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

[2010] AATA 976

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 976

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2010/1227

GENERAL ADMINISTRATIVE DIVISION		)
Re		KHATOON RAFAZA

Applicant

And SECRETARY, DEPARTMENT OF EDUCATION, EMPLOYMENT AND WORKPLACE RELATIONS

Respondent

DECISION

Tribunal Regina Perton, Member

Date6 December 2010

PlaceMelbourne

Decision The Tribunal affirms the decisions under review.

(sgd) Regina Perton

Member

SOCIAL SECURITY – parenting payment – assets test –  acquisition of taxi plates  - failure to notify Centrelink - cancellation of payment - overpayment ‑ debt to Commonwealth ‑ waiver – whether sole administrative error – whether realisable asset - whether special circumstances exist – decision affirmed

Social Security Act 1991 ss 11, 500Q, 1118, 1121, 1131, 1223, 1237A, 1237AAD

Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25

Drake v Minister for Immigration and Ethnic Affairs (No.2) (1979) 2 ALD 634

Ryde v Secretary, Department of Family and Community Services [2005] FCA 866

Guide to Social Security Law ss 1.1.M.35, 4.6.6.10

REASONS FOR DECISION

6 December 2010 Regina Perton, Member    

1.      Khatoon Rafaza has three dependent children.  Her husband, Abdul Jalil, is a taxi driver.  In November 2005 he decided to purchase a taxi licence and vehicle.  Mr Jalil borrowed money to make the purchase.   The family home was security for the loan. 

2.      Mrs Rafaza had been receiving family support payments for several years.  On 14 February 2005 Mrs Rafaza lodged a fresh claim for parenting payment partnered (PPP).  At that time Mrs Rafaza declared that the assets she and her husband held consisted of the family home in which they lived and a 15 year old car. 

3.      The value of the assets of a person, and those of her partner, are taken into account in determining eligibility for PPP and other social security benefits. If the value of the assets exceeds a designated amount, that person is not eligible to be paid the benefit despite meeting other criteria for its payment.   A person’s residential home is not included in the assets test.

4.      All social security recipients are required to inform Centrelink, which administers PPP for the respondent, of significant increases in their assets.  A reminder to do so is included in most of the letters Centrelink sends to recipients.  Mrs Rafaza did not realise that she needed to inform Centrelink of the purchase of the taxi licence on 22 November 2005.  This was because a loan had been taken out for the full purchase price of the taxi licence and vehicle.  Mrs Rafaza therefore believed that there had not been any increase in her husband’s and her assets as the liability for the loan balanced out the purchase price.  Mrs Rafaza was unfortunately mistaken in her belief. 

5.      On 9 September 2009 Centrelink cancelled Mrs Rafaza’s PPP because her and her husband’s combined assets exceeded the allowable limit for such a payment.   On 1 December 2009 Centrelink raised a debt for $28,062.03 for the period from 22 November 2005 to 7 July 2009.    

6.       An authorised review officer from Centrelink and the Social Security Appeals Tribunal affirmed Centrelink’s decisions to cancel PPP and impose the debt.  On 29 March 2010 Mrs Rafaza applied to the Tribunal for review.

7.      The issues to be considered by the Tribunal are:

·Did Mrs Rafaza exceed the allowable asset limits for PPP?

·Should Centrelink have cancelled her PPP?

·Does Mrs Rafaza owe a debt to the Commonwealth?

·Should part or all of the debt be waived due to administrative error?

·Should the debt be waived due to special circumstances?

DID MRS RAFAZA EXCEED THE ALLOWABLE ASSET LIMITS FOR PPP?

8. Section 11 of the Social Security Act 1991 (the Act) sets out the assets test definitions.  Part 3.12 sets out the general provisions relating to the assets test.  Certain assets are excluded from the assets test, the main one being the person’s principal family home.  

9. Section 500Q of the Act sets out the assets test limit for PPP recipients. The limit is adjusted annually. Assets belonging to the person and to their partner are included. The assets limits for Mrs Rafaza, as a partnered homeowner, during the period under consideration were as follows:

From 1 July 2005       $223,000

From 1 July 2006       $229,000

From 1 July 2007       $236,500

From 1 July 2008       $243,500

From 1 July 2009       $252,000

10.     Mr Jalil purchased his taxi licence in November 2005.  It was an M50 licence which is for a vehicle fitted out for disabled persons to travel in their wheelchairs.  M50 licences are not as expensive as sedan taxi licences.  The M50 licence price is only for the taxi plates.  Mr Jalil also purchased a used van which he later replaced with a new van.  He obtained finance for the new van from Toyota Finance and hence the security for that loan was the vehicle.  However, the initial purchase was financed through a bank with a mortgage on the family home. 

11.     Centrelink contacted the Victorian Taxi Directorate (the Taxi Directorate) on 23 September 2009.  The Taxi Directorate’s records indicated that Mr Jalil purchased the taxi licence for $230,000 on 22 November 2005.  The Directorate advised that the value of the M50 licence as at August 2009 was $352,000. 

12.     Mr Jalil, in a statement dated 14 April 2010, believed that he had purchased an M50 licence and a vehicle in November 2005 for a total of $240,000.   He stated that the vehicle was valued at $22,000 and the price for the licence was $222,000. 

13.     During the period under consideration, Mrs Rafaza and Mr Jalil sold their home and moved to another in the same street.  Their current home has two small flats attached to the main structure.  They rent out the flats.  Those flats and the house are all on the one title.   There was a considerable mortgage on the home they lived in at the start of the relevant period.  There is an even larger mortgage on the current family home.

14. Section 1121 of the Act sets out the effect of a charge or encumbrance on the value of assets.

(1)  If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person's assets for the purposes of this Act… is to be reduced by the value of that charge or encumbrance.

…..

(3)Subsection (1) does not apply to a charge or encumbrance over assets that are to be disregarded under section 1118.

15. Section 1118 sets out the assets that are to be disregarded when calculating the assets limit:

(1)In calculating the value of a person's assets for the purposes of this Act… disregard the following:

……

(b)if the person is a member of a couple--the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partner reasonable security of tenure in the home;

…

(3)  For the purposes of this section, if:

(a)the value of any assets of a person or, if the person is a member of a couple, of the person and the person's partner, that consists of the contents of a principal home and of other personal effects that are used primarily within the principal home does not exceed $10,000; and

(b)the assets are used primarily for private or domestic purposes;

the value of the assets is to be taken to be $10,000 unless the person satisfies the Secretary that the value of the assets is less than $10,000.

16.     The taxi licence is not an asset which a lending authority will hold as security for a loan.  To obtain the loan to enable him to purchase the taxi licence, Mr Jalil was required to put up the family home as security.  However, the family home is excluded as an asset for the purposes of the assets test.   Therefore, the loan on the family home cannot be taken into account when considering whether Mrs Rafaza meets the assets test.  The taxi licence is considered as an asset for the purposes of the Act.  The amount borrowed to purchase it cannot be taken into account in looking at the assets held by Mrs Rafaza and Mr Jalil.  

17.     Centrelink has issued guidelines in relation to how to implement the Act, namely the Guide to Social Security Law (the Guide).  The Tribunal is not bound by the guidelines but generally takes them into account where there is no inconsistency with the legislation (Drake v Minister for Immigration and Ethnic Affairs (No.2) (1979) 2 ALD 634).

18.     Section 4.6.6.10 of the Guide concerns valuation of assets:

Valuing assets

Assets are generally assessed at their net market value (1.1.M.35). The net market value is the amount you would expect to receive if you sold the asset on the open market, less any valid debts or encumbrance….

19.     Section 1.1.M.35  sets out the definition of market value

1.1.M.35 Market value

Usage

This definition applies to all payments.

Definition

The market value is the point at which a willing purchaser and a willing, but NOT anxious vendor, would reach agreement.

The market value of an asset… is ONLY decreased by the value of an encumbrance …secured against it. The market value of an asset is NOT reduced by any costs which may be incurred IF the asset was to be sold.

20.     The Tribunal is satisfied that the value of the taxi licence as at 22 November 2005 was $230,000.  Added to that amount for the purpose of the assets test is the value of the household goods ($10,000) and the car owned at that time ($2,500).  The taxi licence alone takes Mrs Rafaza’s assets over the limit of $223,000 as that time. 

21.     The value of the taxi licence had increased since Mr Jalil purchased it in November 2005.  The Taxi Directorate informed Centrelink on 23 September 2009 that the value of an M50 licence at that time was $352,000.  Mr Jalil challenged this assessment.  In April 2010 Mr Jalil wrote to the Taxi Directorate asking that it provide him with all M50 licence transfers from November 2005 to April 2010 each with the date and transfer amount.  He did not receive a response from the Taxi Directorate.  Mr Jalil provided a letter dated 19 August 2010 from Alex Taxis & Broker Pty Ltd, a registered taxi broker, in which it was stated that the Taxi Directorate was about to release a significant number of licences that were to be for a fixed term of 10 years.  As a result there was little interest from buyers at that time for M50 licences as they were waiting to see what would happen with the new limited term licences. 

22.     It may well have been difficult to sell an M50 licence with an allocation of cheaper shorter term licences pending.  However, for the purpose of the assets test, the Tribunal is required to assess the value of the M50 licence at the time of cancellation of PPP.  In the absence of evidence to the contrary, the Tribunal accepts the evidence given by the Taxi Directorate that the value at that time was around $352,000.

23.     The Tribunal is satisfied that Mrs Rafaza’s assets exceeded the assets tests limit throughout the period from 22 November 2005 to 9 July 2009.  She was therefore not eligible for PPP during that time.

SHOULD CENTRELINK HAVE CANCELLED MRS RAFAZA’S PPP?

24.     The Tribunal has found that Mrs Rafaza exceeded the assets test limits between 22 November 2005 and 9 July 2009.   

25. On 22 September 2009 Mrs Rafaza applied to Centrelink for continuation of her payments under hardship provisions in the Act. She stated that the taxi licence was an unrealisable asset. This was because her husband needed the taxi licence to be able to work. Mrs Rafaza also indicated that they could not sell their rental units as they were on the same title as their home. Section 1131 of the Act states:

Access to financial hardship rules - benefits

(1)  If:

(a)a social security benefit is not payable to a person because of the application of an assets test; and

(b)the person is not receiving and is not eligible to apply for acceptable alternative Commonwealth income support; and

(c)the person's partner is not receiving and is not eligible to apply for acceptable alternative Commonwealth income support; and

(d)either:

(i)     ….; or

(ii)     the Secretary decides that the application of those sections to the person should, for the purposes of this section, be disregarded; and

(e)the person, or the person's partner, has an unrealisable asset; and

(f)the person lodges with the Department, in a form approved by the Secretary, a request that this section apply to the person;

(g)the Secretary is satisfied that the person would suffer severe financial hardship if this section did not apply to the person;

the Secretary must determine that this section applies to the person.

26.     The definition of unrealisable asset is set out in ss 11(12) and (13) of the Act.

(12)An asset of a person is an unrealisable asset if:

(a)the person cannot sell or realise the asset; and

(b)the person cannot use the asset as a security for borrowing.

(13)For the purposes of the application of this Act to a social security pension (other than a pension PP (single)), an asset of a person is also an unrealisable asset if:

(a)the person could not reasonably be expected to sell or realise the asset; and

(b)the person could not reasonably be expected to use the asset as a security for borrowing.

27.     Mr Jalil told the Tribunal that sales of M50 licences had stalled in mid 2010 due to the imminent influx of new licences of a fixed duration.  However there was no legal impediment to Mr Jalil disposing of his M50 licence nor is there evidence that he had attempted to sell the licence at that time for its market value.   The Tribunal is not satisfied that the taxi licence, which constituted the major impediment to Mrs Rafaza meeting the assets test, could not be sold at the time of cancellation.

28.     The Tribunal is satisfied that cancellation of Mrs Rafaza’s PPP was warranted given she did not meet the assets test requirements.

DOES MRS RAFAZA HAVE A DEBT TO THE COMMONWEALTH?

29. Centrelink has calculated that Mrs Rafaza was overpaid $28,062 in PPP between 22 November 2005 and 7 July 2009. The Tribunal has no reason to doubt the accuracy of the calculations. Under s 1223(1) of the Social Security Act 1991 (the Act), the Tribunal finds that this amount is a debt due to the Commonwealth.

SHOULD THE DEBT BE WAIVED BECAUSE OF ADMINISTRATIVE ERROR?

30. Section 1237A(1) of the Act provides for waiver of a debt arising solely from administrative error:

Subject to subsection (1A), the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.

Note: Subsection (1) does not allow waiver of a part of a debt that was caused partly by administrative error and partly by one or more other factors (such as error by the debtor).

31.     Mr Jalil and Mrs Rafaza indicated that they did not advise Centrelink immediately about the purchase of the taxi licence as they did not realise that they had to.  They borrowed the money to make the purchase and thought that the loan balanced out the value of the licence as an asset.  Mr Jalil works as a sole trader in his role as a taxi driver.  He said that his accountant prepared relevant profit and loss statements and they, along with his and Mrs Rafaza’s tax assessments, have been provided to Centrelink.  Mr Jalil pointed to an entry in Centrelink’s records on 5 July 2007 that indicated that he had brought in documents concerning his and his wife’s financial affairs. They were required to provide copies of their tax assessment notices to Centrelink and did so.   The documents they provided were sufficient for Centrelink to reinstate PPP.

32.     There is no copy of Mr Jalil’s balance sheet for the year ending 30 June 2006 in Centrelink’s records.  The Tribunal received a copy of Mr Jalil’s 2006 balance sheet as an attachment to a letter addressed to Centrelink dated 10 February 2010 from Mr Jalil’s accountant.  There is no indication as to when the balance sheet was prepared.  William Vamvakidis stated that he had been the accountant for Mrs Rafaza and Mr Jalil for many years and that he had prepared their tax returns.  He stated that Mr Jalil had provided Centrelink with his income tax assessment for the financial year ending 30 June 2006.  In the balance sheet, the taxi licence is attributed a value of $224,000.  Total liabilities include a bank loan.  Mr Jalil’s net assets are listed as $48,035.   

33. Section 1237A(1) states that if the debtor contributed to the error, waiver under the section is not allowed. Centrelink wrote to Mrs Rafaza on some 15 occasions during the relevant period. Most letters indicated the amount of assets attributed to Mrs Rafaza and her husband and included notice of the requirement to tell Centrelink within 14 days if the asset levels described in the letters were incorrect. In a letter dated 3 March 2005, before the purchase of the taxi licence, Centrelink listed $38,685 as total assets held by Mrs Rafaza. A letter dated 5 July 2007 indicated the same amount of assets, namely $38,685. The total assets described in a Centrelink letter dated 19 August 2008 were $40,945. Mrs Rafaza did not contact Centrelink to advise them that the assets attributed to her were incorrect. The Tribunal notes that this was primarily due to ignorance on her part that the taxi licence was an asset. Nonetheless, this was a factor that led to the debt.

34.     As a result, the Tribunal finds that the debt was not attributable solely to administrative error by the Commonwealth. Therefore, the debt cannot be waived on this ground. 

SHOULD THE DEBT BE WAIVED BECAUSE OF SPECIAL CIRCUMSTANCES?

35. Section 1237AAD of the Act provides for waiver of the debt in certain other circumstances:

The Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:

(a)the debt did not result wholly or partly from the debtor or another person knowingly:

(i)        making a false statement or false representation; or

(ii)failing or omitting to comply with a provision of this Act or the 1947 Act; and

(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and

(c)it is more appropriate to waive than to write off the debt or part of the debt.

36.     The meaning of the term special circumstances in the context of social security law has been discussed in several Federal Court cases.  In Angelakos v Secretary, Department of Employment and Workplace Relations [2007] FCA 25, Besanko J considered the term in the context of s 1237AAD of the Act. Besanko J refers extensively to Ryde v Secretary, Department of Family and Community Services [2005] FCA 866, where Branson J held that the use of the term special circumstances in the legislation demonstrated an intention to proscribe waiver in ordinary cases.  Branson J went on to state that the hardship or unfairness should be sufficient to justify departure from the general rule in the particular case.

37.     In Angelakos, Besanko J states (at paragraph 33):

… I also note that the authorities have emphasised time and again the importance of maintaining flexibility in determining what constitutes special circumstances… It was not the intention of Parliament to confine the exercise of the discretion to an exceptional case…there must be something that distinguishes the case from the ordinary or usual case ….

38.     The Tribunal accepts that Mrs Rafaza was not aware that she should declare the taxi licence as an asset.  Unfortunately she is not alone in her failure to realise what the definition of an asset is in the Act.  It is also not unusual for social security beneficiaries to fail to realise that a loan over the family home in relation to an asset leads to an inability to decrease the value of the asset by the amount of the loan.  The accumulation of a debt as a result of such a situation is one that is, alas, not unusual. 

39.     The Tribunal is not satisfied that the situation that Mrs Rafaza finds herself is vastly different from the situation of other social security recipients who have incurred debts due to overpayments.  In the Tribunal’s experience, it is, unfortunately, not unusual for debts to arise in circumstances such as these. 

40.     The Tribunal is not satisfied that the circumstances in these cases constitute special circumstances (other than financial hardship alone). Hence, the Tribunal decides that the waiver provisions of s 1237AAD of the Act should not be invoked.

DECISION

41.      The Tribunal affirms the decisions under review.

I certify that the forty-one [41] preceding paragraphs are a true copy of the reasons for the decision of:

Regina Perton, Member

(sgd)         Dianne Eva

Clerk

Date of hearing:  11 October 2010

Date of decision:  6 December 2010
Advocate for the applicant:          Mr Jalil Abdul (applicant’s husband)
Solicitor for the respondent:        Ms S Koya, DLA Phillips Fox