Secretary, Department of Employment, Education, Training & Youth Affairs v Polmeer

[1999] FCA 435

FEDERAL COURT OF AUSTRALIA

Secretary, Department of Employment, Education, Training & Youth Affairs v Polmeer [1999] FCA 435

Social Security Act 1991 (Cth)
Acts Interpretation Act 1901 (Cth)

SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION, TRAINING AND YOUTH AFFAIRS v AARON POLMEER

QG 86 of 1998

DOWSETT J
14 APRIL 1999
BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 86 OF 1998

BETWEEN:	SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION, TRAINING AND YOUTH AFFAIRS Applicant
AND:	AARON POLMEER Respondent
JUDGE:	DOWSETT J
DATE OF ORDER:	14 APRIL 1999
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1.The appeal should be allowed and the decision of the Administrative Appeals Tribunal set aside.

2.The decision of the Social Security Appeals Tribunal should be re-instated.

3.        There be no order as to costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	QG 86 OF 1998

BETWEEN:	SECRETARY, DEPARTMENT OF EMPLOYMENT, EDUCATION, TRAINING AND YOUTH AFFAIRS Applicant
AND:	AARON POLMEER Respondent

JUDGE:	DOWSETT J
DATE:	14 APRIL 1999
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. This is an appeal from the decision of a senior member of the Administrative Appeals Tribunal, Mr D W Muller, reviewing a decision of the Social Security Appeals Tribunal. 

2. The respondent was, at the relevant time, a student claiming an Austudy allowance, and the proceedings relate to the calculation of the appropriate rate.  The difficulty arises because the respondent was living with his parents who were partners in a business, supporting their family from it.  The level of entitlement to Austudy is calculated having regard to the financial position of the student and his family.  The relevant regulations prescribe a quite complex process designed to achieve equal treatment of a family where the primary income source is a PAYE taxpayer and one which obtains its primary financial support comes from a person who is not so employed.  As I have said, both of the respondent’s parents were self-employed and in partnership.

3. Regulations 12J and 12K provide:-

   “12J.   This Subdivision applies to a student who:
   (a)      has a parent who is a designated parent within the meaning of regulation 12L; and

   (b)      apart from this Subdivision – would qualify for:

   (i)        the away-from-home living allowance under regulation 77; or

   (ii)       the standard living allowance under regulation 61.

   12K.

   (1)      The student (“the relevant student”) is not entitled to receive living allowance for a period of eligibility in a year of study, unless the Secretary is satisfied that, for that period, the actual means of the designated parent are less than the after tax income of the notional parent.

   (2)      For the purposes of subregulation (1), the notional parent, in relation to a particular relevant student, is a parent who:

   (a)      receives income solely from a salary or wage source; and

   (b)is the parent of a student who qualifies for living allowance at the same rate as the rate for which, apart from this Division, the relevant student would qualify; and

   (c)has children of the same number and age as has the designated parent.”

4. Regulation 12L provides:-

   “(1)     For the purposes of sub-regulation 12K(1) a parent is a designated parent if he or she:

   (a)-(d)  …
   (e)       Is a self-employed person …; or
   (f)       Is a partner in a partnership.”

5. Thus both of the respondent’s parents qualify as designated parents by virtue of their being within either paragraph (e) or (f).

6. Regulation 12M defines the expression “after-tax income of a notional parent”.  In effect, the calculation commences with the income which a parent could derive without disqualifying his or her child from receiving the Austudy allowance.  To this figure is added a notional amount to represent the cost of supporting dependant children.  A notional amount of tax on that sum is then deducted.  A further sum is added to represent family payments in respect of such children pursuant to the Social Security Act 1991 (Cth).

7. Regulation 12K provides that this notional figure is to be compared with the “actual means of the designated parent”.  Regulation 12N defines this latter term.  Although it is not so simple, for present purposes it is sufficient to say that included in the actual means are the total of expenditure and savings made in the relevant period by the designated parent and his or her family.  “Family” includes, for present purposes, the designated parent, his or her spouse, and the student.  A student will be disqualified from any entitlement unless the Secretary is satisfied that the actual means of his or her designated parent are less than, or equal to the after-tax income of a notional parent.  If the student overcomes this hurdle, it is necessary to calculate the level at which the Austudy allowance will be paid.  Regulation 88 provides:-

   “1.      Subject to Regulations 90, 91 and 92, a student can get the maximum living allowance only if parental income, as worked out under Regulation 86 or 87A, is not more than $23,350. 

   2.        The maximum living allowance is reduced by $1 for every $4 by which parental income is more than $23,350.”

8. Generally, parental income is to be calculated pursuant to reg 86, but reg 87A applies where the student has a designated parent.  Regulation 87A provides:-

   “1.      If the student is described in Regulation 12J, parental income for a year of study is the amount calculated using the formula:

   ((AM – FP) + T) – DC

   where:

   ‘AM’ means the actual means of the student’s designated parent, within the meaning of Regulation 12N;

   ‘FP’ and ‘DC’ have the respective meanings given to them by Regulation 12M, as if a reference to the notional parent in that regulation were a reference to the notional parent in relation to the student;

   ‘T’ means the amount of income tax (including Medicare levy, but before rebates, if any) that would notionally be payable by the parent to achieve an after-tax income of (AM – FP).”

9. It is common ground that the present respondent is a student described in reg 12J and that therefore his parental income for the purposes of reg 88 is to be calculated by reference to reg 87A.  The integer “AM” in the above formula is therefore to be fixed by reference to reg 12N.  As I have said, that regulation requires the totalling of the income of the designated parent, his or her spouse and the student.  The integers “FP” and “DC” are to be calculated by reference to reg 12M which, it will be recalled, relates to the calculation of the after-tax income of a notional parent.  “FP” is the total amount of family payments and “DC” is the total amount of deductions allowable in respect of children.  The integer “T” is the amount of income tax notionally payable by the designated parent to achieve an after-tax income equivalent to (AM – FP).  As I have said, the broad purpose of this exercise appears to be to treat a family group, the income of which is received primarily from a self-employed taxpayer in the same way as a family group which receives the same total income derived by a PAYE taxpayer.

10. There is no dispute as to the calculation of the integers “AM”, “FP” and “DC” in the above formula.  The dispute relates to the calculation of the integer “T”.  The respondent’s parents’ individual tax liabilities are calculated upon the basis that each has an income equivalent to half of the total profit from the business.  As I understand it, the income tax liability of a natural person is calculated in a way which reflects an initial tax-free amount.  In other words, each taxpayer must earn more than a particular threshold figure before he or she is liable to any income tax, and the amount of that threshold does not bear tax in any event.  In calculating the tax payable by each of the parents in the present case, each receives the benefit of the tax-free threshold, and so the total amount payable by them is less than the amount which either of them would pay in the event that he or she individually derived the total of the business profit.  For the purposes of reg 87A, the integer “T” will therefore be higher if it be assumed that it relates to the tax which would be paid by a sole taxpayer than it would be if the same income were to be taxed in the hands of two taxpayers.  The obvious effect of attributing a higher value to “T” is that it increases the parental income for the purposes of reg 88 and therefore reduces the amount of the living allowance payable to the respondent. 

11. The reg 87A formula takes as its base the total of expenditure and savings in the household for the relevant period and then “grosses up” that figure to a notional pre-tax income.  The justification for this approach is presumably the common assumption that non-PAYE taxpayers often benefit in meeting their domestic expenses from their business undertakings, quite apart from their drawings against profits.  The approach taken with respect to PAYE taxpayers (as prescribed in reg 86) is quite different.  The regulation is complex, but it takes as its starting point “the income of the student’s parent, or the total income of both of the student’s parents, as the case requires …”.  For the purposes of reg 86 a parent is a defined in reg 85(2) to mean:-

    “(a)Any natural or adoptive parents with whom the student normally lives; and

    (b)A spouse of a student’s parent if the student normally lives with the spouse; and

    (c)Any other adult on whom the student is wholly or substantially dependant (not including a spouse of the student); and

    (d)The natural or adoptive parent with whom the student last lived, if the student does not live with either parent and if there is no supporting adult.”

12. Thus, in determining parental income pursuant to reg 86 for the purposes of reg 88, the total income of the parents (if they are co-habiting) or one parent and any spouse (if the parents are not co-habiting) will be included.  It is elsewhere made clear that the reference to “income” is to taxable income.  See sub-reg 86(2).

13. The respondent submits that it is in some way unfair that a “two income” family should, as he puts it, be treated as a “one income” family for the purposes of reg 87A and reg 88.  Working from this assertion, he then seeks to find a basis for asserting that integer “T” in the reg 87A formula should be taken to mean the notional income payable by two parents rather than by one.  Justification for this approach is said to lie in par 23(b) of the Acts Interpretation Act 1901 (Cth) which provides that words in the singular include the plural and vice versa. At the risk of seeming insensitive I must say that I do not fully appreciate the gravity of the complaint of unfairness. As I have previously observed, the object of the exercise appears to be to measure the notional pre-tax income of the family of which the student in question forms part. I can see nothing unfair in choosing such a figure as the basis for assessing the extent to which the student should qualify for government assistance, whether that income be derived from one income or two. That the tax liability of the parents should be, in total, lower than that of a single parent earning the same total income and paying PAYE tax is not to the point. I find no assistance for present purposes in the assertion of unfairness.

14. That, however, does not dispose of the question of construction.  Regulation 87A cannot be readily interpreted in the way urged by the respondent.  A “student described in reg 12J” is a student who “has a parent who is a designated parent within the meaning of reg 12L.  A student needs only one such parent to attract the operation of reg 87A.  There is nothing in the Act to suggest that any significance attaches to having two parents who satisfy the description of “designated parent” rather than one.

15. The integer “AM” is defined in reg 87A to mean “the actual means of the student’s designated parent within the meaning of reg 12N”.  It will be recalled that reg 12N includes in the actual means of a designated parent, “the total expenditure and savings made in that period by the parent and each member of his or her family”, and that included in the definition of “family” is the parent’s spouse or other person with whom he or she is living in a de-facto relationship.  In view of the concentration of the regulation upon the family unit, it is fairly clear that in reg 12N the reference to “parent” is not intended to mean “parents”, although the incomes of two parents would be included, as a result of the inclusion of the spouse’s expenditure and savings, should those parents be living together 

16. Regulation 87A defines the integer “T” by creating a notional tax obligation.  Given the highly artificial nature of the definition, it seems likely that it has been drawn with some care.  Had it been intended that the figure vary, depending upon whether the actual income of the family in question is notionally derived by one or two persons, one would have expected express words to that effect.  The reference to “parent” is clearly to the designated parent mentioned earlier in the phrase “actual means of the student’s designated parent, within the meaning of reg 12N …”.    I have previously observed that where the word “parent” is used in reg 12N, it imports the singular.  It seems likely that the usage in reg 87A, referring as it does to reg 12N, should be consistent with the usage in the latter regulation.  Further support for this conclusion is derived from the fact that in other areas, where it is intended to refer to “parents”, this is expressly addressed.  See regs 85, 86 and 87. 

17. I am of the view that the appeal should be allowed and the decision of the Administrative Appeals Tribunal set aside.  The decision of the Social Security Appeals Tribunal should be re-instated.  I will hear further submissions as to the appropriate form of order.  I understand that it is agreed that the appellant should pay the respondent’s costs of these proceedings.

I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Associate:

Dated:             14 April 1999

Counsel for the Applicant:	Mr J A Logan
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	Mr K N Wilson
Solicitor for the Respondent:	Biggs & Biggs
Date of Hearing:	25 March 1999
Date of Judgment:	14 April 1999