in that it consists of one person who is conducting all the functions and affairs of the enterprise.
The applicant is not a corporate entity or a trust structure, she is the business. The Taxation Office clearly accepts that the earnings of the business are in fact the earnings of the applicant and thus has allowed her to make deductions legitimately claimed for such “gifts” under the Income Tax Assessment Act 1997 (Cth).
In such circumstances as those relevant to the applicant, the words “relate to the business” become problematic for anyone attempting to assert that allowable deductions approved by the ATO do not “relate to the business”.
In fact, it would be very difficult in the case of any enterprise to see how any such deductible “gifts” would relate to the business in any other sense than being paid or “given” by the business.
The respondent contends that there is limited evidence currently before the Tribunal to establish that the claimed gift deductions related to the applicant’s business. In the absence of any evidence to the contrary, it is difficult to establish that they don’t.
The respondent’s contention should therefore be considered against the only benchmark available to the Tribunal, that being the ATO’s acceptance of the deductions as legitimately allowed against the business earnings and thus against the earnings of the applicant. The deduction should therefore be allowed as an offset as decided by the AAT1.
Are the applicant’s PPS and NSA overpayments?
Given the acceptance of the evidence as discussed and the applicant’s uncontested view that the debts exist, the Tribunal accepts that the applicant’s circumstance does not fall within the operation of section 1223(1) of the Act and the overpayments do constitute a debt to the Commonwealth.
There is firm precedent from the Federal Court to the effect that moneys received by a person from the Commonwealth and to which they are not entitled, would be recovered. French J., as he then was, stated that:
“The taxpayer is entitled to expect that in the ordinary course, money paid to people, which they are not entitled to receive, will be recovered, albeit in a way appropriate to the circumstances which led to the overpayment and the circumstances of the persons concerned.”[8]
[8] Secretary, Department of Social Services -ats- V. Hales (1998) 82 FCR 154 at 155.
The respondent has contended that the Act provides only two mechanisms by which a properly raised debt of Social Security overpayment may not be recovered, namely, write-off or waiver.
The Tribunal notes that the applicant is only agitating the argument that her debt should be written-off as opposed to waived pursuant to section 1236 of the Act. The respondent has power to write-off a debt wholly or in part for a stated period or otherwise if one or more of the prerequisites in sub-section 1236(1A) has been met.
Sub-section 1236(1A) of the Act can only be invoked 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.
It is to be noted that if a debt is written-off, it will not be recovered at that point in time. The debt still exists and may be recovered later.
When considering the criteria to be met under sub-section 1236(1A) as they apply to the applicant, it is noted that:
(a)The debts, although still to be quantified in final form, are recoverable at law;
(b)The applicant’s whereabouts are known; and
(c)The respondent contends that the applicant’s weekly income as outlined in her Statement of Financial Circumstances was $1,592.76[9] as at 29 November 2019 and thus, she was able to repay the debt in instalments.
[9] Exhibit A, T Documents, T25, page 851.
The applicant has, however, contested the amount of income set out in (c) above by way of her subsequent submission wherein she contends that this figure represented her gross, before tax, income and that it was not the after tax amount that she had to meet her financial obligations. The true figure is $896.28 per week.[10]
[10] Exhibit J, applicant’s submissions, at page 4, paragraphs 3.6 to 3.9.
The Tribunal, having had regard to both the applicant’s Statement of Financial Circumstances and her submission listed as Exhibit J, accepts the calculations and the applicant’s explanation as to her true weekly income at that time.
The respondent has, for completeness, contended comprehensively in its SFIC document, that there is no sole administrative error such as to render the debt liable to waiver. The applicant has not agitated for this form of relief from her debt pursuant to section 1237A of the Act. The Tribunal therefore does not need to consider this mechanism for relief in its review.
The Tribunal has also noted that the applicant does not raise the ground of debt waiver as provided for by section 1237AAD of the Act where a debt may be waived in whole or in part if the respondent can be satisfied special circumstances exist, other than financial hardship alone, that make it desirable to waive and it is more appropriate to make waiver than to write-off the debt in whole or in part.
The Tribunal notes that the applicant has not sought to rely upon section 1237AAD to seek waiver, however, for completeness, finds that the applicant is unable to satisfy section 1237AAD(b) that special circumstances, other than financial hardship alone, exist to validate such a request. The Tribunal has considered the extensive case law as cited by the respondent in this regard when drawing its decision.[11]
[11] Exhibit H, pages 16 – 18, paragraphs 107 – 116.
Should the debt be written-off?
The Tribunal accepts that the errors highlighted by the applicant’s material regarding her income are legitimate but they do not, however, materially affect the fact that overpayments of PPS and NSA were made to the applicant.
The Tribunal has considered the respondent’s contention regarding the calculation of the applicant’s income and agrees that the calculations as set out in the R SFIC represent the correct method for calculating these figures as compared to those figures provided by the applicant and her Accountant. The respondent has correctly calculated the applicant’s earnings allowing for the subsidy and fees charged by examining the applicant’s EPHRs for the relevant years to accurately establish the applicant’s income.
The Tribunal, as stated earlier, considers that the deductions or gifts allowed by the ATO should not be discounted and should remain as legitimate deductions for the purpose of this review.
The applicant’s financial circumstances, as considered from her submission of 21 May 2021[12], do indicate that they are not ideal.
[12] Exhibit J, applicant’s submissions.
The Tribunal must consider not only the difficulties the applicant faces in meeting her obligations, but also her ability to continue to meet them when a request is made to have these obligations written-off.
The applicant has a secure business which, based upon the financials provided, consistently provides a fairly steady income for the applicant. She receives some funding from her two children in assisting with household expenses.
It is noted the applicant also cares for her aged mother and that she herself suffers from various medical issues of a long-term nature. The evidence indicates that while these do have impacts, they have not prevented her from following her calling and she has continued to work as a childcare provider.
The Tribunal does not consider that these constitute circumstances of a special nature such that they would warrant waiver of the debts being enlivened.
The applicant, in addition to maintaining the security of the house mortgage, has continued to maintain private medical insurance, a life insurance policy and a modest superannuation policy. She meets her utility costs by a payment arrangement and pays her minimum credit card repayments. The respondent also notes that some lifestyle discretionary spending is made for gym membership and Netflix subscription.
The applicant is also meeting her obligations to the Agency through an agreed repayment schedule for the acknowledged debt.
The Tribunal, when looking at the applicant’s circumstances, must have regard as to whether the applicant’s circumstances, when compared to other recipients of income support payments, are such as to place them in a category where they are distinguishable to a point of difference that they would be “special circumstances”. Unfortunately, the Tribunal is, in this matter, unable to make such a critical distinction so as to invoke a write-off or waiver of the obligation.
Whilst the Tribunal accepts that the applicant’s financial situation leaves little room to manoeuvre fiscally, her circumstances do not meet the threshold required by section 1236 of the Act for the debt to be written-off, nor does the situation enliven the operation of section 1237AAD of the Act to meet the special circumstances to allow the respondent to waive the debt.
DECISION
That in accordance with section 43(1) of the AAT Act 1975, the decision under review is set aside and the applicant’s PPS and NSA be recalculated using the method applied by the respondent and described in the respondent’s Statement of Facts, Issues and Contentions[13]; that the deductions allowed by the ATO for “gifts” not be disallowed in such calculations and that the debt as recalculated be fully recovered.
[13] Exhibit H, pages 10 to 12, paragraphs 62 to 80.

I certify that the preceding 57 (fifty-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member P J Clauson AM

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Associate
Dated: 13 June 2022

Date of hearing: 27 July 2021

Applicant: Heard on the papers

Solicitors for the Respondent: Mr Andrew Summers

Services Australia

[2022] AATA 2436

13 June 2022

Key Legal Topics

Areas of Law

Administrative Law

Statutory Interpretation

Legal Concepts

Judicial Review

Statutory Construction

Remedies

Procedural Fairness

Date of hearing:	27 July 2021
Applicant:	Heard on the papers
Solicitors for the Respondent:	Mr Andrew Summers
Services Australia