McCormick; Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and
[2009] AATA 746
•29 September 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 746
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2009/1603
GENERAL ADMINISTRATIVE DIVISION ) Re SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS Applicant
And
RITA McCORMICK
Respondent
DECISION
Tribunal Mr S E Frost, Member Date29 September 2009
PlaceSydney
Decision The decision of the Social Security Appeals Tribunal dated 24 March 2009 is affirmed. Ms McCormick is qualified for the economic security strategy payment. ...................[sgd].......................
Mr S E Frost
Member
CATCHWORDS
SOCIAL SECURITY – economic security strategy payment – whether respondent was receiving age pension in respect of 14 October 2008 – age pension suspended as income exceeded allowable limit in the previous fortnight – nil income during instalment period including 14 October 2008 – age pension payments resumed – decision under review is affirmed
Social Security Act 1991 s 23, 44, 55, 900, 1064, 1072
Social Security (Administration) Act 1999 s 43, 80
Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008
Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and de Waal [2009] AATA 635
Secretary, Department of Family and Community Services v Rolley [2000] FCA 806
REASONS FOR DECISION
29 September 2009 Mr S E Frost, Member Introduction
1. On 14 October 2008 the Prime Minister of Australia, in a joint media release with the Treasurer, announced a $10.4 billion “economic security strategy” to strengthen the Australian economy in the face of the global financial crisis. One of the key measures included in the strategy was that the Government would deliver a payment to Australia’s four million pensioners, carers and seniors to provide them with immediate financial help.
2. The Parliament subsequently enacted the Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008 (the ESS Act). This Act effects amendments to various laws, including the social security law, to provide for tax free economic security strategy payments (ESS payments). The payments were to be made to people receiving relevant benefits in respect of the day of the announcement, 14 October 2008.
3. The present proceedings are to determine whether the Respondent, Rita McCormick, is entitled to an ESS payment. Ms McCormick has received age pension payments sporadically since 2002. She supplements the age pension by working as a casual teacher. She declares her teaching income to Centrelink every fortnight. Because her income can vary from one fortnight to the next, she does not always receive the same amount of pension every fortnight.
4. During the fortnight 20 September to 3 October 2008, Ms McCormick earned over $2,000 from her casual teaching. That was an unusually high level of earnings. Nevertheless, as she has always done, she declared her earnings to Centrelink without delay, on 7 October 2008. Centrelink recalculated her pension entitlement on the basis of her declaration, and determined that her pension payments should be suspended immediately.
5. During her next reporting fortnight, that is, from 4 to 17 October 2008, Ms McCormick did not earn anything from her teaching. She reported this state of affairs to Centrelink, and the pension was reinstated. The next payment of her pension was made on 3 November 2008.
6. Centrelink took the view, on the basis of these circumstances, that Ms McCormick was not receiving the age pension “in respect of” 14 October 2008. Accordingly, she was refused the ESS payment. Internal review confirmed that position, but the Social Security Appeals Tribunal (SSAT) found in her favour. The Secretary has applied to this Tribunal for review of the SSAT decision.
Issue
7. The issue before the Tribunal is whether Ms McCormick is entitled to an ESS payment. That will depend on whether she was receiving the age pension in respect of 14 October 2008.
The ESS Act and related provisions
8. The ESS Act introduced into the Social Security Act 1991 (the SS Act) a new s 900, which provides relevantly as follows:
Qualified if this section applies
(1)A person is qualified for an economic security strategy payment if subsection (2), (3) or (4) applies to the person.
Receipt of certain payments
(2) This subsection applies to a person if:
(a)the person was receiving one of the following payments in respect of 14 October 2008:
(i)an age pension;
…
(b)except in the case of carer allowance, the person was receiving that payment because of a claim the person made on or before 14 October 2008.
Note:For receive see subsections 23(2) and (4).
9. The word “receive” was defined in s 23(2) and s 23(4) of the SS Act as follows:
23(1) In this Act, unless the contrary intention appears:
…
receive has the meaning given by subsections (2), (3), (4), (4AA) and (4AB).
…
(2)For the purposes of this Act (other than section 735), a person is taken to be receiving a payment under this Act from the earliest day on which the payment is payable to the person even if the first instalment of the payment is not paid until a later day.
(4)For the purposes of this Act, a person is taken to be receiving a social security payment until the latest day on which the payment is payable to the person even if the last instalment of the payment is not paid until a later day.
The expression “social security payment” is defined in s 23(1) in terms that include the age pension.
Previous consideration of the ESS Act
10. The Tribunal has dealt with circumstances similar to Ms McCormick’s in Re Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and de Waal [2009] AATA 635. Mr de Waal had been receiving the disability support pension (DSP) and, like Ms McCormick, he was refused the ESS payment by Centrelink. The Tribunal had to consider whether the SSAT decision to allow him the ESS payment, contrary to the original Centrelink decision, was correct.
11. In Mr de Waal’s case, the relevant DSP fortnightly period which included the critical date of 14 October 2008 was the period 14 October 2008 to 27 October 2008. In that fortnight, as Deputy President Jarvis noted at [4]:
… Mr de Waal’s earnings exceeded the relevant income test limit under the SS Act. His rate of DSP in respect of that period, which included 14 October 2008, as calculated in accordance with the SS Act was $0, and so no DSP was paid or payable to him in respect of that period.
12. At [7] the Deputy President continued (references omitted):
A payment summary covering the period from January 2006 to July 2009 indicates that Mr de Waal received DSP payments at the end of each fortnightly period until the 14-day instalment period ended on 13 October 2008. He received no DSP payment in respect of the 14-day period ended on 27 October 2008, which period included the eligibility date. He also received no DSP payment in respect of the next ensuing 14-day entitlement period, which ended on 10 November 2008. According to the statement of facts, issues and contentions filed on behalf of Mr de Waal, he had been engaged in part-time seasonal work, involving pruning, and he declared earnings for the 14-day period ended 27 October 2008 of an amount that exceeded the income test limit for DSP, and so, as mentioned above, his rate of DSP was reduced to $0. As a result he was not paid DSP in respect of that period. He also declared earnings in excess of the limit for DSP for the next ensuing 14-day period ended 10 November 2008, and again his rate of DSP was $0, and he was not paid DSP in respect of that period. (emphasis added)
13. Having found (as the highlighted sentence above indicates) that Mr de Waal was not paid DSP in respect of the period that included 14 October 2008, Deputy President Jarvis set aside the decision of the SSAT and substituted the decision that Mr de Waal was not entitled to an ESS payment.
How does this case compare with de Waal?
14. There is a critical distinction between Mr de Waal’s circumstances and those of Ms McCormick. That is, that Mr de Waal had excess earnings in the fortnightly period applying to him that included 14 October 2008, while Ms McCormick had no employment income at all in the fortnightly period applying to her that included that eligibility date, but excess earnings in the previous fortnight.
Other relevant legislative provisions
15. Under s 43(1) of the Social Security (Administration) Act 1999 (the Administration Act), a social security periodic payment (which includes the age pension) is to be paid in arrears and by instalments relating to such periods (not exceeding 14 days) as the Secretary determines. Under s 43(2), instalments of a social security periodic payment are to be paid at such times as the Secretary determines. The Secretary has determined that the age pension is to be paid in arrears by instalments of 14 days. The relevant instalment periods that the Secretary determined in relation to Ms McCormick are the fortnights that ended on 2 October 2008, 16 October 2008 and 30 October 2008. (There is a one-day discrepancy between the end dates of these periods and those of Ms McCormick’s pay periods for employment purposes, but the discrepancy has no bearing on the principles involved.)
16. Section 43(3) of the Administration Act provides for the method of calculating the periodic payment of social security payments. It provides as follows:
Subject to subsection (4), the amount that is to be paid to a person as an instalment of a social security periodic payment in relation to a period is the total of the amounts of the social security periodic payment (calculated by reference to the daily rate of payment applicable to each day) payable to the person for days in that period on which the social security periodic payment was payable to the person.
17. Section 44 of the SS Act provides that age pension is not payable to a person if the person’s age pension rate would be nil.
18. Section 55 of the SS Act provides that a person’s rate of age pension is worked out using Pension Rate Calculator A at the end of s 1064. In that Rate Calculator, point 1064-A1 in Module A provides:
The rate of pension is a daily rate. That rate is worked out by dividing the annual rate calculated according to this Rate Calculator by 364 (fortnightly rates are provided for information only).
19. The method statement immediately following that provision requires the calculation of the person’s maximum basic rate. Certain additions to that rate, not relevant to Ms McCormick’s circumstances, result in the person’s maximum payment rate. It is then necessary to apply the “ordinary income test using MODULE E” to work out the income reduction, which is then subtracted from the maximum payment rate to produce the income reduced rate. In Ms McCormick’s case, that rate is also the provisional annual payment rate. Because there are no further reductions under Step 12 (the final step of the method statement), that provisional annual payment rate is equivalent to the rate of pension. It is clear from the arithmetic involved that that is the annual rate, which must then be divided by 364 to produce the daily rate of pension.
20. Finally, s 80 of the Administration Act provides for the cancellation or suspension of a social security payment. Section 80(1) provides as follows:
If the Secretary is satisfied that a social security payment is being, or has been, paid to a person:
(a) who is not, or was not, qualified for the payment; or
(b) to whom the payment is not, or was not, payable;the Secretary is to determine that the payment is to be cancelled or suspended.
The Secretary’s contentions
21. The Secretary relies, in summary, on the interaction between s 23 and s 44 of the SS Act. The Statement of Facts and Contentions put it this way, at [24]-[25]:
[24] The effect of subsections 23(2) and (4) is to link the receiving of the social security payment to the concept of the payment being “payable”. A social security payment becomes “payable” to a person on the person’s “start day”, which is normally the date the person claimed the payment: [Administration Act], ss 41, 42, Sch 2. By virtue of subsection 44(1) age pension is not payable to a person if the person’s rate of age pension would be nil. Accordingly, the latest day, relevant to the question before the tribunal, on which she received pension was 6 October 2008 when it ceased being payable to her by virtue of her employment income. Age pension has since become payable to Mrs McCormick again by virtue of changes to her income.
[25] The Secretary contends that the effect of these provisions is that the reference in section 900 to “receiving” age pension “in respect of 14 October 2008” means that the person’s pension must have been “payable” for 14 October 2008. …
Consideration
22. I accept, as did Deputy President Jarvis in de Waal, that there is a correspondence between the notions of “receiving” in s 23 of the SS Act and “payable” in s 44 of that Act. The central question in this case is whether Ms McCormick was receiving the pension in respect of 14 October 2008, or, expressed by reference to the concept imported from s 44, whether the pension was payable to Ms McCormick in respect of 14 October 2008. The Secretary says that it was not, because of the suspension to her pension on 7 October 2008. I disagree.
23. It is certainly the case that, because of the suspension, the pension was not paid to Ms McCormick during the period of suspension, from 7 October 2008 to 16 October 2008, but it does not follow that it was not payable to her in respect of the days during that suspension period. It seems to me that the question whether the pension was payable to Ms McCormick in respect of 14 October 2008 can only be answered by the application of the method statement in Pension Rate Calculator A, so as to determine what was Ms McCormick’s daily rate of pension in respect of 14 October 2008. That will establish whether any amount of pension was payable to her in respect of that date, and that, in turn, will establish whether she was receiving the pension in respect of that date.
Application of the method statement in Pension Rate Calculator A
24. I have already summarised at [19] the steps involved in the method statement. The critical step in the method statement is step 5, requiring the application of the “ordinary income test using MODULE E” to work out the income reduction. Module E has its own method statement, which comprises six steps set out at point 1064-E1. Omitting the notes within the method statement (which are not relevant here), the steps are:
Step 1.Work out the amount of the person’s ordinary income on a yearly basis.
Step 2.Work out the person’s ordinary income free area (see points 1064‑E4 to 1064‑E9 below).
Step 3.Work out whether the person’s ordinary income exceeds the person’s ordinary income free area.
Step 4.If the person’s ordinary income does not exceed the person’s ordinary income free area, the person’s ordinary income excess is nil.
Step 5.If the person’s ordinary income exceeds the person’s ordinary income free area, the person’s ordinary income excess is the person’s ordinary income less the person’s ordinary income free area.
Step 6.Use the person’s ordinary income excess to work out the person’s reduction for ordinary income using points 1064‑E10 to 1064‑E12 below.
25. There are two notes following that method statement. The first has no application here. The second one explains, relevantly, that:
the application of the ordinary income test is affected by provisions concerning:
· the general concept of ordinary income (sections 1072 and 1073);
…
26. Section 1073 is not relevant to Ms McCormick’s circumstances because she is not a person who has claimed one of the allowances specified in paragraphs (a) to (f) of subsection (2).
27. Section 1072 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.
Note 1: For ordinary income see subsection 8(1).
…
28. There is an argument that s 1072 is not directly relevant either, on the basis that the reference to “ordinary income on a yearly basis” in Step 1 of the method statement in Module E is not a reference to “ordinary income for a period”, but for present purposes I can put that issue aside. What is undoubtedly relevant is the signpost to s 8(1) for the notion of “ordinary income”. An examination of that definition results in the unsurprising outcome that Ms McCormick’s earnings from her casual teaching activities are “ordinary income” as defined.
29. Returning now to Step 1 in the method statement in Module E, it is necessary to work out “the amount of [Ms McCormick]’s ordinary income on a yearly basis”. It is evident from the papers that Centrelink approached that task in this way:
· First, it took her income amount of $2,007.74 (which is the amount that Ms McCormick reported for the period 20 September to 3 October 2008).
· Next, it multiplied that fortnightly amount by 26 to arrive at an annual amount of $52,201.24 (T28-57).
· Then, having concluded that the income amount was clearly in excess of the amount allowed, it suspended her pension.
· Finally, it reinstated the pension as a result of her later report that she had received no employment income during the period 4 to 17 October 2008.
30. The document at T28-57, in which the annual amount of $52,201.24 is recorded (next to the label “Earned Income”), is stated to have an “Effective Period” of 7 October to 16 October 2008. The next document in the papers, T28-58, has no amount recorded next to the label “Earned Income”, inviting the inference that the calculated “Earned Income” amount is nil. It has an “Effective Period” of 17 October to 2 November 2008.
31. Those documents are significant in three respects.
32. The first is the method of calculation of the annual income (or “Earned Income”) amount, which was to multiply a fortnightly figure by 26. That is not the only way to calculate the figure, but it is reasonable enough in the circumstances. It will lead to frequent changes in the “Earned Income” amount, because of the irregular nature of Ms McCormick’s earnings, but the expectation is that, in the long run, the amount of pension paid over a period of time will be tolerably correct. In my view, that is an appropriate way to calculate the “Earned Income” amount, or, as the method statement refers to it, the “ordinary income on a yearly basis”.
33. The second significant aspect is that the “Earned Income” amount of $52,201.24 applies to an “Effective Period” of 7 October to 16 October 2008. Since the declared income amount of $2,007.74 was earned in the fortnight 20 September to 3 October 2008, it is surprising that this is not the period to which the derived amount of $52,201.24 applies. Instead, it applies to the following period.
34. The third significant aspect is that, when Ms McCormick declared no income in the fortnight 4 October to 17 October 2008, leading to a derived “Earned Income” amount of nil for the “Effective Period” 17 October to 2 November 2008 (unusually, a 17-day period), the pension was reinstated immediately, but the next payment did not occur until 3 November 2008. That payment, although expressed to be for the period 17 October to 30 October 2008, was calculated by reference to the earnings Ms McCormick reported on 17 October 2008 for the period 4 to 17 October 2008.
35. The pension was not paid to Ms McCormick during the period which included 14 October 2008 because her pension was suspended at the time. The suspension was because of her income declaration in respect of the previous period. But it was because of information she supplied about her income during the fortnight in which 14 October 2008 fell, that her pension was reinstated from 17 October 2008. She received the full pension amount for the period 17 to 30 October 2008 (paid on 3 November 2008) because on 14 October 2008 and the other days in that fortnight she received no employment income. Centrelink was necessarily acting on information regarding past periods to determine her entitlement at any time.
36. I intend no criticism of Centrelink for the way it dealt with Ms McCormick’s circumstances. Centrelink’s task is a difficult one, administering complex and sometimes inconsistent or confusing legislation, generally for the financial assistance of its customers. Administrative guidelines and, on occasions, automated, computer-generated decision-making play an important role in that administration. But sometimes the outcome is less than optimal, and Ms McCormick’s case is in that category.
37. In the ordinary course of events the SS Act requires, on an ongoing basis, the calculation of a “daily rate” of pension, without any specific focus on the particular day in respect of which the daily rate applies. It does not normally matter whether the daily rate changes today, or tomorrow, or next fortnight, so long as the calculation is tolerably accurate and the relevant payment is processed without disadvantage to the customer – or, if disadvantage is suffered, it will be corrected in due course.
38. The way that the law is practically administered is that Centrelink receives income information for one fortnight, processes it (often) in the next fortnight, and then makes a payment (or declines to make a payment) in that second fortnight, or sometimes even in the following, third, fortnight. Sometimes the payment (or non-payment) in the second (or third) fortnight might be, in practical terms, an adjustment of an earlier payment because more recent information suggests that the earlier payment was either too low, or too high, or should not have been made at all. None of this is objectionable. It is the way things are done. The system probably could not operate on an ongoing basis in any other way.
39. However, when a provision such as s 900(2)(a) is enacted, we must turn away from “the way things are done” and focus on what the law says. The law asks whether Ms McCormick was receiving the age pension in respect of 14 October 2008. The Secretary says, and I agree, that to answer that question I must determine whether the pension was “payable” to Ms McCormick in respect of 14 October 2008. And to answer that question, I have to determine whether her “daily rate” of pension in respect of 14 October 2008 was nil (in which case she is not qualified for the ESS payment), or whether it was greater than nil (in which case she is qualified for the ESS payment).
40. The starting point is Step 1 of the method statement in Module E. That says that I must work out the amount of Ms McCormick’s ordinary income on a yearly basis. In Secretary, Department of Family & Community Services v Rolley [2000] FCA 806, a Full Court of the Federal Court of Australia examined the construction of Step 1 in Module E and observed at [18]:
… It is necessary to have regard to the statutory context of that provision and, in particular, the place of the calculation in Module E as one of the steps involved in the calculation under Module A of the rate of pension which is said in Part 1064-A1 of that Module to be “an annual rate”. While point 1064-A1 states in parenthesis that “fortnightly amounts are provided for information only”, instalments of age pension are payable on alternate Thursdays (s 23(1)) in instalments “worked out by dividing the amount of the annual rate of the pension by 26” (s 59(1)). So payment of the pension is done in fortnightly instalments calculated according to an annual rate. The fortnightly instalments so paid may vary as the annual rate varies according to fluctuations in the amount of a person’s ordinary income calculated under Module E.
41. As a result of an amendment to s 23, pension pay days are no longer invariably Thursdays. Also, the work previously done by s 59(1) is now done by s 43 of the Administration Act. Nevertheless, the main thrust of the Full Court’s observations are unaffected by these minor legislative changes.
42. The Court continued at [19]-[20]:
[19] The first step in Module E requires the working out of the amount of the pensioner's income on a yearly basis. That is to be offset under Module A against the annual rate of pension payable. But the annual rate is payable by fortnightly instalments and may be varied according to changes in ordinary income from time to time albeit that ordinary income is calculated on a yearly basis. Despite the different language the basic conceptual framework remains the same as it was under the 1947 Act. This reflects the legislative intention expressed in the Second Reading Speech that the new Act is a “rewrite” not involving any major policy initiatives and not having any financial impact. So ordinary income on a yearly basis reflects the concept of annual rate of income referred to in s 28(2) of the 1947 Act.
[20] On that basis it is appropriate in calculating ordinary income on a yearly basis to consider the character of the payments which have been received. So, as in [Harris v Director-General of Social Security [1985] HCA 1; (1985) 57 ALR 729; (1985) 59 ALJR 194; (1985) 7 ALD 277], an annual dividend payment of $1,000 would be treated under Module E as ordinary income of $1,000 on a yearly basis. The characterisation of some income by reference to its sources may require evaluative judgments as to whether or not it is to be treated as recurring income from which an annual rate may be extrapolated. The range of cases requiring such judgments is illustrated by reference to income derived from employment. So a person in regular employment, albeit it may be part-time, could expect to have income received from that employment dealt with on the assumption that earnings at the current rate would continue and be extrapolated by multiplication to an annual rate. …
43. That last sentence of [20] in Rolley illustrates and supports that part of Centrelink’s methodology as described in the first two bullet points of [29] above. As I have already indicated, that is a reasonable approach, if not the only possible one.
44. In deciding whether there was an amount of pension “payable” to Ms McCormick in respect of 14 October 2008, Centrelink undertook an unobjectionable calculation methodology, but it did not, in my opinion, apply sufficient focus to the actual eligibility date. The task is to calculate the amount that represented, as at 14 October 2008, her “ordinary income on a yearly basis” (which is the expression used in Step 1 of Module E) or her “annual rate of income” (which, according to Rolley, is what that expression means). That calculation must use, as the starting point, the actual income she earned on that day (or, perhaps more pragmatically, and just as acceptably, the actual income she earned in the relevant fortnight that included that date, divided by 14). On either basis, the starting point is an actual income amount of nil. It must follow that her “ordinary income on a yearly basis”, as at 14 October 2008, was nil. Therefore, for the purposes of Module A, there is no income reduction amount as a result of her employment. As a consequence, her “daily rate” of pension in respect of 14 October 2008 was greater than nil. It follows that she was receiving the age pension in respect of 14 October 2008.
45. In my view, there is no inconsistency between this outcome and the decision of Deputy President Jarvis in de Waal. At [33] the Deputy President said:
… Mr de Waal was receiving DSP continuously from his start day, that is 7 February 2006, until 13 October 2008. There were then two successive 14-day instalment periods during which his DSP entitlement was reduced to nil as a result of his declared earnings.
46. In Mr de Waal’s particular circumstances, the words “in those instalment periods” could be added to that final sentence, so as to emphasise that his entitlement was reduced to nil as a result of his declared earnings in those instalment periods. This is where Ms McCormick’s circumstances differ from those of Mr de Waal. Ms McCormick’s pension instalment amount was temporarily reduced to nil as a result of her declared earnings in a previous instalment period. But her pension rate in respect of each of the days in the relevant eligibility period was not reduced to nil. It could not be reduced to nil because she had no employment income in that period to trigger a reduction of that size. Mr de Waal had excess income in the relevant period; Ms McCormick did not. That is the critical difference between the two cases.
Conclusion
47. Ms McCormick was qualified for the ESS payment because she was receiving the age pension in respect of 14 October 2008.
48. The decision of the SSAT dated 24 March 2009 is affirmed.
I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S E Frost, Member
Signed: ...............[sgd].................................................................
AssociateDate of Hearing 11 August 2009
Date of Decision 29 September 2009Appearance for the Applicant Mr J Larcombe, Centrelink Legal Services
Appearance for the Respondent Self-represented
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