MacDonald and Secretary, Department of Family and Community Services

[2004] AATA 901

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2004] AATA 901

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No S2004/150

GENERAL ADMINISTRATIVE DIVISION		)
Re		GEOFFREY WAYNE MACDONALD

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Senior Member WJF Purcell

Date27 August 2004

PlaceAdelaide

Decision The Tribunal affirms the decision under review.

(Signed)

WJF PURCELL
  (Senior Member)

CATCHWORDS

SOCIAL SECURITY – pensions, benefits and allowances – Newstart Allowance – correct assessment of rate – whether net loss from rental properties can be offset against the net income from other properties – decision affirmed

Social Security Act 1991 s 8

REASONS FOR DECISION

27 August 2004   Senior Member WJF Purcell

1.      This is an application for review of a decision of the Social Security Appeals Tribunal (the SSAT) of 9 March 2004, which affirmed the decision of an Authorised Review Officer of 25 November 2003, not to offset the net taxable loss incurred from two rental properties against the net taxable income from the applicant’s other rental properties, in determining his rate of Newstart Allowance.

2. The applicant lives at Port Pirie, and has requested the matter be dealt with on the papers. The respondent (the Department) has agreed to this course. The evidence before the Tribunal comprised the documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act1975 (the T Documents).

3.      The applicant, who is 47 years of age, is in receipt of Newstart Allowance.  He has six properties, five of which are rental properties.  The rate of his Newstart Allowance is not affected by his assets; but is affected by the income he receives from the rental properties.  The Department assessed the applicant’s net income by reference to his taxation return for the year 2002/03.  He had net income from Wanderah Road of $98.00, Goode Road of $2,614.00, and Railway Terrace of $4,202.00.  He had stated losses on Pirie Street of $2,847.00 and Three Chain Road of $448.00.

4.      The delegate assessed the applicant’s income on the basis that the net loss from two of his properties could not be offset against the net income of his other properties.  This decision was in accordance with the Departmental Guide to the Social Security Law at point 4.3.8.30 which states:

“For social security purposes:

·If the net income is a negative amount, the income for social security purposes is nil, AND

·Losses from one property CANNOT be offset against income from another property.”

5.      On 11 September 2003 the applicant contacted Centrelink’s Customer Relations Unit and expressed his dissatisfaction with the way Centrelink assessed his income from rental properties.  He requested a review, and the decision was affirmed by an Authorised Review Officer on 25 November 2003, and by the SSAT on 9 March 2004.

6.      The applicant told the SSAT that he understands the legislation, but believes the Australian Taxation Office (ATO) to be the “highest authority in Australia” regarding income and tax related matters, and their method of offsetting loss against profit should override Centrelink policies.  His local MP, Barry Wakelin, and his tax accountant both thought that income should be assessed on ATO methods, and agreed that he should appeal to the SSAT.  The ATO assessed his income for 2002/03 as being $3,718 after offsetting the loss from two properties against the profit from the remainder.  Centrelink said that he earned $6,914 because they did not take the losses into account.  This is a difference of $3,196.  He never “received” that $3,196 because he never paid tax on it, and says “so where has that money gone?”.

7.      The applicant believes that the legislation is unfair.  His Newstart Allowance based on the ATO method of assessment would be $317 per fortnight, and based on the Centrelink assessment is $220 per fortnight.  He has calculated the difference in benefits over 12 months as being $2,500, and added to the $3,196, which he says that he did not receive, leads to a total deficit of more than $5,600.

8.      The applicant told the SSAT that the reason he bought six houses was to get ahead for the future.  He worked for the railways for 24 years, and was put off in 1996.  At that time he already had three properties and has since bought three more.  He was living in his brother’s farm house rent free, but has now moved to his property at Railway Terrace (which had tenants in it and was making a profit) in order to “make ends meet”.  He has not received any rent from that property since 25 January 2004, and has had to lose the $6,500 per year in rent from that property, in order that he could receive a higher rate of Newstart Allowance.

9.      The applicant stated that in regard to the losses made on the two properties - the house at Pirie Street he bought 8 years ago and had to replace the roof last year, so there were costs for repairs and maintenance.  The house at Murdoch Street he bought in December 2003, and the house at Three Chains Road he bought in March 2003, so there were initial losses due to lead in time, and so on.  He has not considered selling any properties because his aim is to own seven houses, and then travel around Australia living off those properties.

10.     The Department contends that although the Income Tax Assessment Act1937 (the Tax Act) permits losses from several rental properties to be offset against net income profits made on other properties, such offsetting is not permitted under the Social Security Act 1991 (the Act). The Act treats income differently from the Tax Act, and these two Commonwealth Acts have entirely different statutory enactments with manifestly different purposes and objectives.

11. It is the Department’s submission that for Newstart Allowance purposes, the Act permits gross rental income to be reduced by losses and outgoings that relate to that property. However, if the outgoings (ie expenses incurred in maintaining the rental property) exceed the amount of gross rental income, then the amount of net income assessed for Newstart Allowance purposes is taken to be “nil”. From this treatment of rental income the Department contends, the Act intends that rental income be permitted to be reduced by legitimate expenses; and if those legitimate expenses equal or exceed the total rental income, then the rental income assessed for Newstart Allowance purposes is “nil”. The Act, unlike the Tax Act, does not envisage negative income amounts (losses) that can be offset against other income.

12.     Section 8(1) of the Act defines “income” 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);

…

income amount means:

(a)       valuable consideration; or

(b)       personal earnings; or

(c)       moneys; or

(d)       profits;

(whether of a capital nature or not);”

13.     Section 8(2) of the Act provides:

“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).”

14.     I have taken into account the arguments the applicant put to the SSAT, together with the statement he lodged with his application to this Tribunal.  I have taken into account also, the Department’s Statement of Facts and Contentions lodged with this Tribunal.

15. It is clear that the applicant considers the ATO the “highest authority in Australia” and that he has been dealt with harshly by the Department’s insistence that, in effect, different rules apply to the assessment of “income” under the Act, when compared with the Tax Act. However the concepts of “income” for the purposes of the Tax Act and the Act differ. The Full Court of the Federal Court in Secretary, Department of Social Security and Garvey (1989) 19 ALD 348 said at 351-2:

“In defining ‘income’ the Act was concerned with what amount was available to a pensioner to meet commitments and outgoings after the pensioner had drawn together the net returns of various sources of income.  It was not concerned with what amount was left in the pensioner’s hands after that income had been received and had been applied to various commitments and outgoings including the losses of business activities that had produced no net income.  There would have been an expectation underlying the Act that any applicant for income assistance in the form of a pension would have corrected or relinquished any such activities which occasioned loss.  The purpose of the relevant part of the Act was very clear, namely to maintain a basic level of income for those who were unable to receive sufficient income to provide for themselves.  It was not the purpose of the Act to provide a further source of income for a person who had applied his or her income to maintain a business conducted at a loss or upon outgoings incurred in acquiring or maintaining assets:  see Read v Commonwealth of Australia (1988) 15 ALD 261; 78 ALR 655 per Brennan J at 662.

In our opinion, the decision in Haldane-Stevensen v Director-General of Social Security does not depart from that view in any way.

With respect to his Honour, we are of the view that the definition of ‘income’ in the Act does not permit the ‘negative yield’ of one source of income to be off set against the yield from other sources.  In truth, a ‘negative yield’ is no more than a demonstration of the lack of a source of income.  The loss sustained by the failure of that source to provide an excess of income over the expenditure incurred in that activity has no relevance to any other source of income.”

With respect, I adopt their Honours’ reasons.

16.     In my view the loss from two of the applicant’s properties should not be offset against the profit from the other properties.  The losses from each of the two properties should be treated, in my view, as “nil” income, for the purposes of the income test and the Act.  I agree therefore with the decision of the SSAT.

17.     For these reasons the Tribunal affirms the decision under review.

I certify that the 17 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member WJF Purcell

Signed:         .....................................................................................
  Associate

Date of Hearing  26 August 2004
Date of Decision  27 August 2004
Counsel for the Applicant         In person
Solicitor for the Applicant          -
Counsel for the Respondent     Mr C Goldsworthy
Solicitor for the Respondent     Centrelink Service Recovery Team