Schulz and Repatriation Commission (Veterans' entitlements) - [2019] AATA 999

Schulz and Repatriation Commission (Veterans' entitlements) [2019] AATA 999 (24 May 2019)
Division:VETERANS' APPEALS DIVISION
File Number:2018/2265
Re:John Schulz
and
Ruth Schulz
THEAPPLICANTS

Repatriation CommissionAnd
RESPONDENT

DECISION
Tribunal:Deputy President J Sosso
Date:24 May 2019
Place:Brisbane

The Tribunal affirms the decision under review.
.............................[SGD]........................................
Deputy President J Sosso
CATCHWORDS
VETERANS’ AFFAIRS – service pension – surrender of three life insurance policies – income – when was income earned, derived or received - decision affirmed.
LEGISLATION
Administrative Appeals Tribunal Act 1976 (Cth)
Social Security Act 1991 (Cth)
Veterans’ Entitlements Act 1986 (Cth)
CASES
Secretary, Department of Social Security v Davies (1997) 75 FCR 596
Barry v Repatriation Commission (1993) 41 FCR 529
Podkalicki and Repatriation Commission [2002] AATA 38
Clarke and Repatriation Commission [1996] AATA 398
Rose v Secretary, Department of Social Security (1990) 21 FCR 241
Secretary, Department of Social Security v SRA (1993) 43 FCR 299
Hill v Repatriation Commission [2004] FCA 832
Secretary, Department of Employment and Workplace Relations v Richards (2007) 98 ALD 319
Haldane-Stevenson v Director-General of Social Security (1985) 9 FCR 73
Read v Commonwealth (1988) 167 CLR 57
Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307
Rose v Secretary, Department of Social Security (1990) 21 FCR 241
Secretary, Department of Family and Community Services and McLaughlin (2003) 37 AAR 59
Secretary, Department of Employment and Workplace Relations v Richards [2007] FCA 1710
REASONS FOR DECISION
Deputy President J Sosso
24 May 2019
INTRODUCTION

Mr John Schulz and Mrs Ruth Schulz (the Applicants) seek a review of a decision dated

28 March 2018 (the reviewable decision) of a delegate of the Repatriation Commission (the Commission). The reviewable decision affirmed a determination of the Commission of 19 February 2018, that the “profit” received by the Applicants upon the termination of three life insurance policies was income for service pension purposes in accordance with s 5H of the Veterans’ Entitlements Act 1986 (the Act) and was assessable in accordance with s 46A.
Accordingly, the issues to be determined by the Tribunal are relatively straightforward. First, it is necessary to consider whether the “profit” received on the surrender of the three life insurance policies falls within the definition of “income” in s 5H(1). In reaching a conclusion consideration of other definitions is also required including “income amount” and “ordinary income”. If those moneys can be characterised as “income” consideration must then be given to s 46A which deems the profits to be received over the twelve month period from the day on which the person becomes entitled to receive that amount. Various exemptions are provided for which also need to be considered.
By consent it was agreed that this matter could be adequately determined in the absence of the parties, and the Tribunal agreed to review the reviewable decision in accordance with s 34J of the Administrative Appeals Tribunal Act 1975 by considering the documents lodged.
THE FACTS
The Applicants have received service pensions since 30 August 2002 – Exhibit 1 T13 p. 55.
Mr Schulz purchased three life insurance policies with Colonial Mutual Life Assurance Society Pty Ltd (Colonial) on 5 April 1965, 11 October 1966 and 31 December 1976 – Exhibit 1 T15 p. 81. Each of these policies was terminated and the balance “called in” on 19 April 2016 – Exhibit 1 T15 p. 81.
On 31 October 2017, as part of the Department of Veterans’ Affairs (the Department) Compliance Review Program, a “Review of Personal & Financial Circumstances” Form was sent to the Applicants for completion and return.
On 10 November 2017 the Department received a completed Form from the Applicants. Questions 16 – 18 related to the three life insurance policies. In response to each Question as to the withdrawal value of the policies, the Applicants wrote “cashed in” – Exhibit T14 p. 67. The surrender value of Colonial policy 1029576(4) was stated in the Form to be $1,998 and the surrender value of the remaining two policies was as follows: policy 1032222(0) $9,538 and 2302125(6) $6,681.
On 12 February 2018 an officer of the Department emailed Colonial seeking the following information regarding the Applicants life insurance policies – Exhibit 1 T15 p. 82:
(a)the commencement date of the “investments”;
(b)the total amounts contributed by the policy owner;
(c)the date(s) and amount(s) of each withdrawal made from the “investments” before maturity;
(d)the date of the final redemption of the “investments” on maturity; and
(e)the net amount of the final redemption paid to the policy owner on maturity.
On 19 February 2019 an officer of Colonial emailed to the Department the following information as requested - Exhibit 1 T15 p. 81:

*Colonial Policy Number*	*1029576*	*1032222*	*2302125*
*Migrated to Account no.*
*Owner*	[Previous Spouse]	Dr John Schulz	Dr John Schulz
*Joint Owner*	Dr John Schulz	[Previous Spouse]	Nil
*Payer*	Dr John Schulz	Dr John Schulz	Dr John Schulz
*Life Assured*	Dr John Schulz	Dr John Schulz	Dr John Schulz
*DOB*
*Commencement Date*	05/04/01965	11/10/1966	31/12/1967
*Premium Paid*	$3,3034.17	$11,245.76	$16
*Part Withdrawals*	Nil	Nil	Nil
*Termination Date*	19/04/2016	19/04/2016	19/04/2016
*Net redemption paid to*	10.	11.	12.
[Previous Spouse]	$3,333.58	$17,730.03	-
*Dr John Schulz*	$3,333.28	$17,730.03	$24,876.65

On the same day, a Delegate of the Commission determined that an amount of $35,943.29, which was classified as “profit” from the surrender of the Colonial life insurance policies, should be held in the Applicants service pension assessments. The Delegate assessed fortnightly income of $1381.41 for the period 19 April 2016 until

18 April 2017. This equated to service pension overpayments of $8569.08 for each of the Applicants. – Exhibit 1 T18.1 p. 89.
The Applicants requested a review of this Determination (Exhibit 1 T17 p. 85). In his letter of 26 February 2018, Mr Schulz advanced the following grounds for seeking a reconsideration:
“Firstly: 1: The income earned by the cashed in insurance policies was accumulated from the initiation of each policy on an annual basis and is not a capital gain on disposal of an acquired asset;
2: The cashing in of the policies was in effect a transfer of an asset from one head of accounting to another head and did not alter my total assets;
3: The earnings from the policies are only of interest to DVA from the year when I was first granted a service pension – probably 2002.
Secondly: The income from the solar panels resulted from a Federal Government policy and to my understanding is to be regarded as from a ‘hobby’ and not assessable; note that I have not claimed depreciation, maintenance or repairs as deductions against this ‘income’. Note also that least year I exchanged my electric hot water system for a solar hot water system making a difference to the recent solar income and no adjustment has been claimed.
Thirdly: Income from all sources is calculated annually for tax purposes and I cannot remember non-pension income exceeding the annual DVA allowable limit.”
The Service Pension Review Officer carried out a review pursuant to s 57B of the Act and on 28 March 2018 affirmed the Determination of 19 February 2018. The Service Pension Review Officer made the following findings – Exhibit 1 T18.1 pp. 91 – 93:
“The authority to regard amounts received on withdrawal and maturity of life insurance policies as income is contained in Section 46A of the VEA. It states that any amount received by a person that is not of certain excluded types (deemed income on financial assets, income from an income stream, a periodic payment, income from remunerative work or an exempt lump sum) should be taken to be received as income over a period of 12 months.
Whole of life insurance policies are not financial investments. Bonuses accumulate on conventional life insurance policies during the term of the policy. Bonusses are not assessed as ongoing income during the life of the policy. However, on withdrawal, surrender or maturity of the policy, the difference between the total amount received on withdrawal, surrender or maturity and the sum of the purchase price and premiums paid by the investor is assessed as income for 12 months in accordance with Section 46A of the VEA.
In the decision of 19 February 2018 the Delegate assessed Mr and Mrs Schulz’s fortnightly income from the withdrawal of the life insurance policies as $1,382.41 per fortnight to be held for 12 months. That figure was calculated as follows:
Policy No. 1029576
Amount Received      $6,666.86
Premium Paid            $3,034.17
$3,632.69       = $139.71 per fortnight
Policy No. 1032222
Amount Received      $34,460.06
Premium Paid            $11,245.30
$24,214.30 = $931.31 per fortnight
Policy No. 2302125
Amount Received      $24,876.65
Premium Paid            $16,780.35
$8,096.30 = $311.39 per fortnight
Therefore, the income to be assessed under Section 46A was $1,382.41 per fortnight. This had to be held in the calculation of their rate of service pension for the period 19 April 2016 to 18 April 2017, being the twelve months period from the date of withdrawals.
This resulted in overpayments of service pension totalling $8,569.08 each, which are recoverable amounts under section 205 of the VEA.
In his letter requesting the review Mr Schulz stated that the earnings from the policies should only be of interest to DVA from when he was first granted the service pension in 2002.
On this point, section 46A of the VEA specifies that a person is 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.
This means that once the policies were cashed in income must be calculated for the 12 months from when the funds were received, regardless of when the person commenced receiving the service pension.
In his letter Mr Schulz also referred to income from solar panels, but no such income is being included in the assessment of their service pensions.”
On 21 April 2018, Mr Schulz applied to the Tribunal for a review of this decision – Exhibit 1 T1 pp. 1 – 5.
LEGISLATIVE OVERVIEW
Section 5H of the Act contains various income test definitions. Relevantly, “income” is defined to mean, inter alia, in relation to a person:
“(a) an income amount earned, derived or received by the person for the person’s own use or benefit”.
The term “income amount” is then defined as follows:
“income amount means:
(a)      valuable consideration; or
(b)      personal earnings; or
(c)      moneys; or
(d)      profits.
(whether of a capital nature or not).
The term “ordinary income” is defined as:
“income that is not maintenance income or an exempt lump sum”.
Subsection 5H(12) provides that an amount received by a person is an “exempt lump sum” if:
“(a) it is not a periodic amount (within the meaning of subsection (13); and
(b) it is not income from remunerative work undertaken by the person; and
(c) it is an amount, or one of a class of amounts, that the Commission determines to be an exempt lump sum.”
Subsection 5H(2) provides that a reference in the Act to an income amount earned, derived or received is a reference to:
“(a) an income amount earned, derived or received by any means; and
(b) an income amount earned, derived or received from any source (whether within or outside Australia).”
To all intents and purposes the same definitions are located in s 8 of the Social Security Act 1991 and the jurisprudence on these provisions has direct relevance to the equivalent definitions in the Act.
As explained earlier, a key provision for the resolution of this matter is s 46A, which deems certain amounts received as ordinary income over the 12 months from the day the person is entitled to receive that amount:
“If a person receives, whether before or after the commencement of this section, an amount that:
(a)is not income within the meaning of Division 3 or 4 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.”
CONSIDERATION
Introduction
There are few, if any, factual matters that are in dispute. The Applicants are each a member of a couple as defined by s 5E(2) of the Act. Further, it is not disputed that

Mr Schulz opened life insurance policies with Colonial in 1965, 1966 and 1976. Annual premiums were paid on each of the policies and bonuses accumulated during their life. Mr Schulz surrendered the policies on 19 April 2016 and, together with his first spouse, was paid the premiums plus the accumulated bonuses.
The Commission’s submissions
The Commission contends (Amended Statement of Issues, Facts and Contentions of the Respondent – ASIFCR at para 32.1) that the difference between the total amount received on surrendering the life insurance policies and the purchase price and premiums paid is an “income amount”, namely a “profit”, for the purpose of s 5H(1) of the Act.
Consequently, it is contended:
(a)Mr Schulz “earned, derived or received” an income amount on surrendering the life insurance policies on 19 April 2016 – ASIFCR para 32.2;
(b)the income amount from the life insurance policies was “income” on 19 April 2016 when Mr Schulz received his share for his own use or benefit – ASIFCR 32.3;
(c)Mr Schulz did not earn, derive or receive the income amount from his life insurance policies for his own use and benefit before 19 April 2016 because - ASIFCR para 32.4:
(i)he did not have a present entitlement to the income amount from the surrender of the life insurance policies until he surrendered them: reliance being placed on, inter alia, Secretary, Department of Family and Community Services and McLaughlin (2003) 37 AAR 59 at 63 – 64/[25];
(ii)he did not realise an actual gain until he surrendered the life insurance policies; and
(iii)he could not dispose of the income amount from the life insurance policies at will until he surrendered the life insurance policies;
(d)the income amount is not an “excluded amount” under s 5H(4),(5), or (8) – ASIFCR para 32.5;
(e)the income from the surrender of the life insurance policies is “ordinary income” under s 5H(1) because it is not maintenance income or an exempt lump sum -ASIFCR para 32.6;
(f)the money received on the surrender of the life insurance policies is not an “exempt lump sum” because it is not – ASIFCR para 32.7:
(i)a “periodic amount” within s 5H(13) because it was not one payment in a series of payments nor was it a payment making up for arrears in such a series;
(ii)income from remunerative work undertaken by the Applicants;
(iii)an amount, or one of a class of amounts, that the Commission determines to be an exempt lump sum; or
(iv)an “exempt lump sum” within the meaning of s 8(11) of the Social Security Act 1991;
(g)by operation of s 46A, the Applicants are taken to receive one fifty-second of the surrender amount during each week in the 12 months commencing 16 April 2016 – ASIFCR para 32.8.
The Applicants submissions
The most comprehensive account of the Applicants submissions is contained in the Response to Repatriation Commission’s Statement of Issues, Facts and Contentions (RRCSIFC). In that document submissions were under three headings: investment, income and assets.
The submissions relating to investment are set out below:
(a)the three policies were a whole-of-life with profits investments and not conventional life insurance policies – RRCSIFC para 3.1;
(b)the life insurance policies have been accepted as investments, with reference made to Taylor and Jachau, Financial Planning in Australia: advice and wealth management. 7^th ed, 2016, p. 579 – RRCSIFC para 3.2;
(c)the term “investment” is not defined in the Act, and accordingly expert opinion can be considered – RRCSIFC para 3.3; and
(d)reference was made to the definition of “investment entity” given by the Australian Accounting Standards’ Board, and it was submitted that the definition fits Colonial, and therefore transactions with Colonial are investments – RRCSIFC para 3.4.
The Applicants next submissions concerned income, and are as follows:
(a)bonuses were paid annually as a return on investment – RRCSIFC para 4.1;
(b)periodic payments are regularly occurring and made by reference to periods of time – per Heerey J, Secretary, Department of Social Security v Davies (1997) 75 FCR 596 – RRCSIFC para 4.2;
(c)bonuses are income in the form of periodic payments and therefore are excluded by s 46A(b)(i) from the scope of s 46A – RRCSIFC para 4.3;
(d)this matter is distinguishable from Secretary, Department of Family and Community Services and Mclaughlin (2003) 37 AAR 59, as the investment policies in this matter were accessed before policy maturity - RRCSIFC para 4.6;
(e)the fact that a policy holder can, at any time, access the insurance policy and dispose of it, satisfies the “own use and benefit” test - RRCSIFC para 4.7; and
(f)in this matter the policies provided that the holder was wholly able to terminate the policies annually or to determine to re-invest – RRCSIFC para 4.8.
Finally, the Applicants submissions on assets are set out below:
(a)the “current value” of the life insurance policies was an asset – RRCSIFC para 5.1;
(b)the termination of the life insurance policies resulted in their then current value being transferred to a bank balance – RRCSIFC para 5.3; and
(c)as the amount transferred was the “surrender value”, there was neither a profit gained or loss made, and, consequently, no change in the total value of the Applicants assets or the financial position of the policy holder – RRCIFC paras 5.4 – 5.6.
Consideration
General Principles
As previously noted, there is a relatively close correlation between the various provisions under consideration in this matter, and provisions in the

Social Security Act 1991.
Consequently, over a long period of time, it has been recognised that the jurisprudence relating to the provisions in the Social Security Act 1991 can be considered and applied when dealing with the same provisions under the Act – Barry v Repatriation Commission (1993) 41 FCR 529 at 531 (Barry); Podkalicki and Repatriation Commission [2002] AATA 38; Clarke and Repatriation Commission [1996] AATA 398.
It is also the case that both the Social Security Act 1991 and the Act are remedial pieces of legislation intended to ameliorate what otherwise would amount to social injustice for those most in need in the case of social security recipients and those who have rendered service for defence of the Commonwealth. In both cases it is not appropriate to adopt a narrow and restrictive interpretation of the legislation, but, instead apply a generous interpretation where practicable – Rose v Secretary, Department of Social Security (1990) 21 FCR 241 at 244; Secretary, Department of Social Security v SRA (1993) 43 FCR 299 at 303; and, Hill v Repatriation Commission [2004] FCA 832 at [44].
Whilst a narrow and pedantic approach to interpreting the Act would be inappropriate, nonetheless the standard rules of statutory construction should in the normal course be adopted – Secretary, Department of Employment and Workplace Relations v Richards (2007) 98 ALD 319 at [31].

It has also been pointed out that a proper construction of the Act is required by a decision-maker, even if such a construction will result in an injustice. It is for Parliament to correct or remedy such a situation and for a tribunal of fact to adopt an approach to statutory construction which upholds the clear words of the statute – Barry at 533 – 534.
Care must also be taken not to equate the concept of “income” in the Act with that concept in revenue legislation – Haldane-Stevenson v Director-General of Social Security (1985) 9 FCR 73 at 75. It is quite clear from reading the numerous authorities that the concept of “income” in both the Act and the Social Security Act 1991 has a specific meaning which is gleaned from its statutory context. The Applicants’ submission that the concept of income in the Act is to understood by reference to definitions issued by the Australian Accounting Standards Board cannot be accepted. That definition was issued without consideration of the statutory scheme now being considered. As Brennan J observed in Read v Commonwealth (1988) 167 CLR 57 at 69 (Read):
“The definition is exhaustive: the term ‘income’ means what its defined to mean; it does not mean what ‘income’ would be understood to mean if the definition were not in the Act. The definition is couched in the widest terms, presumably to ensure that public expenditure is directed to those who stand in actual need of periodic support which income-related pensions provide.”
It has long been settled that, as a general rule, any bonuses accruing on a life insurance policy during its existence become, on the surrender of that policy, income for the policy holder – Saundry and Secretary, Department of Social Security (1988) 16 ALD 200.
The definition of “income” in s 5H(1) contains three paragraphs. It is not disputed that paragraph (b) dealing with periodical payments by way of gift or allowance and paragraph (c) periodical benefits by way of gift or allowance, have no application to this matter. The only paragraph of relevance is paragraph (a), which is considered below.
Earned, derived or received
The term “income” is defined to mean, inter alia, an “income amount earned derived or received…”. It was held by a majority of the High Court (Mason CJ, Deane and Gaudron JJ) in Read that (at 67):
“a mere increase in the value of an asset does not amount to a capital profit. A profit connotes an actual gain and not mere potential to achieve a gain. Until a gain is realized it is not ‘earned, derived or received’. A capital gain is realized when an item of capital which has increased in value is ventured, either whole or in part, in a transaction which returns that increased in value.”
Nonetheless, as Sheppard J held in Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307 at 311:
“The use of the verbs ‘earned’, ‘derived’ and ‘received’ in juxtaposition in the definition of ‘income’ in the Act strongly suggests that each was intended to have a different meaning. Notwithstanding that the word ‘derived’ can mean ‘received’, I reject the submission made on behalf of the applicant that ‘derived’ is used in that sense here. Sometimes moneys will be earned, derived and received simultaneously. At others they will be earned or derived but not received until a later time.”
In that case Mr Inguanti had been receiving an invalid pension since January 1978 and since April 1978 he had also been entitled to an Italian pension, which, at his direction, was paid to his Italian relatives. This situation only came to the Department’s attention in April 1986 and his Australian pension was recalculated. In August 1986 Mr Inguanti directed that his Italian pension be paid to him but this direction would not become effective for up to 18 months. The Tribunal made its determination in September 1987 at which time Mr Inguanti was still not receiving the Italian pension.
Sheppard J held that at all times Mr Inguanti was deriving income from the Italian pension even though he did not receive it.
It is also the case that income can be “earned, derived or received” even though it may not be accessible.
In Rose v Secretary, Department of Social Security (1990) 21 FCR 241, the applicant was an Australian citizen and a resident of the German Democratic Republic (GDR). As a scientist he resided in the GDR most of the time and travelled to Australia annually for a few months. Whilst residing in the GDR Mr Rose was paid a superannuation pension, which was paid monthly into a GDR cheque account. It was not transferable or payable to Mr Rose anywhere outside the GDR. Mr Rose applied for an Australian age pension which was refused.
The Full Federal Court (Lockhart, Gummow and Einfeld JJ) rejected a submission that “earned, derived or received” should be construed in the sense of “realised”, namely it had to be “realised” as in being available to the use for use in Australia. In rejecting this submission, the Full Court said (245):
“We accept that the reasoning of the majority in Read (supra) leads to the conclusion that until ‘profits’ are realised they do not answer the description of ‘profits’ earned, derived or received’ for the purposes of the definition of ‘income’ in s 3 of the Act. But that conclusion does not avail the appellant in this case. The pension to which the appellant is entitled in, and only in, the GDR is paid into his cheque account there each month. It is not transferrable or payable to him outside the GDR; but it is a pension that is available for him to call upon whenever he is in the GDR, as he is for a large part of each year.
The entitlement of the appellant to his GDR pension arises at the latest once the pension payments have been paid into the relevant account of the appellant in the GDR. He is then free to draw upon them and spend them in the GDR. His capacity to remove the pension payments from the GDR and to spend them outside the GDR is prohibited by law of the GDR; the restraint is upon his transferring the moneys outside the GDR.
The pension payments made to the appellant in the GDR are moneys ‘received’ by him in the sense of ‘realised’ by him in the GDR. It is not to the point that those moneys are in that sense received by him outside Australia. The payments answer the description of moneys ‘earned, derived or received’ (in the sense of ‘realises’) by him for his own use and benefit from a source outside Australia and fall within the definition of ‘income’ in s 3.”
The first reported Federal Court decision dealing specifically with the question of what constitutes an amount “earned, derived or received” for the purposes of the Act was Barry. His Honour O’Loughlin J quoted (at 531-533) with approval Read, Inguanti , Rose and other decisions dealing with the concept of “earned, derived or received” in the Social Security Act 1991 as having relevance to the interpretation of that concept in s 5H.
There have been a number of Tribunal determinations dealing with the consequences of the surrender of life insurance policies.
In Secretary, Department of Family and Community Services and McLaughlin (2003) 37 AAR 59, Mr McLaughlin took out a life insurance policy in 1964 when he and his wife were residing in Scotland and a further life insurance policy in 1977 when they were living in Australia. In February and March 2001 the two life insurance policies matured. In June 2001 Mr McLaughlin was granted an age pension, but the rate of pension was calculated on the basis of the difference between the maturity payment and the sum of the purchase price and premiums of the life insurance policies.
Deputy President Wright made the following observation (63):
“The relevant definition of income in s 8 of the Act requires that the money be ‘earned, derived or received’. The money was not earned or derived over the period, as there was no present legal entitlement to it.” (emphasis in the original)
Deputy President Wright also explained at some length the difference between “investing” money in a bank account as distinct from investing in a life insurance policy – at 68/[38]:
“It was also argued, as it had been in Varcoe, that if the respondent had invested money in a bank account over the years rather than investing in a life insurance policy he would not have been assessed as having income therefrom by reference to the accrued funds in the bank at the date of his retirement. However, this argument overlooks a number of factors. In the first place the periodically accruing interest on the bank funds would have been taxable as income on an annual basis over the period during which the account was in existence, whereas the bonuses on the life insurance policies would not and, secondly, the premiums paid on the life policies would have created eligibility for tax deductibility in respect of a substantial part, if not all, of the premiums paid. Furthermore direct access to both capital and accrued interest in the bank account would be possible, whereas the invested funds in a life policy would not be accessible until policy maturity. There may be other factors which should also be taken into account in a process of weighing up the benefits to be notionally achieved by competing forms of investments over many years, but these are sufficient I think to illustrate that the comparison arguments which found favour in Varcoe are of very limited, if any, value.”
Clearly there are differences in the nature, degree and timing of access to capital and accrued interest of the many types of life insurance policies. In those instances where access to the moneys invested and premiums accrued in a life insurance policy is limited to a particular point of time, then the view expressed by Deputy President Wright comports with the judicial authority quoted earlier. In the normal course, even if a life insurance policy allows for greater flexibility in terms of the date of surrender, the moneys earned during the duration of the policy have not been earned or derived until such time as the policy is surrendered. The very nature of life insurance policies, both in terms of purpose and in terms of how they are treated by the revenue laws of Australia, differentiates them from most bank and other forms of investment.
There may be instances where this general principle gives way to a different result because of the drafting of the particular policy of insurance. Whether an income amount is earned or derived at an earlier time than the date of receipt is a question of fact to be determined on a case by case basis. However, there is no material before the Tribunal that would allow for a different approach to be adopted in this matter.
The Tribunal agrees with the submissions of the Commission outlined in para 32.4 ASIFCR outlined earlier. As was submitted, Mr Schulz had no entitlement to the income account from the life insurance policies until they were surrendered, and, of course, he did not realise an actual gain until that time. Further, access to the income amount was contingent on the surrender of the policies and he was therefore restricted in his ability to access those funds. Therefore, the Tribunal finds that the income amount in this instance was earned, derived or received on the date of the surrender of the life insurance policies.
Own use or benefit
Paragraph (a) of the definition of “income” in s 4J(1) provides that it means an income amount earned, derived or received by the person for the person’s own use or benefit.
A similar phrase in the Social Security Act 1991 was considered by Collier J in Secretary, Department of Employment and Workplace Relations v Richards [2007] FCA 1710; 98 ALD 310.
Her Honour made the following observations ([41]/321):
“Second, although the definition of ‘income’ in the Act is construed broadly, the phrase ‘own use and benefit’ necessarily implies rights of ownership of the relevant income amounts by the person receiving them. The breadth of the definition is demonstrated, for example, by the fact that it is not necessary that the relevant does not have legal capacity to deal with the income amounts for the income amounts to be for the person’s ‘own use and benefit’. Income is for the ‘own use and benefit’ of the person once it becomes their property which they can dispose of at will..”
This interpretation buttresses the finding made above, that it is only when the life insurance policy is surrendered that the policy holder has the legal capacity to deal with the moneys received for their own benefit in the manner they choose.
Excluded amount
It is not contested that the income amount is not an excluded amount under s 5H(4) (home equity conversion – not a member of a couple) or s 5H(5) (home equity conversion – member of a couple) of s 5H(8).
Ordinary income
Attention now needs to be given to the definition of “ordinary income” in s 5H(1) as that term is a key element in the application of s 46A. In the definition of “ordinary income” both maintenance income and exempt lump sums are excluded.
Ordinary income – maintenance income
It is not contested that the income from the surrender of the life insurance policies is not maintenance income.
Ordinary income – an exempt lump sum
As previously explained, an “exempt lump sum” is defined by s 5H(12). It is not contested that the moneys obtained from the surrender of the life insurance policies are neither periodic amounts nor income obtained from remunerative work. Paragraph (c) of the definition refers to an amount, or one of a class of amounts, that the Commission determines to be an exempt lump sum. Again, there is no material before the Tribunal that would lead to a conclusion that the Commission has made a determination that has relevance to this matter.
Accordingly, there is no material before the Tribunal that would permit a finding that the moneys obtained from the surrender of the life insurance policies constitute an exempt lump sum.
Section 46A – amounts taken to be received over 12 months
Section 46A provides that if a person receives an amount that does not fall within certain exclusions (none of which apply to this matter), then the person is taken to receive one fifty-second of that amount as ordinary income, during each week in the 12 months, commencing on the day on which the person becomes entitled to receive that amount.
There is nothing before the Tribunal that would displace the application of this principle, and, accordingly, s 46A is applicable to the circumstances pertaining to the Applicants.
Departmental policy
The Applicants referred to the Commission’s publishing of policies and made submissions on the relevance of those published policies to the interpretation of the legislative scheme - RRCISFIC paras 7.1 – 7.5.
In response, the Commission outlined, at some considerable length, its case for why the Tribunal should consider Departmental policy – ASIFCR para 31 – 35.
Any reading of the numerous Tribunal determinations on this area of the law illustrates that the published policies have been considered by the Tribunal over the years.
It is not necessary for the Tribunal in this matter to trespass into the arena of competing views of the extent to which a decision-maker is required to take into account published policies. While it is not necessary for the disposition of this matter, the Tribunal agrees with the Commission’s submission that, as a general rule, it is appropriate for the Tribunal to consider policies issued by the Commission, particularly if they, prima facie, comport with a proper interpretation of the legislation.
In this matter, however, the Tribunal has not needed to find support for its conclusions in any policies issued by the Commission. The conclusions reached herein have been founded on the wording of the legislative scheme, as explained by numerous Court and Tribunal decisions.
Calculation of Applicants’ ordinary income
The Commission accepts that the calculation of the Applicants’ ordinary income in the reviewable decision is incorrect. That calculation was predicted on the Applicants’ receiving all of the profits from the surrender of the life insurance policies, whereas, in fact, Mr Schulz’s former wife received part of the withdrawal benefit from two of the insurance policies – ASIFCR para 37.
The Commission therefore contends that the total income received by the Applicants from the surrender of the life insurance policies was $22,019.65 ($423.46 per week) instead of $35,943.29 ($691 per week) as stated in the reviewable decision – ASIFCR para 38.
The Tribunal accepts that the concession is properly made and the recalculated figure is in accord with the material before the Tribunal.
DECISION
The Tribunal:
(d)affirms the decision under review, insofar as it determined that the profit received by the Applicants from the surrender of the three Colonial life insurance policies is income for service pension purposes and is assessable pursuant to section 46 of the Veterans’ Entitlements Act 1986; and
(e)varies the reviewable decision so that the Applicants total income from the surrender of the three Colonial life insurance policies is assessable under section 46A at $423.46 per week.

I certify that the preceding seventy-two (72) paragraphs are a true copy of the reasons for the decision herein of Deputy President J Sosso

..............................[SGD]..........................................
Associate
Dated: 24 May 2019

Dates of hearing: 19 February 2019

Applicants: John Schulz and Ruth Schulz

Advocate for the Respondent: Lindsay Cooper, Australian Government Solicitor

Dates of hearing:	19 February 2019
Applicants:	John Schulz and Ruth Schulz
Advocate for the Respondent:	Lindsay Cooper, Australian Government Solicitor