Onody and Secretary, Department of Social Services (Social services second review)
[2018] AATA 4990
•21 December 2018
Onody and Secretary, Department of Social Services (Social services second review) [2018] AATA 4990 (21 December 2018)
Division:GENERAL DIVISION
File Number:2018/1461
Re:Megan ONODY
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:Member G Hallwood
Date:21 December 2018
Place:Adelaide
The decision under review is affirmed.
.................................[Sgnd].......................................
Member G Hallwood
CATCHWORDS
SOCIAL SECURITY – Pensions, benefits and allowances – Family Tax Benefit – Tax return lodged out of time by accountant – Whether special circumstances exist – Whether special circumstances prevented lodgement – Decision under review is affirmed
LEGISLATION
A New Tax System (Family Assistance) Act 1999 (Cth)
A New Tax System (Family Assistance) (Administration) Act 1999 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Angelakos and Secretary, Department of Employment and Workplace Relations (2007) FCA 25
Beadle and Director-General Social Security (1984) 6 ALD 1
Dranichnikov v Centrelink (2003) FCAFC 133
Elrington; Secretary, Department of Social Services (Social Security second review) [2016] AATA 169
Groth and Secretary, Department of Social Security (1995) FCA 1708
Hooker and Secretary, Department of Social Services (2015) AATA 732
Kirkbright and v Secretary, Department of Family & Community Services (2000) FCA 1876
Klein v Domus Pty Ltd (1963) 109 CLR 467
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) 1979 2 ALD 634
Riddell v Secretary, Department of Social Security (1993) 42 FCR 443
Salangsang and Secretary, Department of Education, Employment and Workplace Relations (2010) AATA 55
Secretary, Department of Family, Housing, and Community Services and Indigenous Affairs v Jones (2012) FCA 639
Secretary, Department of Social Security v Le-Huray (1996) FCA 1558
Secretary, Department of Social Services and Cannon (2015) AATA 1028
Secretary, Department of Social Services and Dunford (2016) AATA 567
Secretary, Department of Social Services and Hollis (2015) AATA 941
Secretary, Department of Social Services and Knapp (2018) AATA 1839
Secretary, Department of Social Services and McNamara (2016) AATA 689
Secretary, Department of Social Services and Rech (2016) AATA 543
Secretary, Department of Social Services and Willersdorf (2016) AATA 535SRL and Secretary, Department of Social Security (1998) AATA 326
SECONDARY MATERIALS
Australian Government, Family Assistance Guide 6.4.3:
Revised Explanatory Memorandum, Family Assistance and Other Legislation Amendment Bill 2013 (Cth)
REASONS FOR DECISION
Member G Hallwood
19 December 2018
This application appeals a decision of the Social Services & Child Support Division of the Administrative Appeals Tribunal (AAT1) on 15 February 2018 affirming the decision of 18 October 2017 made by an authorised review officer (ARO) of the Department of Human Services (Department). The ARO affirmed a decision of 19 September 2017 not to grant an extension of time to Ms Onody and her partner, Mr McCullum, to lodge their income tax returns for the 2015/2016 income year.
By determining not to grant an extension of time, the Department’s decision precluded Ms Onody from receiving Family Tax Benefit (FBT) supplement payments (top-ups) for 2015/2016 after the end of the lodgement year (30 June 2017).
THE ISSUES
There is no dispute that Ms Onody’s and Mr McCullum’s income tax returns were lodged on 28 July 2017 and that this date is after the required lodgement date of 30 June 2017, which is twelve months after the relevant income year.
Ms Onody requested that the Tribunal grant an extension of time to lodge the relevant tax returns. The issue for the Tribunal is whether special circumstances existed that prevented Ms Onody and Mr McCullum from lodging their tax returns on time.
BACKGROUND
The facts outlined below are based on documentary evidence and the oral testimony of Ms Onody and her accountant, Mr Brooks. I believe both witnesses presented their evidence honestly, openly and to the best of their recollection. The facts appear to be undisputed.
Ms Onody and her partner have three school aged children. They live in Robe, a coastal town of around 1,300 people on South Australia’s Limestone Coast. Robe is about three and a half hours’ drive from Adelaide and five hours drive from Melbourne.
At the start of the 2015/2016 tax year Ms Onody and Mr McCullum changed their careers by taking on the management of a 17 room motel. Ms Onody described the intensity of this role as greater than expected. At the time they were required to run the motel without any days off and they had no relief staff. Now, three years into the role, they have one weekend off each month. Their motel guests require service seven days a week and 24 hours a day. Ms Onody indicated she and her partner don’t just have to provide reception services at all hours, they receive calls from guests seeking medical services, room maintenance and even the removal of spiders in the middle of the night.
Since becoming self-employed Ms Onody and her partner no longer have straightforward tax returns. They now work under an ABN, submitting BAS statements, paying their own tax and superannuation, and keeping their own books.
Not knowing what their earnings would be for the 2015/2016 year or what would need to be claimed through the business, Ms Onody overstated the family income to Centrelink. She did not want to pay back any overpayment.
In the absence of a local accountant Ms Onody and Mr McCullum engaged Mr Brooks, an accountant and also Ms Onody’s uncle, to complete their tax returns. Mr Brooks’ practice was based in Adelaide some 350 kilometres away. Mr Brooks was highly qualified and was trusted by Ms Onody. He was chosen as they considered their tax returns were too complex to complete themselves.
In October 2016 Ms Onody made the round trip to Adelaide to submit the financial paperwork to Mr Brooks so that he could complete the 2015/2016 tax returns for her and her partner. Mr Brooks indicated the returns would be ready in time.
Mr Brooks, an accountant with some 50 years’ experience, gave evidence that on 1 July 2016 he merged his practice with two other firms as a personal exit and retirement strategy. The merger increased his workload and reduced his autonomy to manage his own caseload. Despite having far less control over his work than before he remained confident he would be able to lodge the returns by 30 June 2017.
On 24 March 2017 Centrelink sent a letter to Ms Onody headed “Family Tax Benefit – Important action required by 30 June 2017”.[1] This letter advised Ms Onody that she and her partner must lodge their 2015/2016 tax returns by 30 June 2017 to ensure she received her full Family Tax Benefit entitlement. The action required of her and her partner and the consequences of failing to meet required timeframes were made clear in this correspondence.
[1] Exhibit T documents T10 pp41-44.
Ms Onody stated that she understood the need to lodge her return by 30 June 2017 and made several calls to Mr Brooks during the months between the letter from Centrelink and 30 June 2017. Each time she called Mr Brooks he assured her the tax returns would be submitted on time. Ms Onody’s mother, Mr Brooks’ sister, had also spoken to Mr Brooks asking if he had completed the tax returns and her mother received the same response.
In the weeks before 30 June 2017, 360 Private Wealth by Design (360 Private), the merged firm Mr Brooks now worked for, realised they would be unable to complete a number of tax returns including Ms Onody’s and her partner’s before 30 June 2017. On 15 June 2017 360 Private sought approval from the Australian Taxation Office (ATO) to approve an Agent Assessed Deferral.
The accounting firm’s reasons for requesting deferral were stated as follows:
(a)360 Private acquired two accounting practices as at 1 July 2016 which doubled the workload;
(b)360 Private’s systems were not compatible which required unplanned additional time setting up client files and ledgers;
(c)Staff movements due to the merger/acquisitions caused disruption throughout the year;
(d)ATO had system outages throughout the year.
Mr Brooks gave evidence that he believed that deferral would resolve Ms Onody’s problem. Mr Brooks said he viewed the ATO lodgement requirements as the overriding rules, and that the ATO’s approval to lodge late would ensure Ms Onody would meet Centrelink’s requirements. Mr Brooks provided to the Tribunal a copy of the ATO approval for late lodgement notice dated 16 June 2017.[2] This ATO deferral gave Ms Onody and Mr McCullum until 28 July 2017 to lodge their tax returns.
[2] Exhibit A1.
Two days before 30 June 2017 Ms Onody reported calling Centrelink as she still had concerns with her tax return not being lodged on time. Ms Onody said she was told that the only valid excuse for late lodgement would be if her house burnt down along with all her tax records. Centrelink recommended that Ms Onody take the tax information from her accountant, have her tax return prepared by someone else, and lodge it on time.
Ms Onody stated in evidence that even had she been able to get away from the motel at that time and make the seven hour round trip to Adelaide to collect the returns, she would not have been able to find an accountant able to complete the returns all within two days. Ms Onody advised that she would have struggled to swap accountants with three months’ notice given her work demands, distance from Adelaide, and no local accounting firm.
On 14 July 2017 Centrelink wrote to Ms Onody informing her that she needed to confirm her family income for the 2015/2016 financial year so that her payments could be reconciled.[3] The letter offered a contact number for her to call if there were special circumstances preventing the lodgement of her family tax returns.
[3] Exhibit T documents T10 pp45-46.
Mr McCullum called Centrelink on 1 September 2017 to explain the delays, to find out what may be done about special circumstances. Centrelink explained the appeal process. Ms Onody requested an extension of time on 4 September 2017.[4] Her fax included a letter from Mr Brooks explaining that late lodgement was entirely the fault of his firm.[5]
[4] Exhibit T documents T8 p26.
[5] Exhibit T documents T8 p27.
On 22 September 2017 Centrelink wrote to Ms Onody confirming that they had rejected her request for an extension of time.[6] Ms Onody sought a review of this decision by an ARO on 2 November 2017. The decision to reject the extension of time was affirmed by the ARO and subsequently by AAT1.
[6] Exhibit T documents T10 pp47-48.
THE LEGISLATION
Relevant law is contained in the A New Tax System (Family Assistance) Act 1999 (the Act) and A New Tax System (Family Assistance) (Administration) Act 1999 (the Administration Act).
People may be eligible for the payment of FTB by instalments during the income year. Instalments are based on a set of factors including estimates of annual income made prior to the income year and in some cases throughout the income year.
Top-ups may be available where the estimated income exceeds the actual income evidenced in tax returns lodged with the ATO after the income year. The Department of Human Services reconciles estimates with the family’s assessment of income by the ATO under the Income Tax Assessment Act1936 (the Tax Act) once the tax return is lodged.
Section 28 of the Administration Act describes the consequences of failure to comply with the reconciliation conditions. The effect of this section on Ms Onody is that where timeframes are not met top-ups will not be paid.
Section 32A of the Administration Act requires the Secretary to disregard the amounts of the FTB top-ups when making or varying a determination until the reconciliation conditions are satisfied.
The relevant reconciliation conditions are provided in subsections 32C and 32D with subsections 32C(3)(b) of the Administration Act providing the Secretary with discretion to extend the 12 month lodgement timeframe for a further 12 months where special circumstances exist that prevent lodgement in time:
(3) The relevant reconciliation time is the time when an assessment is made under the Income Tax Assessment Act 1936 of the first individual’s taxable income for the relevant income year, so long as the first individual’s income tax return for the relevant income year was lodged before the end of:
(a) the first income year after the relevant income year; or
(b) such further period (if any) as the Secretary allows, if the Secretary is satisfied that there are special circumstances that prevented the first individual from lodging the return before the end of that first income year.
CONTENTIONS
At the heart of this review is the question of whether there were special circumstances which prevented Ms Onody and her partner from lodging their 2015/2016 tax returns with the ATO by 30 June 2017.
The Secretary provided the Tribunal with cases supporting their decision not to allow an extension of time:
(a)A two-step test is necessary in order for the Secretary to extend the timeframe in which to lodge a return: the Secretary must be satisfied that special circumstances existed, and also, that those special circumstances prevented them from meeting the timeframe.[7]
(b)Government policy should apply unless there is a cogent reason not to apply it.[8]
(c)Special circumstances are circumstances that are unusual, uncommon or out of the ordinary.[9] Special circumstances provisions are “release valves”[10] such that strict application of the rules in the circumstances would create an injustice and that is unfair, unjust or an unintended outcome.[11]
(d)Prevention from lodging on time should only be enlivened as a reason to extend the lodgement timeframe in cases where it is the special circumstances of the case that prevent the tax returns from being lodged on time.[12]
(e)Tax agent error should not ordinarily constitute a special circumstance[13], and the proper course would be to seek redress from the tax agent that made the error.[14]
[7] Hooker and Secretary, Department of Social Services (2015) AATA 732 [14],[19]; Secretary, Department of Social Services and Hollis (2015) AATA 941 [30]–[31].
[8] Re Drake and Minister for Immigration and Ethnic Affairs (No 2) 1979 2 ALD 634 [644]-[645].
[9] Groth and Secretary, Department of Social Security (1995) FCA 1708 [12]; Dranichnikov v Centrelink (2003) FCAFC 133 [33]; Angelakos and Secretary, Department of Employment and Workplace Relations (2007) FCA 25 [33].
[10] Kirkbright and v Secretary, Department of Family & Community Services (2000) FCA 1876 [28].
[11] Groth and Secretary, Department of Social Security (1995) FCA 1708 [12]; Secretary, Department of Family, Housing, and Community Services and Indigenous Affairs v Jones (2012) FCA 639 [51]; Secretary, Department of Social Security v Le-Huray (1996) FCA 1558 [21]-[23]; Salangsang and Secretary, Department of Education, Employment and Workplace Relations (2010) AATA 55 [66]; SRL and Secretary, Department of Social Security (1998) AATA 326 [55]; Klein v Domus Pty Ltd (1963) 109 CLR 467 [467],[471].
[12] Secretary, Department of Social Services and Knapp (2018) AATA 1839 [35].
[13] Australian Government Family Assistance Guide 6.4.3 (5 November 2018) Guide to Social Policy Law .
[14] Secretary, Department of Social Services and Rech (2016) AATA 543 [21]; Secretary, Department of Social Services and Cannon (2015) AATA 1028 [23]; Secretary, Department of Social Services and McNamara (2016) AATA 689 [48]; Secretary, Department of Social Services and Dunford (2016) AATA 567 [41].
Ms Onody contended that special circumstances existed that prevented her and her partner from lodging their tax returns within the timeframe, and that her accountant had taken action to extend the timeframe for lodgement which was granted by the ATO.
CONSIDERATIONS
Did special circumstances exist for Ms Onody?
The term ‘special circumstances’ is not defined in the Act, the Administration Act, or related legislation. It has been considered on many occasions by the Federal Court and the Tribunal. While, in the interests of consistency, previous decisions will help inform future decisions, every matter has its own facts and each will be determined on its own merits.
As is contended by the Secretary it is generally upheld that ‘special circumstances’ in relation to people that fall within this legislation are circumstances that are unusual, uncommon or out of the ordinary.
The circumstances faced by Ms Onody and Mr McCullum included:
(a)Living some 350 kilometres from Adelaide;
(b)Being on call at the workplace seven days a week and 24 hours a day;
(c)The increased complexity of their tax returns due to starting a business and now requiring an accountant to complete them;
(d)No accounting firm operating in Robe;
(e)Having a trusted family member as an accountant;
(f)The accountant was based in Adelaide, a seven hour round trip from home;
(g)Providing the accountant with the materials to prepare their tax returns several months before the date on which they were required to lodge their returns;
(h)Maintaining regular communication with the accountant to ensure the timeframe was met;
(i)The accountant continually reassuring Ms Onody he would complete the tax return so that it could be lodged on time;
(j)Ms Onody receiving advice from Centrelink about the need to change accountants with only two days to go within the approved timeframe.
The accountant also faced a set of circumstances:
(a)He had recently merged his business with two other firms; changing systems, case load, and control of the work he was performing for his clients;
(b)The accounting firm requested, and was granted an “Agent Assessed Deferral” from the ATO on 16 June 2017 approving lodgement deferral for 28 days;
(c)Ms Onody’s and Mr McCullum’s tax returns being lodged with the ATO within the ATO’s approved timeframe on 28 July 2017;
(d)The accountant believing ATO deferral was all that was required to meet the obligation to the Department.
In order to be considered special circumstances the circumstances cannot be ordinary or usually expected circumstances in a particular context. In the matter of Beadle the Tribunal observed:
An expression such as “special circumstances” is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend on the context in which they occur.[15]
[15] Beadle and Director-General Social Security (1984) 6 ALD 1,3.
There is nothing in Ms Onody’s circumstances, taken individually, that I am able to interpret as special circumstances. Possibly the most challenging circumstance is the requirement to be on call seven days a week and 24 hours a day. While I have no doubt that it is challenging, this is a circumstance faced by many in the role of managing a motel and also by others in 24 hour businesses or providing services particularly in rural and regional settings.
Dealing with new work situations, changes to tax returns, and distance from services when living in regional towns are also difficult circumstances; sadly for many they are not unusual, uncommon or out of the ordinary.
In considering the question of whether it was too late to change accountant’s following the phone call on 28 June 2017 I note that, while it may have been too late at that time for Ms Onody to change accountant, the Department had simply reinforced the position clearly put in the letter of 24 March 2016 that her returns had to be lodged within the approved time frame.
Should the ATO decision to grant a deferral cause the Secretary to grant an extension?
Mr Brooks believed the ATO’s granting of a deferral of lodgement would be enough to protect Ms Onody’s interests. It was obvious from his evidence that Mr Brooks cared a great deal about Ms Onody’s welfare and that he had not intended to lodge her tax returns late. He expressed surprise that there was not interconnectedness between the timing of the tax returns for the ATO and the requirements of the Department of Human Services.
That the Administration Act is interdependent with the taxation system has been noted by Deputy President Forgie:
The amendments made to the FA Administration Act do not alter the interdependence of the system of delivery of FTB and the taxation system. That leads me to conclude that a person’s circumstances should be assessed in light of that interdependence before concluding whether or not they may be characterised as “special circumstances”.[16]
[16] Elrington; Secretary, Department of Social Services (Social Security second review) [2016] AATA 169 [26].
The intent in relation to special circumstance requests for lodging tax returns for FTB supplement purposes and the taxation system was noted when the 2013 amendments to the Act came before Parliament:
Families will be able to access extensions in special circumstances, similar to arrangements for tax returns. The changes bring family payment claim periods more into line with time limits for lodging tax returns before penalties may be imposed, and with the policy intent of the family assistance program, to assist parents with day-to-day costs of raising children.[17]
[17] Revised Explanatory Memorandum, Family Assistance and Other Legislation Amendment Bill 2013 (Cth) p24.
In this case, the circumstances relied on by 360 Private in asking the ATO to grant a deferral related to the accounting firm, not special circumstances of Ms Onody. For this reason I do not consider the ATO deferral as a compelling special circumstance.
Was there a “perfect storm” that enlivens special circumstances?
Mr Brooks raised the matter of Willersdorf in which then Senior Member Britten-Jones described a combination of circumstances coming together in something of “a perfect storm” representing special circumstances. [18].
[18] Secretary, Department of Social Services and Willersdorf (2016) AATA 535 [62].
Before the Tribunal are some similarities to the Willersdorf matter including Ms Onody getting the paperwork to her accountant on time, her accountant being trusted, and the accountant failing to meet the Department’s timeframe.
The challenges faced by Ms Onody were far from trivial, however her circumstances did not represent anything particularly out of the ordinary for people in her position. They did not include unexpected circumstances considered in Willersdorf as contributing to the “perfect storm” such as: the death of a brother; termination of staff; estrangement from family members; and not receiving the Centrelink notice.
There are a number of decisions of the Federal Court and the Tribunal that indicate unusual circumstances are not enough to be considered special circumstances. The circumstances must be unusual so as to produce an injustice in a situation where the sections were applied rigidly.[19] In particular the Full Federal Court has observed:[20]
Each particular case must be considered on its merits. It is the essential nature of the provision to create a broad discretion to meet a great variety of circumstances which must occur, raising considerations of individual hardship, need, fairness, reasonableness, and whatever else may move an administrator, keeping in mind the scope and purposes of the Act, to make a decision one way or the other.
[19] Secretary, Department of Family, Housing, and Community Services and Indigenous Affairs v Jones (2012) FCA 639 [51]; Secretary, Department of Social Security v Le-Huray (1996) FCA 1558 [21]-[23]; Salangsang and Secretary, Department of Education, Employment and Workplace Relations (2010) AATA 55 [66]; SRL and Secretary, Department of Social Security (1998) AATA 326 [55]; Klein v Domus Pty Ltd (1963) 109 CLR 467 [467] [471].
[20] Riddell v Secretary, Department of Social Security (1993) 42 FCR 443 [450].
One of the reasons s 32C of the Administration Act exists in the legislation is to set the timeframe for lodging tax returns in order for the Department of Human Services to reconcile estimated income with actual income. There appears to be no injustice if the only penalty for failing to lodge tax returns on time is the penalty intended in the legislation.
Did the special circumstances prevent Ms Onody from lodging on time?
For an extension under s 32C(3)(b) it is not enough to demonstrate that the circumstances are special, it is also a requirement that those special circumstances prevented a person from making a claim on time.[21]
[21] Hooker and Secretary, Department of Social Services (2015) AATA 732 [19].
The basic question here is what, if anything prevented Ms Onody from lodging her tax return on time?
Ms Onody was not prevented from lodging her tax return on time by failing to get the information to her accountant, or failing to follow up her accountant. She was aware of the Department’s expectation that she ensure her family returns were in by 30 June 2017 and she actively drove the process.
Ms Onody delivered tax documentation to her accountant eight or nine months prior to required lodgement and regularly followed up to confirm the tax returns would be lodged in time.
Mr Brooks’ belief was in error, although perhaps not surprising, that when the ATO grants a deferral the Department of Human Services would also be likely to grant an extension.
Ms Onody was aware of the timeframe for lodging her tax returns more than three months before the deadline. Her phone call to Centrelink with two days to go only confirmed her belief that the timeframe was past the point where she was able to lodge on time.
I am satisfied that even if Ms Onody’s circumstances were enough to be considered special circumstances, she was not prevented by special circumstances from lodging her 2015/2016 income year tax return on time.
DECISION
For the above reasons the Tribunal affirms the decision under review.
I certify that the preceding fifty five [55] paragraphs are a true copy of the reasons for the decision herein of Member G Hallwood.
.........................[Sgnd].....................................
Administrative Assistant Legal
Dated: 21 December 2018
Date of hearing: 16 November 2018 Applicant:
Witness for Applicant:
Ms Megan Onody
Mr Ian Brooks
Advocate for the Respondent: Mr Oliver Morris Solicitors for the Respondent: Department of Human Services
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