Reginald Warren and Secretary, Department of Social Services
[2013] AATA 881
[2013] AATA 881
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2013/2392
Re
Reginald Warren
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Ms A F Cunningham (Senior Member)
Date 11 December 2013 Place Hobart The decision under review is affirmed.
[Sgd Ms A F Cunningham]
Ms A F Cunningham (Senior Member)
SOCIAL SECURITY – Newstart allowance – termination payment – income maintenance period – severe financial hardship – unavoidable or reasonable expenditure – reasonable costs of living – decision under review affirmed
Social Security Act 1991, ss 8(1)(A), 19(C), 1068, 1072
Social Security (Administration) Act 1999
Guide to Social Security Law
REASONS FOR DECISION
Ms A F Cunningham (Senior Member)
11 December 2013
The applicant, Reginald Warren seeks the review of a decision of the Social Security Appeals Tribunal (SSAT) dated 19 April 2013, which affirmed a decision made by Centrelink to impose an income maintenance period on his newstart allowance from 21 September 2012 to 2 May 2013. The income maintenance period was imposed on the basis of the amount received by the applicant by way of a termination payment from his previous employer.
The hearing was conducted by video link to Mr Warren who resides on King Island. Mr Warren appeared on his own behalf and the respondent was represented by Mr Brian Sparkes. Mr Warren gave oral evidence and was cross-examined by Mr Sparkes. The T Documents were tendered in evidence pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.
ISSUES
The issues for the Tribunal to determine are as follows:
(1) Whether the applicant is subject to a newstart allowance income maintenance period;
(2) Has an income maintenance period being correctly imposed for the period 21 September 2012 to 2 May 2012 inclusive?
(3) Can the income maintenance period be reduced on the grounds that the applicant is in severe financial hardship as a consequence of incurring unavoidable or unreasonable expenditure?
FACTS
The following facts were not in dispute.
(i) Mr Warren’s claim for newstart allowance was received on 19 September 2012 and he was paid from 7 August 2012.
(ii) Mr Warren received a termination payment from Swift Australia Pty Ltd on 21 September 2012 as a consequence of his employment being terminated. The payment comprised:
Type of payment
Gross $
Weeks covered
Redundancy
13,171.15
15
In lieu of notice
5,266.46
6
Annual leave
4,683.60
5
Long service leave
5,219.70
6
(iii) The gross termination payment received was $28,340.91.
(iv) On 19 September 2012 the maximum fortnightly rate of newstart allowance payable to a single person who did not pay rent was $492.60 ($497.00 from 20 March 2013).
(v) On the basis of receipt of the applicant’s termination payments an income maintenance period was imposed from 21 September 2012 to 9 March 2013 which meant that Mr Warren was entitled to a nil rate of newstart allowance for that period.
(vi) On 27 February 2013 a Centrelink Authorised Review Officer affirmed the decision to apply an income maintenance period but varied it by extending the period to 2 May 2013 as a component of the termination payment had been overlooked.
(vii) It was Mr Warren’s contention that he had acted reasonably by using part of his termination payment to repay a personal loan in the sum of $5,000 and bankcard debt of $5,000. Although asked, Mr Warren did not elaborate on the reason for the personal loan apart from stating that it comprised monies borrowed from a friend approximately 12 months ago. Mr Warren stated that the bankcard debt had accumulated over a period of years and was used to cover general expenses.
LEGISLATION
The relevant legislation is contained in the Social Security Act 1991 (the Act) and the Social Security (Administration) Act 1999 (the Administration Act).
Section 1068 of the Act provides that the rate of newstart allowance is to be calculated in accordance with the Rate Calculator at the end of the section. Module G of section 1068 of the Act provides a method statement for calculating the effect that a person’s ordinary income has on the maximum basic rate.
The term “income” is defined in paragraph 8(1)(A) of the Act as “income earned, derived or received by the person for the person’s own use or benefit”.
Section 1072 of the Act states as follows:
“A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A”.
[Division 1A is not relevant to this appeal]
Section 1068-G7 of the Act states:
“Subject to points 1068-G7AF to 1068-G7AR (inclusive), if:
(a) a person’s employment has been terminated; and
(b) as a result the person is entitled to a lump sum payment from the person’s former employer;
The person is taken to have received the lump sum payment on the day on which the person’s employment was terminated”.
Section 1068-G7AH of the Act provides:
“If:
(a) a person’s employment has been terminated; and
(b) the person receives a termination payment (whether as a lump sum payment, as a payment that is one of a series of regular payments or otherwise);
The person is taken to have received ordinary income for a period (the income maintenance period) equal to the period to which the payment relates”.
Section 1068-G7AQ of the Act defines a number of terms including:
“. redundancy payment includes a payment in lieu of notice, but does not include a direct termination payment within the meaning of section 82-10F of the Income Tax (Transitional Provisions) Act 1997
. termination payment includes:
(a) a redundancy payment; and
(b) a leave payment relating to a person’s employment that has been terminated; or
(c) any other payment that is connected with the termination of a person’s employment”.
Section 1068-G7AR of the Act states:
“In points 1068-G7AA to1068-G7AQ (inclusive):
Leave payment includes a payment in respect of sick leave, annual leave, maternity leave and long service leave”.
As the applicant received a termination payment for the purposes of section 1068-G7AH, 1068G7AQ and 1068-G7AR of the Act when he ceased employment with Swift Australia Pty Ltd, he is taken to have received ordinary income for a period equal to the period to which the payment relates – this is the income maintenance period.
Section 1068-G7AKA provides:
“Subject to point 1068-G7AKC, if the person is covered by point 1068-G7AH, the income maintenance period starts, subject to point 1068-G7AKB, on the day the person is paid the termination payment”.
Section 1068-G7AKB provides:
“If a person who is covered by point 1068-G7AH is subject to an income maintenance period (the first period) and the person is paid another termination payment during that period (the second termination payment), the income maintenance period for the second termination payment commences the day after the end of the first period”.
The period to which the payment relates is provided for in section 1068-G7AQ which provides:
“Period to which the payment relates means:
(a) if the payment is a leave payment – the leave period to which the payment elates; or
(b) if the payment is a redundancy payment and is calculated as an amount equivalent to an amount of ordinary income that the person would (but for the redundancy) have received from the employment that was terminated – the period for which the person would have received that amount of ordinary income; or
(c) if the payment is a redundancy
Section 1068-G7AM provides:
“If the Secretary is satisfied that a person is in severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies to the person, the Secretary may determine that the whole, or any part, of the period does not apply to the person”.
The term “severe financial hardship” is defined in sub section 19C(2) of the Act as follows:
“A person who is not a member of a couple and who makes a claim for … one of the following allowances:
(a) Newstart allowance;
…
Is in severe financial hardship if the value of the person’s liquid assets (within the meaning of subsection 14A(1)) is less than the fortnightly amount at the maximum payment rate of the payment, benefit, pension or allowance that would be payable to the person;
(f) if the person’s claim were granted; and
(g) in the case of a person to whom an income maintenance period applies, if that period did not apply”
The term “unavoidable or reasonable expenditure” is defined in subsection 19C(4) of the Act as follows:
“(4) Unavoidable or reasonable expenditure, in relation to a person who is serving a liquid assets test waiting period or is subject to a seasonal work preclusion period, or a person to whom an income maintenance period applies, includes, but is not limited to, the following expenditure:
(a) the reasonable costs of living that the person is taken, under subsection (6) or (7), to have incurred in respect of:
(i) if the person is serving a liquid assets test waiting period—that part of the period that the person has served; or
(ii) if the person is subject to a seasonal work preclusion period—that part of the period that has expired; or
(iii) if an income maintenance period applies to the person—that part of the period that has already applied to the person;
(b) the costs of repairs to, or replacement of, essential whitegoods situated in the person’s home;
(c) school expenses;
(d) funeral expenses;
(e) essential expenses arising on the birth of the person’s child or the adoption of a child by the person;
(f) expenditure to buy replacement essential household goods because of loss of those goods through theft or natural disaster when the cost of replacement is not the subject of an insurance policy;
(g) the costs of essential repairs to the person’s car or home;
(h) premiums in respect of vehicle or home insurance;
(i) expenses in respect of vehicle registration;
(j) essential medical expenses;
(k) any other costs that the Secretary determines are unavoidable or reasonable expenditure in the circumstances in relation to a person.
However, unavoidable or reasonable expenditure does not include any reasonable costs of living other than those referred to in paragraph (a)”.
The term “reasonable costs of living” is defined in subsection’s 19C(5) and 19C(6) of the Act;
“Meaning of reasonable costs of living
(5) The reasonable costs of living of a person include, but are not limited to, the following costs:
(a) food costs;
(b) rent or mortgage payments;
(c) regular medical expenses;
(d) rates, water and sewerage payments;
(e) gas, electricity and telephone bills;
(f) costs of petrol for the person’s vehicle;
(g) public transport costs;
(h) any other cost that the Secretary determines is a reasonable cost of living in relation to a person.
(6) For the purposes of paragraph (4)(a), the amount of reasonable costs of living that a person who is not a member of a couple is taken to have incurred, may not exceed:
(a) …
(b) …
(c) in the case of a person to whom an income maintenance period applies—the amount of allowance or parenting payment (as the case may be) that would have been payable to the person during that part of the income maintenance period that has already applied to the person, if the period did not apply to the person”.
INCOME MAINTENANCE PERIOD
Mr Warren did not dispute the receipt of the monies paid to him by way of termination payment nor did he argue that there had been an incorrect application of the relevant legislation as outlined above.
The Tribunal is satisfied that the termination payment, which included a redundancy component, payment in lieu of notice, annual leave and long service leave, constituted gross ordinary income and is thus subject to the application of an income maintenance period.
LENGTH OF THE INCOME MAINTENANCE PERIOD
The income maintenance period commenced on the day of receipt of the termination payment namely 21 September 2012. In accordance with the provisions of section 1068-G7AH of the Act, the income maintenance period is equal to the period to which the person’s termination payment relates.
This period has been calculated as follows;
·5 weeks of annual leave totalling $4683.60
·6 weeks of long service leave totalling $5219.70
·6 weeks of payment in lieu of notice totalling $5,268.46
·15 weeks of severance totalling $13,171.15
Totalling $28,342.91 and for a period of 32 weeks
As Mr Warren’s usual wage was $3,805 per month or $878.07 per week, in accordance with section 1068-G7AQ of the Act, the termination payment equates to 32 weeks ($28,342.91/$878.07) (rounded) or 160 working days (32 weeks X five). The total number of days of the income maintenance period being 160 working days, commenced on 21 September 2012 and ended on 2 May 2013 inclusive.
The evidence was that the income cut off period (i.e. when no newstart allowance is payable) at the relevant time was $914.34 per fortnight. As the rate at which the termination payment was made was $878.07 per week for a 32 week period, it exceeds the income cut off point which means that the rate payable during the income maintenance period was nil and no rate of newstart is therefore payable.
SEVERE FINANCIAL HARDSHIP PROVISIONS
The Tribunal was referred to the Department’s Guide to Social Security Law where it is stated in part at paragraph 4.3.4.40:
“Determining whether the IMP should be waived
To decide whether a customer’s IMP should be waived, the following assessment is made:
. Establish whether the customer is in severe financial hardship.
. Assess the value of the customer’s liquid assets at the date of commencement of their IMP,
. Assess the unavoidable or reasonable expenditure of the customer by adding together:
. The level of reasonable cost of living (mindful of the upper limit) applicable to the customer’s circumstances, incurred since the commencement of the IMP, and
. Any unavoidable or reasonable expenditure in addition to the reasonable costs of living that has occurred since the commencement of the IMP,
. Deduct the total amount at step 3 from the customer’s liquid assets assessed at step 2.
. If the amount at step 4 still satisfied the severe financial hardship test, the customer is entitled to have the remainder of their IMP waived.
Assessing unavoidable or reasonable expenditure
Unavoidable or reasonable expenditure includes:
. The reasonable costs of living, PLUS
. Other unavoidable or reasonable expenditure.
The IMP can only be waived if the expenditure that has caused them to be in severe financial hardship were unavoidable or reasonable. If the customer is in severe financial hardship because of expenditure that is not considered unavoidable or reasonable their IMP cannot be waived.
Determining when the waiver starts
If the customer is entitled to have their IMP waived, it is waived from the date that the customer incurred the unavoidable or reasonable expenditure which caused the severe financial hardship”.
At the time of the hearing before the SSAT it was Mr Warren’s evidence that his bank account balance was $57.00. The SSAT accepted his evidence and accordingly found that he was in severe financial hardship. Mr Warren confirmed at the hearing before the AAT that by March 2013, he had fully expended his lump sum termination payment. The Tribunal concurs with the finding of the SSAT that Mr Warren was in severe financial hardship as that term is defined in subsection 19C(2) of the Act. Section 1068-G7AM of the Act provides that where a person is in severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies, the Secretary may determine that the whole or any part of the period does not apply to the person.
Subsection 19C(4) defines the term unavoidable or reasonable expenditure and states that it includes, but is not limited to, the persons reasonable costs of living, and a number of other listed items. Subsection 19C(5) includes examples of reasonable costs of living that is not an exhaustive list. Subsection 19C(6) states that the amount of reasonable costs of living is restricted to the amount of allowance that would have been payable to the person during the income maintenance period had that period been imposed. In other words the reasonable costs of living cannot exceed the rate of newstart allowance otherwise payable. As at 19 September 2012 the maximum payment rate of newstart allowance for a single person who was a homemaker was $492.60 per fortnight ($35.18 per day) and that rate applied until 19 March 2013 when it increased to $497.00 per fortnight ($35.50 per day). For the 32 week income maintenance period, the reasonable costs of living were therefore limited to $7,895.68.
Mr Warren’s termination payment of $28,340.91 represents 160 working days and $126.52 per calendar day. As this amount exceeds the daily maximum payment rate of newstart allowance of $35.00 per day during the period 21 September 2012 to 2 May 2013, it is not possible for his reasonable costs of living alone to reach a point at which he would be in severe financial hardship. That is because the reasonable costs of living for the entire income maintenance period could not exceed $7,895.68.
The Tribunal accepts Mr Warren’s contention that the cost of living is higher on King Island than mainland Tasmania, however the legislation does not permit the Tribunal to take this factor into account. There is no provision in the legislation to allow for regional cost of living differences. Subsection 19C(6)(c) clearly states that the reasonable costs of living component cannot exceed the amount of newstart allowance that would have been payable during the income maintenance period had it applied.
In addition to the reasonable costs of living allowance the legislation allows additional unavoidable or reasonable expenditure to be taken into account. It was submitted by the Secretary that the only amounts that have been expended by Mr Warren that can be assessed and decided as being unavoidable or reasonable expenditure are the $900.00 spent on car maintenance and $1000.00 on costs associated with medical treatment. The Secretary concedes that these amounts are unavoidable or reasonable expenditure for the purposes of section 1068-G7AM of the Act.
The evidence presented by Mr Warren as to the cause of his current financial situation was the repayment of his debts in the amount of $9,737.49. It was his evidence that he felt obliged to repay the debts at the time that he did because he had available funds. Mr Warren repaid his personal loan immediately upon receipt of his termination payment. It was not however Mr Warren’s evidence that there was any contractual or other requirement to use his termination payment to fully repay the debts at the time when he did. It appears that it was simply his choice to do so.
The Tribunal accepts the Secretary’s submission that Mr Warren’s decision to settle his outstanding debts from his termination payment cannot be considered as unavoidable or reasonable expenditure as that term is defined in subsection 19C(4) of the Act. It was pointed out by Mr Sparkes that even if this amount could be taken into account, it would still not reduce the termination payment of $28,342.91 to less than $492.60 ($497.00 after 20 March 2013) (ie fortnightly rate of newstart allowance) at any point during the income maintenance period -i.e. $28,342.91 less $7,895.68 less $1,900.00 less $9,737.49 equals $8,823.82 which exceeds the fortnightly rate of newstart allowance of $492.60.
Whilst it is accepted that sometime during the income maintenance period Mr Warren suffered severe financial hardship, it was not the consequence of unavoidable or reasonable expenditure or the reasonable costs of living as these terms are defined by the legislation. Specifically, the unavoidable or reasonable expenditure (inclusive of the reasonable costs of living) has not reduced the value of Mr Warren’s liquid assets to an amount equivalent to the fortnightly maximum payment rate of newstart allowance as specified in subsection 19C(2) of the Act.
In accordance with these findings the decision of the Tribunal is to affirm the decision under review to impose an income maintenance period on Mr Warren’s newstart allowance from 21 September 2012 to 2 May 2013 inclusive.
I certify that the preceding 36 (thirty -six) paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member) [Sgd]
Administrative Assistant
Dated : 11 December 2013
Date(s) of hearing 7 November 2013 Applicant In person Solicitors for the Respondent Mr B Sparkes, Program Litigation and Review Branch
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