Read and Secretary, Department of Family and Community Services

[2004] AATA 643

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2004] AATA 643

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          Nos T2003/95 and T2003/96

GENERAL ADMINISTRATIVE  DIVISION		)
Re		PETER CHARLES READ and ROMA LORRAINE READ (deceased)

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Miss Mary Imlach, Senior Member

Date22 June 2004  

PlaceHobart

Decision The Tribunal affirms the decision under review.

[Sgd Mary Imlach]

Senior Member

SOCIAL SECURITY – pensions, benefits and allowances – age pension – income test – whether maturity value (less premiums) is assessable as income – whether such sum should be an “exempt lump sum” – decision affirmed

Social Security Act 1991 (Cth) s8, s9 and s1073

Social Security (Administration) Act (Cth) 1999 Division 5

Re Varcoe and Secretary, Department of Family and Community Services
[2000] AATA 1002
Re Secretary, Department of Family and Community Services and McLaughlin
[2003] AATA 298

REASONS FOR DECISION

The Application to Review

1.      The applicant asks the Administrative Appeals Tribunal to review a decision of the Social Security Appeals Tribunal (“SSAT”) delivered in Hobart on 16 April 2003.  In that decision the SSAT upheld a determination of an authorised review officer (“ARO”) affirming a decision of the respondent’s delegate to assess, as income, the maturity value (less premiums paid) of a life policy held by the applicant, Mr Read.  The rate of the age pension claimed by the applicant and his late wife had been reduced as a consequence of this assessment.

2.      The SSAT decided that the whole return on maturity on the life policy should have been taken into account as income in assessing the applicant’s pension rate.  The respondent claims in the present proceedings that the SSAT decision was correct and that the original determination by the Secretary’s delegate should be retained.

HISTORY

3.      In1962 Mr Read took out an AMP life insurance policy (“the policy”).

4.      On 1 July 2002 the policy matured.  The maturity amount of the policy was $11,747.40 which included $9747.00 in bonuses.

5.      Mr Read lodged a claim for age pension on 30 September 2002.  He completed “Module A Asset Details” form as part of his age pension claim.  On this form Mr Read advised Centrelink that he had received a lump sum payment of $11,747.40 on 1 July 2002 the lump sum being for “life insurance”.

6.      On 22 October 2002 Mr Read was granted age pension with effect from 25 September 2002.  At this time Centrelink decided to assess the “profit” (the difference between the maturity payment and the sum of premiums paid) of the policy as income for 12 months following maturity.  This had the effect of reducing Mr and Mrs Read’s rate of age pension, as Mr Read was subject to the income test.

7.      On 29 October 2002 Mr Read requested a review of Centrelink’s decisions.  On 7 November 2002 the original decision-maker advised Mr Read that the decisions be affirmed.  Mr Read requested a further review by an ARO.  By letter dated 12 November 2002 Mr and Mrs Read were advised that the ARO had affirmed the decisions under review.

8.      Mr and Mrs Read then applied to the SSAT for a review of the decisions, the application being heard on 27 March 2003.  On 16 April 2003 the SSAT affirmed the decisions under review.

PROCEEDINGS IN THE AAT

9.      The application to review was heard in Hobart on 10 February 2004.  The applicant represented himself and, as executor of his wife’s will, represented her estate.  The respondent was represented by Ms D Hutchinson assisted by Mr B Sparkes.  Documentary exhibits consisting of:

(a)the section 37 “T” documents;

(b)copy of Guide to the Social Security Act 4.4.10 income from life insurance products;

(c)copy of question 21 from the Tax Pack supplement dealing with bonuses from life insurance policies and;

(d)copy of the explanatory memorandum which accompanied the Income Tax Assessment Amendment Bill of 1983.

were taken into evidence.  The applicant objected to the tendering of documents (2), (3) and (4) on the basis that he had believed the facts were not in contention and that he had not had an opportunity to inspect those documents.  The documents were admitted into evidence.

10.     The applicant contended that the bonuses should not be treated as income received in the year in which the policy was redeemed thus making them income received within the previous 12 months.

11.     Mr Read stated that the Commonwealth is inconsistent in classifying bonuses as income in the year accrued for taxation purposes and income in the year redeemed for pension purposes.  He claimed that the application of the inconsistent definitions of income both disadvantaged him and that the bonuses should be treated as “exempt payment”.  Furthermore he claimed that the respondent was wrong in determining that the proceeds of the policy was income and that it should have been assessed as an asset.

12.     The applicant referred to the decision in Re Varcoe and Secretary, Department of Family and Community Services [2000] AATA 1002 (“Varcoe”) as a precedent for considering these bonuses as “exempt income” and requested the Tribunal to apply the precedent established in that decision.

13.     The respondent contends that the “profits” (the difference between the maturity payment and the sum of the purchase price and premiums paid) received by Mr Read as a result of the policy were “moneys” that he received for his own use and benefit.  It is therefore, an amount properly categorised as income in assessing the applicant’s pension rate.

THE ISSUES

14. Section 55 of the Social Security Act 1991 (“the Act”) provides that the rate of payment of age pension should be determined according to the “Pension Rate Calculator” at the end of s1064 in Part 3.2 of the Act.

15. Section 1064A sets out a method statement to work out a person’s rate. Step 5 in that method statement provides that the rate of payment is subject to the income test:

Step 5 Apply the ordinary income test using MODULE E to work out the income reduction.

16.     Step 1 of Module E of the Rate Calculator requires that the person’s ordinary income be ascertained:

17.     The term “ordinary income” is defined in subsection 8(1) of the Act as follows:

“Ordinary income” means income that is not maintenance income or an exempt lump sum.  [emphasis added]

“Income” is defined in subsection 8(1) as an income amount that is received by the person for their own use or benefit.

“Income” in relation to a person, means:

(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;

But does not include an amount that is excluded under subsection (4), (5) or (8).

18.     An “income amount” includes moneys:

“income amount” means:

(a)       valuable consideration; or

(b)       personal earnings; or

(c)       moneys; or

(d)       profits

(whether of a capital nature or not.

“INCOME” UNDER THE ACT

19. Section 1073 of the Act, (so far as is relevant) provides that if a person receives an amount that:

(a)       is not income within the meaning of Division 1B or 1C of this Part; and

(b)       is not:

(i)income in the form of periodic payments; or

(ii)ordinary income from remunerative work undertaken by the person; or

(iii)an exempt lump sum

The person is, for the purposes of this Act, taken to receive one fifty-second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount.  [emphasis added]

20.     At issue is the question whether or not the “profit” of the policy, is to be treated as “ordinary income” under subsection 1073(1) of the Act. If it is not “ordinary income” then the amount received cannot be applied by operation of subsection 1073(1) of the Act to the rate calculators so as to affect the applicant’s rates of payment.

DECISION

21.     The question to be determined is whether the amount of $11,747.40 which was the redeemed value of the policy or any part of it, is required to be treated as “ordinary income” under s1073(1) of the Act or is it an “exempt lump sum”. To be exempt it must also satisfy sub-paragraph 8(11)(a) of the Act which requires that the amount is an amount determined by the Secretary to be an exempt lump sum.

22. The determinations which have been made by the Secretary under subsection 8(11)(d) of the Act can be found in the Guide to the Social Security Law at Chapter 4.3.2.31 (“the Guide”). The Secretary contends that none of these determinations include or could be equated with matured insurance policies. Plainly the Guide does not include the proceeds of matured insurance policies as an exempt lump sum. The exempt lump sums mentioned in the Guide consist of payments from specific named funds and the list concludes with a final entry “other individual exempt payments where customers will hold an 8(11)(d) Determination signed by the Secretary of Family and Community Services”. This entry serves as a reminder that s8(11)(d) invests the Secretary with an ongoing power to make exempt lump sum determinations in future cases.

23.     The notes to the section set out some examples of the kinds of lump sums that the Secretary might determine to be exempt lump sums such as a lottery win or other windfall, a legacy on a bequest.  These examples relate to unexpected amounts.  Such a description does not apply to the type of product of life insurance bonuses held by the applicant.

24.     The applicant referred the Tribunal to the decision in the matter of Varcoe which determined that the power invested in the Secretary, can be exercised in “customer specific cases” so as to avoid “unfairness, injustice and inequitable treatment” to an individual.

25.     Mr Read described the fact that he had paid income tax on the insurance bonuses during the life of the policy and that the bonuses were then included as income for the purpose of assessing the rate of his age pension as “double dipping” by the Government.

26.     In Re Secretary, Department of Family and Community Services and McLaughlin [2003] AATA 298 (“McLaughlin”) the AAT reviewed the decision in Varcoe and Deputy President Wright concluded:

I agree that there is no express intention to limit s8(11)(d) but I also agree with Senior Member Purcell in Davies where she in effect concluded that there is a plain legislative intent to confine exempt payments in accordance with the tenor of the note to s8(11)(d) to unexpected windfalls, fortuitous receipts of money and the like. There can be no doubt that the Secretary can make a determination in respect of individual cases but in my opinion any such determination must be consistent with the spirit and intent of the legislative scheme of the Act as more particularly exemplified by the sections already discussed in these reasons.

27. The weight of legal authorities, it appears, is against the proposition that bonuses that have accrued in redeemed life insurance policies should be classed as exempt income under s8(11)(d) of the Act.

28.     The tax laws and the social security provisions in this country have always been considered to be separate legal entities.  The first is for the raising of revenue in a fair and equitable manner having regard to the income of Australian taxpayers.  The social security law is designed to ensure that those who have a financial need are able to receive benefits from the public purse dependent on the level of need and, therefore, all benefits and pensions are subject to an income test.

29.     The AAT in McLaughlin commented at paragraph 30:

30. . . . (i) inequitable compared to the treatment of other products; and (ii) inconsistent with the intention of the Act to assess income from all sources, with very limited exceptions. The income test is used to target income support to people at times of financial need while ensuring that the social security safety net remains sustainable for Australian taxpayers.

30.     Deputy President Wright in McLaughlin said at paragraph 37:

There can be no doubt that the Secretary can make a determination in respect of individual cases as well as "class" cases, but in my opinion any such determination must be consistent with the spirit and intent of the legislative scheme of the Act as more particularly exemplified by the sections which have already been discussed in these reasons. Misunderstandings of the legislation, poor advice from financial advisers or disadvantageous choices of retirement planning mechanisms could not, in my view, provide justification for the Secretary making an exempt payment declaration to ameliorate the consequences of the claimant's flawed judgment.

31. It appears to me, the officers of the respondent, the SSAT and this Tribunal cannot go behind the fact that neither the Secretary, nor his authorised delegate has made a determination under s8(11)(d) of the Act that any such profit derived by the applicant is, or is not, an exempt lump sum. Neither the SSAT nor I can go behind the fact that, according to the present state of the law, the insurance profits are not exempt lump sums. As in Varcoe and McLaughlin the SSAT purported to exercise the Secretary’s function – a legislative function – not an administrative function in making a determination pursuant to s8(11)(d) of the Act in favour of the parties.

32.     Even if I were persuaded that there was merit in the argument that a determination should be made by the Secretary so as to exempt the relevant lump sum in the present case, this is not a decision which in the absence of persuasive authority I regard myself as having power to make.  It seems to me that the power entrusted to the Secretary is a legislative power.  Such a power is generally not delegable without express statutory authorisation.

33.     In my opinion the decision of the Secretary’s delegate as endorsed by the ARO should not be disturbed.

34.     The application to review the SSAT decision is not upheld.

I certify that the 34 preceding paragraphs are a true copy of the reasons for the decision herein of Miss Mary Imlach, Senior Member

Signed:  K L Miller (Administrative Assistant)

Date/s of Hearing  10 February 2004
Date of Decision  11 June 2004
Counsel for the Applicant         Applicant appeared on his own behalf
Solicitor for the Applicant           
Counsel for the Respondent     Mr Brian Sparkes
Solicitor for the Respondent     Centrelink