Marie Jennings and Secretary, Department of Social Services

[2014] AATA 419

[2014] AATA 419 

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2013/6713
Re	Marie Jennings
APPLICANT
And	Secretary, Department of Social Services
RESPONDENT

DECISION

Tribunal	Ms A F Cunningham, Senior Member
Date	4 June 2014
Date of written reasons	20 June 2014
Place	Perth

The Tribunal affirms the decision under review.

....(Sgd) Ms A F Cunningham..............................................

Ms A F Cunningham, Senior Member

CATCHWORDS

SOCIAL SECURITY - Aged Pension - Calculation of Rate of Australian Aged Pension - Whether Gross Amount of Foreign Pensions should be taken into Account

LEGISLATION

Administrative Appeals Tribunal Act 1975

Social Security Act 1991

CASES

Durant and Department of Family and Community services [1999] AATA 382

Secretary, Department of Family and Community Services and Cremer [2001] AATA 509

Secretary, Department  of Employment and Workplace Relations v Richards [2008] FCAFC 97

REASONS FOR DECISION

Ms A F Cunningham, Senior Member

20 June 2014

1. The applicant, Marie Jennings seeks the review of a decision of the Social Security Appeals Tribunal (SSAT) made on 21 November 2013, which affirmed a decision of Centrelink to reduce her rate of age pension by taking into account the gross amount of Canadian pensions received by the applicant and her husband.

2. The hearing was conducted by way of video link between the Hobart and Perth Registries of the AAT. The applicant appeared on her own behalf and the respondent was represented by Ms Vahala. The T documents were tendered pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.

3. It was Ms Jennings contention that the non-resident tax deducted at source by Revenue Canada from her and her husband’s Canadian pension payments should not be included as income for the purpose of calculating her Australian age pension entitlement. Ms Jennings argued that this non-resident tax component is non-refundable and not ever received by her, such that, it could not be considered income that is either earned, derived or received for her own use or benefit within the meaning of the Social Security Act 1991 (the Act).

4. In the attachments to her application for review Ms Jennings stated that Canadian pensions received by non-resident pensioners are subject to a non-refundable non-resident tax which is deducted at source and to which non-residents had no further recourse unless they have other qualifying Canadian income whereby they can elect to file a Canadian tax return which may or may not give rise to a refund of the non-resident tax or part thereof. As Ms Jennings and her husband have no other form of Canadian income apart from Canadian pensions, as non-resident pensioners they must pay the penalty imposed by Revenue Canada. Ms Jennings referred to the Oxford dictionary definition of penalty as “a disadvantage suffered as a result of something”.

5. At the hearing before the Tribunal Ms Jennings advised that she receives 2 Canadian pensions namely CCP and OAS. She explained that the CCP pension is a contributory pension based on contributions from the employee and employer during their working life in Canada. The contributions are not subject to income tax which is deferred and withdrawn at source when paid out as a pension.

6. It was submitted by Ms Vahala that the Canadian withholding tax does constitute income as defined in section 8 of the Act and as found by a number of authorities, constitutes money received as a benefit in that it represents a payment in satisfaction of a debt.

7. The background facts that give rise to this application were not in dispute. Ms Jennings has been in receipt of an Australian age pension since 7 November 2012. She subsequently advised Centrelink that she and her husband were in receipt of a Canadian pension. Ms Jennings’ rate of age pension was reduced by the gross income of the Canadian pension received by her and her husband. Ms Jennings sought review of Centrelink’s decision which was subsequently affirmed by the SSAT.

8. The issue to be determined by me is what amount of the Canadian pension received by Ms Jennings and her husband should be taken into account in calculating Ms Jennings rate of age pension.

9. The relevant legislation is contained in the the Act. Section 55 of the Act provides that a person’s rate of age pension is to be worked out using the pension rate calculator A in section 1064 of the Act. Module E requires a reduction to be made to the age pension taking into account any ordinary income received by the pensioner. Ordinary income is defined in section 1072 of the Act which provides: “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”.

10. The relevant part of the definition of income appearing in subsection 8(1) is “an income amount earned, derived or received by the person for the person’s own use or benefit”.

11. In support of her submission that the non-refundable non-resident Canadian tax should not be regarded as income for the purposes of her Australian age pension, Ms Jennings referred to the decision of the Full Court of the Federal Court in Secretary, Department  of Employment and Workplace Relations v Richards [2008] FCAFC 97. The facts in that case concerned a single parent who was working at a hotel which work included operating a TAB agency. Her agreement with her employer provided for the payment of wages at rates specified in a certified agreement. It was also a condition of her employment that she would be liable to repay any shortfalls in the till takings at the TAB agency for which she was responsible while working at the hotel. The shortfalls were deducted from her wages. The question for determination was whether the amount of the shortfalls deducted from her fortnightly wage constituted income for the purpose of calculating her parenting payment benefit.

12. The Full Court found that these amounts were not received by Ms Richards for her own use or benefit and did not constitute income within the meaning of the Act. The Court said at paragraph 27 “there was at best a nominal receipt but given that Ms Richards used those sums to satisfy her contractual obligation to make good shortfalls it could not be said that in any real sense she earned, derived or receive those sums or that she had the use or benefit of them.”

13. Ms Jennings argued that the tax withheld by Revenue Canada could be similarly categorised for it was not money ever received by her and nor was it for her own use or benefit. Ms Jennings acknowledged that the facts of this case were somewhat different from her own however maintained that factual variations were not material to the application of principles determined by relevant authorities which she argued could be equally applied to her circumstances. Ms Jennings claimed that the income tax withheld by revenue Canada constitutes a debt or obligation for which she is liable and is similar therefore to Ms Richards’s obligation to make up any shortfall in the TAB takings.

14. The distinguishing feature in the Richards decision is the Full Court’s finding as outlined in paragraph 41 that “the shortfall payment was integrally related to the work Ms Richards was employed to perform. It was for the benefit of her employer. It was not the price to Ms Richards of a benefit provided to her…”. The Full Court refuted any suggestion that the monies withheld from Ms Richards fortnightly wage to cover the TAB shortfalls in any way constituted a benefit to her. This is to be contrasted with the payment of income tax which has been classified by a number of authorities to constitute a benefit for the taxpayer.

15. Ms Jennings submitted that earlier decisions of the Tribunal regarding this issue have now been overruled by the Full Court’s decision in Richards and that monies never received in the hands of a pension recipient could not be said to have been received for their own use or benefit. The Full Court in Richards however, did not refer to the Tribunal’s decisions concerning the classification of withholding tax because they were not relevant to its decision. In this sense it cannot be maintained that the Richards decision has overturned the earlier decisions of the Tribunal.

16. The decision of Durant and Department of Family and Community services [1999] AATA 382 dealt with a similar fact situation being whether Mr Durant’s withholding tax by Revenue Canada from his Canadian pension constituted income earned derived or received within the meaning of the act. Deputy President Forgie referred to a number of other decisions which had concerned this issue before reaching the conclusion that payment of tax from monies either earned derived or received is part of the money for a person’s own use or benefit in that it is for a person’s own use or benefit that they pay their taxation obligations whether those obligations arise in Canada or Australia. At paragraph 23 Deputy President Forgie stated “the fact that he is not called upon to meet those obligations from the pension monies he actually receives and that the money is deducted before the balance is sent to him is of no consequence. The analogy lies in the PAYE system used in Australia. The fact that the Income Tax Assessment Act 1997 requires an employer to deduct instalments of income tax from an employee’s salary before paying the employee his or her salary does not mean that the payment of income taxation is not the employee’s obligation. The employer has an additional obligation imposed upon it in relation to the salary it pays to its employee and that additional obligation is owed to the Commissioner of Taxation.’

17. In referring to section 1072 Deputy President Forgie notes that it clearly refers to a person’s “gross ordinary income” from all sources for the period that his or her ordinary income is to be calculated without any reduction other than a reduction under division 1A. The Deputy President refers to the ordinary meaning of the word “gross” as meaning whole, entire or total without having been subjected to deduction as for charges loss etc. At paragraph 27 she states “it seems to me that the clear intention of the SS Act is that, provided money can be said to be earned, derived or received for a person’s use or benefit, no deductions are to be made unless they are permitted under Division 1A of Part 3.10. Compulsory deduction of taxation before it comes into the hands of the recipient does not make the money deducted any less a payment in satisfaction of a person’s obligations and so a payment for the persons use or benefit.”

18. The payment of tax from source has been categorised as a “benefit” in that it is with held as payment of a person’s obligation or debt. The payment of income tax is a legal obligation upon those persons who earn or derive income which is above the tax-free threshold amount. In return benefits are provided to the taxpayer in the form of services, facilities, administration and so forth. Ms Jennings argues that she does not receive any benefits from her withholding tax because she no longer resides in Canada and has no intention of returning to live there. Ms Jennings informed the Tribunal however that one of her two Canadian pensions namely her CCP pension constitutes tax-free contributions made by both herself and her employer whilst she was living and working in Canada. In this sense Ms Jennings acknowledged that during her period of residence in Canada, she had received the benefit of services provided by the government. Whilst she no longer resides in Canada, the tax that is withheld from her pension constitutes deferred tax from former tax-free contributions.

19. Also of relevance is the following statement of the Tribunal in Secretary, Department of Family and Community Services and Cremer [2001] AATA 509:

    Mr Cremer may well accrue no direct benefits as a result of payment of his US taxation liability. However, it can equally be argued that a person in Australia accrues no direct benefits from payment of their Australian taxation liability; an individual’s entitlements to services and facilities is not dependent on whether or not they pay taxes. It is however clear that a detriment will ensue if  a person has a taxation liability and does not pay it. This is true whether the taxation liability arises in the person’s country of residence or elsewhere. Therefore, it is to the persons benefit that his or her taxation liability be paid. The payment of the US Federal withholding tax is to Mr Cremer’s benefit. When this conclusion is reached, the mechanism by which that payment is made is irrelevant.

20. In line with these authorities it is my finding that the gross amount of Ms Jennings and her husband’s Canadian pensions without any reduction for tax withheld by revenue Canada should be taken into account in calculating Ms Jennings rate of age pension because it constitutes income within the meaning of section 8 of the Act in that it is earned derived or received by Mr Jennings for her own use or benefit.

21. For these reasons I affirm the decision under review.

I certify that the preceding 21 (twenty -one) paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham, Senior Member

....(Sgd) T Freeman......................

Associate

Dated 20 June 2014

Date of hearing	4 June 2014
Applicant	In person
Representative for the Respondent	Ms S Vahala
Solicitors for the Respondent	Australian Government Solicitor