Schouten and Secretary, Department of Education, Employment and Workplace Relations

[2011] AATA 365

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 365

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/3767

GENERAL ADMINISTRATIVE DIVISION		)
Re		Adam Schouten

Applicant

And Secretary, Department of Education, Employment and Workplace Relations

Respondent

DECISION

Tribunal Senior Member A K Britton

Date30 May 2011

PlaceSydney

Decision The decision under review is affirmed.

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

Senior Member A K Britton

CATCHWORDS

SOCIAL SECURITY – youth allowance – payment rate – calculation of rate – family actual means test – total spending – money “drawn down” from trust – automated decision-making - decision under review affirmed

Social Security Act 1991 (Cth) – ss 10(B)(3), 1067G-A1, 1067G-G1, 1067G-G2, 1067G-G3(1), 1067G-G7, 1067G-G8, 1067G-G8(1), 1067G-G8(2), 1067G-G9(1), 1067G-G9(2), 1067G-G9(2)(h), 1067G-G9(3)(b), 1067G-G12, 1067G-G13(1), 1067G-G15(1), 1067G-G15(2)

Administrative Appeals Tribunal Act 1975 (Cth) – ss 34J, 42D, 42D(5)(b), 42D(7)

REASONS FOR DECISION

30 May 2011  Senior Member A K Britton

1.Mr Adam Schouten seeks review of a decision made by Centrelink in 2009 to reduce his rate of Youth Allowance (YA). Central to that decision was whether the "Family Actual Means Test" applied to the calculation of the rate of YA payable to Mr Schouten and, if so, whether that test was properly applied.

2.The factual background to this matter is not in dispute. In November 2008, Mr Schouten was granted Youth Allowance payable from 9 October 2008. In January 2009 the rate of YA paid to Mr Schouten was reduced from $118 to just over $9.00 per fortnight. When he queried the reduction, Mr Schouten was told that his rate had been reduced because it had been assessed under the "Family Actual Means Test" (FAMT). That decision was affirmed on internal review and subsequently by the Social Security Appeals Tribunal.

3.At a hearing on 30 August 2011, I affirmed Centrelink’s decision to apply the FAMT in calculating Mr Schouten's YA because in January 2009, the period the subject of this review, Mr Schouten was a dependent child of a “designated parent”, i.e. a person with an interest in a trust — the Schouten Family Trust — in the previous tax year: ss 10(B)(3) and 1067G-G2 of the Social Security Act 1991 (Cth) (the Act). As it was unclear from the decision under review and the respondent's submissions how Centrelink had arrived at the disputed rate, I decided to remit to the respondent that part of the decision dealing with the calculation of the rate under s 42D of Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act). In addition, I directed the respondent to provide Mr Schouten with a breakdown of the figures used to calculate his rate of YA.

4.The respondent failed to reconsider the decision within time and therefore it was taken to have been affirmed: ss 42D(5)(b) and 42D(7) of the AAT Act. The respondent subsequently wrote to Mr Schouten purporting to affirm the original decision. Two months later, at the direction of the Tribunal, the respondent provided a detailed explanation about the calculation of the rate.

5.Mr Schouten was represented in these proceedings by his father, Mr Stephen Schouten, Senior (Snr).

6.The remaining issue for determination in this review is whether Centrelink had correctly calculated Mr Schouten's rate of YA to be $9 per fortnight. 

Methodology: the rate of Youth Allowance

7.The rate of YA is calculated by applying a complex and multi-step formula contained in Part 6.5 of the Act. Module A of s 1067G-A1 of the Act sets out the methodology to be employed.

8.The starting point under Module A is the determination of the claimant’s (or recipient’s) “maximum payment rate”. This is calculated by adding to the claimant’s “maximum basic rate”, the pharmaceutical and rent allowance, if applicable: Steps 1 to 4 of Module A. There is no argument that Centrelink correctly calculated Mr Schouten’s “maximum payment rate” to be $203.30 per fortnight on the basis that he was not independent, lived at home and was not entitled to the pharmaceutical or rent allowance.

9.Where, as in this case, the FAMT applies, the claimant’s “reduction in family means” must be determined and deducted from their maximum payment rate: Steps 10 and 13 of Module A.   

10.Mr Schouten (Snr) contends that Centrelink erred in calculating the figure attributed to his son’s "reduction for actual means". Before addressing that argument I will set out the methodology that applies to the determination of the "reduction for actual means" and the assumptions used by Centrelink in calculating that figure in respect of Mr Schouten.

Calculating the “reduction for actual means”

11.Module G of s 1067G contains a "Method statement" which instructs “how to work out the effect (if any) of the actual means of a person's family on the person's maximum payment rate in respect of a particular youth allowance payment period”: s 1067G-G1. The Method statement relevantly provides:

…

Step 3. Work out the actual means of the person's family for that year using Submodule 4.

Step 4. Work out the person's family actual means free area using Submodule 5.

Step 5. Work out the person's reduction for family actual means for that year using Submodule 6.

Step 3: Work out the actual means of the claimant's family

12.Section 1067G-G7 provides that to work out the "actual means" of the claimant's family it is necessary to:

1. Calculate the "actual means" of the claimant and each “family member” (as defined by ss 23(14) and (15)).

2. Apply the formula in s 1067G-G13(1) to the figure in (1) above.

(i) Calculate the actual means

13.The term "actual means" is defined to mean an amount equal to the total spending and savings of a “relevant person” (the claimant and members of the claimant’s family) in the previous tax year: s 1067G-G8(1).

14.The Secretary determined Mr Schouten’s “actual means” to be $49,171 based on Total Spending of $66,800 less the following deductions:

Savings depletion	$6,378
Income assistance (Family Tax Benefit)	$8,808
Employment Income – Mr Schouten’s income	$2,443
Total	$17,629

Note:

1. The amounts attributed by Centrelink to “spending” and “savings depletion” were taken from the "Family Spending and Savings Questions" form prepared by Mr Schouten (Snr) and lodged with Centrelink in October 2008.

2. The amount of $8,800, being for family tax benefit, was deducted from the total spending and savings of Mr Schouten as required by s 1067G-G9(2)(a).

3. Also deducted was an amount of $2,443 being for employment income earned by Mr Schouten: s 1067G-G10.

(ii) Apply s 1067G-G13(1) formula

15.The formula contained in s 1067G-G13(1) provides:

Section 1067G-G13 defines terms relevant to the application of the formula.

16.The formula involves the following steps:

1. Divide the “gross actual means” (GAM) by two

2. Calculate the notional marginal tax and Medicare rate (the TNITML) that would be payable on a notional income figure to the figure in (1) above

3. Add the figures in (1) and (2) above

4. Double the figure in (3) above

5. Add, if applicable to the amount in (4) above any “total net investment loss” (TNIL).

(See s 1067G-G13 for terms that are relevant to the application of the formula.)

17.Applying that formula Centrelink reached a figure of $56,730.94 calculated as follows:

Step 4: Work out the “actual means free area”

18.The actual means free area is calculated by applying sub-module 5 of Module G and sub-module 5 of Module F.

19.Centrelink calculated Mr Schouten’s “Actual Means Free Area” to be $36,800 i.e. $32,800 + $3792 (sibling concession). 

Step 5: Determine the “Reduction for Family Actual Means”

20.A claimant’s “reduction for family actual means” is determined by the formula set out in s 1067G-G15(2). Under that formula a claimant’s “family means excess” is divided by 26: s 1067G-G15(1). A claimant’s “family actual means excess” is determined by applying the following formula:

where:

actual family means is the actual means of the person’s family for that year.

actual means free area is the person’s family actual means free area.

21.Applying that formula, Centrelink calculated Mr Schouten’s reduction for family actual means to be:

Deduct the reduction for family actual means from the maximum payment rate

22.Step 13 of Module A requires the reduction for family actual means to be deducted from the maximum payment rate where, as in this case, the former is greater than the “personal income reduction amount” or “parental income test reduction amount”. This gives a provisional fortnightly payment rate and, where as in this case, Step 14 of Module A does not apply, the applicable fortnightly YA rate. 

23.Centrelink calculated Mr Schouten’s fortnightly YA rate to be $9.66 i.e. $203.30 (maximum payment rate) minus $193.64 (reduction for family actual means).

Did Centrelink correctly calculate Mr Schouten’s rate of YA?

24.There is no argument that Centrelink applied the appropriate formulae to calculate Mr Schouten’s rate of YA.  However Mr Schouten (Snr) challenges some of the figures used in that calculation. Specifically he contends that Centrelink erred in calculating the “actual means” by:

Underestimating the amount of “total spending”

Failing to take into account money he drew from the Trust to finance “total spending”

Failing to have regard to his limited ability to produce income

Underestimating the amount of “total spending”

25.Mr Schouten (Snr) contends that Centrelink underestimated the amount of “total spending” and, as a consequence, the amount of “actual means”.  He submitted that, had he been aware that the figures he was asked to provide in the “Family spending and savings” form completed in October 2008, would be central to the calculation of his son’s rate of YA, he would have provided more realistic estimates. 

26.In calculating the “actual means”, the Secretary relied on information provided in the “Family spending and savings” form which Mr Schouten (Snr) certified to be true and correct. At no stage since the commencement of this review have alternative estimates of the family’s “total spending” been provided by Mr Schouten (Snr) or his son.

27.As Mr Schouten (Snr) correctly points out the Secretary has broad power to determine the amount of a claimant’s “total spending”: ss 1067G-G8(2) and 1067G-G12. However in the absence of any evidence that the information provided by or on behalf of a claimant was incorrect or, that the amount claimed to have been spent on an “item or thing” did not reflect its true market value, it is difficult to see on what basis the Secretary, or the Tribunal acting as substitute decision-maker, could depart from that information.

28.I do not agree that the Secretary erred by relying on the information provided by Mr Schouten (Snr) onto arrive at a figure for “total spending”.

Failing to take into account money “deducted” from the Trust

29.Mr Schouten (Snr) argues that Centrelink erred by not deducting from the “actual means” an amount “drawn down” from the Trust.  He argues that it is anomalous that in the calculation of “actual means”, Centrelink deducted money he had withdrawn from his bank account, apparently under s 1087G-G9(3)(b) — but not money “drawn down” from the Trust. 

30.As noted the term “actual means” is defined somewhat unhelpfully as “an amount equal to the total spending and savings of the person in that tax year”: 1067G-G8(1). Sections 1067G-G9(1) and 1067G-G9(2) list amounts spent or saved that must not be included in the actual means. Mr Schouten (Snr) contends that the money deducted from the Trust falls within ss 1067G-G9(2)(h) and/or 1067G-G9(3)(b) which provide:

(2) The following amounts spent or saved in the appropriate tax year by the person are not included in the actual means of the person:

…

(h) spending or savings from the proceeds of any liquidation of assets of the person that were held at the beginning of that year;

…

(3) Also, the actual means of the person do not include the following amounts:

…

(b) an amount equal to the amount of any reduction in liquid assets of the person held at the beginning of the appropriate tax year and not accounted for by spending of a kind referred to in subpoint (2);

…

31.There is no evidence about the exact amount or nature of the funds Mr Schouten (Snr) claims was “drawn down” from the Trust.  If the disputed amount was the taxable income of the Trust, distributed to Mr Schouten (Snr) — an amount of $4,594 — his argument must fail.  It does not fall within either of the above provisions because, as acknowledged by Mr Schouten (Snr)’s accountant, that amount is plainly income. 

32.I will also consider whether Mr Schouten (Snr)’s argument would succeed if the purported amount “drawn down” was not the $4,594 referred to above but, as I understand Mr Schouten (Snr) to suggest, a reduction in the capital of the Trust. There is no evidence that the assets of the Trust were liquidated and therefore s 1067G-G9(2)(h) has no application. Furthermore both provisions relied upon by Mr Schouten (Snr) are directed at the “liquid assets of the person”. While a beneficiary of the Trust, the law does not treat Mr Schouten (Snr) and the Trust as one and the same thing.  The subject assets are “assets of the Trust” not “assets of Mr Schouten (Snr)”. 

33.It follows that ss 1067G-G9(2)(h) and 1067G-G9(3)(b) do not apply. I have been unable to identify any other provision within s 1067G-G8 that would allow the purported “draw down” to be excluded from the calculation of Mr Schouten’s actual means.

Failing to have regard to Mr Schouten (Snr)’s limited income

34.Mr Schouten (Snr) contends that in assessing the rate of YA payable to his son, Centrelink should have had regard to the financial reality of his family.  He points out that he is a single parent supporting three children on a modest income. He claims that the Trust was established to support his children in the event that anything happened to him and not to “hide” income. 

35.Where as in this case a person claiming or receiving YA is not independent and has a designated parent, by the operation of s 1067G-G2, FAMT applies to the calculation of their rate of YA. The only exemption to the application of the test is where a member of the claimant’s family is receiving “exceptional circumstances relief payment”: s 1067G-G3(1). There is no argument that that exemption does not apply in this matter.

36.As a consequence of the application of FAMT, Mr Schouten’s rate of YA has been calculated without reference to his father’s income. As acknowledged by Centrelink Mr Schouten would have received a higher rate of YA had FAMT not applied. It may be as Mr Schouten (Snr) contends that the blanket application of the FAMT leads to unfair results in some cases. Whatever the merits of that argument, the Act does not grant Centrelink or the Tribunal, acting as substitute decision-maker, the power to exempt a person in Mr Schouten’s circumstances from the FAMT.

Summary

37.Centrelink has correctly calculated Mr Schouten’s rate of YA and I must therefore affirm the decision under review.

Transparency in decision-making

38.In submissions made by the respondent, it was suggested that Mr Schouten had acted unreasonably by insisting that the remitted decision not be determined “on the papers”: s 34J of the AAT Act. In my view that criticism was unfair given the history of this application. Neither the original decision, nor that made by the Authorised Review Officer, disclosed the basis upon which Mr Schouten’s rate of Youth Allowance had been calculated. No doubt this was in part because at least initially, the central issue had been the decision to apply the FAMT. Nonetheless once that issue was determined and Centrelink was directed to set out how the disputed rate had been determined, the explanation provided was inadequate. (See Centrelink’s letter to Mr Schouten, 22 November 2010.) Indeed it was not until Mr Picone, a project officer with Centrelink’s Student Program Team and an expert in the area of YA, provided evidence that Mr Schouten was provided with a plain English explanation of the complex and multi-step process employed to determine the rate of YA. I am grateful for Mr Picone’s assistance in this matter.

39.This case highlights the difficulty where Government agencies make “automated decisions” and the decision is complex.  The citizen will not understand and therefore be unable to challenge a decision about which they feel aggrieved unless provided with a plain English explanation of the basis for the decision. As in this case, the initial decision-maker is sometimes unable to provide that explanation. The Administrative Review Council in its report to the Attorney Attorney-General, “Automated Assistance in Administrative Decision-Making Report No. 46” noted that care was needed to ensure that the values of transparency and external scrutiny are not compromised where automated decision-making is employed: see principle 24. A major challenge for government agencies dealing with citizens is to ensure that their decisions are instructive, informative and enlightening.  In this case, Centrelink has not met that challenge. I recommend that the Secretary review the explanation provided to YA claimants about how their rate of allowance has been determined.

I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member A K Britton

Signed:         ............[sgd]............................................
  Associate to Senior Member Britton

Dates of Hearing  10 August 2010; 9 May 2011 
Date of Decision  30 May 2011
Representative for the Applicant:   Mr S Schouten (Snr)     
Solicitor for the Respondent:          Mr G Lozynsky, Centrelink Advocacy