Lyons and Secretary, Department of Family and Community Services and Anor
[2007] AATA 1095
•2 March 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1095
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2005/781
GENERAL ADMINISTRATIVE DIVISION ) Re KENNETH AND KIRBYSUE LYONS Applicant
And
SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES
1ST Respondent
And
SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS
2nd Respondent
DECISION
Tribunal Mr SC Fisher, Member Date2 March 2007
PlaceBrisbane
DecisionThe Tribunal affirms the decisions of the Social Security Appeals Tribunal dated 7 November 2005.
.........................[Sgd].....................
Member
CATCHWORDS
SOCIAL SECURITY – age pension – partner allowance – Centrelink made decision to raise and recover debts – whether loan or gift made to Applicants’ company – whether debts can be waived – whether special circumstances exist – decision affirmed
Social Security (Administration) Act 1999 (Cth) Part 4, Division 5
Social Security Act 1991 (Cth) ss 9, 11, 771HF, 1064, 1118, 1122, 1129, 1130, 1235, 1237, 1237A, 1237AAD
Administrative Appeals Tribunal Act 1975 (Cth) ss 37, 43
Corporation Act 2001 (Cth) Chapter 2D
A New Tax System (Family Assistance) (Administration) Act 1999 (Cth) s 101
Federal Court Rules Order 52, r 15(2)Secretary, Department of Social Security v Murphy [1998] 809 FCA
Ajka Pty Ltd v Australian Fisheries Management Authority (2003) 74 ALD 21
Bantick and Secretary, Department of Family and Community Services [2003] AATA 472
Bramwell v Repatriation Commission (1998) 51 ALD 56
Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598
Loxton v Moir (1914) 18 CLR 360
Leary v Federal Commissioner of Taxation (1980) 32 ALR 221
Olsson v Dyson (1968) 120 CLR 365
Norman v Federal Commissioner of Taxation (1962) 109 CLR 9
The Collector of Imposts (Vic) v Cuming Campbell Investments Pty Ltd (1940) 63 CLR 619
The Commissioner of Taxation of the Commonwealth of Australia v McPhail (1968) 117 CLR 111
Cypress Mines Corporation v FCT (1978) 9 ATR 33
Robertson v United States (1952) 343 US 711
Inland Revenue Commissioner v Duberstein (1960) 363 US 278
Hanrick and Secretary, Department of Family and Community Services [2003] AATA 549
Re Ling and Secretary, Department of Family and Community Services [1999] AATA 797
Re Mendes and Secretary, Department of Family and Community Services [2000] AATA 22 Secretary, Department of Family and Community Services and Downes (2002) 70 ALD 100 Re Hughes and Secretary, Department of Social Security (1992) 25 ALD 754
Secretary, Department of Employment & Workplace Relations v Homewood (2006) 91 ALD 103
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Beadle v Director-General of Social Security (1985) 60 ALR 225
Green and Secretary, Department of Social Security (1990) 21 ALD 772
Re Ivovic and Director-General of Social Services (1981) 3 ALN 95
Krzywak and Secretary, Department of Social Security (1988) 15 ALD 690
Trimboli v Secretary, Department of Social Security (1989) 86 ALR 64
Groth and Secretary, Department of Social Security (1995) 37 ALD 797
Dranichnikov v Centrelink (2003) 75 ALD 134
Ryde v Secretary, Department of Family and Community Services [2005] FCA 866
Haidar v Secretary, Department of Social Security (1998) 52 ALD 255
Kertland v Secretary, Department of Family and Community Services (1999) 95 FCR 64
Secretary, Department of Family and Community Services and Danielsen-Jensen (2004) 86 ALD 790
Secretary, Department of Family and Community Services and SRKKKK (2005) 86 ALD 396
Ubachs v Secretary of the Department of Family and Community Services [2004] FCA 310
Jazazievska v Secretary, Department of Family and Community Services (2000) 65 ALD 424
Secretary, Department of Employment and Workplace Relations and Carabott (2006) 89 ALD 726
McAliney and Secretary, Department of Family and Community Services (2005) 83 ALD 316 Strang and Secretary, Department of Employment and Workplace Relations [2006] AATA 51REASONS FOR DECISION
2 March 2007 Mr SC Fisher, Member Introduction and background
1. Mr Kenneth Lyons and Mrs Kirbysue Lyons (together "the Applicants") have been in receipt of certain income support payments (age pension and partner allowance) paid to them on behalf of the Respondents (who will be referred to as "Centrelink" in these Reasons for Decision). The explanation as to why there are two Respondents to this appeal is as follows. Administratively, the Department of Employment and Workplace Relations is responsible for partner allowance. Age pension is responsibility of the Department of Families, Community Services and Indigenous Affairs.
2. In outline form, the background to this appeals is as follows:
A.The Applicants were the sole directors and shareholders of a company called Mirthland Pty Ltd ("the company").
B.Between the 1999/2000 – 2003/2004 financial years, the Applicants loaned various sums of money to the company, varying from a low point of $42,658 (the 1999/2000 financial year) to a high point of $79,649.93 (the 2003/2004 financial year).
C.Mr Lyons was in receipt of age pension for the period 30 October 2000 – 21 April 2005.
D.Mrs Lyons was paid partner allowance for the period 27 October 2000 – 28 May 2004.
E.Mrs Lyons was paid age pension for the period 29 May 2004 – 21 April 2005.
F.Centrelink paid age pension to the Applicants and Partner Allowance to Mrs Lyons without taking into account the loans made by the Applicants to their company.
G.Following a review and investigation by a Centrelink complex assessment officer in 2005, the loans made by the Applicants to their company were identified.
H.Centrelink advised both the Applicant's lawyers as well as to the Applicant herself on 31 January 2005 informing them that any receipt of a compensation payment by the Applicant may affect her future and passed Social Security entitlements.
I.On 17 June 2005, Centrelink made the decision to raise and recover the following amounts: (1) an age pension debt in relation to Mr Lyons in the sum of $2,773.04 for the period to 30 October 2000 – 21 April 2005; and (2) a partner allowance debt in relation to Mrs Lyons in the amount of $20,956.45 for the period 27 October 2000 – 28 May 2004; and (3) an age pension debt in relation to Mrs Lyons in the amount of $1861.70 for the period 29 May 2004 – 21 April 2005.
J.The Applicants requested a review of these debt recovery decisions.
K.On 21 July 2005, the original decision-maker reviewed these decisions and affirmed them.
L.On 28 July 2005, the Applicants sought further review of these decisions by an Authorised Review Officer
M.The Authorised Review Officer affirmed the previous decisions on 25 August 2005.
N.The Applicant appealed to the Social Security Appeals Tribunal on 21 September 2005.
O.On 7 November 2005, the Social Security Appeals Tribunal affirmed the Centrelink decisions below.
P.On 30 November 2005, the Applicants appealed to this Tribunal.
Jurisdiction
3. In a procedural sense, the Tribunal has jurisdiction in this appeal by virtue of Part 4, Division 5 of the Social Security (Administration) Act 1999 (“the Administration Act”). In a substantive sense, the merits of this appeal are governed by the Social Security Act 1991 (“the Act”).
The Decisions under Review
4. The decisions under review are decisions made by the Social Security Appeals Tribunal on 21 November 2005 that Centrelink was entitled to raise and recover: (1) an age pension debt in relation to Mr Lyons in the sum of $2,773.04 for the period to 30 October 2000 – 21 April 2005; and (2) a partner allowance debt in relation to Mrs Lyons in the amount of $20,956.45 for the period 27 October 2000 – 28 May 2004; and (3) an age pension debt in relation to Mrs Lyons in the amount of $1861.70 for the period 29 May 2004 – 21 April 2005.
The Role of the Tribunal
5. The role of the Tribunal is to review the merits of the decision before it: section 43 of the Administrative Appeals Tribunal Act 1975 and Secretary, Department of Social Security v Murphy [1998] FCA 809. The Tribunal is guided by the norm that it should reach the “correct and preferable decision on the basis of the material before it”: Ajka Pty Ltd v Australian Fisheries Management Authority (2003) 74 ALD 21 at 31. “The Tribunal is required to stand in the shoes of the original decision-maker and consider all evidence anew, bearing in mind statutory provisions and any significant legal precedent”: Bantick and Secretary, Department of Family and Community Services [2003] AATA 472 at [23]. The Tribunal proceeds de novo: Bramwell v Repatriation Commission (1998) 51 ALD 56 at 60 per Weinberg J. The Tribunal must base its decision upon the material that is logically probative of the existence of facts that emerge from the evidence before it: Collins v Minister for Immigration and Ethnic Affairs(1981) 36 ALR 598 at 601.
The Material Before the Tribunal
6. The following documentary evidence was before the Tribunal:
Exhibit 1 Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (documents T1 – T44).
Exhibit 2Supplementary Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (documents ST1 – ST31).
Exhibit 3Statement of Exceptional Circumstances and Statement of Financial Position dated 20 February 2006 of the Applicants.
Exhibit 4Letter dated 23 March 2006 from Geoffrey P Sexton, Blue Chip Accounting.
Exhibit 5Medical Report from Dr Sharon Matthews, Lindsay Street Medical Group, Toowoomba.
Exhibit 6Applicants' Statement of Facts and Circumstances.
7. The Applicants were self-represented. Exhibits 3 – 6 were tendered by the Applicants.
8. The Respondent lodged documents T1 – T44 and ST1 – ST31 under section 37 of the Administrative Appeals Tribunal Act 1975. These documents were taken into evidence and the Tribunal ascribed “Exhibit 1” and "Exhibit 2" respectively to these documents for the purposes of these Reasons for Decision.
9. The Respondent was represented by Ms Sarah Oliver, a departmental advocate. The Respondent’s advocate provided a Statement of Facts and Contentions to the Tribunal.
10. The Tribunal carefully considered all of the documentary and oral evidence before it.
Evidence
11. The Respondent did not call any oral evidence.
12. The Applicants did not give evidence on their own behalf. The Tribunal gleaned the factual basis of the Applicants' appeal from their oral and written submissions and from oral evidence given on their behalf.
13. Mr Geoffrey P Sexton, Blue Chip Accounting gave evidence on behalf of the Applicants. Mr Sexton's evidence (including Exhibit 4) was to the following effect:
A.Mr Sexton’s accounting firm was the accountant for the company.
B.The company was engaged in primary production activities (goat farming).
C.The company did not have a bank account, so the Applicants paid for all expenses for the operations of the company from their personal bank account.
D.The usual accounting treatment for an expense paid on behalf of the company by its proprietors or a third party is to create a double entry, one captioned "expense" and the other "loan", comprising debits and credits respectively.
E.Mr Sexton regretted that he did not recategorise the expense as a gift. Mr Sexton said that if the money had been treated as a gift, it still would have been debited to expenses but credited to income instead of as a loan.
F.Mr Sexton said he was not given any specific instructions as to how to classify the expenses made by Mr and Mrs Lyons in the books of the company. Mr Sexton said he followed normal accounting practice in treating the expenses paid by Mr and Mrs Lyons as a debit expense entry in the books of the company and a corresponding credit entry of loan.
G.Mr Sexton said that Mr and Mrs Lyons could have converted the loan into shares (by way of debt to equity swap), but that this would not have generated any real benefits for them to shareholders. Mr Sexton emphasised that it would be difficult for the company to repay the money to Mr and Mrs Lyons (as creditors) if the loan was converted to equity.
H.In cross-examination, Mr Sexton conceded that he had not explained the mechanics and consequences of classifying the company expenses paid by Mr and Mrs Lyons is a loan instead of as some other type of transaction.
I.In cross-examination, Mr Sexton said that the balance of the loan had been written off by Mr and Mrs Lyons when the company was wound up. Mr Sexton said that approximately $30,000 had been repaid to the Applicants on the winding up of the company, which was sourced from asset sales.
14. The Tribunal accepted that Mr Sexton was a witness of truth. There were no issues of credit concerning his evidence. The Respondent did not challenge his credibility in cross-examination.
Issues
15. The issues in this case are two-fold as they emerged both from the papers and the hearing:
A.What is the correct classification of moneys loaned by the Applicants to their company?
B.Whether: (1) an age pension debt in relation to Mr Lyons in the sum of $2,773.04 for the period to 30 October 2000 – 21 April 2005; and (2) a partner allowance debt in relation to Mrs Lyons in the amount of $20,956.45 for the period 27 October 2000 – 28 May 2004; and (3) an age pension debt in relation to Mrs Lyons in the amount of $1861.70 for the period 29 May 2004 – 21 April 2005, should be waived.
16. In one particular sense, the Respondent did not see the first issue as being relevant because the Applicants accepted that the debts had been properly calculated. Correspondingly, while the Applicants did not contest the debt calculations, they did contest (albeit by implication) the basis on which the debts had been raised in the first place via their contention that the loans by them to their company should not be treated as a loan but as a gift instead.
Applicant’s Submissions
17. The submissions of the Applicant were as follows (gleaned from their oral and written submissions and Exhibits 1 - 6 in general):
A.The Applicants outlined their work history, including their work on the goat farm.
B.The Applicants said that they did not discuss the treatment of the cash injection with their accountant.
C.The Applicants said that they were not aware that their accountant treated the cash injection they made as a loan.
D.The Applicants conceded that the debt calculations were correct.
E.The Applicants described how they had lost $500,000 in a failed "Curtain Call" business venture.
F.The Applicants said that they had absolutely no intention of defrauding Centrelink.
G.The Applicants said that they had failed to disclose the loan as an asset because they were not aware that it had been declared an asset by Mr Sexton.
H.The Applicants said that the correct treatment of the cash injection was as a gift and not as a loan. The Applicants said that this was the correct treatment because they never considered that the loan would be repaid by the company. The Applicants said that they knew their farm was not making money and that it was a means by which they could support a lifestyle they both enjoyed.
I.The Applicants said that the treatment of the cash injection as a loan was an accounting error that did not give them any personal gain.
J.Mrs Lyons suffers from a prolapsed disc in her back, type 2 diabetes, stress and anxiety.
K.Mr Lyons has depression and anxiety, severe hearing loss, and requires a knee replacement and cataract surgery in the near future.
L.A compensation payout of $29,635 received by Mr Lyons had been used to repay debts, and this money was not available to repay any Centrelink debt if the Tribunal affirmed the debt recovery decisions of Centrelink.
M.The Applicants asked the Tribunal not to treat the loan in the books of the company as a loan for income support purposes.
- The decisions below should be set aside and replaced by a decision to the effect that there was no undeclared assets and consequently no debts owed by the Applicants to Centrelink.
Respondent’s Submissions
18. The submissions of the Respondent were these (made orally and in a Statement of Facts and Contentions):
A. While the Applicants did disclose their interests as directors and shareholders of the company, they did not disclose the value or amount of the outstanding loan by the company to them when participating in income and asset updates and reviews with Centrelink.
B. The only real contest in the case was whether the debt should be recovered.
C. The Tribunal had no power to reclassify the cash injection as other than a loan, which was its original accounting treatment.
D. The Applicants were overpaid age pension because of the application of the asset test under section 1064-G2 of the Social Security Act 1991 to their circumstances meant that the value of their assets exceeded the statutory asset cut-offs, resulting in overpayment of age pension.
E. In the case of Mrs Lyons and the overpayment of partner allowance, section 771HF of the Act provides that partner allowance is not payable if the person's assets exceed the asset cut-off amount.
F. It was proper for the loans made by the Applicants to the company to be treated as assets within section 9 of the Social Security Act 1991. In addition, section 1122 produced the result that the face value of the loans were to be taken into account in calculating the asset position of the Applicants.
G. There was no basis on which to waive the debt on the basis of sole administrative error on the part of the Commonwealth within section 1237A. The debts arose because the Applicants failed to disclose precisely the nature of the loans which were recorded in the company's balance sheet. The loans by the Applicants personally to their company were not apparent on the face of the balance sheets provided by them to Centrelink. Accordingly, section 1237A did not avail the Applicants.
H. The Applicants' Statement of Financial Circumstances disclosed that the Applicants receive rental income from a rental/investment property they own (valued at $330,000 and subject to a mortgage of $205,000 and from a foreign pension received by Mr Lyons. The Applicants have an unencumbered principal place of residence.
I. Mr Lyons received a net settlement amount of $29,635 on 1 June 2005 in settlement of a compensation claim.
J. The circumstances of their Applicants were not unusual, uncommon or exceptional as to justify special circumstances waver under section 1237AAD. The Applicants were not in severe financial hardship as to warrant their circumstances being classified as special in the relevant sense.
K. The debt should be recovered and the decisions below affirmed.
Discussion of the Evidence
19. The Tribunal notes there was no real dispute about the primary facts which have taken place in this case. The parties were apart on the correct characterisation of the loans made by the Applicants to their company.
20. There were no issues of credit in this case. In any case, the Applicants did not give evidence, despite an invitation by the Tribunal that they were at liberty to do so if they wished.
21. The provider of a medical report (Exhibit 5) tendered on behalf of Mrs Lyons, Dr Sharon Matthews, was not called to give evidence by the Applicants or required to be cross-examined by the Respondent. This medical report discloses that Mrs Lyons suffers from asthma, poorly controlled diabetes and chronic back pain. Accordingly, the Tribunal was able to accept this evidence at face value, albeit untested forensically. This evidence is relevant only to the debt recovery decision (the second issue in this appeal), as it has no logical bearing or connection with the loan characterisation question stemming from the cash injection (the first issue in this appeal).
22. The evidence before the Tribunal discloses that the loans made by the Applicants to the company were as follows (the figures have been rounded up or down):
Financial Year
Loans by the Applicants
1999/2000
$42,658
2000/2001
$55,644
2001/2002
$67,322
2002/2003
$76,823
2003/2004
$79,650
23. This Table discloses that the loans by the Applicants to the company increased markedly over time.
24. The evidence of the Company Accountant (Mr Sexton) is clearly that the company owes the Applicants the money tabulated above (refer Exhibit 2, Document ST24, Folio 196).
25. The balance sheets of the company (forming part of Exhibit 2), disclosed that the loans are recorded as owing to "K & K Lyons" (see, for example, Exhibit 2, Document ST22, Folio 187) or to non-attributed current liabilities described as "unsecured – other creditors" (see, for example, Exhibit 2, Document ST 14, Folios 127 – 139, especially Folios 134 and 136).
Findings of Fact
26. Based upon the evidence before it, the Tribunal makes the following findings of fact:
A.The issued capital of Mirthland Pty Ltd is $2.00.
B.The Applicants own all of the issued capital of Mirthland Pty Ltd.
C.At all material times, the Applicants were the Directors of Mirthland Pty Ltd.
D.The Applicants paid expenses on behalf of Mirthland Pty Ltd not expecting to recover the money from Mirthland Pty Ltd.
E.The Applicants loaned Mirthland Pty Ltd the amounts recorded in the Table below:
Financial Year
Loans by the Applicants to Mirthland Pty Ltd
1999/2000
$42,658
2000/2001
$55,644
2001/2002
$67,322
2002/2003
$76,823
2003/2004
$79,650
F.The Applicants do not enjoy good health at present.
G.The Applicants' monthly expenditure is slightly in excess of the monthly income.
The Legislation
27. Section 1064 of the Act contains the rate calculator used to calculate age pension.
28. The Tribunal first considered section 11 of the Act, where “’asset’ means property or money (including property or money outside Australia)”.
29. Section 11(12) of the Act concerns "unrealisable assets":
“11(12) An asset of a person is an unrealisable asset if:
(a) the person cannot sell or realise the asset; and
(b) the person cannot use the asset as a security for borrowing.”
30. Section 1122 applies to the purposes of the assets test for income support payment purposes when it is necessary to determine the value of an asset consisting of a loan. Section 1122 reads in these terms:
“If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan”
.
31. Section 1118 identifies certain types of assets which are to be disregarded when calculating the value of the person’s assets for most income support purposes. This provision reads:
“1118 Certain assets to be disregarded in calculating the value of a person’s assets
1118(1) In calculating the value of a person’s assets for the purposes of this Act (other than sections 198F to 198MA (inclusive), Division 1B of Part 3.10, Division 2 and sections 1133 and 1135A), disregard the following:
(a)if the person is not a member of a couple—the value of any right or interest of the person in the person’s principal home that is a right or interest that gives the person reasonable security of tenure in the home;
(b)if the person is a member of a couple—the value of any right or interest of the person in one residence that is the principal home of the person, of the person’s partner or of both of them that is a right or interest that gives the person or the person’s partner reasonable security of tenure in the home;
(c) the value of any life interest of the person other than:
(i)a life interest in the principal home of the person, of the person’s partner or of both of them; or
(ii)a life interest created by the person, by the person’s partner or by both of them; or
(iii)a life interest created on the death of the person’s partner;
(d)the value of any asset‑test exempt income stream of the person, other than a partially asset‑test exempt income stream;
(da)half of the value of any partially asset‑test exempt income stream of the person;
(e)any amount that is:
(i)received by the person within the immediately preceding period of 90 days; and
(ii)is excluded from the definition of income in subsection 8(1) by subsection 8(4) or (5);
(f)the value of the person’s investment in:
(i)a superannuation fund; or
(ii)an approved deposit fund; or
(iii) a deferred annuity; or
(iv) an ATO small superannuation account;
until the person:
(v) reaches pension age; or
(vi) starts to receive a pension or annuity out of the fund;
(g)if:
(i)the person has a granny flat interest in the person’s principal home; and
(ii)the granny flat interest gives the person reasonable security of tenure in the home; and
(iii)the person acquired or retained the granny flat interest before 22 August 1990;
the value of the granny flat interest;
(ga)if:
(i)the person has a granny flat interest in the person’s principal home; and
(ii)the person is a person to whom subsection 1150(2), 1151(2), 1152(2), 1152(5), 1153(2), 1154(2), 1155(2), 1156(2) or 1157(2) applies;
the value of the granny flat interest;
Note: a person described in subparagraph (ii) will have acquired or retained the granny flat interest on or after 22 August 1990 (see section 1145A).
(gb)if:
(i) the person is a sale leaseback resident; and
(ii)the person is a person to whom subsection 1150(2), 1151(2), 1152(2), 1152(5), 1153(2), 1154(2), 1155(2), 1156(2) or 1157(2) applies;
the value of any right or interest of the person in the sale leaseback home;
(h)the value of any contingent, remainder or reversionary interest of the person (other than an interest created by the person, by the person’s partner or by both of them);
(j)the value of any assets (other than a contingent, remainder or reversionary interest) to which the person is entitled from the estate of a deceased person but which has not been, and is not able to be, received;
(k)the value of any medal or other decoration awarded (whether to the person or another person) for valour that is owned by the person otherwise than for the purposes of investment or a hobby;
(m)the value of:
(i)any cemetery plot acquired by the person for the burial of the person or the person’s partner; and
(ii)any funeral expenses paid in advance by the person in respect of the funeral of the person or the person’s partner;
(ma)an amount invested in an exempt funeral investment and any return on the investment;
(n)if:
(i)personal property of the person is designed for use by a disabled person; and
(ii)the person, the person’s partner, a dependent child of the person or a dependent child of the person’s partner is disabled;
the value of the property;
(p)if:
(i)personal property of the person is modified so that it can be used by a disabled person; and
(ii)the person, the person’s partner, a dependent child of the person or a dependent child of the person’s partner is disabled;
the part of the value of the property that is attributable to the modifications;
(q)if the person is provided with a motor vehicle under the scheme administered by the Commonwealth known as the gift car scheme—the value of that motor vehicle;
(r)if the person has sold a residence that was the principal home of the person on terms and has purchased, also on terms, another residence that is the principal home of the person—so much of the balance due to the person in respect of the sale as will be applied by the person in respect of the purchase of the other residence;
(s)the amount of any insurance or compensation payments received by the person because of the loss, damage to buildings, plant or personal effects within the immediately preceding 12 months or such longer period as the Secretary determines for any special reason for a particular payment;
(t)the value of any native title rights and interests of the person, or of a community or group of which the person is a member;
(u)the amount of any accommodation bond balance in respect of an accommodation bond paid by the person.
Note 1: for granny flat interest see subsection 12A(2).
Note 2: for principal home see section 11A.
Note 3: for reasonable security of tenure see subsection 11A(10).
Note 4: for exempt funeral investment see subsection 23(1).
1118(1A) In this section:
native title rights and interests means:
(a)native title rights and interests within the meaning of section 223 of the Native Title Act 1993;
(b)any rights and interests of a similar nature under any law of a State, a Territory or a foreign country (whether or not the rights and interests relate to land or waters outside Australia);
but, to avoid any doubt, does not include any right or interest in a lease or licence, or in a freehold estate.
partially asset‑test exempt income stream means an asset‑test exempt income stream that:
(a)is:
(i)an income stream covered by subsection 9A(1) or (1A), or 9B(1), that is not a defined benefit income stream; or
(ii) an income stream covered by subsection 9BA(1); and
(b)has a commencement day happening on or after 20 September 2004; and
(c)is not covered by principles (if any) determined, by legislative instrument, by the Secretary.
1118(2) If:
(a)a person sells the person’s principal home; and
(b)the person is likely, within 12 months, to apply the whole or a part of the proceeds of the sale in acquiring another residence that is to be the person’s principal home;
so much of the proceeds of the sale as the person is likely to apply in acquiring the other residence is to be disregarded during that period for the purposes of this Act (other than Division 1B of Part 3.10).
1118(2A) Subsection (2) does not apply to the calculation of the value of a person’s assets for the purposes of sections 198F to 198MA or 1123 to 1128 (disposal of assets).
1118(3) For the purposes of this section, if:
(a)the value of any assets of a person or, if the person is a member of a couple, of the person and the person’s partner, that consists of the contents of a principal home and of other personal effects that are used primarily within the principal home does not exceed $10,000; and
(b)the assets are used primarily for private or domestic purposes;
the value of the assets is to be taken to be $10,000 unless the person satisfies the Secretary that the value of the assets is less than $10,000.
1118(4) This section has effect subject to sections 1145A to 1157 (special residences).
1129 Access to financial hardship rules—pensions
1129(1) If:
(a)either:
(i)a social security pension is not payable to a person because of the application of an assets test; or
(ii)a person’s social security pension rate is determined by the application of an assets test; and
(b)either:
(i)sections 1108 and 1109 (disposal of income) and 1124A, 1125, 1125A, 1126, 1126AA, 1126AB, 1126AC and 1126AD (disposal of assets) do not apply to the person; or
(ii)the Secretary determines that the application of those sections to the person should, for the purposes of this section, be disregarded; and
(c) the person, or the person’s partner, has an unrealisable asset; and
(d)the person lodges with the Department, in a form approved by the Secretary, a request that this section apply to the person; and
(e)the Secretary is satisfied that the person would suffer severe financial hardship if this section did not apply to the person;
the Secretary must determine that this section applies to the person.
Note 1: For social security pension see subsection 23(1).
Note 2: for unrealisable asset see subsections 11(12) and (13).
1129(1A) In subsection (1):
social security pension does not include a pension PP (single).
Note: Financial hardship rules for pension PP (single) are contained in sections 1130B and 1130C.
1129(2) A decision under subsection (1) takes effect:
(a)on the day on which the request under paragraph (1)(d) was lodged with the Department; or
(b)if the Secretary so decides in the special circumstances of the case—on a day not more than 6 months before the day referred to in paragraph (a).
1130 Application of financial hardship rules—pensions
Value of unrealisable asset to be disregarded
1130(1)If section 1129 applies to a person, the value of:
(a)any unrealisable asset of the person; and
(b)any unrealisable asset of the person’s partner;
is to be disregarded in working out the person’s social security pension rate.
Deduction from social security pension maximum payment rate
1130(2) If section 1129 applies to a person, there is to be deducted from the person’s social security pension maximum payment rate an amount equal to the person’s adjusted annual rate of ordinary income.
Adjusted annual rate of ordinary income
1130(3) A person’s adjusted annual rate of ordinary income is an amount per year equal to the sum of:
(a)the person’s annual rate of ordinary income (other than income from assets); and
(b)the person’s annual rate of ordinary income from assets that are not assets tested; and
(c)either:
(i)the person’s annual rate of ordinary income from unrealisable assets; or
(ii)the person’s notional annual rate of ordinary income from unrealisable assets;
whichever is the greater; and
(d)an amount per year equal to $19.50 for each $250 of the value of the person’s assets (other than disregarded assets); and
(e)any amounts that are not income of the person because of paragraph 8(8)(zp).
Assets tested asset
1130(4)For the purposes of subsection (3), an asset is not assets tested if the value of the asset is to be disregarded under subsection 1118(1).
Notional annual rate of ordinary income from unrealisable assets
1130(5) A person’s notional annual rate of ordinary income from unrealisable assets is:
(a)the amount per year equal to 2.5% of the value of the person’s and the person’s partner’s unrealisable assets; or
(b)the amount per year that could reasonably be expected to be obtained from a purely commercial application of the person’s and the person’s partner’s unrealisable assets;
whichever is the less.
Family farms
1130(6) If:
(a)an unrealisable asset is a farm; and
(b)the farm is operated by a person who is a family member of the person to whom this section applies; and
(c)it is not reasonable to expect the farm to be used for another purpose;
the Secretary, in working out the amount per year that could reasonably be expected to be obtained from a purely commercial application of the farm, is to have regard to the overall financial situation of the person operating the farm.
1130(6A) If:
(a)section 1129 applies to a person; and
(b)the person, or the person’s partner, owns residential premises; and
(c) the premises are an unrealisable asset; and
(d)a family member of the person, or of the partner, lives at the premises; and
(e)one of the following conditions is satisfied:
(i)the family member previously provided substantial care for the person or the partner at the premises at a time when the premises were the principal home of the person or the partner;
(ii)the family member has resided at the premises for a period of, or periods that add up to, 10 years or more;
(iii) the family member is:
(A) a child of the person or the partner; and
(B) disabled;
and the person or the partner is promoting the independent living of the family member; and
(f)it is not reasonable to expect the premises to be sold or otherwise used to provide income support for the person;
the Secretary, in working out the amount per year that could reasonably be expected to be obtained from a purely commercial application of the premises, is to have regard to whether the family member is financially capable of obtaining suitable alternative accommodation.
Note: for family member see subsection 23(1).
1130(7) Subsections (6) and (6A) do not limit the matters to which the Secretary may have regard in exercising the powers under paragraph (5)(b).
1130(8) Subsection (2) applies:
(a)subject to subsection (10); and
(b)despite sections 1064 and 1066.
1130(9) If:
(a)a person has disposed of assets and section 1125, 1126, 1126AA, 1126AB, 1126AC or 1126AD applies to the disposition; and
(b)the Secretary has made a determination under subparagraph 1129(1)(b)(ii) in relation to the disposition;
this section applies to the person as if the person had not disposed of the assets.
1130(10) If the sum of the rate of pension that would, apart from this subsection, be payable to a person and the annual rate of ordinary income of the person exceeds the maximum payment rate, the rate so payable is to be reduced by the amount per annum of the excess.”
32. The relevant debt waiver provisions in the Act are set out next:
“1235 Meaning of debt
In this Part, debt means:
(a)a debt recoverable by the Commonwealth under Part 5.2; or
(b)a debt under the 1947 Act; or
(c)a debt due to the Commonwealth under a scheduled international social security agreement; or
(d)a debt under the Social Security (Fares Allowance) Rules 1998.
Note: Overpayments under section 1228 are not debts for the purposes of Part 5.2.
1237 Power to waive Commonwealth’s right to recover debt
Secretary’s limited power to waive
1237(1) On behalf of the Commonwealth, the Secretary may waive the Commonwealth’s right to recover the whole or a part of a debt from a debtor only in the circumstances described in section 1237A, 1237AA, 1237AAA, 1237AAB, 1237AAC or 1237AAD and, if the debt is an assurance of support debt, subject to section 1237AAE.
When waiver takes effect
1237(2) A waiver takes effect:
(a)on the day specified in the waiver (whether that day is before, after or on the day on which the decision to waive is made); or
(b)if the waiver does not specify when it takes effect—on the day on which the decision to waive is made.
Note: If the Secretary waives the Commonwealth’s right to recover all or part of a debt, this is a permanent bar to recovery of the debt or part of the debt—the debt or part of the debt effectively ceases to exist.
1237A Waiver of debt arising from error
Administrative error
1237A(1) Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.
Note: Subsection (1) does not allow waiver of a part of a debt that was caused partly by administrative error and partly by one or more other factors (such as error by the debtor).
1237A(1A) Subsection (1) only applies if:
(a)the debt is not raised within a period of 6 weeks from the first payment that caused the debt; or
(b)if the debt arose because a person has complied with a notification obligation, the debt is not raised within a period of 6 weeks from the end of the notification period;
whichever is the later.
Underestimating value of property
1237A(2) If:
(a)a debt arose because the debtor or the debtor’s partner underestimated the value of particular property of the debtor or partner; and
(b)the estimate was made in good faith; and
(c)the value of the property was not able to be easily determined when the estimate was made;
the Secretary must waive the right to recover the proportion of the debt attributable to the underestimate.
Proportion of a debt
1237A(3) For the purposes of this section, a proportion of a debt may be 100% of the debt.
1237AAD Waiver in special circumstances
The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a)the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or a false representation; or
(ii) failing or omitting to comply with a provision of this Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c)it is more appropriate to waive than to write off the debt or part of the debt.
Note 1: Section 1236 allows the Secretary to write off a debt on behalf of the Commonwealth.
Note 2: This section has effect subject to section 1237AAE in relation to an assurance of support debt.”
Tribunal’s Reasons
33. The relevant legislation is contained in the Social Security Act 1991, the material portions of which have been extracted above.
34. The first issue in this case concerns the nature or characterisation of the loans made by the Applicants to their company (Mirthland Pty Ltd). In essence, the Respondent argued that the balance sheet treatment of the loans determined the true character of those liabilities of the company, and that was they were unsecured loans made to the company by the Applicants. This made those loans assets in the hands of the Applicants. The Applicants contested this characterisation, arguing that the Tribunal should re-characterise the loans as a gift or, so it seemed, as a non-payable liability of the company or non-recoverable assets in their hands. Until the hearing itself, the Respondent had conducted and prepared its case on the basis that there was no contest or dispute about the nature of the debts.
35. For at least five different financial years spanning 1999/2000 – 2003/2004 (which span the relevant debt periods), the financial records of the company disclosed unsecured loans to the Applicants. The evidence of the accountant of the company clearly supported, and the Tribunal so finds, that there were loans made by the company to the Applicants (the amounts being recorded earlier in these Reasons for Decision).
36. The Applicants did not, and the Tribunal was not able to, identify any provision of the Act, or any other enabling legislation, or any other enabling or supporting common law rule which gave the Tribunal power to recharacterise transactions from loans to gifts. The Respondent objected to any exercise of an administrative power by this Tribunal to recharacterise or to re-conceptualise the loans as gifts by the Applicants to their company. The Tribunal accepts this contention of the Respondent because it flows from the nature of the Tribunal providing merits-based review of certain governmental decisions.
37. Even apart from this legal vacuum, in the absence of a specific statutory mandate, the Tribunal cannot recharacterise or reclassify transactions having legal effect. The role of this Tribunal is to (1) identify and find facts relating to specified or nominate transactions or events, and (2) then to apply existing law (both statute law and common law), and not make law, to those facts as found in order to correctly identify or characterise those transactions or events. The transactions or events will then attract or possess by operation of law the incidents or attributes which the legal system gives them.
38. A loan between a creditor (here, the Applicants) and the debtor (here, the company) is a type of chose in action (an intangible form of property providing a companion subset to tangible non-land assets).[1] A somewhat refined analysis of the nature of a chose in action was given by Rich J in Loxton v Moir (1914) 18 CLR 360 at 379:
“The phrase ‘chose in action’ is used in different senses, but its primary sense is that of a right enforceable by an action. It may also be used to describe the right of action itself, when considered as part of the property of the person entitled to sue. A right to sue for a sum of money is a chose in action, and it is a proprietary right”
[1] See SJ Traves, Commercial Law (Lexis Nexis Butterworth, Australia, 2006), para [1.8]; S Fisher, Commercial and Personal Property Law, (Butterworths, Sydney, 1997), paras [2.10] – [2.14]. On the debtor creditor relationship for general law purposes, consult P Schmidt & P Scarr, "Debtor and Creditor", Chapter 11 in S Fisher (ed), The Law of Commercial and Professional Relationships, (FT Law & Law, Melbourne, 1996), pp 291 – 311.
39. In this case, the Tribunal is satisfied that the loans owed by the company to the Applicants constitute rights of action enforceable by the Applicants against the company (at least during the relevant period, which is the material time span in this case[2]). Consequently, the loans come within the ambit of a chose in action and so fall within the definition of "asset” within section 11 of the Act.
[2] The recoverability of these loans does not affect their basic nature. The distinction is between rights and remedies.
40. The Applicants contended that the cash injections they make to their company were really in the nature of a gift. It was contended that the Applicants did not really expect the company to repay the money to them and so the nominal classification as a loan should be supplanted by a reclassification as a gift.
41. At general law, the term ‘gift’ is used in two distinct senses. First, the term ‘gift’ is used to describe a method of alienating real or personal property. ‘Gift’ is an “old English noun of Norse derivation which designates a descriptive category of transfer of property”: Leary v FCT(1980) 32 ALR 221 at 241 per Deane J; see also Brennan J at 238. Secondly, the term ‘gift’ is used to categorise a voluntary transfer of property from one person to another where there is no valuable consideration passing from the transferee to the transferor (or as the transferor directs). “A gift is, by its very name, an assignment without consideration”: Olsson v Dyson(1968) 120 CLR 365 at 386 per Windeyer J. In Leary v FCT (1980) 32 ALR 221 at 237, Brennan J observed that the ordinary notion of ‘gift’ in its technical meaning have common features: a transfer of a beneficial interest in property by way of benefaction, and an absence of a pecuniary or a proprietary benefit passing to the transferor” from the transferee by way of return. This definition locates the concept of a gift as both a method of transferring property from one person to another and it also provides the necessary and sufficient rationale for that transfer. The first sense in which gift is employed is a narrow sense, and simply seeks to demarcate the transaction of a gift from other transactions which take place, such as sale of property or other forms of alienation or dealings in property.[3] It is also possible for a chose in action (or movable incorporeal property) to be the subject of a gift: Norman v FCT(1962) 109 CLR 9 at 28 per Windeyer J.
[3] See S Fisher, Commercial and Personal Property Law, (Butterworths, Sydney, 1997), paras [11.1].
42. In Collector of Imposts (Vic) v Cuming Campbell Investments Pty Ltd(1940) 63 CLR 619 at 642, Dixon J said ‘the essential idea of gift is the transfer of property by way of benefaction …’. A gift of property is ordinarily by way of benefaction: FCT v McPhail(1968) 117 CLR 111 at 116 per Owen J; Leary v FCT(1980) 32 ALR 221 at 243 per Deane J; Cypress Mines Corporation v FCT(1978) 9 ATR 33 at 47 per Smith J. A gift is usually not made in pursuance of a contractual obligation: FCT v McPhail (1968) 117 CLR 111 at 116 per Owen J; Leary v FCT(1980) 32 ALR 221 at 243 per Deane J. A gift is ordinarily made without any advantage of a material character being received in return by the donor: FCT v McPhail(1968) 117 CLR 111 at 116 per Owen J; Leary v FCT(1980) 32 ALR 221 at 243 per Deane J; Cypress Mines Corporation v FCT (1978) 9 ATR 33 at 47 per Smith J. A gift “ordinarily proceeds from a detached and disinterested generosity” or out of “affection, respect, admiration, charity or like impulse”: Leary v FCT (1980) 32 ALR 221 at 243 per Deane J; Robertson v United States(1952) 343 US 711 at 714 (1952); Inland Revenue Commissioner v Duberstein (1960) 363 US 278 at 285; Collector of Imposts (Vic) v Cuming Campbell Pty Ltd (1940) 63 CLR 619 at 641.
43. There was some evidence before the Tribunal about the circumstances under which cash injections were made by the Applicants to their company. In Exhibit 3, the following statement appears: "We put the money in to feed our animals and never expected to recover it". This contention was made to persuade the Tribunal that when the cash injections were made, the Applicants had the requisite detached or disinterested generosity to benefit their company such as to characterise the cash injections as a gift.
44. In order for the company accountant to classify the animal feeding expenses paid by the Applicants on behalf of the company, the Tribunal infers that the Applicants would have provided their primary transaction records to the accountant for processing (for example, receipts and other documents evidencing payments made). Based on the records provided, the company accountant then processed and classified the relevant expenses. The company did not have a separate bank account, so company transactions went through the personal bank account of the Applicants. As a gift, the Applicants could not have recovered the money once injected. But as a loan, the cash injections could have been recovered, even before share capital was returned to the Applicants. The Applicants and the company are of course separate legal persons. The Applicants and the company are able to deal with each other on a normal arm’s-length basis (subject to restrictions on self-interested dealings between directors and companies under Chapter 2D of the Corporations Act 2001 and the general law). So there is no legal obstacle to the Applicants making gifts of money to their own company. By using the corporate form to operate their farm, the Applicants must be taken to adopting the consequences of the corporate form. In Hanrick and Secretary, Department of Family and Community Services (2003) 75 ALD 231, the Tribunal said this: “If one is to make use of complicated structures in the course of managing one’s affairs in order to take advantage of the legal consequences of those structures, one cannot ignore the structure and its consequences when it suits one to do so” (at 235).
45. In the opinion of the Tribunal, the gift characterisation is an ex post facto (or retrospective) attempt to outflank the accounting treatment of the loans made beforehand. Having regard to the totality of the evidence before the Tribunal (and particularly the accounting records of the company in question), the Tribunal is not satisfied on the balance of probabilities that the Applicants intended to make a gift of cash injections to their company. Even the statement of the Applicants that they did not expect to recover their money which they injected does not necessarily mean that they were making a gift of that money. This statement goes more to the expectation of recovery than to the basal nature of the transaction.
46. For several financial years, the Applicants signed off financial statements and directors reports warranting the correctness of the information contained in those financial statements and directors reports. While the Applicants may say (and did say) that they relied on their accountant to correctly classified the company transactions to the purposes of preparing financial statements, in the end the Applicants are bound by the characterisation of the cash injections which were made by the accountant in accordance with generally accepted accounting principles and practice.
47. In the final analysis, the Tribunal is not satisfied that the correct treatment of the cash injections made by the Applicant to their company is a gift. Instead, the Tribunal is satisfied on the balance of probabilities that the balance sheet of the company correctly recorded loans made by the Applicants to the company. Accordingly, the Tribunal resolves the first issue in favour of the Respondent.
48. Having regard to section 1122 of the Act, the Tribunal is satisfied that the amounts of the loans made by the Applicant to their company (as tabulated earlier in this Reasons for Decision) were made after 27 October 1986 (the operative date of the purposes of that provision). The Tribunal is also satisfied that those amounts were unpaid. In terms of section 1118 of the Act, the Tribunal is satisfied that none of the exemptions provided no provision governed the circumstances of the Applicants in terms of excluding the loans by them to their company from their pool of assets.
49. The Tribunal had regard to decisions of this Tribunal in cases such as Re Ling and Secretary, Department of Family and Community Services [1999] AATA 797; Re Mendes and Secretary, Department of Family and Community Services [2000] AATA 22; Secretary, Department of Family and Community Services and Downes (2002) 70 ALD 100 at 105 and Re Hughes and Secretary, Department of Social Security (1992) 25 ALD 754. These decisions provide warrant for the proposition that it is the face value of the loans (and not some lesser or reduced rate reflecting recoverability or unrealiseability) made by income support recipients to borrowers which must be taken into account for the purpose of calculating pension entitlements.
50. The Applicants did not (in direct terms at least) raise the issue whether the loan should be treated as unrealisable within section 11(12) of the Act. The Respondent did not refer to this provision. An asset is only "unrealisable" if (a) the person cannot sell or realise the asset; and (b) the person cannot use the asset as security for borrowing. The significance of unrealisable assets is that they figure in the computation and application of the access to financial hardship rules for pension purposes (refer section 1129 of the Act). The Tribunal noted that no evidence before the Tribunal that the Applicants had lodged the requisite application with Centrelink within section 1129(1)(d) in order to obtain a determination within section 1129(1)(c) that their loans to their company were unrealisable assets within the meaning of section 11(12). Accordingly, it is premature for this Tribunal to make any finding of fact or make any decision relating to matters stemming from the interaction of sections 11(12) and 1129 of the Act.
51. The second issue in this appeal concerns the recoverability of the age pension and partner allowance debts raised by the Respondent against the Applicants. The competing contentions of the parties have been noted earlier in these Reasons for Decision. The Applicants did not in their oral submissions place a great deal of emphasis on the second issue, but their intent was clear enough. The Applicants wanted the Tribunal to set aside the decisions of the Social Security Appeals Tribunal declining to exercise discretionary powers under the debt waiver provisions of the Act, and to make substitute decisions waving those debts.
52. The relevant statutory provisions have been identified above. To recapitulate, emphasis in this case was placed on sections 1237A and 1237AAD.
53. The Applicants did not place much reliance (if any) on section 1237A. The Respondent argued that this provision did not apply to justify waiver of the debts. The Respondent contended that the balance sheets of the company did not disclose the loans made by the Applicants to it, placing particular emphasis upon the fact that the company balance sheets referred to "unsecured creditors" rather than nominating the Applicants personally as the creditor. This is not in fact an accurate depiction of the evidence. As stated earlier, the balance sheets of the company (forming part of Exhibit 2), disclosed that the loans are recorded as owing to "K & K Lyons" (see, for example, Exhibit 2, Document ST22, Folio 187) or to non-attributed current liabilities described as "unsecured – other creditors" (see, for example, Exhibit 2, Document ST 14, Folios 127 – 139, especially Folios 134 and 136). In fact, it is only in relation to the 30 June 2004 balance sheet of the company that the Applicants are named personally as the unsecured creditor of the company. The Tribunal does not find that there has been any administrative error by the Respondent. In any case, even if there was, the Tribunal is not satisfied that the administrative error was the sole cause of the 3 debts arising in the first place because the Applicants did not disclose their loans to their company either when making application for the relevant income support payments or when periodic reviews took place.
54. The Tribunal concludes that waiver under section 1237A the Act is not available to benefit the Applicants in this case. This led the Tribunal to consider the "special circumstances" waiver under section 1237AAD (the text which has been reproduced earlier in these Reasons for Decision).
55. Whether any particular set of circumstances attracts the epithet "special" is a question of fact (see Secretary, Department of Employment & Workplace Relations v Homewood (2006) 91 ALD 103 at 110). "Special circumstances" is used within income support law at various points in which to cushion or temper the exercise of a discretion relating to a power or liability in order to signify or demarcate a particular threshold of circumstances particular to income support recipients where the adjudication of a decision must take place. "Special circumstances" is also deployed in debt waiver provision such as section 1237AAD of the Act and section 101 of the A New Tax System (Family Assistance) (Administration) Act 1999 (Cth) (compare Order 52 r 15(2) of the Federal Court Rules which uses the cognate expression “special reasons”).
56. In Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 it was said that "...’special circumstance’ is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional." In the appeal [(1985) 60 ALR 225 at 228], it was said that "...special circumstances must include events which would render [a happening or eventuality]... unfair or inappropriate... We do not think it is possible to lay down precise limits or precise rules... The phrase ’special circumstances’, although lacking precision, is sufficiently understood in our view not to require judicial gloss".
57. In Green and Secretary, Department of Social Security (1990) 21 ALD 773, this Tribunal collected a series of factors that it thought provided guidance concerning the exercise of the discretion conditioned upon the predicate of "special circumstances" in what is now Section 1184Kof the Act. The Tribunal said:
“In Ivovic and Director General of Social Services (1981) 3 ALN N95 the Tribunal identified a number of principles which could be applied in deciding whether special circumstances existed to warrant the exercise of the discretion contained in s 156 of the Act. In that decision, which concerned the liability of the Applicant to repay an amount of sickness benefit paid to him, the Tribunal commented at N97.
·the use of the word "special" is "intended to allow the decision maker the fullest opportunity to consider the particular circumstances of each case";
·"hardship is a relevant consideration" but regard must be had to the way in which the hardship arose;
·there must exist "factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes";
·the decision maker must have regard to whether, by exercising the discretion in a particular case he/she will be "achieving or frustrating ends or objects which are comfortable with the scope and purpose of the Social Security Act"; and
·"the decision maker must be prepared to respond to special circumstances of any particular case by reason of which strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise inappropriate."
58. The principles set out in Ivovic were approved by the Administrative Appeals Tribunal in Krzywak v Secretary Department of Social Security (1988) 15 ALD 690 which has been followed generally by the Tribunal.
59. The Federal Court of Australia said in Trimboli v Secretary, Department of Social Security(1989) 86 ALR 64 at 73:
“[The] discretion is extremely broad and which is not to be confined, save in accordance with usual principles, namely, that it is to be exercised bona fide and for the purposes for which the discretion is conferred, such purposes being determined by reference to the policy and purpose of the Social Security Act: cf Giris Pty Ltd v FCT (1969) 119 CLR 365 at 384.”
60. Later in Groth and Secretary, Department of Social Security (1995) 37 ALD 797 it was stated at 545:
"...[Special circumstances] would require something to distinguish... [the] case from others, to take it out of the usual or ordinary case ... it would of course follow that if one were to conclude that something unfair, unintended, or unjust had occurred that there must be some feature out of the ordinary".
61. In Dranichnikov v Centrelink (2003) 75 ALD 134, the Federal Court held at 148 that for a finding of special circumstances to be made (or for “special reasons” to exist):
"...what is required will be circumstances which distinguish the case in consideration from the usual case. There will be a requirement that the circumstances are such that takes the case out of the ordinary..."
62. In Dranichnikov v Centrelink (2003) 75 ALD 134 at 148, Hill J (Kiefel & Hely JJ concurring) said the following concerning the unusual, uncommon or exceptional gloss:
“The Full Court in Beadle comprising Bowen CJ, Fisher and Lockhart JJ, however, was of the view that it was not possible to lay down precise rules as to what constituted special circumstances under the then s 102(1)(a) of the Social Security Act 1947 (Cth). Their Honours point out that the question whether there were special circumstances was one for the decision-maker (in that case the Director-General) bearing in mind the purpose for which the power was given. The reference to the first instance decision from which the words “unusual, uncommon or exceptional” come was not actually affirmed by the Full Court.”
63. A similar observation was made by Branson J in Ryde v Secretary, Department of Family and Community Services [2005] FCA 866 at [25]. The Dranichnikov approach seems to represent a retreat from the position Hill J took in Haidar v Secretary, Department of Social Security (1998) 52 ALD 255 (see also Kertland v Secretary, Department of Family and Community Services (1999) 95 FCR 64).
64. The explanation of the “unusual, uncommon or exceptional” trilogy made by the Full Court of the Federal Court in Dranichnikov v Centrelink does not appear to have affected or limited the use of this particular trilogy by this Tribunal (see for example, Secretary, Department of Family and Community Services and Danielsen-Jensen (2004) 86 ALD 790 and Secretary, Department of Family and Community Services and SRKKKK (2005) 86 ALD 396) and by the Federal Court (see Ubachs v Secretary of the Department of Family & Community Services [2004] FCA 310 and Jazazievska v Secretary Department of Family & Community Services (2000) 65 ALD 424). The Groth formula (which has also enjoyed wide citation in income support law: see Secretary, Department of Employment and Workplace Relations and Carabott (2006) 89 ALD 726; McAliney and Secretary, Department of Family and Community Services (2005) 83 ALD 316 and Strang and Secretary, Department of Employment and Workplace Relations [2006] AATA 51), with respect, should also be seen as an attempt to paraphrase "special circumstances". This Tribunal is of the view that these paraphrases cannot supplant the statutory language, while at the same time recognising that these paraphrases elucidate the meaning of the statutory language.
65. The clear thrust of some of the authorities discussed above (see in particular Dranichnikov v Centrelink (2003) 75 ALD 134 and Ryde v Secretary, Department of Family and Community Services) is that "special circumstances" should not be interpreted according to synonyms (and in particular not confined by these). The Tribunal considers that the clear and ordinary meaning of the words "special circumstances" is the meaning that should be assigned to them. The Tribunal also considered that it is important not to approach "special circumstances" against an a priori set of established factual circumstances or recurring factual patterns which have been recognised in the authorities as supporting or generating special circumstances, or which in fact exclude special circumstances (compare Dranichnikov v Centrelink (2003) 75 ALD 134 at 148 and Green and Secretary, Department of Social Security (1990) 21 ALD 772). Accordingly, for any adjudicator to state or conclude that special circumstances precludes the exercise of a power and discretion under relevant provisions of the Act simply because the circumstances of an income support recipient are commonplace, is to misconceive and misapply the provision.
66. The Tribunal took into account the following circumstances and factors as disclosed by the evidence before the Tribunal, in particular a document captioned Financial Information (Exhibit 3) dated 20 February 2006, together with the covering letter dated 20 February 2006:
A.The Applicants are both described as "retired" (meaning that they not earning income from paid employment or self-employment).
B.The Applicants’ income is approximately $2,600 per month (the reason why this is an approximation is because one of the integers is denominated in US dollars and no conversion rate was provided).
C.The Applicants expenses total approximately $2,784 per month (leaving a small excess of expenditure over income).
D.The Applicants home is unencumbered.
E.The Applicants have an investment (rental) property valued at $330,000 which carries $205,000 debt. This property contains equity of $125,000.
F.The Applicants' savings in financial institutions is approximately $8,000.
G.The health conditions suffered by both Applicants.
H.The debt position of the Applicants (including their composite Centrelink of approximately $25,591).
67. The Tribunal noted that by comparison with many income support recipients, the Applicants are comparatively well off. The Tribunal acknowledges that the Applicants' expenditure exceeds their income and that this, together with this hearing and the pre-hearing procedures, no doubt contributed to the stress and anxiety felt by the Applicants. The Tribunal noted that the debt position of the Applicants could be eliminated completely if their investment or rental property is sold, the debt retired and the surplus used to retire any other debt.
68. Having regard to these matters, and the policy that special circumstances debt waiver should be reserved for the truly needy people in desperate financial circumstances, or those people who circumstances are outside of the ordinary run of case, the Tribunal considers that the circumstances of the Applicants are not so special as to justify waiver under section 1237AAD of the Act.
69. Accordingly, both major issues in this case result against the Applicants and in favour of the Respondent.
Tribunal’s Conclusion
70. Based upon the material before it, and for these Reasons, the Tribunal concludes that the correct or preferable decision is that the decision under review should be affirmed.
Tribunal’s Order
71. The Tribunal affirms the decisions of the Social Security Appeals Tribunal dated 7 November 2005.
I certify that the 71 preceding paragraphs are a true copy of the reasons for the decision herein of Member SC Fisher
Signed: ………………………….
Fiona Kamst, Legal Research OfficerDate of Hearing 6 July 2006
Date of Decision 2 March 2007
For the Applicants Self-represented
For the Respondent Ms S Oliver, Departmental Advocate
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