Mihelic and Secretary, Department of Education, Employment and Workplace Relations

[2008] AATA 48

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2008] AATA 48

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2007/3977

GENERAL ADMINISTRATIVE DIVISION		)
Re		MANDY MIHELIC

Applicant

And SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS  

Respondent

DECISION

Tribunal Senior Member P McDermott RFD

Date16 January 2008

PlaceBrisbane

Decision I affirm the decision under review.  

..................[Sgd]............................

Senior Member

CATCHWORDS

SOCIAL SECURITY – Pensions, Benefits and Allowances – youth allowance – calculation of combined parental income – inclusion of net passive business loss -  decision affirmed

REASONS FOR DECISION

16 January 2008 Senior Member P McDermott RFD          

INTRODUCTION

1.      Miss Mandy Mihelic is entitled to receive youth allowance, calculated with reference to her combined parental income. She has sought a review of the calculation of the combined parental income.

PRIOR DECISIONS

2.      On 27 February 2007 Centrelink determined that the combined parental income of Miss Mihelic included her father’s net passive business loss of $33,558. On 1 May 2007 this decision was affirmed by an authorised review officer of Centrelink.

3.      On 24 July 2007 the Social Security Appeals Tribunal affirmed the decision of the authorised review officer.

RELEVANT LEGISLATION

4.      Miss Mihelic was not classified as an independent person for the purposes of the Social Security Act 1991 (“the Act”): see s 1067G-F2. There is no contention that any parent is subject to s 1067G-F3. In these circumstances her entitlement to receive youth allowance is dependant upon the amount of her combined parental income for an applicable year: see s 1067G-F2.

5. Section 1067G-F10 of the Act provides that a person’s combined parental income for a year includes: the parent’s taxable income for that year; the parent’s adjusted fringe benefits total for that year; the parent’s target foreign income for that year; and the parent’s net passive business loss for that year. At this stage I make the observation that this section provides that the combined parental income is the sum of these individual “income components”.

6.      The only “income components” under s 1067G-F10 that are relevant for the purposes of this application are the parent’s taxable income for that year and the parent’s net passive business loss for that year. This has the consequence that the combined parental income of Miss Mihelic is the sum of these components.

7. What is in contention in this application is the parent’s net passive business loss for the 2005/2006 year. Section 1067G-F11(4) of the Act provides how a person’s net passive business loss for a tax year is calculated. A person’s net passive business loss for a tax year is the difference between the total amount of the person’s loss or outgoings and the gross income from the business for that year.

8.      The expression “passive business” is defined by section 1067G-F19A(1) of the Act to mean a business to which the person is usually engaged for less than 17.5 hours in a week.

ISSUES

9.      Mr Mihelic rents an apartment (in the Q1 building). I have to determine whether Mr Mihelic had a net passive business loss from that business and, if so, the amount of that loss.

10.     These issues have both been fairly raised in the Secretary’s Statement of Facts and Contentions, 15 November 2007.

11.     The Secretary has contended that the business of Mr Mihelic in renting that apartment is a “passive business”: See Secretary’s Statement of Facts and Contentions, 15 November 2007, [28].

12.     The Secretary also contends that Mr Mihelic is not usually engaged in that business for at least 17.5 hours per week: see Secretary’s Statement of Facts and Contentions, 15 November 2007, [27].

BACKGROUND

13.     On 11 November 2005 Miss Mihelic made a claim for youth allowance. She has been paid youth allowance at the living at home rate.

14.     Centrelink has been advised that Mr Mihelic had a net rental property loss of $33,558.00 for the rent of his apartment in the 2005/2006 tax year. There is a comment in the Secretary’s Statement of Facts and Contentions that this occurred on 22 December 2006: see Secretary’s Statement of Facts and Contentions, 15 November 2007, [6]. This would appear to be when Miss Mihelic contacted Centrelink on 22 December 2006 [T10, fol. 68]. As Miss Mihelic did not attend the hearing she could not be asked about this incident.

15.     On 22 December 2006 Centrelink decided to update their records with this information and include the amount of that loss as part of the combined parental income of Miss Mihelic [T10, fol 68].

16.     On 1 May 2007 this decision was affirmed by an authorised review officer of Centrelink. The authorised review officer then remarked: “I have reviewed the decision made to include your father’s net passive business loss of $33,558 as assessable income when determining your rate of Youth Allowance.  …. After carefully looking at your case I have decided that your appeal was unsuccessful” [T35, fol 101].

17.     I believe that the wording of the letter of 1 May 2007 of the authorised review officer has caused Mr Mihelic to make the comment to the Social Security Appeals Tribunal that “Centrelink makes up its own laws and that it is unfair that his loss on the rental property should be counted as income for the purposes of assessing his daughter’s youth allowance” [T2]. Mr Mihelic made similar comments to this Tribunal.

18.     In all strictness the wording of the covering letter of 1 May 2007 of the authorised review officer in stating that the amount of the net passive business loss is included as “assessable income” is not correct. The decision statement of the authorised review officer, however, makes it clear that the amount of the net passive business loss is included as part of the “combined parental income” for the purposes of the Social Security Act [T35, fol 104].

19.     If the same terminology as had been used in the decision statement as was used in the covering letter then the concerns of Mr Mihelic may not have arisen. 

APPROPRIATE TAX YEAR

20.     I must next determine the “appropriate tax year” which is applicable for this application. I am satisfied that 2005/2006 tax year is the appropriate tax year. Ordinarily the “base tax year” is the “appropriate tax year” for a youth allowance payment period: see s 1067G-F4. The “base tax year” is defined to be the tax year that ended on 30 June on the calendar year that came immediately before the calendar year in which the period ends: see s 1067G-F5.

21.     During the hearing I clarified whether this case raised the application of s 1067G-F7 which allows for a later tax year to be selected if a person’s combined parental income for the tax year following the base tax year is substantially less than it was in the base tax year and is likely to be so for a 2-year period.

22.     On 5 March 2007 Centrelink advised Miss Mihelic that she could make an application to select the 2006/2007 tax year as the appropriate tax year and, for this purpose, to give an estimate of the parental income for that later year [T20, fol. 84]. I am satisfied that no such application was made by her. Indeed, Mr Mihelic at the hearing stated that he would be aware of the need to make an overpayment of benefit if an estimate of income was incorrect.

PASSIVE BUSINESS

23.     I have already mentioned that the Secretary has contended that the business of Mr Mihelic in renting that apartment is a “passive business”: see, Secretary’s Statement of Facts and Contentions, 15 November 2007, [28]. The Secretary has also contended that Mr Mihelic is not usually engaged in that business for at least 17.5 hours per week: see, Secretary’s Statement of Facts and Contentions, 15 November 2007, [27].

24. After considering all the material before me I find the business of Mr Mihelic in renting his apartment is a “passive business” with the meaning of s. 1067G-F15 of the Act.

25.     Mr Mihelic has not placed before this Tribunal any records relating to the rental of his apartment. Mr Mihelic also elected not to place any rental records before the Social Security Appeals Tribunal, which gave him every opportunity to do so [T2, fol. 6, [9]]. In these circumstances I am not prepared to accept the unsubstantiated assertions of Mr Mihelic concerning the time he worked on the apartment business. Mr Mihelic elected not to give oral evidence before me. As I have already noted, Miss Mihelic, the applicant, did not attend the hearing.

AMOUNT NET PASSIVE BUSINESS LOSS

26. I am next required to determine the amount of the net passive business loss of Mr Mihelic. I have already mentioned that a net passive business loss for a tax year is calculated under s 1067G-F11(4) of the Act as being the difference between the total amount of the person’s loss or outgoings and the gross income from the business for that year.

27.     On a number of occasions Centrelink was informed of the loss. I have already mentioned that on 22 December 2006 Centrelink was advised that Mr Mihelic had a net rental property loss of $33,558.00. It would appear that this information was given by Miss Mihelic. As she did not attend the hearing she could not be asked about this contact. The authorised review officer mentioned in his decision statement that the Australian Taxation Office (the ATO) advised Centrelink of the amount of the loss. Mr Mihelic himself told the Social Security Appeals Tribunal that the loss was $33,558.00 [T2, fol. 6, [9]. This evidence has not been contradicted by any other evidence.

28.     In the circumstances I find that Mr Mihelic had a net passive business loss for the 2005/2006 tax year of $33,558.

29.     For the sake of completeness I should mention that Mr Mihelic pointed to his notice of assessment from the ATO for the 2005/2006 tax year which mentions a deferred non-business loss of $26,957.00 [T7, fol 62]. It is not possible to identify the source or sources of that loss as Mr Mihelic did not tender his tax return for that year. I also think that that the amount of that loss is not relevant in this application as the scheme of the legislation is that the loss must relate to a particular business.

DECISION

30.     I affirm the decision under review.

I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member P McDermott RFD

Signed:         .....................................................................................
  S. O’Grady, Associate

Date/s of Hearing  15 January 2008  
Date of Decision  16 January 2008
Applicant  Mr Mihelic, applicant’s father     
Respondent  Mr J Guthrie, departmental advocate