Samuel and Secretary, Department of Social Services (Social services second review)

[2016] AATA 47

Samuel and Secretary, Department of Social Services (Social services second review) [2016] AATA  47 (2 February 2016)

Division	GENERAL DIVISION
File Number(s)	2014/5655
Re	Cynthia Samuel
APPLICANT
And	Secretary, Department of Social Services
RESPONDENT

DECISION

Tribunal	Mr S. Webb, Member
Date	2 February 2016
Place	Sydney

The decision under review is affirmed.

........................................................................

Mr S. Webb, Member

CATCHWORDS

SOCIAL SECURITY – disability support pension – income maintenance period – termination payment – redundancy payment does not include 'directed termination payment' – payment not a directed termination payment – meaning of 'severe financial hardship' – financial hardship not due to unavoidable and reasonable expenditure incurred – discretion to reduce income maintenance period not enlivened – decision affirmed

LEGISLATION

Income Tax Assessment Act 1997, ss 80-130, 80-135, 82-160, 83-170, 995-1

Social Security Act 1991, ss 8, 14A, 19C, 117, 1064

Income Tax (Transitional Provisions) Act 1997, ss 1-10, 82-10, 82-10E, 82-10F, 82-10G, 82-10H

REASONS FOR DECISION

Mr S. Webb, Member

2 February 2016

1. Cynthia Samuel accepted a voluntary redundancy on the cessation of her employment. She was unwell and applied for a disability support pension (DSP). Her claim was rejected by primary determination and on review as her employment termination payment resulted in an income maintenance period, during which she was not entitled to payment of DSP. Her nominee has applied for review by this Tribunal.

   FACTS

2. The following brief facts are not controversial.

3. Ms Samuel was employed by Rail Corporation New South Wales (Rail Corporation) from 3 December 2001 to 14 May 2013. She accepted an offer of voluntary redundancy.

4. On 26 April 2013, she contacted Centrelink about claiming DSP. She lodged a claim for DSP[1] and an Income and Assets form[2] on 13 May 2013.

   [1] T7.

   [2] T8.

5. On 21 May 2013, Rail Corporation provided an Employment Separation Certificate setting out her redundancy, annual leave and long service leave payment entitlements –

   (a)Redundancy: $78,881.25 covering a period of 58 weeks at an average weekly wage of $1,342.65;

   (b)Annual leave: $4,461.64; and

   (c)Long service leave: $15,894.48.[3]

   [3] T10 folio 132.

6. An amount of $90,322.76 was paid into her bank account on 23 May 2013.

7. On 29 May 2013, an amount of $50,000 was transferred into a term deposit account in the name of ‘Abe and Cynthia Samuel ITF The Cindy Samuel Superannuation Fund’.[4]

   [4] T16 folio 150.

8. On 30 May 2013, an amount of $40,000 was transferred to a business cash reserve account in the name of ‘Ms Cynthia Anne Samuel & Mr Abe Elliot Samuel ATF The Cindy Samuel Superannuation Fund’.[5]

   [5] T16 folio 152.

9. On 19 August 2013, Centrelink decided to reject Ms Samuel’s DSP claim.[6] This decision was apparently reversed on 25 November 2013, following the provision of additional information by Ms Samuel’s nominee.[7] This was confirmed in a letter dated 20 December 2013.[8] Rather confusingly, however, on 19 December 2013, Centrelink sent Ms Samuel a notice informing her that DSP was not payable and that an income maintenance period applied until 12 October 2014.[9]

   [6] T17 folio 168.

   [7] T17 folio 163.

   [8] T20 folio 209.

   [9] T20 folio 203-208.

10. Ms Samuel applied for review, but the decision was affirmed by an Authorised Review Officer[10] and by the (former) Social Security Appeals Tribunal.[11]

    [10] T13.

    [11] T2.

    ISSUES

11. The issues in Ms Samuel’s application arise and are to be determined under s 1064 the Social Security Act 1991 (the Social Security Act). In particular, under Module F of s 1064, the rate of DSP is affected by Ms Samuel’s ‘ordinary income’ and the way in which the payments she receive on termination of her previous employment are dealt with. It is necessary to decide –

    (a)whether an income maintenance period applies; and if so

    (a)the duration of the period; and

    (b)during the period, whether Ms Samuel fell into severe financial hardship as a result of unavoidable or reasonable expenses she incurred; and if so

    (c)whether it is appropriate to exercise discretion to reduce the income maintenance period.

    Income maintenance period

12. In order to determine whether an income maintenance period applies, it is necessary to determine if the termination payments Ms Samuel received are wholly or partly a ‘directed termination payment’ for the purposes of s 1064-F3 –

    Directed termination payments excluded

    1064‑F3  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; and

    (c) the payment, or part of the payment, is a directed termination payment within the meaning of section 82‑10F of the Income Tax (Transitional Provisions) Act 1997;

    the payment, or that part, is to be disregarded in working out the ordinary income of the person for the purposes of Module E.

13. Section 82-10F of the Income Tax (Transitional Provisions) Act 1997 (the Transitional Provisions Act) is in the following terms –

    82‑10F  Directed termination payments

    (1)  A transitional termination payment (or part of such a payment) is a directed termination payment if:

    (a)  the individual chooses, in accordance with this section, to direct the payment (or part of the payment) to be made; and

    (b)  the payment (or part of the payment) is made on the individual’s behalf as directed.

    Choice to make payment

    (2)  An individual may choose, within 30 days after a pre‑payment statement about a transitional termination payment is given to the individual under section 82‑10E, to direct the payer to use all or part of the payment to make a payment on behalf of the individual:

    (a)  to a complying superannuation plan; or

    (b)  to purchase a superannuation annuity.

    (3)  To make the choice, the individual must:

    (a)  make it in the approved form; and

    (b)  give the completed form to the payer.

    (4)  The payer must, immediately after receiving a completed form under subsection (3):

    (a)  give the entity (or entities) to which payment is directed written notice of the amount that is to be paid, and of the tax free component of the amount; and

    (b)  comply with the direction (or directions) in the form.

14. Under s 82-10G, ‘a directed termination payment made on your behalf, that you are taken to receive under section 80‑20 of the Income Tax Assessment Act 1997 [the Assessment Act], is not assessable income and is not exempt income’.

15. These sections are found in Division 82, Part 2-40 of the Transitional Provisions Act. Section 82-10(2) provides that ‘this Division does not apply in relation to a life benefit termination payment received by you on or after 1 July 2012 (except to the extent provided by Subdivision 82‑E)’. Subdivision 82-E contains s 82-10H –

    82‑10H  Transitional termination payments may reduce ETP cap amount for payments under section 82‑10 after 1 July 2012

    (1)  This section deals with the application of paragraph 82‑10(4)(b) of the Income Tax Assessment Act 1997 to an income year beginning on or after 1 July 2012.

    (2)  For the purposes of that paragraph, the ETP cap amount is taken to be further reduced (but not below zero) by the amount mentioned in subsection (3) (the concessional amount) of any transitional termination payment made in consequence of the same employment termination as the employment termination to which the paragraph applies.

    (3)  The concessional amount of a transitional termination payment is the part (if any) of the taxable component of the payment for which you are entitled to a tax offset under section 82‑10A or 82‑10C of this Act.

16. The ‘ETP cap amount’ is determined under s 82-160 of the Assessment Act.

17. The term ‘transitional termination payment’ is given meaning by s 82-10(6) of the Transitional Provisions Act -

    transitional termination payment means:

    (a)  a life benefit termination payment to which this Division applies; or

    (b)  if this Division applies to only part of a life benefit termination payment—that part of the payment.

18. Under s 1-10, terms used in the Transitional Provisions Act have the same meaning as under the Assessment Act. The term ‘life benefit termination payment’ is given meaning under s 995(1) and s 82-130 of the Assessment Act – it is an ‘employment termination payment’ received by the person that is not mentioned in s 82-135 of that Act. Section 82-135 provides that a person’s unused annual leave payment, an unused long service leave payment and ‘the part of a *genuine redundancy payment … worked out under section 83‑170’ are not ‘employment termination payments’.

19. The term ‘genuine redundancy payment’ is defined under s 83-175 of the Assessment Act and s 83-170 provides for the calculation of the tax-free component of a payment of that kind. The balance of such a payment is treated as an employment termination payment.

20. It is quite clear that Division 82 of the Transitional Provisions Act only applies to a life benefit termination payment, defined as a ‘transitional termination payment’, received after 1 July 2007 and determined under a contractual entitlement that was in force prior to 10 May 2006. The Division does not apply to a life benefit termination payment after 1 July 2012, subject only to the provisions of Subdivision 82-E in respect of reduction of the ETP cap under s 80-10H. Subject only to this provision, Subdivision 82-A of the Assessment Act applies to payments that are not ‘transitional termination payments’. A ‘transitional termination payment’ may only be treated as a ‘directed termination payment’ if the requirements of s 80-10F are satisfied.

21. There is very scant evidence about these elements in Ms Samuel’s case.

22. It is quite clear that Ms Samuel received the payments from Rail Corporation on 23 May 2013, well after 1 July 2012. The only way in which Division 82 of the Transitional Provisions Act can apply, if at all, is under Subdivision 82-E. This does not assist her case.

23. Even assuming the payments she received on termination of her employment could meet the requirements of Division 82 of the Transitional Provisions Act, for any part of these payments to be treated as a directed termination payment, the requirements of s 82-10F(2), (3) and (4) would need to be satisfied. On the present materials, those requirements are not met.

24. Ms Samuel’s nominee has produced a letter purportedly sent to Rail Corporation dated 29 April 2013 in which Ms Samuel agrees to accept an offer of voluntary redundancy “as outlined in your Letter of Voluntary Redundancy issued to the Employee on 16 April 2013”, and requesting that the redundancy payment be deposited into a nominated bank account in the name of “The Trustees For The Cindy Samuel Superannuation Fund”.[12] The purported 16 April 2013 letter is not in evidence. That being so, it is not possible to determine whether it would satisfy the requirements of s 82-10E and s 82-10F(2) in respect of a transitional termination payment pre-payment statement. Even if it is assumed that the 16 April 2013 letter complied with the transitional termination payment pre-payment statement requirements (and I make no such assumption), on the present materials the requirements of s 82-10F(2), (3) and (4) are satisfied. There is no discretion to disregard these requirements.

    [12] T6 folio 88.

25. Ms Samuel’s nominee argues that Rail Corporation failed to comply with her direction that the payments should be deposited into a superannuation fund. This is not presently established and it does not alter the result. The present materials are not sufficient to establish the facts necessary to determine that any part of the payments she received from Rail Corporation on termination of her employment are to be treated as directed termination payments that must be excluded from her ordinary income for the purposes of s 1064-F3 of the Social Security Act.

26. It follows that the termination payments must be treated as her ordinary income under s 8 of that Act and that an income maintenance period applies under s 1064-F5.

    Duration

27. The duration of the applicable income maintenance period is calculated under Module F of s 1064 of the Social Security Act.

28. Under s 1064-F8, the period commences on the day on which the payment was made – 23 May 2013.

29. As the overall payment to Ms Samuel comprised payments in respect of redundancy, annual leave and long service leave, under s 1064-F5 and s 1064-F13, the income maintenance period runs for the period to which the termination payments relate.

30. On the information set out in T10 and T12, it appears that the payments covered 15 days annual leave, 2 months and 21 days long service leave, and 58 weeks redundancy. Adding these periods together, this means that the income maintenance period ended on 16 October 2014.

    Severe financial hardship

31. Module F of s 1064 provides discretion to reduce an income maintenance period in certain circumstances –

    1064-F11  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.

32. As can be seen, the discretion is only enlivened if the person suffers ‘severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies’.

33. The term ‘severe financial hardship’ is given meaning by s 19C –

    Meaning of in severe financial hardship: person who is not a member of a couple

    (2)  A person who is not a member of a couple and who makes a claim for parenting payment, austudy payment, special benefit, disability support pension, carer payment or one of the following allowances:

    (a)  newstart allowance;

    (b)  widow allowance;

    (c)  mature age allowance;

    (d)  sickness allowance;

    (e)  youth 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.

34. On the materials before me, it is quite clear that Ms Samuel’s liquid assets during the income maintenance period far exceeded the fortnightly maximum rate of DSP. It appears that Ms Samuel declared a number of financial assets in the Income and Assets form she provided Centrelink dated 7 May 2013, namely –

    (a)$11,446 in a St George Bank savings account;[13]

    (b)540 AMP shares;[14] and

    (c)9,947 units in a Colonial First State Managed Investment with a current value of $27,640.[15]

    [13] T7 folio 93.

    [14] Ibid, folio 95.

    [15] Ibid, folio 96.

35. Ms Samuel’s nominee asserts that the amount of liquid assets should be reduced by amounts of ‘reasonable expenditure’ and the alleged “prepayment” of $66,000 to Choice Business Management Pty Ltd for “the performance of work current and future”.[16]

    [16] Statement of Facts and Contentions lodged for the Applicant, 2 March 2015, page 5.

36. Aside from questions about the veracity of the assertion made, the contention misconstrues the requirements of s 1064-F11 and s 19C.

37. The present evidence does not establish or suggest that Ms Samuel’s liquid assets were reduced to a level below the maximum rate of DSP for a fortnight during the income maintenance period. There is no evidence that her Colonial First State Managed Investment was divested or reduced or that her AMP shares were sold. It can be accepted that the amount of cash retained in her St George freedom account fluctuated, day by day. But the bank records do not establish that her cash reserves reduced to a level below $5,999.73 on 14 June 2013 (the most recent bank record provided). Ms Samuel’s nominee argues that the amount of her cash reserves dropped to only $200 in March 2014, but he has provided no bank records or other probative evidence to support this proposition. Even if it is correct, Ms Samuel’s liquid assets would still include the value of her Colonial First State Managed Investment and her AMP shares. On the materials before me, the value of these liquid assets is at least $30,000, many multiples of the maximum rate of DSP for a fortnight.

38. In respect of the proposition pressed by Ms Samuel’s nominee, that consideration of ‘severe financial hardship’ should take into account $66,000 of notional expenses, there are three things to say.

39. Firstly, there is no probative evidence that Choice Business Management Pty Ltd issued an invoice against Ms Samuel in the amount of $66,000 for past and future work – it is simply asserted by Mr Abe Samuel, Ms Samuel’s nominee. Secondly, even if such an invoice was issued, there is no probative evidence that Ms Samuel met this cost and expended $66,000 to Choice Business Management Pty Ltd. I note that Mr Samuel refers to the $66,000 expense as “notional” in the calculations he provided. And thirdly, the proposition put by Mr Samuel that the alleged invoice covers 36 months of administration, welfare, supervisory care and transportation costs is not supported by reliable evidence.

40. The Tribunal must deal with the evidence before it and make findings of fact necessary for the purposes of making the correct or preferable decision under the applicable legislation. The calculations Mr Samuel has provided in respect of Ms Samuel’s “estimated reasonable expenditure” do not assist; nor do the arguments he has made in respect of unavoidable and reasonable expenditure and Ms Samuel’s reasonable costs of living.

41. I am satisfied on the materials before the Tribunal that Ms Samuel’s liquid assets during the income maintenance period were far in excess of the threshold for ‘severe financial hardship’ under s 19C(2) and s 14A(1). She did not satisfy this test for the purposes of s 1064-F11. That being so, no amount of notional cost or reasonable and unavoidable expenditure can alter this result – Ms Samuel’s liquid assets far exceeded the threshold below which she would be found to be in severe financial hardship.

    Discretion

42. As Ms Samuel does not satisfy the ‘severe financial hardship’ test, the discretion conferred by s 1064-F11 is not enlivened. The essential preconditioning factors for exercise of the discretion are not made out.

    Conclusion

43. The termination payments Ms Samuel received on cessation of her previous employment are not directed termination payments, and they must be treated as her ordinary income. Ms Samuel is subject to an income maintenance period from 23 May 2013 to 16 October 2014 inclusive. There is no sufficient ground to enliven the discretion to reduce the period in the particular circumstances. This means that she is not entitled to payment of DSP during the income maintenance period.

    Decision

44. The decision under review is affirmed.

I certify that the preceding 44 (forty -four) paragraphs are a true copy of the reasons for the decision herein of Mr S. Webb, Member

............................[sgd]............................................

Associate

Dated 2 February 2016

Date(s) of hearing	13 January 2016 (on the papers)
Advocate for Applicant	Mr A Samuel
Solicitors for the Respondent	Department of Human Services