Lynnette Cole and and and Lynnette Cole
[2013] AATA 536
[2013] AATA 536
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2012/4710
Re
Lynnette Cole
APPLICANT
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
File Number(s)
2013/0505
Re
Lynnette Cole
APPLICANT
And
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
RESPONDENT
File Number(s)
2013/0582
Re
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
APPLICANT
And
Lynnette Cole
RESPONDENT
Decision
Tribunal Ms A F Cunningham (Senior Member)
Date 1 August 2013 Place Hobart Appeal 2012/4710 - The decision under review is affirmed.
Appeals 2013/0505 and 2013/0582 - The decision of the Social Security Appeals Tribunal made on 8 January 2013 is set aside and the original decision reinstated.
[Sgd Ms A F Cunningham]
Ms A F Cunningham (Senior Member)
SOCIAL SECURITY – disability support pension – meaning of ordinary income – lump sum payment of arrears of superannuation pension entitlements – ordinary income test – assessed as ordinary income for 12 months following receipt – ordinary income exceeded income test threshold – no DSP payable
Social Security Act 1991, ss 8(1), 8(2), 8(8), 8(11), 9(1), 11A, 94, 98, 117, 1064-A1, 1064-E1, 1072, 1073, 1099A, 1106, 1107
Guide to Social Security Law
Arnold and Secretary, Department of Employment, Education and Workplace Relations [2011] AATA 828
Hawkins and Secretary, Department of Family and Community Services [1999] AATA 34
Davies and Secretary, Department of Family and Community Services [2002] AATA 904 McLaughlin and Secretary, Department of Family and Community Services [2003] AATA 298
REASONS FOR DECISION
Ms A F Cunningham (Senior Member)
These appeals relate to the payment of disability support pension (DSP) to the applicant, Lynnette Cole. On 11 May 2012 a decision was made to cancel Ms Cole’s DSP payments with effect from 15 March 2012 on the basis that her annual income was above the rate at which any DSP is paid. There is no dispute about the calculation of income for the relevant period. The issues relate to the classification of the income received under the provisions of the Social Security Act 1991 (the Act).
The parties to the appeal requested that the Tribunal hear and determine the appeals concurrently. A direction was subsequently made to this effect. The first appeal, (2012/4710) is from a decision of the Social Security Appeals Tribunal (SSAT) made on 9 October 2012 which affirmed a Centrelink decision to cancel Ms Cole’s DSP on the basis that her income precluded payment of any rate of DSP. The second appeal (2013/0505) was lodged by Ms Cole against a finding of the SSAT in its decision dated 8 January 2013, that the payment she received from the Retirement Benefits Fund (RBF) on 13 March 2012 be assessed as income for the purposes of calculating her DSP payments. An appeal was lodged against the decision of the SSAT by the Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (the Secretary) on the basis of the SSAT’s finding that the RBF income amount should be disregarded as at 26 July 2012 as it had been converted into an exempt asset. The Secretary maintained that the lump sum payment received on 13 March 2012 had been correctly assessed by Centrelink under the terms of section 1073 of the Act and treated as income in determining the rate of DSP payable.
Legislation
The relevant provisions of the Act are set out below.
Section 94 sets out the qualification requirements for DSP. It was conceded that Ms Cole was qualified at the relevant time.
Section 98 states that DSP is not payable if the rate of payment is nil.
Section 117 provides that the rate of pension is calculated pursuant to the Pension Rate Calculator A in s1064 of the Act.
Step 5 of the Method Statement at s1064-A1 provides:
"Apply the ordinary income test using MODULE E below to work out the income reduction."
Module E sets out the income test which, as a first step, requires a person’s ordinary income to be worked out on an annual basis.
Section 1072 states that a reference in the 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.
Ordinary income is defined in section 8(1) as:
“income that is not maintenance income or an exempt lump sum”.
"Income" and the expression "income amount" are defined in section 8(1) as:
“income, in relation to a person, means:
(a) an income amount earned, derived or received by the person for the person’s own use or benefit; or
(b) a periodical payment by way of gift or allowance; or
(c) a periodical benefit by way of gift or allowance;
but does not include an amount that is excluded under subsection (4), (5) or (8).
Note 1: See also sections 1074 and 1075 (business income), sections 1076‑1084 (deemed income from financial assets), sections 1095 to 1099DAA (income from income streams), section 1099F (exempt bond amount does not count as income) and section 1099K (refunded amount does not count as income).
Note 2: where a person or a person’s partner has disposed of income, the person’s income may be taken to include the amount which has been disposed of—see sections 1106‑1112.
Note 3: income is equivalent to ordinary income plus maintenance income.
income amount means:
(a) valuable consideration; or
(b) personal earnings; or
(c) moneys; or
(d) profits;
(whether of a capital nature or not)”.
Section 8(2) reads:
“A reference in this Act to an income amount earned, derived or received is a reference to:
(a) an income amount earned, derived or received by any means; and
(b) an income amount earned, derived or received from any source (whether within or outside Australia)”.
“Exempt lump sum” is defined in section 8(11) as:
“An amount received by a person is an exempt lump sum if:
(a) the amount is not a periodic amount (within the meaning of subsection (11A)); and
(b) the amount is not a leave payment within the meaning of points 1067G‑H20, 1067L‑D16 and 1068‑G7AR; and
(c) the amount is not income from remunerative work undertaken by the person; and
(d) the amount is an amount, or class of amounts, determined by the Secretary to be an exempt lump sum.
Note: Some examples of the kinds of lump sums that the Secretary may determine to be exempt lump sums include a lottery win or other windfall, a legacy or bequest, or a gift—if it is a one‑off gift”.
The general provisions relating to the ordinary income test are contained in part 3.10. Section 1072 states:
“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.
Note 1: For ordinary income see subsection 8(1).
Note 2: For other provisions affecting the amount of a person’s ordinary income see section 1073AA (work bonus), sections 1074 and 1075 (business income), sections 1076 to 1084 (deemed income from financial assets) and sections 1095 to 1099DAA (income from income streams)”.
Section 1073(1) states:
“Subject to points 1067G‑H5 to 1067G‑H20 (inclusive), 1067L‑D4 to 1067L‑D16 (inclusive), 1068‑G7AA to 1068‑G7AR (inclusive), 1068A‑E2 to 1068A‑E12 (inclusive) and 1068B‑D7 to 1068B‑D18 (inclusive), if a person receives, whether before or after the commencement of this section, an amount that:
(a) is not income within the meaning of Division 1B or 1C of this Part; and
(b) is not:
(i) income in the form of periodic payments; or
(ii) ordinary income from remunerative work undertaken by the person; or
(iii) an exempt lump sum.
the person is, for the purposes of this Act, taken to receive one fifty‑second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount”..
Section 1099A states:
“If the asset‑test exempt income stream to which this Subdivision applies is a defined benefit income stream, the amount that the person is taken to receive from the income stream each year is worked out as follows:
where:
annual payment means the amount payable to the person for the year under the income stream.
deductible amount has the meaning given by subsection 9(1)”.
Issues
The primary issue to determine is Ms Cole’s income at the date on which she claimed DSP on 25 July 2012. There appears to be no dispute as to the sources and quantum of Ms Cole’s income at the relevant time. Ms Cole listed her savings and investments as at 28 March 2012 at $240,572.20. Centrelink calculated the deemed income from the financial assets at $10,156.69 which calculation was accepted by the SSAT. The calculations were not disputed by Ms Cole and I have no reason to disturb these findings. Of particular relevance is the payment of arrears of $29,752.94 to Ms Cole on 13 March 2012 from the RBF.
The issue that arises is how Ms Cole’s income is to be treated under the relevant provisions of the Act. Ms Cole disagreed with Centrelink's assessment that the RBF arrears payment be treated as ordinary income under section 1073 of the Act. Ms Cole maintained that her RBF life pension represents a return on her investment in superannuation as defined in section 9(1) of the Act and is thus excluded pursuant to section 8(8) of the Act. Subsection 8(8) states that any return on a person’s investment in a superannuation fund is not income for the purposes of the Act. It was Ms Cole’s argument that the payment of arrears received on 13 March 2012 together with her first instalment, constituted the first payment of her RBF life pension. She insisted that the return on her superannuation investment only became income once it was received by her as a first payment.
It was further submitted by Ms Cole that her RBF pension is an asset test exempt defined benefit income stream under section 9(1F) of the Act and that income from income streams are exempt amounts under section 1073(1)(a) of the Act. Ms Cole maintained that the RBF payment should be assessed as an income amount from the date it was paid after reduction of the deductible amount (referred to in section 1099A).
Mr Sparkes submitted that the RBF arrears payment of $29,752.94 was correctly assessed in accordance with the provisions of section 1073 of the Act. Alternatively, he submitted the payment represents a defined benefit income stream and could be considered pursuant to section 1099A of the Act in that it constitutes arrears of periodic payments. Under this section the annual payment is reduced by the deductible amount. Mr Sparkes submitted that the reference to "year" in section 1099A is to a period of 12 months which is consistent with the purpose and object of the provision. The result is that the lump sum arrears payment of superannuation would be treated in the same way under either section 1073 or section 1099A of the Act.
Appeal 2012/4710
Ms Cole’s Statements of Facts Issues and Contentions filed in support of her appeal sets out the background facts with respect to her RBF invalidity pension. Ms Cole states that she became entitled to a total and permanent invalidity benefit with effect from March 2010 and elected to commute the maximum amount available, being a net payment of $74,785.46, to a lump sum payment to assist with the repurchase of a home. On 13 March 2012 Ms Cole received $29,792.94 (the payment) which included arrears payment of her TPI pension to which she became entitled from 15 March 2010.
Ms Cole contends that the payment was "the first payment of her TPI income stream (TPI pension) RBF". She also contends that it represents a return on her superannuation investment and is thus an excluded amount pursuant to subsection 8(8). Both of these contentions are rejected by the Tribunal. On 13 March 2012 Ms Cole received a lump sum payment which included an arrears payment and the first of her periodic TPI benefits. The payment did not represent the return on her superannuation investment but was an amount calculated on the basis of Ms Cole’s TPI entitlements with effect from 15 March 2010 plus the first of her periodic payments. The “return” referred to in subsection 8(8) is not a sum of money paid to the person by way of pension entitlements. It comprises monies generated or earned by the superannuation investment that remain within the fund and for this reason is not characterised as income for the purposes of the Act.
The term "income stream" is defined in subsection 9(1) and includes an income stream from a superannuation fund. The periodic amounts received by Ms Cole in the form of TPI pension benefits would fall within this definition. The lump sum, which comprised an accumulation of the arrears of periodic payments does not in my view, constitute an income stream. The payment does however, constitute income within the meaning of section 8 and must be ordinary income as that term is defined as it is not maintenance income or an exempt lump sum which is defined in subsection 8(11).
A periodic amount is defined in subsection 8(11A) and includes an amount of a payment making up for arrears.
The provisions relevant to ordinary income are contained in Part 3.10 of the Act. It was submitted by Mr Sparkes that the payment was correctly assessed in accordance with section 1073 as it is not income within the meaning of Division 1B, which refers to income from financial assets, or 1C, which is income from income streams. Mr Sparkes submitted that if the Tribunal however considered that the lump sum payment represented arrears of an income stream, it would then fall for consideration under section 1099A and the effect on the calculation of Ms Cole’s DSP entitlement would be the same in that her income for the relevant period would be in excess of the allowable limit.
I consider that the payment is most appropriately considered in accordance with the provisions of section 1073 of the Act. For the reasons identified above, the Tribunal rejects Ms Cole’s submission that the payment is excluded as income under subsection 8 (8)(b) as a return on investment. Nor does it qualify as an exempt lump sum under any other provision in the Act. The payment is not income in the form of periodic payments or ordinary income from remunerative work.
Subsection 1073(1) provides that the lump sum is to be divided over a period of 12 months in 52 equal payments commencing on the day of entitlement for the purposes of the ordinary income test. It was Ms Cole’s submission that the payment is a component of the first payment of her TPI pension and should be assessed accordingly, that is, as a one-off payment of income received for that relevant period. Ms Cole disagreed that the payment should be assessed for the following 12 month period from its receipt under either section 1073 or section 1099A. Under this scenario, Ms Cole’s entitlement to DSP would only be impacted for the fortnightly period during which the payment was received when she would fail to meet the income test. Ms Cole would be otherwise qualified for DSP for the balance of the year.
I consider that such an outcome is not only contrary to the legislative provisions with respect to the income test but is inconsistent with the objectives and purpose of the social security legislation which is to direct income support to those in need. Income support payments are means tested to ensure payments are made only to those who cannot rely on other sources of income or capital.
As stated in the Guide to Social Security Law:
"Australia has an income support system that is designed to be a safety net for people unable to support themselves without calling on the resources of the community. The income and assets tests are used to target the system so that it remains sustainable and affordable for Australian taxpayers. The tests help ensure that the funds are available for social security expenditure are directed to those in the community most in need. The tests are kept under review to ensure that they are meeting the requirements of the community for well-targeted income support”.
The payment comprised arrears of TPI benefits dating from the commencement of Ms Cole’s entitlement on 15 March 2010 until payment on 13 March 2012, a two year period. During this period Ms Cole was in receipt of DSP which was not affected by her TPI benefit entitlements because they had not at that stage been received by her. Ms Cole has been a recipient of DSP since 1 August 2005. The arrears payments constitute income and are appropriately assessed under the income test when calculating the rate of DSP pension payment. Section 1073 provides that the payment should be assessed over a 12 month period by dividing the lump sum received into 52 equal amounts. I do not consider that there is anything unfair or unjust with such an outcome in the circumstances of this case.
The SSAT in its decision dated 9 October 2012 did not consider that section 1073 was applicable in assessing the effect of the arrears payment on the amount of ordinary income. The Tribunal noted that the provisions of section 1073 ordinarily relate to benefits that are not calculated on an annual basis, as is the DSP. It is noted that subsection 1073(2) does not include DSP in the list of allowances. The SSAT considered that the payment should be assessed as ordinary income in accordance with the provisions of the Ordinary Income Test (Module E) at section 1064-E1 of the Act. After making an allowance for the deductible amount, the SSAT calculated the ordinary income amount of the income stream arrears at $26,750.67. As Ms Cole’s total ordinary income as at 15 March 2012 was calculated at $50,646.54, the SSAT determined that as her income was in excess of the “cut-out" amount, no pension was payable from 15 March 2012.
Although the source of the arrears lump sum payment was an accumulation of periodic TPI payment entitlements dating from 15 March 2010, I find that the payment received by Ms Cole was not in the form of periodic payments nor did it constitute an income stream. In the event that this assessment is incorrect, I consider that the payment could alternatively be assessed as a defined benefit income stream pursuant to section 1099A of the Act and that the outcome would be the same.
I accept Mr Sparkes’ submissions with respect to the meaning of the word "year" appearing in section 1099A .There is no definition of "year" in the Act apart from section 19AB which refers to a year as a calendar year. Had the legislators intended that the relevant period for a year in section 1099A be a calendar year, the section could have included specific words to this effect. This would have been however, inconsistent with the purpose of the provision which is clearly to spread the amount received over the period of the year, ordinarily being 12 months. Such is the ordinary legal meaning of the term year according to the Butterworth's Australian Legal Dictionary and common usage. Adopting the alternative interpretation of a calendar year, would mean that a payment received on 31 December would not be taken into account in the assessment of a person’s ordinary income except for the fortnight in which it was received.
Whilst I have accepted the submissions of Mr Sparkes made on behalf of the Secretary that the lump sum arrears payment received by Ms Cole on 13 March 2012 should be assessed as income in accordance with the provisions of section 1073 of the Act which is in line with the determination of Centrelink, the effect of my findings is nevertheless consistent with the outcome reached by the SSAT. The SSAT’s finding was that Centrelink's decision to cancel Ms Cole’s DSP on the basis that her income was in excess of the allowable limit was correct. For these reasons the Tribunal determines to affirm the decision under review and dismiss the appeal.
2013/0505 and 2013/0582
Ms Cole has appealed the SSAT’s decision which found that her RBF arrears payment constituted an "income amount" that continued to exist as "income" on 25 July 2012 but could be disregarded as it was converted into an exempt asset, namely the purchase of her home. The Secretary's appeal against the decision of the SSAT is on the basis that it erred in finding that the income amount of $26,750.67 ceased to exist as of 26 July 2012 as it had been spent by Ms Cole. The Secretary contends that the SSAT made an error of law and took into account an irrelevant consideration namely the purpose for which the disputed amount of ordinary income was used.
The issues and submissions made by Ms Cole mirrored those submitted with respect to appeal 2012/4710 which have been considered above. In accordance with my earlier findings, I reject Ms Cole’s contention that the RBF arrears payment did not constitute "ordinary income" as at 25 July 2012 because it formed part of the first payment of her ongoing RBF life pension and comprised the first in a series of ongoing and related periodic payments.
Following the confirmation by an authorised review officer (ARO) on 4 June 2012 of Centrelink's decision to cancel Ms Cole’s DSP pension, she made a subsequent claim for DSP on 25 July 2012. By that stage Ms Cole had purchased a home. Her claim was granted on the basis that she had reduced deemed income from financial assets of $267.87 per annum, an income stream of $13,739.18 and other income of $26,750.67 per annum which comprised her lump sum RBF arrears payment. Ms Cole requested a review of the decision to grant her claim at a reduced rate and on 24 October 2012 the decision was affirmed by an ARO. The basis of Ms Cole’s request for review and subsequent appeal to the SSAT was because she objected to the inclusion in her income of the lump sum RBF arrears payment of $26,750.67.
In accordance with the above findings, I conclude that Centrelink's decision to grant DSP at the reduced rate on the basis of the above assessment of Ms Cole’s income which was in excess of the income level at which full rate DSP was payable, was correct. For the reasons outlined above I find that the lump sum RBF arrears payment of $29,792.94 received on 13 March 2012 was correctly included as assessable income in accordance with section 1073 of the Act and taken to have been received over the ensuing 52 weeks. This includes that period relevant to Ms Cole’s claim lodged on 25 July 2012. The fact that Ms Cole’s DSP was cancelled as from 15 March 2012 is of no relevance to the assessment of income with respect to the 25 July 2012 claim.
The issue for determination is Ms Cole’s income as at the date of her claim for DSP on 25 July 2012. Ms Cole had listed her savings and investments as at 28 March 2012 at $240,572.20. Her income at the time of the second claim for DSP was from a defined benefit income stream of $13,739.18 per annum ($528.43 per fortnight). Her assets had been substantially reduced following the purchase of her home. It was the finding of the SSAT that the income amount of $26,750.67 which had been reduced from the lump sum payment of $29,752.67 by the deductible amount of $3156.27, did not exist as at 26 July 2012 because it had been converted to an exempt asset and that any rate of DSP payable should be calculated accordingly.
It was submitted on behalf of the Secretary that there is no legal basis for the SSAT’s finding and the Tribunal agrees. It is irrelevant that the arrears payment was made prior to Ms Cole's claim for DSP on 25 July 2012. This payment which was received on 15 March 2012 is assessed as ordinary income in accordance with the provisions of section 1073. The result is that Ms Cole’s weekly income for the forthcoming 12 months (which includes the date of her claim on 25 July 2012) includes an amount representing 1/52 of her lump sum arrears payment of $29,752.67.
The SSAT’s conclusion that the income had been converted into an asset which is exempt in accordance with section 11A of the Act is not sustainable. This provision is only relevant for the purposes of the assets test and not the income test. If a person chooses to expend their income on an asset, this does not preclude the inclusion of the income earned, derived or received in the decision-makers consideration of the income test with respect to the calculation of the rate of DSP payable. The income test is not affected by any income spent by a person subsequent to its receipt.
Of relevance is the following statement of the Tribunal in its decision Arnold and Secretary, Department of Employment, Education and Workplace Relations [2011] AATA 828 at paragraph 36:
"Once it is determined that an amount is "income" for the purposes of the SS act, it is taken to have been received equally over the weekly period in the 12 months following its receipt: section 1073 (1)."
Further support for this approach is found in earlier decisions of the Tribunal which were concerned with the determination of ordinary income in the context of receipt of lump sum payments and benefits. Several of the decisions referred to by Mr Sparkes concerned the application of subsection 8(11)(d) with respect to exempt lump sums. For instance, Davies and Secretary, Department of Family and Community Services [2002] AATA 904 and McLaughlin and Secretary, Department of Family and Community Services [2003] AATA 298. This subsection is generally applied with respect to the receipt of unexpected benefits, lottery wins, requests, legacies or one-off gifts in order to avoid unfairness, injustice or inequitable treatment. Deputy President Wright in the latter case found that the proceeds from an insurance policy paid in one lump sum should be assessed in accordance with the provisions of section 1073 as income for the forthcoming 12 months.
The circumstances that arose for consideration by the Tribunal in Hawkins and Secretary, Department of Family and Community Services [1999] AATA 34 were not dissimilar to those in the current case. A distribution was made to the applicants from a discretionary family trust on 30 June 1997 which was treated by the Department by virtue of the operation of section 1073 as income for the forthcoming 12 months. On review by the Tribunal it was held that as the applicants were beneficiaries of the discretionary trust they had no entitlement to the payment until the trustee had exercised its discretion and distributed the moneys on 30 June 1997. As the Tribunal said at paragraphs 36 to 38:
“36. Accordingly, the Tribunal concludes that the wording and application of Section 1073 of the Act is clear in the circumstances of this application. In Mr and Mrs Hawkins’ case, they are taken to have received one fifty-second of the payment from the trust as ordinary income during each week in the 12 months, commencing on the date they became entitled to receive the payment viz. 30 June 1997.
37. The Tribunal notes Mr Hawkins’ concerns as to the financial year in which they received income. Clearly, the difficulty in this case arose because the money had been earned as a distribution from a family trust. Application of the law which relates to social security entitlements and to trusts, results in Mr and Mrs Hawkins not having any entitlement to the income until the actual distribution was made on 30 June 1997.
38. The Tribunal has no discretion other than to apply the clear intention of the Act. That is, the trust income must be included as income for the 52 weeks following the distribution on 30 June 1997 and so taken into account in assessing parenting allowance entitlements. Consequently, payment of arrears of parenting allowance are not allowed”.
Similarly in this case Ms Cole had no entitlement to receipt of her TPI pension entitlements until they were distributed by the trustees of her superannuation fund. Upon receipt of the moneys and in accordance with the provisions of section 1073, Ms Cole is taken to have received 1/52 of the payment as income over the following 12 months from the date of receipt.
The SSAT's consideration of section 1107 of the Act in the context of disposition of income was misplaced as this provision is only relevant in the context of the disposal of ordinary income when no or inadequate consideration is received or the Secretary is satisfied that the purpose was to obtain a social security advantage. (Section 1106 of the Act). None of these circumstances apply in this case and it is not suggested that Ms Cole’s purchase of her home was for any of these purposes.
For all of these reasons I find that the lump sum payment received by Ms Cole on 13 March 2012 which constituted arrears of superannuation entitlements was correctly assessed as ordinary income. Pursuant to the provisions of section 1073 of the Act the income was taken to have been received over a 12 month period commencing on 13 March 2012 and thus was income for the purposes of the income test with respect to the assessment of Ms Cole’s rate of payment for DSP for her claim lodged on 25 July 2012. The SSAT’s finding that the lump sum payment could be disregarded because it had been expended was misguided and incorrect. The decision of the SSAT made on 8 January 2013 is accordingly set aside and the original decision reinstated.
I certify that the preceding 47 (forty -seven) paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member) [Sgd]
Administrative Assistant
Dated : 1 August 2013
Date(s) of hearing 25 June 2013 Applicant In person Solicitors for the Respondent Mr B Sparkes, Program Litigation and Review Branch
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