Ralph and Secretary, Department of Families, Community Services and Indigenous Affairs
[2007] AATA 1301
•4 May 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1301
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q200600700
GENERAL ADMINISTRATIVE DIVISION ) Re LEO and BARBARA RALPH Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES and INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Dr KS Levy RFD, Senior Member Date 4 May 2007
Place Brisbane
Decision The Tribunal determines that:
I. The decision under review is set aside; and
II. The Secretary’s policy as to apportionment of income is to be applied; and
III. The Respondent should recalculate the debt taking account of the Secretary’s policy of apportionment in equal instalments over the 12 month period following the commission amounts earned, but without any apportionment of commission amounts earned beyond Mr Ralph’s final retirement; and
IV On the basis that it is apparent that there has been an overpayment –
(a) The amount of overpayment is a debt due to the Commonwealth;
(b) The debt should be recovered ie there are no legal grounds for write off or waiver of the debts.
…………[SGN]………………………
SENIOR MEMBER
CATCHWORDS
SOCIAL SECURITY – age pension – one applicant received commission while on age pension – whether overpayment of age pension occurred – whether the overpayment is a debt due to the Commonwealth – whether overpayment should be written-off or waived
Social Security Act 1991 (Cth) ss 55, 1064-A1, 1064-E1, 1223, 1236, 1237A, 1237AAD
Administrative Appeals Tribunal Act1975 (Cth) s 37
Harris v Director-General of Social Security (1985) 57 ALR 729
Secretary, Department of Family and Community Services v Rolley (2000) 175 ALR 4
Dranichnikov v Centrelink (2003) 75 ALD 134
Department of Social Security v Hales (1998) 82 FCR 154
Secretary, Department of Family and Community Services and Sangster (2004) 84 ALD 465REASONS FOR DECISION
4 May 2007 Dr KS Levy, RFD. Senior Member Introduction
1. The applicants in this case are both aged over 65 years and have been in receipt of age pension from 22 December 2000 to 2 June 2005 (the period under review in this matter).
2. Following a review and investigation into Mr Ralph’s income and entitlements in June 2005, Centrelink determined that both applicants had been overpaid an amount of $17,967 as age pension, for the period under review. (T57, T58, T61). These amounts were revised subsequently to $24,262.18 (T67 and T68) and then to $19,825.10 (T69). The applicants requested a further review of these determinations and an Authorised Review Officer (ARO) decided that the debts should be determined based on a commission payment being apportioned for the following 52 week period following the date the Commission payment was due. The ARO determined that the debts due were $11,897.50 for each of Mr and Mrs Ralph, using the prospective approach above.
3. On appeal to the Social Security Appeals Tribunal (SSAT), it was determined that the debts should be recalculated using Mr Ralph’s income as being the total lump sum commissions derived by him in each financial year (T2, folio 11). It was determined that the recalculated debt ought to be recovered.
4. The applicants now appeal the decision of the SSAT.
Issues
5. The Tribunal is asked to determine three questions:
I.Do the applicants have debts due to the Commonwealth?
II.What are the amounts of those debts?
III.Are there any grounds to justify write-off of those debts, or waiver of debts due to administrative error or special circumstances?
Legislation
6. The following provisions of the Social Security Act 1991 (“the Act”), have been considered in determining the issues itemised above.
SOCIAL SECURITY ACT 1991
55 How to work out a person's age pension rate
A person's age pension rate is worked out:
(a) if the person is not permanently blind--using Pension Rate Calculator A at the end of section 1064 (see Part 3.2);
Pension Rate Calculator A
Module A – Overall rate calculation process
Method of calculating rate
1064‑A1 The rate of pension is a daily rate. That rate is worked out by dividing the annual rate calculated according to this Rate Calculator by 365 (fortnightly rates are provided for information only).
Method statement
Step 1. Work out the person's maximum basic rate using MODULE B below.
Step 1A. Work out the amount of pension supplement using Module BA below.
Step 2. Work out the amount per year (if any) of pharmaceutical allowance using MODULE C below.
Step 3. Work out the amount per year (if any) for rent assistance in accordance with paragraph 1070A(b).
Step 4. Add up the amounts obtained in Steps 1, 1A, 2 and 3: the result is called the maximum payment rate.
Step 5. Apply the ordinary income test using MODULE E below to work out the income reduction.
Note: Module F contains provisions that may apply to working out the ordinary income of a person, and the ordinary income of a partner of the person, for the purposes of disability support pension.
Step 8. Take the income reduction away from the maximum payment rate: the result is called the income reduced rate .
Step 9. Apply the assets test using MODULE G below to work out the reduction for assets.
Step 10. Take the reduction for assets away from the maximum payment rate: the result is called the assets reduced rate.
Step 11. Compare the income reduced rate and the assets reduced rate: the lower of the 2 rates, or the income reduced rate if the rates are equal, is the provisional annual payment rate.
Step 12. The rate of pension is the amount obtained by:
(a) subtracting from the provisional annual payment rate any special employment advance deduction (see Part 3.16B); and
(b) if there is any amount remaining, subtracting from that amount any advance payment deduction (see Part 3.16A); and
(c) adding any amount payable by way of remote area allowance (see Module H).
Module E – Ordinary income test
Effect of income on maximum payment rate
1064‑E1 This is how to work out the effect of a person's ordinary income on the person's maximum payment rate:
Method statement
Step 1. Work out the amount of the person's ordinary income on a yearly basis.
Note 1: For the treatment of the ordinary income of members of a couple see point 1064‑E2.
Note 2: Module F contains provisions that may apply to working out the ordinary income of a person, and the ordinary income of a partner of the person, for the purposes of disability support pension.
Step 2. Work out the person's ordinary income free area (see points 1064‑E4 to 1064‑E9 below).
Note: a person's ordinary income free area is the amount of ordinary income that the person can have without any deduction being made from the person's maximum payment rate.
Step 3. Work out whether the person's ordinary income exceeds the person's ordinary income free area.
Step 4. If the person's ordinary income does not exceed the person's ordinary income free area, the person's ordinary income excess is nil.
Step 5. If the person's ordinary income exceeds the person's ordinary income free area, the person's ordinary income excess is the person's ordinary income less the person's ordinary income free area.
Step 6. Use the person's ordinary income excess to work out the person's reduction for ordinary income using points 1064‑E10 to 1064‑E12 below.
Debts arising from lack of qualification, overpayment etc.
1223(1) Subject to this section, if:
(a) a social security payment is made; and
(b) a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit; the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment.
Secretary may write off debt
1236(1) Subject to subsection (1A), the Secretary may, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise.
1236(1A) The Secretary may decide to write off a debt under subsection (1) if, and only if:(a) the debt is irrecoverable at law; or
(b) the debtor has no capacity to repay the debt; or
(c) the debtor's whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or
(d) it is not cost effective for the Commonwealth to take action to recover the debt.
.
Waiver of debt arising from error
Administrative error
1237A(1) 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).1237A(1A) Subsection (1) only applies if:
(a) the debt is not raised within a period of 6 weeks from the first payment that caused the debt; or
(b) if the debt arose because a person has complied with a notification obligation, the debt is not raised within a period of 6 weeks from the end of the notification period;whichever is the later.
Proportion of a debt
1237A(3) For the purposes of this section, a proportion of a debt may be 100% of the debt.
Waiver in special circumstances
1237AAD 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 a 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.”
Evidence
7. The following documents were admitted into evidence:
Exhibit 1 – T documents (volumes 1 and 2) lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975
Exhibit 2 – Pension information (gross and net October 2006 to February 2007)
Exhibit 3 – Commission table – Leo Ralph
Exhibit 4 – Extract from Guide to Social Security Law - section 4.3.3.20
Exhibit 5 – Centrelink record of interview 24 August 2006
Exhibit 6 – Explanation of earnings from Mr Ralph’s employer
8. Both applicants gave sworn evidence and appeared on their own behalf. Mr Ralph essentially presented evidence and submissions on behalf of himself and Mrs Ralph, and Mr Ralph was cross-examined by the respondent’s advocate, Mr Matt Black.
9. The applicant, Mr Ralph, explained that he did not agree that he had a debt owing. He maintained that any income not declared was not required to be declared as it was “commission” and not “wages”. He relied particularly on information provided in an interview by an officer of Centrelink at Tweed Heads on 24 August 2006. A record of that interview was submitted into evidence (exhibit 5). That exhibit states in part:
“One-off, irregular or non-periodical lump sums amounts eg commission payments, are apportioned as income over a 12 month period in 52 weekly amounts”
When a remunerative lump sum amount is apportioned for a 12-month period the apportioned amount can only be maintained where the source of income continues. If the source of income has ceased, the 12-month apportionment ceases.
Therefore if you receive a commission payment, and you retire, the receipt of this amount will not be considered as income against your pension.”
10. Mr Ralph had worked part-time as a real estate agent since 1997. He was in receipt of the age pension on 18 December 2000, when he notified Centrelink he would be commencing work on 5 January 2001 as a real estate agent. He advised that he would be earning $500 gross per week (T10 folio 86). Centrelink advised on 18 December 2000 that the applicants would continue to receive age pension on the basis of a combined annual income of $26,005.46 and that they would receive this entitlement as from 22 December 2000. Between 2000 and 2005 the applicant advised Centrelink of changes in gross income and Centrelink confirmed in writing the basis of their continued receipt of pension was based on various annual amounts consistent with the advice from Mr Ralph.
11. Centrelink conducts periodic reviews and in December 2003 reviewed Mr Ralph’s age pension entitlements and sought income details from Mr Ralph’s employer. In June 2005 Centrelink commenced a further review of Mr Ralph’s earnings and entitlements relative to the age pension being paid (T46 folio 184). On the basis of information received, Centrelink then calculated that each of the applicants had been overpaid an amount of $17,967 by way of age pension for the period 22 December 2000 to 2 June 2005. These calculations were amended initially to $24,262.18 and then subsequently revised downwards to $19,825.10 (T69). A further review by the ARO revised the debt downwards to $11,897.50 and the SSAT further amended the debts owed by each of the applicants to $11,339.82 for the relevant period.
12. The earnings of the applicant is conveniently summarised in Exhibit 3. It shows that Mr Ralph periodically earned commissions but his employer allowed him to draw amounts in advance by way of loans. These advances were off-set against commissions earned. In other words, some amounts received in a particular financial year were in fact loans in advance of commissions being earned. Exhibit 3 shows that, consistently with Mr Ralph’s evidence, he finally ceased work in August or September 2006 and at the time he had a debt due to his employer and he had to reduce his account of commissions and loans to a nil balance at the date of retirement. At that date, he owed his employer $44,284.58, which reflects the excess of loans or payments by the employer in excess of commissions actually earned progressively since September 1997.
Consideration
13. I have considered all of the relevant factual evidence and all of the statutory and case law material relevant to determining the issues to be answered.
14. The Tribunal has made the following findings of fact:
I.Both applicants, Mr and Mrs Ralph, were truthful witnesses and honestly believed the submissions which they put forward to the Tribunal;
II.The applicants had been conscientious in reporting income to Centrelink, based on their understanding of what was required to be reported;
III.The respondent submitted that the Department’s policy about income received in assessing age pension was to apportion income evenly over the succeeding twelve month period.
IV.The applicants have misconceived the advice contained in Exhibit 5 in that they understood that commission payments would not be considered as part of income for pension purposes after Mr Ralph’s retirement. A fair reading of Exhibit 5, confirmed by information provided to the Tribunal as to the Department’s practice, is that the advice provided to the applicant was relevant only when he retired and did not work again.
V.The amount of $9,552.02 (commission due to 22 November 2000) previously taken into account by the SSAT is outside the debt period and should be excluded from calculations in the debt period (subject to the application of the Secretary’s policy as detailed below).
Issue 1: Have the applicants been overpaid age pension for the relevant period?
15. Age pension is to be calculated as per s 55 of the Act. That section requires application of s 1064 which includes an income test (s 1064-E1). That test is assessed on a person’s ordinary income on a yearly basis. A critical question here is, what is ‘ordinary income on a yearly basis’ in the applicants’ circumstances.
16. The Secretary’s policy relates to Commission lumps sums “…even where they are small and/or regular” The logic of that policy is explained further as follows: “…Even if there is a pattern to the payments, they do not relate to each other and there is no certainty when the next one would be received” (see Part 4.3.3.20 of the Guide to Social Security Law). This statement of legal principle appears to be consistent with the decision of the High Court of Australia in Harris v Director-General of Social Security (1985) 57 ALR 729, and which was emphasised by the Full Court of the Federal Court of Australia, in Secretary, Department of Family and Community Services v Rolley (2000) 175 ALR 4. The principle elucidated by the High Court was that the circumstances of the case will show whether income received could be averaged or whether each source of income (eg commissions) was a separate source, when determining “ordinary income on a yearly basis” as required by s 1064-E1 of the Act
17. The Respondent also has urged the Tribunal to adopt the process in accordance with the policy determined by the Secretary. It was indicated that that approach, while different to that determined by the SSAT, results in little difference in the amount of the debt. This is not surprising given the amounts of income (commission) and the total time period being used are the same. Even though the SSAT approach would seem more conventional in accounting terms, the Tribunal’s role is not to make policy but to review the decision of the Secretary, and to arrive at the correct or preferable decision. I therefore agree with the Respondent that the Secretary’s policy should be applied. I so decide on the basis of the relatively haphazard nature of commissions earned from November 2000 onwards and the principle espoused by the High Court of Australia in Harris.
18. The finding of fact that the applicants have misconceived the advice received about the relevance of commission payments is at the core of the difference between the applicants’ view of what was required to be reported as opposed to the Secretary’s interpretation of what the applicants were required to report. I am of the view that the Department’s practice of apportioning income only over the following twelve month period is fair and reasonable. The policy of not including any income or commission earned which extends into the twelve month period following retirement is also a fair and reasonable approach. It is apparent that this was not clearly understood by the applicants and that the record of interview at Exhibit 5 has been read more narrowly than what was intended by the interviewer.
19. The Tribunal has undertaken a re-assessment of the calculations made by the SSAT based on the summary provided in Exhibit 3. It is clear from the information there, that amounts of loans or amounts paid in advance of entitlement to commission is included as well as progressive totals of the net balance. It is apparent that only the amounts shown in the column “Commissions Due” are the relevant amounts of income earned for the respective financial years. Based on that information and having reviewed those amounts for the relative financial years, the Tribunal finds that the amounts calculated by the SSAT are correct if one applies the Secretary’s policy.
20. By way of observation, I note however, if the SSAT approach was to be adopted (ie financial year basis and not the Secretary’s policy of applying income prospectively over the following 12 months), I would have expected that the amount earned during that part of the debt period commencing 22 December 2000 to 30 June 2001 would be $803.36 and not $13,540.01. It is apparent that the difference refers to two (2) amounts which are shown as being earned on 22 November 2000 and 1 December 2000 respectively and, which are outside the debt period. However, for the reason stated in paragraph 17 above, I believe the policy determined by the Secretary should apply, and as a consequence, the amounts of $9,552.02 and $3,184.63 would be income in the debt period, except for the equivalent of four and three equal weekly instalments respectively for the amounts earned on 22 November 2000 and 1 December 2000. Credit amounts of $734 and $183 (approximately) would accrue for those periods. However, as these amounts must be considered in applying the Secretary’s policy consistently across the period from 22 November 2000 to 2 June 2005, I remit the matter back to the Secretary to verify the calculations as it will affect the amount of debt.
21. The Tribunal therefore finds that the debt due to the Commonwealth should be recalculated to ascertain the correct amount of overpayment for the debt period, taking account of the revised amount of income for the 2000/2001 year and applying the Secretary’s policy as outlined earlier.
22. Taking account of the above findings of fact as well as the determination as to the income received by the applicant for the debt period, it is apparent that the income received as opposed to the threshold limits which were the basis of the age pension calculations would indicate there is clearly a debt due to the Commonwealth in gross terms over the debt period. The Respondent should recalculate the age pension entitlements for the applicants for the relevant financial year periods based on the Secretary’s practice of applying amounts received for a prospective twelve month period.
23. Subject to that recalculation to determine the amount of the overpayment precisely, in accordance with the policy determined by the Secretary, the Tribunal answers the remaining legal questions for determination as follows:
Issue 2: Is the amount of overpayment a debt due to the Commonwealth?
24. By virtue of section 1223(1) of the Act, an overpayment will be a debt due to the Commonwealth where a person receives a payment under the Act and there was no entitlement to that payment. The terms of this section are strictly worded and the intention of Parliament is clear.
25. The Tribunal finds that the applicants have understated income by way of commission, albeit not deliberately. The net effect is, however, that the amount of age pension to which the applicants were entitled in those respective years has been overpaid and to the extent that it has been overpaid in any of those years, the overpayments will be a debt due to the Commonwealth.
Issue 3: Should the overpayment be recovered?
26. It is generally accepted that where there has been an overpayment of public moneys, those moneys should be recovered. The only provisions for relief are where there may be grounds for “write off” or “waiver”.
Write-off
27. Section 1236(1A)(b) provides that an applicant’s debt can be written off where the person has no capacity to repay the debt. Where an applicant can repay the debt, including by means of deduction from their social security payments, then write-off will generally not be available unless severe financial hardship can be demonstrated. The Tribunal has no reason to believe that the applicants have excess means over and above their enjoyment of the frugal comforts of life. There was equally no evidence to demonstrate that the applicants were impecunious and that a deduction from their social security pensions should not be made. The Tribunal is satisfied, therefore, that write-off is not an appropriate legal provision to invoke in this case.
Waiver
28. Waiver is available in two circumstances –
(1) Administrative Error of the Commonwealth: Under section 1237A, the Secretary must waive that part of the debt which is “attributable solely to an administrative error made by the Commonwealth”, provided that the debtor received the payments in good faith.
Owing to the applicants’ misinterpretation of the advice provided, the Tribunal cannot accept that it is an error which is attributable solely to an administrative error of the Commonwealth. While the Tribunal does not dispute that the applicants received the amounts in good faith, the result, nevertheless, is not an error which is attributable solely to an error caused administratively by Centrelink. Therefore, on the face of the evidence presented, waiver is not an appropriate response.
(2) Special Circumstances: Section 1237AAD of the Act is the other provision which can authorise waiver of a debt, but only where there are “special circumstances”. “Special circumstances” require some indicia which will take the facts of the case away from the “usual case”. “There will be a requirement that the circumstances are such that takes the case out of the ordinary…..”(Dranichnikov v Centrelink (2003) 75 ALD 134 (at 148)).
29. The Respondent submitted that the Act clearly intended that any such overpayments will be recovered so that all taxpayers are treated similarly (Department of Social Security v Hales (1998) 82 FCR 154 at 155). The Respondent also submitted that section 1237AAD prescribes that special circumstances must not merely be financial hardship alone and that the applicants will necessarily be “…..impecunious or in straitened circumstances” (Secretary, Department of Family and Community Services and Sangster (2004) 84 ALD 465 at 474). Taking account of the relevant statutory and case law provisions above, the Tribunal finds that special circumstances do not exist which would justify waiver of the debt.
30. The Tribunal notes, however, that Centrelink can moderate the amount of the repayment and review the applicants’ circumstances from time to time so that there is no greater burden in repayment imposed than would be justifiable in their circumstances. Mr Ralph indicated that he was now over 70 years of age and in future, it may be that he and his wife might require additional funding for health treatment. It was not submitted that there were serious health difficulties at present. Nevertheless, it is clearly an issue which Centrelink should keep under review, from time to time, given the age of the applicants, as there was no deliberate intention to receive more than their entitlements, they do not presently have excess financial means and that there may be health issues in the future.
Decision
31. In the circumstances, the Tribunal determines that:
I.The decision under review is set aside; and
II.The Secretary’s policy as to apportionment of commission income and resultant determination of overpayment is to be applied; and
III.The Respondent should recalculate the debt taking account of the Secretary’s policy of apportionment in equal instalments over the 12 month period following the commission amounts earned, but without any apportionment of commission amounts earned beyond Mr Ralph’s final retirement; and
IV.As it is apparent that there has been an overpayment –
(a) The amount of overpayment is a debt due to the Commonwealth; and
(b) The debt should be recovered ie there are no legal grounds for write off or waiver of the debts.
I certify that the 31 preceding paragraphs are a true copy of the reasons for the decision herein of Dr KS Levy, RFD Senior Member.
Signed: .....................................................................................
Legal Research OfficerDate/s of Hearing 20 February 2007
Date of Decision 4 May 2007
Applicant Mr Ralph, on behalf of both applicants
Respondent Mr M Black, departmental advocate
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