Salem and Secretary, Department of Social Services

[2014] AATA 93

[2014] AATA 93  

Division	GENERAL ADMINISTRATIVE DIVISION
File Number(s)	2013/2607
Re	Mariam Salem
APPLICANT
And	Secretary, Department of Social Services
RESPONDENT

DECISION

Tribunal	Senior Member J F Toohey
Date	14 February 2014
Date of written reasons	25 February 2014
Place	Sydney

The Tribunal affirms the decision under review.

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Senior Member J F Toohey

CATCHWORDS – SOCIAL SECURITY – family tax benefit – whether applicant overpaid – lump sum received on account of past wages – whether counted as taxable income for the year – Lump Sum Tax Offset applied by Australian Taxation Office – whether Centrelink required to apply the same – decision under review affirmed

Legislation

A New Tax System (Family Assistance) Act (1999)
A New Tax System (Family Assistance) (Administration) Act (1999) s 71(2), 95(2), 97(1), 101

Income Tax Assessment Act 1936, s 159ZR

Cases

Beadle v Director-General of Social Security (1985) 7 ALD 670
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Groth v Secretary, Department of Social Security (1995) 40 ALD 541

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

REASONS FOR DECISION

Senior Member J F Toohey

25 February 2014

1. In this case, I have to decide:

   (a)whether Mrs Mariam Salem was overpaid Family Tax Benefit (FTB) during the 2011-2012 financial year;

   (b)if so, whether there is any reason she should not have to repay any or all of the resulting debt.

2. There is no dispute that Mrs Salem qualified for FTB during 2011-2012.  The question is how much she should have been paid.

3. Mrs Salem attended a hearing of the Tribunal on 20 December 2013 and 14 February 2014.  Her husband, Mr Antoun Salem, attended with her and spoke on her behalf. 

4. These written reasons reflect reasons given orally at the conclusion of the hearing.

   Family Tax Benefit

5. The legislation concerning qualification for, and calculation of, FTB is set out in the A New Tax System (Family Assistance) Act (1999) (the FA Act).  It is quite complex.  It is summarised, correctly in my view, in the Secretary’s statement of facts, issues and contentions given to the Tribunal and Mrs Salem in November 2013.  I will not repeat it in any detail here. 

6. A person’s rate of FTB is calculated and paid on the basis of their estimate of their taxable income (or combined income if a member of a couple) for the coming financial year.  After the end of each financial year, Centrelink reconciles the estimated taxable income with the actual taxable income as assessed by the Australian Taxation Office (ATO).  If there has been an overpayment or underpayment of FTB, a person will have to repay, or will be paid, the difference.

7. If a person receives a payment greater than what they should have received under the family assistance law, the excess is a debt due to the Commonwealth: s 71(2) A New Tax System (Family Assistance) (Administration) Act (1999) (the FAA Act).

   Mrs Salem’s FTB payments

   2010-2011

8. For the 2010-2011 year, Mrs Salem estimated her combined taxable income would be approximately $60,000, based on income Mr Salem expected to receive under an income protection insurance policy following a heart attack in 2009.  A dispute with the insurance company delayed payment until the following financial year.  As Mrs Salem’s actual income was less than she had estimated, she was paid $3047.11 in FTB arrears following the end-of-year reconciliation.

   2011-2012

9. On 9 May 2011, Mrs Salem advised Centrelink that her estimated combined taxable income for 2011-2012 would be $31,290.  On the basis of her estimate, she received $5613.28 in FTB payments for the year. 

10. Mrs Salem’s actual income turned out to be considerably more than she had estimated because, on 7 July 2012, Mr Salem received a lump sum of $52,959 in settlement of his claim against the income protection insurer.  As well, their daughter, Remona, who lives with them, earned $16,000 from her employment. 

11. Centrelink sent Mrs Salem “Information notices” on 2 July 2011, 7 September 2011, 5 October 2011 reminding her to tell Centrelink if her taxable income for the year changed from the estimate she had provided.  As Mrs Salem did not notify Centrelink of any change, no adjustment was made to her FTB payment during the year.  I will come back to this later. 

12. Based on Mrs Salem’s actual combined income of $117,304 for the year, Centrelink calculated she was entitled to $1974.08 FTB for the year and had been overpaid $3,639.20.

    Was Mrs Salem overpaid?

13. Mrs Salem disputes Centrelink’s calculation of her actual income for the 2011-2012 year.

14. First, Mr Salem says, he notified Centrelink of the lump sum payment.  He refers to a letter dated 26 May 2011 which he received from the Financial Ombudsman Service (FMS) whose office he had contacted in an effort to resolve the continuing dispute with the insurer.  It appears that the FMS helped resolve the matter.  The letter refers to Mr Salem’s “dispute with [the insurer]” and his “completed acceptance form”.  It continues:

    Please be advised that on 26 May 2011 we sent a letter to the Insurer informing them of your acceptance.  They should be in contact with you within 30 days to comply with the orders of the Determination, if this hasn’t already occurred.  I would encourage you to contact the Insurer if you don’t receive any response during the 30 days period (Since this timeframe is only advisable, not compulsory). Our file has now been finalised.

15. A copy of this letter is in the “T-documents” provided by the respondent.  Mr Salem says, and I accept, that he gave a copy to Centrelink as soon as he received the letter but I do not agree that it amounted to notice to Centrelink of his income for the coming year.  It only foreshadowed payment; it did not specify the amount to be paid or when it would be paid. 

16. Mr Salem did nothing further.   He did not say, when he gave Centrelink a copy of the letter, that Mrs Salem’s actual taxable income might vary from her estimate.  That might have been his intention but it did not happen.  He did not advise Centrelink when he actually received the lump sum.  It was reasonable for Centrelink to act on the basis of the estimated taxable income provided by Mrs Salem earlier that month.

17. Second, Mr Salem says, Centrelink should not have included the entire lump sum in Mrs Salem’s taxable income for 2011-2012 because part of it was for income he would have earned in 2010-2011.  He says Centrelink should have done what the ATO did and allocated the income across both years to reflect what his income should have been.  For the following reasons, I do not agree.

18. Mr Salem’s Notice of Assessment from the ATO for the year ended 30 June 2012 shows that he had a taxable income for the year of $101,304 and was allowed tax offsets including a “lump sum income arrears offset” of $7098.00.  The effect of such an offset is to reduce the amount of tax payable on taxable income by taking into account income accrued in whole or in part in an earlier year or years: Income Tax Assessment Act 1936, s 159ZR.Error! Hyperlink reference not valid.

19. Mr Salem contends that ATO staff advised him that Centrelink should do the same and “spread his income” across the years in which he would have earned it.  The result, he says, is that Mrs Salem would not be found to have been overpaid FTB.

20. That submission misunderstands the effect of the lump sum offset applied by the ATO.  It did not divide the lump sum in half and allocate it across both years as Mr Salem appears to believe.  It did not reduce his taxable income for 2011-2012; instead, it reduced the tax payable on that income.  His taxable income for the year was $101,304 as shown on his Notice of Assessment.  Together with any other income she earned, or is taken to have earned, during the year, it was the basis for calculating Mrs Salem’s FTB entitlement for the year. 

21. Mr Salem has provided a copy of a handwritten note dated 12 July 2013 which he says was written by an ATO officer.  I accept that it was.  It states:

    Ask why Centrelink does not allow a figure reported as a payment for a prior year to be treated separately from current year payments.  The [ATO] requires that the income is reported in the year that it is paid and because of this allows a tax offset.  Centrelink Helpdesk needs to be explained as to why the same capacity is not available for another federal department.

22. Two things can be said about this note.  Firstly, nothing that an ATO officer thinks Centrelink can or should do alters what Centrelink is required by its legislation to do. 

23. Secondly, Centrelink in effect “spreads the income” when it reconciles estimated and actual taxable income each year.  That is exactly what happened when Mrs Salem was paid arrears in 2010-2011 after her income was lower than estimated.  Although at the first hearing Mr and Mrs Salem maintained she did not receive arrears when her income was lower than estimated in 2010-2011, Centrelink records show arrears of $3047.11 were paid to Mrs Salem on 7 October 2011. 

24. I am satisfied that Centrelink correctly calculated Mrs Salem’s actual taxable income for 2011-2012 based on information including Mr Salem’s Notice of Assessment, and correctly calculated the FTB payable to her.  I am satisfied that she was overpaid $3629.20 which amount is a debt to the Commonwealth.

    Is there any reason Mrs Salem should not repay any or all of the debt?

25. Mrs Salem says that, even if she was overpaid, there are special circumstances which mean she should not have to repay the debt.  For the following reasons, I do not agree.

    Can the debt be written off?

26. The Secretary may write off a debt if it is irrecoverable at law, the person has no capacity to repay it, the person’s whereabouts are unknown, or it is not cost-effective to try to recover the debt: s 95(2) of the FAA Act. 

27. A person is taken to have capacity to repay a debt unless it would cause severe financial hardship.  Mrs Salem is currently repaying the debt at $60.00 per fortnight.  I accept this causes her some financial difficulty but I am not satisfied, taking into account all her financial circumstances, that it causes her severe financial hardship.  None of the other circumstances in which a debt may be written off applies to Mrs Salem.

    Must the debt be waived?

28. A debt must be waived if it is attributable solely to administrative error and was received in good faith: s 97(1) of the FAA Act.  I accept that Mr and Mrs Salem have always been honest with Centrelink about their financial circumstances.  I accept Mr Salem may have thought he had notified Centrelink of the lump sum when he provided a copy of the FMS letter.  However, there is nothing to suggest the overpayment arose solely from administrative error.  Mrs Salem therefore cannot have the benefit of this provision.

    Should the debt be waived?

29. A debt may be waived if there are special circumstances: s 101 FAA Act.  The overpayment must not result from a person knowingly making a false statement or false representation, or knowingly failing or omitting to comply with social security law; and there must be special circumstances other than financial hardship alone, that mean the debt should be waived.  I am satisfied that neither exclusion applies in this case.

30. The Act gives no guidance as to what might constitute special circumstances but the expression has been considered on many occasions by the courts and by this tribunal.

31. It will depend on the circumstances of the particular case whether they are special: Beadle v Director-General of Social Security (1985) 7 ALD 670. Circumstances need not be unique but they must have “a particular quality of unusualness” in order to be special: Re Beadle and Director-General of Social Security(1984) 6 ALD 1, at 3. If something “unfair, unintended or unjust” had occurred it would follow that there must be some feature out of the ordinary: Groth v Secretary, Department of Social Security (1995) 40 ALD 541 per Kiefel J at 545. See also Angelakos v Secretary, Department of Employment and Workplace Relations[2007] FCA 25.

32. Mr and Mrs Salem say they were relying on the FTB.  They have a mortgage to pay.  They have had to borrow money from their son and are finding it difficult to repay him.  A list of expenses shows they have a combined income of $1226.80 in social security payment each fortnight, and expenses of $1617.07.  They are supporting their younger daughter who has just started studying and is not working. 

33. I accept that Mr and Mrs Salem’s financial circumstances are difficult but that is not of itself a special circumstance.  Their mortgage is relatively low at $141.40 a fortnight.  According to their list of expenses, they pay for three mobile telephones, one of which I assume is for one of their daughters.  Their older daughter earns approximately $20,000 a year from her employment.  She lives at home and pays no board.  Mr and Mrs Salem say they cannot charge her board because she has her own expenses.  That is a matter for them but there appears to be no good reason she should not contribute if her parents are struggling.

    Conclusion

34. For these reasons, I am satisfied that Mrs Salem was overpaid FTB in 2011-2011 and has a debt to the Commonwealth of $3629.20 (or so much of the debt as remains unpaid).  I am not satisfied any special circumstances exist which mean she should not have to repay all of the debt.

35. I affirm the decision under review.

36.       I certify that the preceding 35 (thirty-five) paragraphs are a true copy of the reasons for the decision herein of Ms J Toohey, Senior Member. 

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Associate

Dated  21 February 2014