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

[2019] AATA 768

Shonoodh and Secretary, Department of Social Services (Social services second review) [2019] AATA 768 (25 March 2019)

Division:GENERAL DIVISION

File Number:2018/1941           

Re:Adil SHONOODH  

APPLICANT

AndSecretary, Department of Social Services

RESPONDENT

DECISION

Tribunal:Member G Hallwood

Date of hearing:      8 February 2019

Date of decision:     25 March 2019

Place:Adelaide

The decision under review is affirmed

..............................[Sgnd]....................................

Member G Hallwood

CATCHWORDS

SOCIAL SECURITY – Family Tax Benefits and School Kids Bonus – Adjusted taxable income – Including total net investment loss - Overpayment – Whether overpayment is a debt – Should debt be written off or waived – Decision under review is affirmed

LEGISLATION

A New Tax System (Family Assistance) Act 1999

A New Tax System (Family Assistance Administration) Act 1999

CASES

Beadle and Director-General Social Security (1984) 6 ALD

Boswell and Secretary, Department of Families, Housing and Community Services and Indigenous Affairs (2011) AATA 171
Brumley and Secretary, Department of Social Services (2015) AATA 767
Grounds and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2009) AATA 223
Holmes and Secretary, Department of Family and Community Services (2003) AATA 888
Perera v Department of Families, Housing, Community Services and Indigenous Affairs (2011) FCA 896

Secretary, Department of Social Security v Coralie Hales (1998) FCA 219

REASONS FOR DECISION

Member G Hallwood

25 March 2019

1. This application appeals a decision of the Social Services & Child Support Division of the Administrative Appeals Tribunal (AAT1). On 23 February 2018, the AAT1 affirmed a decision of the Secretary to raise and recover against the applicant, Mr Shonoodh, a Family Tax Benefit (FTB) debt of $10,417.86 and a School Kids Bonus (SKB) debt of $1,286.00 for the 2015-2016 financial year.

THE ISSUES

1. The issues to be determined are:

   (a)Has Mr Shonoodh received a payment in excess of his entitlement?

   (b)If so, is the overpayment a debt due to the Commonwealth?

   (c)If so, is there any basis not to recover the debt or any part of it?

2. In summary, the Secretary contends first that an overpayment occurred because Mr Shonoodh did not adequately report losses made by rental properties owned by himself and his wife. The Secretary contends that those losses, under the statutory rules, are added back to taxable income, and other incomes, to create a notional income pool called ‘adjusted taxable income’ against which Mr Shonoodh’s entitlement for FTB and SKB should have been assessed. And further that because those losses were not taken into account in respect of the FTB and SKB payments for the 2015 – 2016 financial year, an overpayment occurred. Second, the Secretary contends that there are no grounds to write off or waive Mr Shonoodh’s overpayment debt. Mr Shonoodh. Mr Shonoodh argued that he did not believe that the government would provide financial support for people with children, only to later make them pay that money back. And further that the net rental property losses should not be ‘added back’, or treated like income in any respect, when calculating his entitlement to FTB and SKB.  Mr Shonoodh did not make substantive submissions regarding write off or waiver.

BACKGROUND

1. The facts outlined below are based on Mr Shonoodh’s oral evidence at the hearing, and documentary evidence provided to the Tribunal and including:

   (a)The T-documents;

   (b)The Secretary’s Statement of Facts, Issues and Contentions;

   (c)‘A’ documents tendered by the applicant;

   (d)‘R’ documents tendered by the respondent;

   (e)‘C’ documents that were available at the AAT1 hearing, which the parties agreed should be considered by the Tribunal, and to which the applicant did not respond; and

2. The documents contain some conflicting facts in relation to a number of properties owned by Mr Shonoodh and Mrs Coltah, his wife, although this has not been raised as materially significant to the outcome of this hearing.  Apart from the central question regarding Mr Shonoodh’s combined adjusted taxable income, the facts are largely undisputed.

3. Mr Shonoodh came to Australia as a business migrant with his family. He was previously a jeweller and business person in Egypt. Mr Shonoodh indicated that in order to migrate to Australia he was required to meet investment requirements and he and his wife bought some real estate in the Northern Territory and South Australia.

4. Mr Shonoodh has a mechanical repair workshop that is operated by his son. He works as a general shop assistant for the business.

5. Together with his wife and their family, Mr Shonoodh lives in Adelaide’s western coastal suburbs.

6. During the 2015 – 2016 financial year, Mr Shonoodh was paid FTB and SKB in relation to two of his children. His payments were calculated based on his combined annual income estimate of $39,636 in respect of himself and his wife.

7. Mr Shonoodh’s investment properties provided rental income to him and his wife during the 2015 – 2016 financial year, although the costs related to the investment properties were greater than the income that the properties generated.

8. On 31 March 2017, the Department of Human Services (the Department) reconciled Mr Shonoodh’s estimated income with the Australian Taxation Office (the ATO) actual adjusted taxable income for the 2015 – 2016 income year. This adjusted figure was based on information provided by Mr Shonoodh and his wife in their respective tax returns. This subsequent reconciliation found that Mr Shonoodh’s actual combined adjustable taxable income for 2015 – 2016 income year was $105,670.

9. Based on Mr Shonoodh’s actual combined adjusted taxable income, the Department determined that Mr Shonoodh had been overpaid FTB and SKB in the 2015 – 2016 financial year, and decided to raise and recover an FTB debt of $10,417.86 and a SKB debt of $1,286.00 as a result of the difference between the estimated and actual earnings.

THE LEGISLATION

1. The relevant law is contained in A New Tax System (Family Assistance) Act 1999 (the Act) and A New Tax System (Family Assistance Administration) Act 1999 (the Administration Act).

2. People may be eligible for the payment of FTB by instalments during the income year. Instalments are based on a set of factors including estimates of annual income made prior to the income year and in some cases throughout the income year. Section 20 of the Administration Act allows for the determination of the rate of FTB to be based on an estimate if that estimate is considered reasonable.

3. Section 58 of the Act states that the annual rate of FTB is to be calculated in accordance with the Rate Calculator. The Rate Calculator in sch 1 requires a person’s adjusted taxable income in an income year (starting on 1 July and ending on the following 30 June – commonly referred to as the financial year) be used to calculate their FTB entitlement.

4. Schedule 3 provides the method for calculating a person’s adjusted taxable income where the person is partnered. Subclause 3(1) of sch 3 states that a person’s adjusted taxable income for an income year includes the adjusted taxable income of their partner for that year. There are also adjustments for the number and ages of children.

5. In full, cl 2 of sch 3 provides:

   2    Adjusted taxable income

   (1)  For the purposes of this Act and subject to subclause (2), an individual's adjusted taxable income for a particular income year is the sum of the following amounts (income components):

   (a)  the individual's taxable income for that year, disregarding the individual's assessable FHSS released amount (within the meaning of the Income Tax Assessment Act 1997 ) for that year;

   (b)  the individual's adjusted fringe benefits total for that year;

   (c)  the individual's target foreign income for that year;

   (d)  the individual's total net investment loss (within the meaning of the Income Tax Assessment Act 1997 ) for that year;

   (e)  the individual's tax free pension or benefit for that year;

   (f)  the individual's reportable superannuation contributions (within the meaning of the Income Tax Assessment Act 1997 ) for that year;

   less the amount of the individual's deductible child maintenance expenditure for that year.

6. Schedule 3 cl. 2 of the Act sets out the components of income that may comprise adjusted taxable income for a particular income year as they relate to FTB and SKB. Relevantly, subcl. 2 (1)(d) includes “the individual’s total investment loss (within the meaning of the Income Tax Assessment Act 1997) for that year.”  When calculating an individual’s adjusted taxable income, their total investment loss is added back to their taxable income figure.

7. A person’s ultimate entitlement to FTB is determined with respect to their actual adjusted taxable income under s105A of the Administration Act and this is usually achieved by reconciling the estimate provided to the Department with the income amount assessed by the Commissioner of Taxation as set out in s107(3) of the Administration Act.  

8. Eligibility criteria for SKB are set out in s 35UA of the Act. Section 35UA (1)(d) sets out that SKB is not payable to a person who has an adjusted taxable income above $100,000 for an income year.

9. Section 71 of the Administration Act states that an amount paid in excess of a person’s entitlement is a debt due to the Commonwealth.

10. Section 95 of the Administration Act describes situations in which there is discretion for debts to be written off, and, relevantly sections 97 and 101 of the Administration Act discuss waivers of debts “arising from error” and “in special circumstances”.

    CONTENTIONS

    HAS MR SHONOODH RECEIVED A PAYMENT IN EXCESS OF HIS ENTITLEMENT?

11. Mr Shonoodh gave evidence that he has been raising his family in Australia, having met his investment and business obligations of his visa. He stated that properties owned by him and his wife were losing money with those held in Northern Territory suffering capital losses as well as operating losses.

12. Mr Shonoodh put to the Tribunal that he did not believe a government would provide benefits to support children, only to later disqualify them because the parents were receiving negative income from their investment properties. He said that the ATO had recognised his losses when they calculated his taxable income.

13. As previously stated, Mr Shonoodh’s FTB payments were based on his estimate of the combined incomes for him and his wife, $39,636 for the 1 July 2015 to 30 June 2016 income year.

14. Mr Shonoodh’s taxable income was assessed by the ATO as $28,208 for the relevant income year and Mrs Coltah’s taxable income was assessed as $30,758 for the same year. Both Mr Shonoodh and Mrs Coltah were assessed by the ATO as having net rental losses of $23,352 each (a total loss of $46,704 split equally between Mr Shonoodh and Mrs Coltah). Those net rental loss figures were reported by Mr Shonoodh and Mrs Coltah on their tax returns for the relevant year. 

15. There was no dispute that Mrs Coltah was Mr Shonoodh’s partner during the period, and in accordance with sch 3 subcl 3(1) of the Act, Mrs Coltah’s adjusted taxable income must be added to his when calculating FTB and SKB entitlements.

16. The Secretary contends that for the purposes of determining whether Mr Shonoodh was overpaid FTB and SKB entitlements in the relevant financial year, Mr Shonoodh’s and Mrs Coltah’s total investment loss for that year, $46,704, must be added to his combined taxable income as stated in sch 3 subcl. 2(1)(d) of the Act. Mr Shonoodh’s combined total of adjusted taxable income using this method is $105,670.

17. The crux of Mr Shonoodh’s contention is that the net property losses should not be included as part of his combined adjustable taxable income for FTB and SKB. If net property losses were not added, the combined total income using this method is $58,966.

18. The Secretary stated that the legislation allowing investments to be negatively geared for income tax purposes did not apply again to social services legislation and that the Act was clear about how combined adjusted taxable income is calculated.

19. The issue of adding back net property losses when calculating adjusted taxable income as required under cl 2 of Sch 3 of the Act has been discussed in a number of cases that have been before the Tribunal.[1] In particular, Member Allen in Holmes and Secretary, Department of Family and Community Services said of Parliament’s legislative intent behind the relevant provisions, and supporting the simple application of the clause:[2]

    … the intent of the amendment seems clear. A person who gains a taxation advantage by offsetting a rental property loss against other assessable income should not also be able to gain a social security advantage from the same loss, which would be the case if the person’s taxable income alone was used for calculating the amount of benefits payable.

    There is, therefore, a clear legislative intent to add back any NRPL [net rental property losses] to taxable income.

    [1] See for example: Boswell and Secretary, Department of Families, Housing and Community Services and Indigenous Affairs (2011) AATA 171; Brumley and Secretary, Department of Social Services (2015) AATA 767; Grounds and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2009) AATA 223; Holmes and Secretary, Department of Family and Community Services (2003) AATA 888.

    [2] Holmes and Secretary, Department of Family and Community Services [2003] AATA 888 [40].

20. Justice North, when dismissing  an appeal by Ms Perera to the Federal Court of Australia finding her appeal had no reasonable prospect of success, said:[3]

    First, Ms Perera argued that cl 2(1)(d), Sch 3 of the Act requires the net rental property loss to be deducted from the amount of the adjusted taxable income. This is expressly contradicted by the opening words of the subclause which provides for the items, including net rental property loss, to be added together to reach the adjusted taxable income. I agree with and adopt North J’s and Member Allen’s statements.

    [3] Perera v Department of Families, Housing, Community Services and Indigenous Affairs [2011] FCA 896 [12].

21. In this case, for the purposes of calculating FTB and SKB, Mr Shonoodh’s adjusted taxable income for the period from 1 July 2015 to 30 June 2016 income year includes his total investment loss combined with his wife’s adjusted taxable income which includes her total investment loss. Therefore, Mr Shonoodh’s combined adjusted taxable income was $105,670 for that period.

22. On the basis of the estimated income of $39,636 Mr Shonoodh received FTB of $12,659.94. Reassessment using the ATO data reconciliation resulted in an entitlement of $2,242.08 which is $10,417.86 less than the FTB that was paid to him.

23. In order to receive SKB Mr Shonoodh’s combined adjusted taxable income needed to be less than $100,000.[4] He received $1,286 in SKB on the basis of his estimated income.

    [4] Section 35UA of the Act.

24. On this basis I find that Mr Shonoodh received payments in excess of his entitlement, namely $10,417.86 in FTB and $1,286 in SKB.

    IS THE OVERPAYMENT A DEBT DUE TO THE COMMONWEALTH?

25. Part 4 of the Administration Act deals with overpayments and debt recovery with s71A(2) specifically addressing overpayment of FTB advances:

    2)  If:

    (a)  an amount (the received amount ) of family tax benefit advance has been paid to an individual; and

    (b)  the received amount is greater than the amount (the correct amount ) of family tax benefit advance that should have been paid to the individual under the family assistance law;

    the difference between the received amount and the correct amount is a debt due to the Commonwealth by the individual.

26. It follows from this that the $10,417.86 FTB overpayment is a debt due to the Commonwealth.

27. Section 71(2) of the Administration Act deals with SKB advance overpayments and states:

    2)  If:

    (a)  an amount (the received amount ) of family tax benefit advance has been paid to an individual; and

    (b)  the received amount is greater than the amount (the correct amount ) of family tax benefit advance that should have been paid to the individual under the family assistance law;

    the difference between the received amount and the correct amount is a debt due to the Commonwealth by the individual.

28. It follows from this that the $1,286 SKB overpayment is a debt due to the Commonwealth.

    IS THERE ANY BASIS NOT TO RECOVER ANY OR ALL OF MR SHONOODH’S DEBT?

    Write-off

29. Section 97(2) of the Administration Act provides for discretion to write-off debts in some limited situations:

    a)The debt is irrecoverable at law; or

    b)The debtor has no capacity to repay the debt; or

    c)The debtor’s whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or

    d)The debtor has died leaving no estate or insufficient funds in the debtor’s estate to repay the debt.

30. There was no evidence presented to the Tribunal that any of the write-off conditions were met. Mr Shonoodh did indicate that he had struggled repaying the debt, some of which had been recovered from his 2015-2016 taxation refund, but he did not suggest that he had “no capacity” to repay the debt. I find no basis on which to write-off the debt.

    Waiver

31. The Administration Act also provides for some circumstances in which debts may be waived.

32. Section 97 of the Administration Act offers discretion to waive debts that are solely as a result of administrative error.

33. There was no evidence provided that showed the Department erred in its administrative role or the calculation of Mr Shonoodh’s combined adjusted taxable income. I find that based on the reconciliation with the ATO’s data, the Department’s calculation was as required under the relevant legislation.

34. Section 101 of the Administration Act allows the Secretary to waive the debt under special circumstances.

35. In order to be considered special circumstances the circumstances cannot be ordinary or usually expected circumstances in a particular context. In the matter of Beadle and Director-General Social Security,  the Tribunal observed: [5]

    An expression such as “special circumstances” is by its very nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional. Whether circumstances answer any of these descriptions must depend on the context in which they occur. 

    [5] Beadle and Director-General Social Security (1984) 6 ALD 1, 3.

36. There is nothing in Mr Shonoodh’s circumstances that I am able to interpret as special circumstances.

37. There has been no evidence presented that Mr Shonoodh and his wife are facing health difficulties or any other circumstances that can be seen as unusual or exceptional circumstances. 

38. Mr Shonoodh and his wife receive modest incomes from their business. They offset their rental property losses against their income as it is legitimate to do. It may be challenging for him and his wife that their property holdings are heavily geared and that the Northern Territory properties are worth less now than when they were purchased. It is not unusual, uncommon or exceptional for people investing in property to face losses and shifting fortunes.

39. The law in this instance, on the evidence before the Tribunal, is being applied exactly as it is intended to be.  

40. In Secretary, Department of Social Security v Coralie, French J (as he was then) in the Federal Court:[6]

    From time to time in the administration of social security benefits overpayments occur. Sometimes these are the result of innocent non-compliance with the requirements of the law which can be affected by the stress associated with the circumstances that led to the receipt of benefits in the first place. The taxpayer is entitled to expect that in the ordinary course money paid to people which they are not entitled to receive will be recovered, albeit in a way appropriate to the circumstances which led to the overpayment and the circumstances of the persons concerned…

    [6] Secretary, Department of Social Security v Coralie Hales (1998) FCA 219.

1. There is sound reason to recover debts resulting from overpayments and there is no evidence to suggest the discretion to write-off or waive the debts is warranted in this case. I find that there is no reason not to recover all of Mr Shonoodh’s debt.

DECISION

1. For the above reasons the Tribunal affirms the decision under review.

I certify that the preceding 54 paragraphs are a true copy of the reasons for the decision herein of Member G Hallwood.

........................[Sgnd]...................................

Administrative Assistant Legal

Dated: 25 March 2019

Date of hearing:	8 February 2019
Applicant:	Mr A Shonoodh
Advocate for the Respondent:	Mr C Visser
Solicitors for the Respondent:	Department of Human Services