QX2006/11 and Secretary, Department of Employment and Workplace Relations
[2006] AATA 969
•15 November 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 969
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2005/795
GENERAL ADMINISTRATIVE DIVISION )
Re QX2006/11 Applicant
And
SECRETARY, DEPARTMENT
OF EMPLOYMENT AND WORKPLACE RELATIONSRespondent
DECISION
Tribunal Ms M J Carstairs, Senior Member Date15 November 2006
PlaceBrisbane
Decision The Tribunal affirms the decisions under review namely:
§ the decision to raise and recover a debt of disability support pension, the amount of which was varied after the Social Security Appeals Tribunal hearing and now stands in the sum of $8,017.23;
§ the decision to assess the applicant’s assets by disregarding the value of encumbrances over the applicant’s principal place of residence.
.................[Sgd]...........................
M J Carstairs
Senior Member
CATCHWORDS
SOCIAL SECURITY- disability support pension debt – overpayment due - income received from an income protection insurance policy – failure to advise Centrelink - decision affirmed.
SOCIAL SECURITY – valuation of assets – charges or encumbrances over principal place of residence are not set off against asset value – decision affirmed.Social Security Act1991 ss 8, 17(2A), 1121, 1223, 1236, 1237
Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35
Ryde v Secretary Department of Family and Community Services [2005] FCA 866
Secretary Department of Social Security v Hales (1998) 82 FCR 154Director-General of Social Services v Hales (1983) 47 ALR 281
REASONS FOR DECISION
15 November 2006 Ms M J Carstairs, Senior Member 1. The applicant seeks review of two decisions:
§ the first concerns a debt of disability support pension that Centrelink claims the applicant incurred during the period 2003-2005;
§ the second concerns an assessment by Centrelink (in about mid 2005) of the applicant’s assets in 2005 when Centrelink decided to reduce her rate of pension based on the value of her real estate.
2. With reference to the first decision, Centrelink was unaware that the applicant was receiving payments under an income protection insurance policy from about March 2003. The consequence was that she was paid too much pension. The respondent says that this error can and should be corrected by recovering from the applicant the amount overpaid.
3. The applicant does not agree. She maintains that she told Centrelink about the insurance policy on at least two occasions when she telephoned to enquire about how receipts under her policy would be treated when and if she were to commence receiving such payments. She said that in response to her enquiries, she was given information, including assurances that payments under the insurance policy would not be treated as income and that she was not required to report them. Thus the applicant maintains that the error was on Centrelink’s part. She says she accepted the advice in good faith and the debt should be waived, either on that ground or because of the special circumstances of her case.
4. With reference to the second decision concerning assets testing, central to the dispute is whether it is correct that borrowings secured against a person’s principal place of residence cannot be taken into account when valuing their assets.
ISSUES
5. Two issues arose with regard to the first decision under review:
§ whether has a debt of disability support pension; and, if so
§ should any part of the debt be waived on the basis of administrative error or special circumstances?
6. The second decision under review requires that I examine the method by which the applicant’s real estate assets were assessed, in order to establish whether Centrelink’s assessment of those assets was in accordance with legislative provisions.
IS THERE A DEBT?
7. The Social Security Act 1991 (the Act) contains provisions requiring recipients to provide information to Centrelink so their entitlements can be assessed correctly. A person is told about their obligations to provide such information in letters sent on a regular basis to inform them about their rates of pension payments. I was provided with evidence of numerous such letters sent to the applicant in the period 2003 to 2005. The letters variously stated that she must tell Centrelink about the receipt of income or the receipt of compensation (exhibit R2, Supplementary Documents S 4). The applicant does not dispute the receipt of these letters. I was satisfied that the applicant knew she had to tell Centrelink about the receipt of income.
8. The applicant maintains that she was in frequent contact with Centrelink and was always quick to tell them about any changes in her circumstances. She did not do so when she started receiving the regular payments under the income protection policy because she had already made enquiries about this and had been told she did not have to.
9. The applicant’s insurance policy contains a clause providing that where a recipient of insurance benefits is entitled to other monies, the benefits are reduced by the insurer under a formula, the effect of which is that the benefit combined with other monies should not exceed 75% of pre-claim earnings. Clause 13.1.1 of the policy defines other monies as including social security payments. Information provided to Centrelink by the insurer indicated that the insurer was unaware that the applicant was receiving social security payments.[1] The insurer had not reduced the applicant’s insurance payments as provided for in clause 13.1.1.
[1] Exhibit R4
10. The applicant clearly believed that the payments under the insurance policy were not income. She advised the Tribunal that her discussions with the insurance broker when she purchased the policy led her to believe that the policy made provision for medical and other out-of-pocket expenses, rather than income protection. She pointed out that when she purchased the policy it was not called Merc Income Start, as it is now.
11. The applicant has acknowledged in the documentary materials that she had made an honest mistake about the nature of this policy[2]. Whatever the applicant’s understandings of the provisions of the insurance policy, it must be construed according to its terms, in particular those applying when the applicant commenced receiving payments under it.
[2] Exhibit R1, Document T18
12. The applicant said that she had no recollection of an explanation in her disability support pension claim form, completed in 2001 that for social security purposes, income, amongst other things, included income replacement insurance (personal accident & sickness insurance). [3] She said that she confidently recalled being told by a Ms J Smith at Centrelink (after having forwarded a copy of the insurance policy to her by fax) that any money paid on the policy was not income and she need not declare it.
[3] Exhibit R1, Document T5
13. Ms J Smith, an officer with Centrelink, recalled dealing with the applicant at the Mitchelton Centrelink office. Ms Smith had no recollection of a particular discussion about the insurance policy but said that it was unlikely that she would provide the information that money received under an insurance policy need not be declared. Ms Smith said that her practice was to tell people that they must declare any received moneys to Centrelink.
14. Amongst the documents was a copy of a hand written note, dated 1 February 2002, identified by the applicant as being in her writing. It appeared to be a jotting of a conversation, as follows:
Some S&A (Sickness and Accident) policies treated as comp and not ord. income. some neither. depends. See Complex Assessment Officer.
15. I take it that this note was the applicant’s note, referring to information provided to her on one of the occasions when she telephoned Centrelink. Whilst it seems to me that the note’s contents are a correct broad statement of the effects of the legislation, I also observe that the note does not reveal that the applicant was told in that conversation that her insurance policy would not be assessed as income.
16. Misunderstandings can occur when people are asking Centrelink for information. Questions, seemingly simple on the surface, may touch upon a number of legislative provisions. In the applicant’s case, the issues potentially traversed matters of assets and income testing, as well as the treatment of compensation. As I understood the applicant’s evidence, her first enquiry was only at a general level - after all, this was before she had occasion to draw upon the insurance policy, so her enquiry can only have been general. There was nothing in either the documentary evidence or the applicant’s evidence that satisfied me that the applicant was told by any Centrelink officer that an income protection policy would be disregarded in assessing her rate of pension.
17. Even if the applicant had been given that incorrect information, my task is to first characterise the benefits provided under the insurance policy and identify the Act’s provisions that might apply to the treatment of an amount of that character at the relevant time. That was when the applicant commenced receiving her regular payments under the policy.
18. The Act requires that a person’s rate of pension is worked out by taking into account their receipts of income or compensation - two concepts potentially relevant in the applicant’s case. Whilst not central to the matter at hand, income and compensation are taken into account under different formulae and because an “income free” area applies when assessing income, the receipt of income reduces the rate of pension by a lesser amount than does the receipt of compensation, where no “free” area applies.
19. The moneys received by the applicant under this policy might have been compensation and indeed would have been if her insurance receipts had been reduced, taking into account her social security payments. That is, if the clause referred to above had been activated. But it was not. In consequence the applicant’s monthly receipts under the insurance policy did not come within the definition of compensation.[5]
[5] Social Security Act 1991 s 17(2A).
20. However, if not compensation, the question is, were these monthly payments income receipts? Income is defined in s 8 of the Act, as meaning:
(a) an income amount earned, derived or received by the person for the person’s own use or benefit; or
(b) a periodical payment by way of gift or allowance; or
(c) a periodical benefit by way of gift or allowance; …
Income amount means valuable consideration, personal earnings, monies, or profits.
21. It seems to me an inescapable conclusion that the applicant’s payments under the income insurance policy were income. They come within what has been noted on many occasions as being the very wide definition of that term in the Act. In Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35, French J said:
The definition of “income” extends to income amounts “received” by a person. There is no requirement in the Act that such amounts are received in exchange for anything. They may therefore extend to gifts. This is reinforced by the extension of the definition of “income” to “a periodical payment by way of gift or allowance”.
There is no requirement in the definition for the payment received to constitute a net gain. Absent such a requirement a payment of money received by a person for that person’s own use or benefit is a payment of an income amount.
22. The payments to the applicant under the insurance policy were monies that the applicant was receiving on a regular, periodic basis, for her own use or benefit.
23. Being income, they should have been taken into account to calculate the rate of disability support pension correctly. That did not occur and it follows that the applicant was overpaid.
24. For an overpayment to be a debt it must come within the provisions of the Act - another provision which is cast in wide terms. Section 1223(1) of the Act provides that a debt will arise if social security payments (including disability support pension), are made when the person was not entitled, for any reason. A person is not entitled if the payment was not payable, or the payment was made as a result of a false statement or a contravention of the Act, which can include failing to provided information about changed circumstances. I was satisfied that the applicant has a debt under s1223(1) of the Act because the pension was not payable to her at the rate she was paid it in the relevant period, because that rate did not take account of her other income; and because she did not tell Centrelink about receiving the monthly insurance payments as she was required to do under the legislation.
25. The debt amount has been recalculated a number of times, most recently after the Social Security Appeals Tribunal directed Centrelink to recalculate the debt by assessing her income as including the monthly benefit amount, but disregarding the premium refund amounts which are paid to the applicant on top of the monthly income protection payment. When this was done, the overpayment was reduced from $8,931.06 to $8,017.23. I am satisfied, on the basis of the calculations presented to me (exhibit R3) that the debt amount is correct.
WAIVER
26. The Act provides that debts can be waived in whole or in part if caused solely as a result of administrative error.[6] I was satisfied that this provision was not activated on the present facts. I have set out above that I do not accept the applicant was told that she was not required to inform Centrelink of the payments received under the insurance policy. I accept that she made general enquiries, but I concluded that she misunderstood what she was told. Seen that way, at best there was mixed responsibility for the error that arose. The error was partly attributable to the applicant’s misunderstanding and was not solely attributable to Centrelink.
[6] Social Security Act 1991 s 1237A
27. The other provision in the Act relating to the waiver allows for waiver in special circumstances.[7] Special circumstances are ones that take a case out of the ordinary run of cases and allow a flexible response to the range of situations that could give rise to hardship or unfairness if the requirements for recovery of debts was rigidly applied: Ryde v Secretary Department of Family and Community Services [2005] FCA 866; Secretary Department of Social Security v Hales (1998) 82 FCR 154.
[7] Social Security Act 1991 s 1237AAD
28. I took into account that the applicant has faced difficult financial circumstances since she ceased regular employment as a result of her injury in 2003. At that time she had a heavy burden of debt associated with her two rental properties. Since then she has sold and bought more properties, taking her even further into debt. She has had difficulty keeping up with the repayments. She was forced to sell one of her investments properties in 2005. The applicant maintains that Centrelink has never understood that the amounts she owed on the properties exceeded their overall value and she maintains that as a result there has been little appreciation of how dire her financial circumstances are.
29. The applicant said that she has had to rely on the generosity of friends who have lent her money. In her Statement of Financial Circumstances,[8] she referred to her debt as including an amount of $70,000 owed to a “private person.” This is not being repaid at present, but repayment is ultimately expected by the lender. The applicant stated in a letter sent to the Tribunal after the hearing that an unnamed person is currently making the repayments on a loan for a new car purchased in 2006.[9] She also stated that she has refinanced with the bank from time to time, simply to cover her living expenses.
[8] Exhibit A5
[9] Applicant’s letter to the Tribunal dated 23 August 2006
30. Concerning the purchase of a new car, the applicant told me she was able to purchase a new Nissan Pathfinder 4WD because the bank extended her loans by $40,000. She said that she purchased this car on medical advice and to enable her to further her interior decoration business.[10]
[10] Ibid.
31. I agree with Mr McQuinlan’s submission on behalf of the respondent that the applicant’s financial position has been largely of her own making. Although the Tribunal accepts the applicant’s evidence that she had worthy intentions to secure a more stable financial future by investing in real estate and thereby being less reliant on social security payments, I see this as a matter of choice and not a pursuit which should relieve her of responsibility for her debt. The applicant has received money to which she was not entitled. As Sheppard J pointed out in Director-General of Social Services v Hales (1983) 47 ALR 281 (at 323) that must be a paramount consideration.
32. Nor do I accept that the applicant’s financial position is as dire as she paints it. Her recent actions in purchasing a new and quite expensive vehicle is not the behaviour of a person who is in truly straitened financial circumstances. Furthermore, she could control some of the more immediate pressures of her level of debt by selling the investment properties. While I understand her concerns to avoid selling at an overall loss, she did sell one of her properties in 2005 and that sale must have relieved her of some financial pressure. It is unlikely that the bank would lend her an additional $40,000 in 2006 if the applicant’s situation was financially untenable.
33. The applicant referred to her medical conditions and stress, sustained as a result of incurring this social security debt. However I was not satisfied that the state of the applicant’s health or her financial circumstances, alone or together, make her circumstances special, or out of the usual run of cases. Nor do her circumstances appear to be those where recovering the debt would give rise to hardship or unfairness.
34. The applicant continues to receive disability support pension in addition to payments under the insurance policy. Her total fortnightly receipts exceed that of a disability support pensioner who has no other income. Such a person, if they had a social security debt, nevertheless would be expected to repay it usually on the basis of withholdings from their pension. This regularly happens. I see no reason not to recover the debt in this way - particularly taking into account the applicant’s income from the insurance policy. The rate of recovery is a matter for negotiation between the applicant and Centrelink.
35. I note that the debt has been written off by Centrelink now for some time, to allow the applicant some leeway to sort out her financial pressures. The authorised review officer set a write-off period of three months and the respondent extended the period of write-off while the matter was heard and determined by this Tribunal. At the hearing the respondent’s submission was that write-off was no longer appropriate. I agree with that submission. The applicant has had the benefit of a period of write off. In that time she has sold one property for $535,000, well in excess of the amount at which it was valued for social security purposes.
36. Section 1236(1C) provides that if a debt is recoverable by deductions from the person’s social security payment, the person will be taken as having capacity to repay unless recovery by those means would result in severe financial hardship. As I see the situation, the applicant was in severe financial hardship before she sold the property in 2005, but her circumstances are not those of severe financial hardship now, particularly taking into account that she receives income in addition to her pension.
THE VALUE OF THE APPLICANT’S REAL ESTATE ASSETS
37. The relevant date at which I must consider the value of the applicant’s real estate assets is the date at which Centrelink decided to reduce the applicant’s disability support pension on the basis of her assets in mid 2005. At that time she had two investment properties in addition to her principal place of residence.
38. Considerable correspondence has passed between the applicant and Centrelink on the question of the valuation of her real estate. It is not necessary to go into detail about the particular properties that the applicant has held from time to time.
39. On the applicant view of things, the value of her real estate must take account of the amount she has borrowed to obtain it. She says that value can only be realistically assigned when total liabilities are taken into account.
40. Unfortunately for the applicant, that straightforward arithmetic exercise (deducting liabilities from the total asset value) which is part of the test applied under the Act, is not the whole test. . Section 1121(3) of the Act singles out for different treatment the value of any charge or encumbrance over the person’s principal place of residence. Such liabilities are not set off against the overall asset value, but are disregarded.
41. The applicant’s mortgages extended to her principal place of residence in addition to her investment properties. Only the liabilities that attached to the investment properties could be taken into account in reducing her total assets for social security purposes.
42. For the most part, this has not mattered because the applicant’s pension has been income tested, not assets tested.
43. I note that the applicant made no direct challenge to the correctness of the Australian Valuation Office’s valuation of her properties. Those valuations seem to have been on the low side. The investment property which was sold in 2005 had been valued by the Australian Valuation Office at $450,000 but sold in 2005 for $532,000.
44. The valuations as set out in the authorised review officer’s decision, which were also accepted by the Social Security Appeals Tribunal, are correct. The applicant’s challenge to the way that these assets are assessed under the Act cannot be supported. Section 1121(3) is quite clear on this point, and there is no discretion that applies.
45. In her decision, the authorised review officer acknowledged that the applicant had overextended herself in her borrowings, and effectively had no equity in the properties. However the legislation as explained at length in the authorised review officer’s decision and again by the Social Security Appeals Tribunal, does not allow for set off of the whole of the liabilities. The applicant’s assets were correctly assessed.
DECISION
46. The Tribunal affirms the decisions under review namely:
§ the decision to raise and recover a debt of disability support pension, the amount of which was varied after the Social Security Appeals Tribunal hearing and now stands in the sum of $8,017.23;
§ the decision to assess the applicant’s assets by disregarding the value of charges and encumbrances over the applicant’s principal place of residence.
I certify that the 46 preceding paragraphs are a true copy of the reasons for the decision herein of Ms MJ Carstairs, Senior Member
Signed: M Brazier
Legal Research OfficerDate/s of Hearing 21 August 2006
Date of final submissions 23 August 2006
Date of Decision 15 November 2006
The Applicant was unrepresented and appeared by telephone
For the Respondent Mr R McQuinlan, Departmental Advocate
[4] Exhibit R1, Document T39
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