Pollock; Secretary, Department of Families, Community Services and Indigenous Affairs
[2006] AATA 635
•19 July 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 635
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2005/1587
GENERAL ADMINISTRATIVE DIVISION ) Re SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS Applicant
And
AMANDA POLLOCK
Respondent
DECISION
Tribunal The Hon R N J Purvis AM QC, Deputy President Date 19 July 2006
PlaceSydney
Decision The decision under review is set aside. In substitution thereof the Tribunal decides that the amounts of family tax benefit and child care benefit paid to the Respondent by the Applicant, and in respect of which she was not entitled, are debts due to the Commonwealth by the Respondent and are not provable by the Applicant in the Respondent’s bankruptcy. [SGD] The Hon R N J Purvis AM QC
Deputy President
CATCHWORDS
SOCIAL SECURITY – family tax benefit and child care benefit – estimation of taxable income – benefits paid based on estimation – Respondent became bankrupt – Applicant reviewed decision and verified taxable income – overpayment – debt due to Commonwealth – no obligation incurred by Respondent to Applicant prior to bankruptcy – debt not provable by Respondent in Applicant’s bankruptcy – decision set aside.
Community Development Pty Limited v Engwirda Construction Co (1969) 120 CLR 455
Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848
Jones as Trustee of the Bankrupt Estate of Graham v Deputy Commissioner of Taxation (1998) 157 ALR 349
Lyford v Carey (1985) 3 ACLC 515
Gaffney v Commissioner of Taxation (1998) 81 FCR 574
Lofthouse v Commissioner of Taxation (2001) 164 FLR 106
Re Kavich; Kavich v Official Trustee in Bankruptcy (1995) 58 FCR 82
Re Secretary, Department of Family and Community Services and Tough (2002) 71 ALD 458
A New Tax System (Family Assistance) (Administration) Act 1999 - sections 14, 16, 17, 20, 21, 23, 31A, 70, 71, 71C, 104, 105
Bankruptcy Act 1966 - sections 55, 82
A New Tax System (Family Assistance) Act 1999 – section 21, Schedule 3
REASONS FOR DECISION
19 July 2006 The Hon R N J Purvis AM QC, Deputy President the application
1. The factual situation in this matter is not in dispute. As they were found by the Social Security Appeals Tribunal (“SSAT”) and detailed by the Applicant and the Respondent in their Statements of Facts and Contentions they are:
·On 16 June 2004 Ms Pollock (“the Respondent”) provided an estimate to Centrelink of the combined taxable income of her and her partner for the 2004/05 financial year. She informed Centrelink that it would be $47,0000 comprising $40,000 for herself and $7,000 for her partner;
·On 23 June and 1 July 2004 Centrelink acknowledged that it would pay family tax benefit instalments (“FTB”) and child care benefit (“CCB”) at rates based upon the Respondent’s estimation of her and her partner’s taxable income;
·On 5 January 2005 the Respondent again revised her estimate of her combined taxable income to $27,000. On 1 February 2005 she revised her estimate to $52,000 and on 3 March 2005 to $70,000;
·On 10 August 2005 the Respondent became a bankrupt under section 55 of the Bankruptcy Act 1966 (“the Bankruptcy Act”);
·The combined taxable income of the Respondent and her partner was actually $74,050, comprising her taxable income of $46,300 and her partner’s income of $27,750. Centrelink determined that the Respondent owed to the Commonwealth $3,574.82 because of the overpayment of FTB and $1,282.21 because of the overpayment of CCB. Centrelink recovered $783.50 to repay the FTB debt from a tax refund owed by the Australian Taxation Office to the Respondent;
·On 9 September 2005 a document entitled “Account Payable – Child Care Benefit 2004/05” was issued on behalf of the Secretary, Department of Families, Community Services and Indigenous Affairs (“the Applicant”) to the Respondent. It asserted that she had received an overpayment of $1,282.21 for the CCB and requested repayment of the amount; and
·On 17 September 2005 the Applicant issued a document to the Respondent entitled “Account Payable – Family Tax Benefit 2004/05” asserting that she had been overpaid FTB in the amount of $2,791.33 and requesting repayment of that amount.
2. On 17 September 2005 as abovementioned, the Applicant made a decision affirmed by a review officer on 5 October 2005 that the Respondent was indebted to it in the amount of $4,857.03. The latter-mentioned amount was comprised of $3,574.82 representing an overpayment of FTB and $1,282.21 representing an overpayment of CCB each in respect of the 2005 financial year.
3. The Respondent had, as abovementioned, on a number of occasions referrable to the 2005 financial year provided to Centrelink an estimate of the combined taxable income of herself and her partner. The FTB and CCB instalment payments made to the Respondent during the 2005 financial year were based upon her said estimates of the taxable incomes of herself and her partner. The combined taxable income of the Respondent and her partner for the 2005 financial year was $74,050. This amount exceeded the estimates previously provided by her. It was on this account that the Applicant decided that the overpayments had been made.
4. In its Statement of Issues, the Applicant maintains that the issue then for the Tribunal is:
“In the circumstances where a person provides an estimate to Centrelink of the person’s taxable income for a financial year for the purposes of the A New Tax System (Family Assistance) (Administration) Act 1999 (the Administration Act); and
under the Administration Act, Centrelink pays family tax benefit instalments and child care benefit at rates based upon that estimation of taxable income; and
the person becomes a bankrupt under the Bankruptcy Act 1966; and
a reassessment under s 105 of the Administration Act is then conducted by Centrelink as a result of which the person owes money to the Commonwealth which is otherwise recoverable as a debt under s 71(2) of the Administration Act,
Is that debt a provable debt in the bankruptcy of the person such that the Commonwealth is precluded from recovering it from the person?”
5. On behalf of the Respondent the issues raised at the hearing were extended to embrace consideration of:
·Whether the power in section 105 of the A New Tax System (Family Assistance) (Administration) Act 1999 (“the Administration Act”) can operate to retrospectively remove an entitlement to an instalment claim;
·Whether there was in fact a decision made under section 105 of the Administration Act; this because section 105 when properly construed requires a decision-maker to reconsider the instalment decision based upon an estimate as to whether that was reasonable. It is not a free-ranging power to look at what would have been paid had a past-period claim been made; and
·That even be section 105 of the Administration Act the source of the power and it allowed the retrospective removal of the entitlement, then it was nevertheless a contingent liability.
6. The Applicant sought to recover the amounts overpaid contending that the indebtedness only arose after a reconciliation was effected in September 2005 and the amounts were then determined to be owing by the Respondent to the Applicant. Being a debt arising after the bankruptcy it was not recoverable in the bankruptcy as an unsecured debt but was owing by the Respondent personally.
7. The Respondent denied a personal indebtedness and appealed to the SSAT which after a hearing and on 14 November 2005 decided:
“… to set aside the decision under review and substitute a new decision that the Commonwealth does not have the right to recover the 2004/05 FTB and CCB overpayments under the family assistance law because that right has been replaced by the Commonwealth’s right to prove the debts in Ms Pollock’s bankruptcy.”
8. The Applicant now seeks review of the latter-mentioned decision by this Tribunal.
relevant legislation
9. The Administration Act relevantly provides as follows:
“…
20.Determination of rate may be based on estimate, indexed estimate or indexed actual income
(1)If:
(a)an individual’s eligibility for, or rate of, family tax benefit is required to be determined for the purposes of this Division or Division 3; and
(b)information about the amount of adjusted taxable income needed for the determination of the eligibility or rate is not available (for example, because the taxable income of the individual or another individual cannot be known until after the end of the relevant income year); and
(c)the individual or, if the individual has died, another individual making a claim under this Division or Division 3 gives the Secretary an estimate of the amount needed; and
(d)the Secretary considers the estimate to be reasonable; and
(e)since the estimate was given, the Secretary has not given the individual a notice under subsection 20A(2) or 20B(2) with a start day that has arrived or passed;
the Secretary may determine the individual’s eligibility for, or rate of, family tax benefit on the basis of the estimate.
…
70. Debts due to the Commonwealth
If an amount has been paid by way of family assistance or one‑off payment to families, the amount is a debt due to the Commonwealth only to the extent to which a provision of:
(a)this Act; or
(b)the Data‑matching Program (Assistance and Tax) Act 1990 ;
expressly provides that it is.
71.Debts arising in respect of family assistance other than child care benefit and family tax benefit advance
No entitlement to amount
(1)If:
(a)an amount has been paid to a person by way of family tax benefit, maternity payment or maternity immunisation allowance (the assistance ) in respect of a period or event; and
(b)the person was not entitled to the assistance in respect of that period or event;
the amount so paid is a debt due to the Commonwealth by the person.
Overpayment
(2)If:
(a)an amount (the received amount ) has been paid to a person by way of assistance; and
(b)the received amount is greater than the amount (the correct amount) of assistance that should have been paid to the person under the family assistance law;
the difference between the received amount and the correct amount is a debt due to the Commonwealth by the person.
…
71C Debts arising in respect of child care benefit where overpayment
If:
(a)an amount (the received amount ) has been paid to a person by way of child care benefit in respect of a period; and
(b)the received amount is greater than the amount (the correct amount ) of benefit that should have been paid to the person under the family assistance law in respect of that period;
the difference between the received amount and the correct amount is, subject to section 71F, a debt due to the Commonwealth by the person.
…
104. Decisions that may be reviewed by the Secretary on own initiative
Decisions that may and may not be reviewed under section 105
(1)Under section 105, the Secretary may review a decision of any officer under the family assistance law except:
(a)a determination of entitlement under section 51B in respect of an individual in so far as it relates to:
(i)a rate certified by an approved child care service under subsection 76(1) of the Family Assistance Act; or
(ii)a certificate relating to a weekly limit of hours given by an approved child care service under subsection 54(10), 55(6) or 56(3) of the Family Assistance Act; or
(b)a determination of entitlement under section 54B in respect of an approved child care service in so far as it relates to:
(i)the service’s eligibility under section 47 of the Family Assistance Act; or
(ii)a rate certified by the service under subsection 76(2) of the Family Assistance Act; or
(iii)a certificate relating to a weekly limit of hours given by the service under subsection 54(10), 55(6) or 56(4) of the Family Assistance Act; or
(c)a decision by the Secretary under Division 2 of Part 8A (advances to approved child care services).
(2)Under section 105, the Secretary may also review a decision under subsection 91A(3) of the Child Support (Assessment) Act 1989 that is made on or after 1 July 2000.
105. Secretary may review certain decisions on own initiative
(1) If:
(a)a decision (the original decision) is a decision that, under section 104, the Secretary may review under this section; and
(b)the Secretary is satisfied that there is sufficient reason to review the decision;
the Secretary may review the decision.
…
Secretary may make decisions in respect of an original decision
(4)The Secretary may decide (the review decision) to:
(a)affirm the original decision; or
(b)vary the original decision; or
(c)set the original decision aside and substitute a new decision.
…”
10. The A New Tax System (Family Assistance) Act 1999 (“the Act”) at clause 2(1)(a) of Schedule 3 – Adjusted Taxable Income provides:
“2. Adjusted taxable income
(1)For the purposes of this Act and subject to subclause (2), an individual’s adjusted taxable income for a particular income year is the sum of the following amounts (income components):
(a)the individual’s taxable income for that year;
…”
11. Section 82 of The Bankruptcy Act provides:
“82. Debts provable in bankruptcy
(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
…
(8)In this section, liability includes:
(a)compensation for work or labour done;
(b)an obligation or possible obligation to pay money or money’s worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and
(c)an express or implied engagement, agreement or undertaking, to pay, or capable of resulting in the payment of, money or money’s worth, whether the payment is:
(i)in respect of amount – fixed or unliquidated;
(ii)in respect of time – present or future, or certain or dependent on a contingency; or
(iii)in respect of the manner of valuation – capable of being ascertained by fixed rules or only as matter of opinion.”
argument advanced by the applicant
12. The Applicant contends that a debt arises under section 71 of the Administration Act at the time it is determined under that Act that the amount a person has been paid in a financial year is greater than the amount that should have been paid to that person in that year. If as in the present application the person becomes bankrupt prior to the determination, the debt is not provable in the bankruptcy but is recoverable against the individual. If the bankruptcy should occur after the determination then the indebtedness is one provable in the bankrupt’s estate.
13. It is necessary then to determine whether the liability had arisen at the date of bankruptcy and thus the basis upon which liability rests. This entails a construing of the legislative provisions in the light of the factual situation.
14. When a person receives family assistance by fortnightly instalments during a financial year as did the Respondent, that person’s actual yearly entitlement cannot be ascertained until the year has ended. As stated by the SSAT in acknowledging that when a person receives family assistance by fortnightly instalments during a financial year that person’s entitlement (at T2/11):
“… cannot be ascertained until the year has ended. This is because the components of adjusted taxable income cannot be accurately quantified until the year has run its course. For example, the amount of a person’s taxable income will depend on how much assessable income they receive, the level of deductions, whether they incurred business losses, etc. An estimate can be quite different to the actual income because of unexpected events that happen in the year.”
15. The Applicant then contends that the Respondent became subject to the liability or debt:
“… once the reconciliation (estimate against adjusted taxable income) is performed because only then has the person’s taxable income been assessed by the ATO and the debt quantified.”
16. It is said that there was no relevant obligation of which the Respondent was in breach that created a liability before the date of the bankruptcy.
17. As maintained by the Applicant, and agreed with by the Tribunal, FTB is a family assistance payment made to eligible persons either as a lump sum at the end of a financial year or as periodical payments (instalments) throughout a year. Instalment payments are made on the basis of an initial estimate of a person’s annual income, made at the beginning of a financial year or at the time the person first applies for the benefit. The person’s estimate and actual income are then reconciled after the end of the relevant income year when the actual income of the recipient is known. If the amount that should have been paid is different from the amount that has been paid then either that amount is recovered or a “top up” of FTB is paid to the recipient. A person’s annual rate of FTB is calculated on the basis of a person’s adjusted taxable income determined from the person’s income tax return for the relevant year in accordance with Schedule 1 in the Administration Act. Following the reconciliation, a debt may be raised by force of law under the Administration Act.
18. As to whether the debt is or is not provable in the bankruptcy of the Respondent the Applicant submits that the relevant test under section 82(1) of the Bankruptcy Act is whether the bankrupt was subject to the liability at the date of the bankruptcy or to a liability which she may become subject before her discharge from bankruptcy by reason of an obligation incurred before the date of the bankruptcy. If that liability arises, even if unknown or unquantified at the time of bankruptcy, then the debt is provable in the bankruptcy and is ultimately discharged by it.
19. In contending that the debt arose under the Administration Act and liability was created after the date of the Respondent’s bankruptcy, the Applicant raises the question as to whether:
“… at the date of the bankruptcy and before the next annual reconciliation a recipient of family tax benefit has incurred as a result of s 71(2) of the Administration Act a debt or liability that may be present or future, certain or contingent to which the person becomes subject at that time or involves an obligation incurred at that time such that she may later become subject to liability?”
20. It is a basic premise to the Applicant’s argument that “no liability of the recipient accrues throughout the year until the annual reconciliation is performed based on the” taxable income of the recipient. If at the time of the reconciliation being performed after the end of the financial year, the amount paid by instalments during the year exceeds the amount to which the recipient was entitled then, by the operation of section 71 of the Administration Act, a debt arises. There is no obligation owed by the recipient to Centrelink prior to that time.
21. The power to make an assessment arises only after the end of a financial year. There is not any power under the Administration Act to make a determination during the year. As submitted on behalf of the Applicant, the FTB rate calculator in Schedule 1 to the Act is directed at working out a recipient’s annual rate of FTB. The adjusted taxable income is referrable to an income year.
22. Nor is there a contingent debt, for there may have been an underpayment in which event Centrelink would be liable to make payment to the recipient. There is not prior to ascertainment of an amount being owed any existing obligation out of which a liability to pay an amount will or could arise in the future (see Community Development Pty Limited v Engwirda Construction Co (1969) 120 CLR 455 at 459). Factors, it is said, which determine whether a debt is provable in a bankruptcy for present purposes as detailed in Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou [2003] FCA 848 at para 50, are:
·A debt need not be due and payable at the date of bankruptcy to be provable in the bankruptcy, but there must be an obligation upon which the debt is founded, being an obligation which was incurred before the time of bankruptcy: Jones as Trustee of the Bankrupt Estate of Graham v Deputy Commissioner of Taxation (1998) 157 ALR 349 at 354;
·For a debt to be "contingent", "there must be an obligation upon which the contingency can operate", being an obligation which "must exist as at the date of bankruptcy": Lyford v Carey (1985) 3 ACLC 515 at 518;
·Where discretion is required to be exercised in a way which impacts on or is relevant to a debt there is no obligation to pay until the discretion is exercised: Lyford (supra) at 519.
·For a debt to be provable in bankruptcy there must be: "... existing circumstances which (give) rise to a contingent debt or liability, and which would crystallise by the happening of some future event": Gaffney v Commissioner of Taxation (1998) 81 FCR 574 at 578;
·A contingent liability within section 82 of the Bankruptcy Act can include a potential liability arising from an obligation: Lofthouse v Commissioner of Taxation (2001) 164 FLR 106; and
·“The questions for determination must be decided by reference to the language of the relevant statutes, rather than by resort to consequences which … would appear to produce injustice …”: Re Kavich; Kavich v Official Trustee in Bankruptcy (1995) 58 FCR 82 at 86-87.
23. Further as was stated in Alekozoglou (supra) at para 51 “an obligation must be a recognisable one created by law and must not be some amorphous vulnerability to a possible debt”. There must be an existing obligation owed by the recipient at the time of the bankruptcy even be it quantification is to occur at a later date.
position taken on behalf of the respondent
24. It is maintained on behalf of the Respondent that each of sections 71 and 71C of the Administration Act refers to amounts that “should have [been] paid” or amounts to which a recipient was “entitled” in respect of assistance. Thus, it is necessary to look to “the source of a person’s entitlement” and the means “by which it can be determined how much they should have been paid”. A distinction is drawn between “eligibility” and “entitlement”. It is said that Part 3 of the Act deals with that person’s eligibility for family assistance including FTB and CCB, section 21 providing that a person is eligible for FTB if that person satisfies various criteria and in particular if their rate of FTB worked out under Division 1 of Part 4 is greater than nil. Division 1 of Part 4 of the Act headed “Rate of Family Assistance” provides the means of calculating the rate of FTB, namely “in accordance with the rate calculator in Schedule 1” of the Act. Schedule 1 sets out a process for calculating a person’s FTB rate by reference to their adjusted taxable income.
25. It is submitted on behalf of the Respondent that subdivision B of Part 3 of the Administration Act provides a scheme for the determination of claims by the Applicant. Section 14 provides that in respect of “a claim for payment of family tax benefit made by an individual” for a past period where an income tax return is required to be lodged then the Applicant can only determine a claim “if [a tax] assessment has been made”. It is said that a different provision is made in respect of a claim for payment of FTB by instalments.
26. The Respondent continues by submitting that section 16 of the Administration Act provides that if a claim for payment of FTB by instalments is made and the Applicant is satisfied that the claimant is eligible for FTB then the Applicant must determine “that the claimant is entitled to be paid [FTB] for each day in which the determination was in force at the daily rate at which the Secretary considers the claimant to be eligible” (subsection 16(2) of the Administration Act). Section 20 of the Administration Act provides the Applicant with a discretion to determine the person’s “eligibility for or rate of family tax benefit” based upon an estimate of a person’s income provided inter alia he “considers the estimate to be reasonable”. Once a determination is made under section 16 “invoking section 20 then section 21(1) applies”. It is said that the abovementioned provisions of the Administration Act draw a distinction between eligibility for FTB and entitlement to FTB. A person’s entitlement to receive FTB comes into existence by the making at least in the present application of a determination under section 16 of the Administration Act. From the making of that determination it is said a person is thereby entitled to receive payment pursuant to subsection 23(1) of the Administration Act. The determination made under section 16 comes into force when it is made and remains in force at all times thereafter.
27. Thus it is submitted that there is no express provision in subdivision C of Part 3 of the Administration Act enabling the variation of an instalment determination made under section 16 because of the contents of an income tax assessment lodged after the end of the relevant financial year nor is there anything it is said enabling the Applicant to make such a determination with a retrospective effect so as to deny from inception the person’s entitlement to the force of the determination made in that person’s favour.
28. The Respondent submits that the position put on behalf of the Applicant fails to identify the source of the entitlement of a person to receive family tax benefit and how that entitlement may be retrospectively changed. A person’s relevant entitlement to receive family tax benefit flows from the making of a determination under section 16 by the Applicant which then requires the Applicant to make a payment as set out in section 23. The determination by the Applicant is the source of the entitlement to be paid. Thus the entitlement to be paid can only be altered if the determination is altered in accordance with the provisions of the Administration Act. The Applicant, it is said, has not identified any statutory power or any decision made under any such power which enabled him in September 2005 to vary the determination that had previously been made under section 16 and to vary it retrospectively so that at the time the Respondent received her payments she was not entitled to them or should not have been paid them. Unless it is said the Applicant can do that then there is no basis “whatsoever for asserting that the Respondent was not entitled to receive the monies that she did because she had the benefit of the determination that had previously been made in her favour”.
29. The Respondent in the alternative maintains that the FTB and CCB debts are ones to which she became subject by reason of an obligation incurred before her bankruptcy; that is her obligation to lodge an income tax return. She says that as at 1 July 2005 her income and her partner’s income for the 2004/05 financial year were either known or ascertainable. On the Respondent’s analysis all that remained for her liability to crystallise was the lodging of her tax return and the performance of a reconciliation by the Applicant. There was imposed on the Respondent an obligation to lodge an income tax return by the income tax legislation and this obligation is reflected in the Administration Act. It follows, so it was submitted on behalf of the Respondent, that in the present application if a liability arose it was by reason of that obligation and it thus falls within section 82 of the Bankruptcy Act.
Arguments referable to section 105 of the Administration Act
30. On behalf of the Respondent it was contended that section 105 of the Administration Act is not a power to treat an instalment claim based on estimates as though it was a past period claim based on a tax assessment. It is said that the power given to the Applicant by section 105 is to review the original decision; that is the decision made pursuant to section 16. The Applicant can review whether the original estimate that was provided was reasonable. It is not open to the Applicant to carry out a reconciliation exercise because that is not what section 16 of the Administration Act originally demanded. Section 17 referrable to a past period claim may enable this exercise to be performed. What section 105 does not do, it is said, is make it sufficiently clear that it is a power to retrospectively remove an entitlement conferred by sections 16, 20, 21 and 23 of the Administration Act. It is said that the nature of the review under section 105 of the Administration Act, even if it can be retrospective, is to identify an original decision under section 16 and then ask the question as to whether the estimate was reasonable. There was no decision made under section 105 in the present instance. Thus, it is said, a review under section 105 is a review of a determination under section 16 and that was a review of whether the Respondent’s estimate was a reasonable one based on what was ascertainable at the time “and became known”. Thus as noted above when discussing the issues that arise in this application the Respondent submits that there has been no decision under section 105 because that section requires the decision-maker to reconsider the instalment decision based upon an estimate as to whether that was reasonable but is not “a free-ranging power to look at whether what would have been paid had a past period claim been made”.
31. On the other hand the Applicant contends that a debt can and has arisen by virtue of a review under section 105 of the Administration Act. Section 104 of that Act identifies decisions that can be reviewed by the Applicant under the family assistance law. The concept of ‘decision’ is broad. It can include a variation decision (section 31A of the Administration Act). The notion of an original decision as used in section 105 is the description of a decision that can be reviewed as listed in section 104. It is not restricted to the first decision made in relation to a recipient’s entitlement; that is the decision to determine a claim for FTB.
32. Further, the decision made under section 105 is in respect of revised estimates of income given by the Respondent. What is being reviewed under section 105 is not as is submitted on behalf of the Respondent. It is not restricted to a mere consideration of whether the estimate given by a recipient is reasonable. The decision being made under section 105 does not put at issue whether the estimate was reasonable or not. The scheme of the Act is that it is one whereby the estimate is measured against the adjusted taxable income and, as submitted on behalf of the Applicant, “the whole thrust of the legislation is that a person is paid on the basis of an estimate subject to a final figure being provided as to what in fact was the reality of” the recipient’s income.
33. The Tribunal is satisfied that the reconciliation conditions of section 105 are not satisfied until a recipient has been assessed under the income tax legislation (consequent upon the requirement to lodge an income tax return by section 32C of the Administration Act) and where as in the Respondent’s case a partner exists, the partner’s income has also been assessed. Assessments will need to have been issued.
34. The Tribunal does not accept that the power to review conferred by section 105 of the Administration Act is to be given the narrow interpretation contended on behalf of the Respondent. It is clear that the nature of the decisions that may be reviewed as per section 104 of the Administration Act is wide enough to cover the exercise reconciling payments made pursuant to estimates provided by a recipient against adjusted taxable income.
the family assistance legislative framework
35. The provisions of the Act and the Administration Act extracted above evidence a legislative scheme whereby the income test for FTB and CCB are based on an individual’s adjusted taxable income for a particular income year. However, section 20 of the Administration Act empowers the Applicant to determine eligibility based on an estimate of income. It is for the Applicant to decide whether the estimate provided by the recipient is reasonable. If so, payments are made as instalments of the amount. When the adjusted taxable income figure for the relevant year is available, the actual entitlement of the recipient to FTB and CCB for that year is determined. The Applicant is then further empowered to review “a decision of any officer under the family assistance law” and apply the rate calculator using the adjusted taxable income figure in order to arrive at the actual entitlement for the relevant year.
36. The decision that has been reviewed by the Applicant is a decision made under section 71(2) of the Administration Act; that is, ascertaining the difference between “the received amount and the correct amount” that should have been paid to the recipient. It is this difference that then can become a debt due to the Commonwealth. Of course if there has been an underestimate of taxable income, a debt may arise whereby money is owed to the recipient.
37. As expressed in Re Secretary, Department of Family and Community Services and Tough (2002) 71 ALD 458 at 466:
“…
33.… s. 71(1) of the FAA Act [the Administration Act] speaks in terms of lack of entitlement. It provides that an amount paid to a claimant in respect of a period is a debt due to the Commonwealth if the claimant was not entitled to the FTB in respect of that period. ...
…”
38. As stated in the explanatory memorandum to the A New Tax System (Family Assistance) (Administration) Bill 1999:
“…
Families who choose to receive fortnightly payments will estimate their income for the current financial year. Their estimated income will be compared with their actual income at the end of the year. Families who have overestimated their income during the year and have been underpaid will receive a top up payment at the end of the year. On the other hand, families who have underestimated their income and have been overpaid, will be required to pay back the amount they were overpaid during the year. …
…”
39. The Tribunal accepts the submission made on behalf of the Applicant that “it is a process that requires the original estimate to be verified”. Under section 105 the Applicant may review the decision on verification. As stated in Tough (supra) at 468:
“…
40.… A decision under s. 105, … may be substituted for the original decision and so affect FTB paid after the date of effect of the original decision …
41.In using his power under s. 105 to review a determination that Mrs Tough was entitled to FTB, it is proper for the Secretary to consider her eligibility and to do so in light of facts that had happened up to the date of his decision if those facts affected her eligibility on or after 1 July 2001. This approach is consistent with the general principles adopted in relation to review by the tribunal as set out in, for example, Re Tiknaz and Director-General of Social Services (1981) 4 ALN N44 … and there is nothing in the FA Act or the FAA Act that suggests that the review is limited to facts that have occurred by a certain time. It is also consistent with the provisions of the FA Act and the FAA Act in so far as they permit a person to apply for FTB for a past period. The eligibility, and so entitlement, of such a person would also be determined by reference to the known income of the person applying for FTB and of his or her child.
…”
40. The Tribunal is satisfied that a section 105 reconciliation is necessary before a debt can be said to have arisen. There is not an obligation imposed upon a recipient under the family assistance law until the reconciliation exercise is carried out and the result reveals that the recipient is a person not entitled to an amount previously paid, which amount then constitutes a debt owing to the Commonwealth (sections 71(2) and 71C of the Administration Act).
the bankruptcy
41. Consistent with the scheme of the legislation and the facts of this matter the Respondent’s debt to the Commonwealth arose at the time of the review decision made pursuant to section 105 of the Administration Act. This occurred subsequent to the bankruptcy. The debt was not one to which the Respondent was subject at the date of the bankruptcy or one to which she may become subject before her discharge by reason of an obligation incurred before the date of her bankruptcy. Even be it some factors may have existed prior to the bankruptcy, additional events needed to occur prior to a debt coming into existence. The debt arose upon the reconciliation exercise being carried out and when the remaining circumstance or event, that is the tax assessment, was in existence. There was not a liability until the happening of the latter event which occurred after the bankruptcy. There was not an obligation incurred by the Respondent to the Applicant prior to her bankruptcy (Gaffney (supra) at 578). The Respondent retains liability for the post-bankruptcy debt which was only determined upon the availability of the adjusted taxable income figure. There was always the possibility of a debt arising as there was the possibility of money being owed to the Respondent.
42. I agree with the submission made on behalf of the Applicant, namely that there was no obligation incurred by the Respondent prior to the bankruptcy. There was an obligation resting on her to lodge a tax return (section 32C of the Administration Act) which after the issue of an assessment and the conduct of the reconciliation exercise (all of which occurred subsequent to the bankruptcy) could give rise to a debt owing by her or an amount due to her.
decision
43. The Tribunal concludes as submitted on behalf of the Applicant that the thrust and force of the legislation is that a person is paid on the basis of an estimate subject to a final figure being provided as to what in fact was the reality of the person’s income.
44. The Tribunal is satisfied that a debt was raised by the Applicant after the subject bankruptcy. The decision of the SSAT of 14 November 2005 is set aside. The amounts of FTB and CCB paid to the Respondent by the Applicant and in respect of which she was not entitled are debts due to the Commonwealth by the Respondent and are not provable by the Applicant in the Respondent’s bankruptcy.
I certify that the 44 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon R N J Purvis AM QC, Deputy President
Signed: A. Garcia
AssociateDate of Hearing 19 June 2006
Date of Decision 19 July 2006
Solicitor for the Applicant Mr M. Murray
Counsel for the Respondent Mr R. Beech-Jones
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