Smith and Secretary, Department of Families, Community Services and Indigenous Affairs
[2006] AATA 867
•6 October 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 867
ADMINISTRATIVE APPEALS TRIBUNAL )
)No W2005/11 & W2005/12
GENERAL ADMINISTRATIVE DIVISION ) Re JOHN RONALD SMITH AND DOROTHY MONICA SMITH Applicant
And
SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
Respondent
DECISION
Tribunal Ms LR Tovey, Member Date6 October 2006
PlacePerth
Decision The Tribunal sets aside the decision of the Social Security Appeals Tribunal dated 7 December 2004 and substitutes the decision that:
(a) the decision of Respondent's delegate as to the rate of the Applicants' age pension, taking effect from 21 October 2003, be set aside;
(b) the income from the life annuity entered into between the Applicant Mr Smith and Crown Life Insurance Co (Policy No 1767047) in 1979 is an "income stream" for the purposes of the Social Security Act 1991;
(c) The matter be remitted to the Respondent with a direction that the rate of the Applicants' age pension from 21 October 2003 be determined in accordance with these reasons.
..........[Sgd. Ms LR Tovey].................
Member
CATCHWORDS
SOCIAL SECURITY – age pension – ordinary income – income stream – overseas life annuity
Social Security Act 1991 (Cth), ss. 8, 9, 23, 43, 55, 1064, 1072, 1097A, 1098, 1099, 1099A, 1099A, 1099B, 1099D, clause 120A of Schedule 1A
Social Security and Veterans' Affairs Legislation Amendment (Budget and other Measures) Act 1998 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth), s. 10
Retirement Savings Account Act 1997 (Cth) ss. 8-15.
Life Insurance Act 1995 (Cth), ss. 9, 11, 16ZE, 16ZD, 17, 18, 74
Life Insurance Regulations 1995 (Cth), reg. 2B.01
Income Tax Assessment Act 1936 (Cth), s. 27A(1)
Re Bersee and Secretary, Department of Family and Community Services (2003) 72 ALD 461; [2003] AATA 201
Re Cocci and Secretary, Department of Family and Community Services [2004] AATA 196
REASONS FOR DECISION
6 October 2006 Ms LR Tovey, Member 1. This is an application by Mr John Ronald Smith and Mrs Dorothy Monica Smith ("the Applicants") for a review of a decision of the Social Security Appeals Tribunal ("the SSAT") which affirmed the decision of a delegate of the Secretary of the Department of Family and Community Services ("the Respondent") as to the appropriate rate of age pension payable to the Applicants under the Social Security Act 1991 (Cth) ("the Act").
FACTS
2.The relevant facts in this case are not in contention.
3. On 25 November 1979 the Applicants, who are married, migrated to Australia. They were both granted permanent residence status at that time, and have subsequently both become Australian citizens.
4. Prior to their migration, the Applicant Mr Smith, had entered into a contract with a Canadian company called Crown Life Insurance Co ("the Company"). Under that contract, in consideration for a single premium of CAN$236,351.56, the Company agreed to pay to Mr Smith monthly payments of CAN$2,061.10 commencing on 1 December 1979 and continuing during the lifetime of Mr Smith ("the Annuity"). Payments of the Annuity have been made in accordance with that contract since that time.
5. Mr Smith was born on 20 October 1924, and so is currently just under 82 years old. While Mr Smith could, therefore, have retired and sought to claim an age pension earlier, he continued to work in a family business which was sold on 25 July 2003. His retirement at that time was due to health issues.
6. The Applicants did not lodge a claim for an age pension until 29 October 2003, at which time Mr Smith was 79 years old.
7. A delegate of the Respondent determined that the Applicants were entitled to an age pension payable with effect from 21 October 2003. In determining the rate of the age pension payable to the Applicants, the delegate of the Respondent took account of the full amount of payments under the Annuity.
8. The Applicants sought a review of that decision. On 4 November 2004 an Authorised Review Officer of the Respondent decided to affirm the decision as to the manner in which the Annuity had been taken into account. On 10 November 2004 the Applicants sought review by the SSAT which, on 7 December 2004, affirmed the decision of the Respondent's delegate. On 10 January 2005 the Applicants lodged an application for review by this Tribunal of the decision of the SSAT.
9. The only issue raised is the manner in which payments under the Annuity should be taken into account in determining the rate of the age pension payable to the Applicants.
STATUTORY FRAMEWORK
10. Section 43 of the Act provides for when a person is qualified for an age pension. A person will be qualified for an age pension when they reach the "pension age" in circumstances which include the situation where the person has 10 years "qualifying Australian residence".
11. The "pension age" is defined by s. 23(5A) and (5B) of the Act to be 65 years of age in the case of Mr Smith and 60 years of age in the case of Mrs Smith. Mr Smith reached the pension age on 20 October 1989. He would have qualified for the pension on 25 November 1989, when he attained 10 years qualifying Australian residence (as defined in s. 7 of the Act). Mrs Smith reached the pension age on 20 April 1992, and qualified for the age pension at that time.
12. Section 55(a) of the Act provides that a person’s age pension rate is worked out, where the person is not permanently blind, using Pension Rate Calculator A at the end of s. 1064 of the Act.
13. Section 1064 of the Act provides for the method of calculating the rate of an age pension. In general terms the method involves calculating an amount called the "maximum payment rate". Module E of the provision deals with the calculation of the "income reduction", which is subtracted from the maximum payment rate to give an amount called the "income reduced rate". Module G of the provision deals with the calculation of a "reduction for assets", which is subtracted from the maximum payment rate to give an amount called the "assets reduced rate". The lower of the income reduced rate and the assets reduced rate is (subject to further reduction in some cases) the rate of pension.
14. In the Applicants' case it is the income reduced rate which is the lower rate, used for determining the rate of pension applicable to the Applicants. It is to be noted that the report of the officer who initially assessed the rate indicates that the Annuity was given no asset value, on the basis that the payments already received by Mr Smith exceeded the purchase price of the Annuity.
15. Under Module E of s. 1064 of the Act the income reduction for a person in the position of the Applicants is calculated by reference to the amount of the person's "ordinary income" on a yearly basis. In general terms, the rate of pension is reduced by half the difference of the ordinary income of the person and the person's "income free area". Further, the ordinary income of each member of a couple is half the sum of both members' ordinary income: s. 1064-E2 of the Act.
16. The term "ordinary income" for these purposes is defined in s. 8(1) of the Act to mean income that is not maintenance income or an exempt lump sum. It is clear that the Annuity is neither maintenance income nor an exempt lump sum for these purposes. It is not an exempt lump sum because it is a periodic amount, that is a series of related payments: ss. 8(11) and 10(1A) of the Act. It is not "maintenance income", which relates to payments of child and spousal maintenance: s. 10(1) of the Act.
17.The term "income" is defined in s. 8(1) of the Act in the following terms:
income, in relation to a person, means:
(a)an income amount earned, derived or received by the person for the person’s own use or benefit; or
(b)a periodical payment by way of gift or allowance; or
(c)a periodical benefit by way of gift or allowance;
but does not include an amount that is excluded under subsection (4), (5) or (8).
18. The term "income amount" used in the definition of "income" is defined in s. 8(1) of the Act to mean valuable consideration, or personal earnings or moneys or profits (whether of a capital nature or not).
19. Section 1072 of the Act provides that:
A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 2 or 3.
Division 2 provides for the manner in which the value in Australian currency of an amount of foreign currency amount received by a person is to be calculated. While relevant to the Annuity, which is paid in Canadian dollars, the application of that provision to the Annuity is not in contention in the present case. Division 3 relates to the disposal of ordinary income, which is not relevant to the present case as there has been no suggestion that Mr Smith has not received the Annuity payments.
20. The Annuity, being money received by Mr Smith which is not excluded under s. 8(4), (5) or (8) of the Act, meets the requirement of the definition of "income". Therefore, it forms part of the Applicants' ordinary income for the purposes of calculating the income reduction and the income reduced rate of the Applicants' age pension.
THE ISSUES FOR DETERMINATION
21. Against the above statutory background, the issue for determination is whether the whole of the amount of the Annuity is to be taken into account for the purposes of determining the Applicants' ordinary income, and therefore their income reduction and the income reduced rate of their age pension. There are two potential statutory sources of a requirement to apply a reduction to the Annuity when calculating the Applicants' ordinary income, which have been suggested in the parties' submissions. The first is Part 3.10, Division 1C of the Act, which relates to income from "income streams". The second is clause 120A of Schedule 1A to the Act, which is a transitional provision. I shall consider each of these possible sources of such a requirement in turn.
CONSIDERATION OF THE ISSUES – PART 3.10 DIVISION 1C OF THE ACT
22. Part 3.10 Division 1C of the Act contains subdivisions B and C. Subdivision C relates to "family law affected income streams", and is not relevant for present purposes. Subdivision B is expressed, by s. 1097A of the Act, to apply to income streams which are not family law affected income streams. It is to the provisions of that Subdivision which the inquiry in this case is to be directed.
23. Section 1098, in Part 3.10 Division 1C of the Act, provides that:
"For the purpose of working out the annual rate of ordinary income of a person from an asset-test exempt income stream to which this Subdivision applies, the person is taken to receive from that income stream each year the amount worked out under section 1099 or 1099A."
24. Sections 1099 and 1099A of the Act then contain formulas for reducing the extent to which an "asset-test exempt income stream" is taken into account in determining a person's ordinary income, depending on whether that income stream is, or is not, a "defined benefit income stream". Sections 9, 9A and 9B of the Act contain the definition of an "asset-test exempt income stream".
25. Sections 1099B to 1099D of the Act make similar provision for the deductions to be applied to an "asset-tested income stream (long term)". An "asset-tested income stream (long term)" is defined by s. 9(1) of the Act to mean an income stream that:
"(a) is not an asset‑test exempt income stream; and
(b) has, on its commencement day:
(i)a term of more than 5 years; or
(ii)if the person who has acquired the income stream has a life expectancy of 5 years or less—a term equal to or greater than the person’s life expectancy."
26. There is also provision, in s. 1099AA of the Act, for the deduction applicable to a "market‑linked" asset‑test exempt income stream, a term which is defined in s. 9BA of the Act.
27. All of the above provisions apply only to income which meets the definition of "income stream" in s. 9(1) of the Act. If the Annuity is an income stream then it is at least an "asset-tested income stream (long term)", if not an "asset-test exempt income stream". On either view the Applicants would be entitled to a deduction of the amount of the Annuity which is taken into account for determining their ordinary income. The critical issue is whether the Annuity is an income stream as defined in the Act.
28. The term "income stream" is defined in s. 9(1) of the Act to mean:
"(a)an income stream arising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993; or
(b)an income stream arising under a public sector superannuation scheme (within the meaning of that Act); or
(c)an income stream arising under a retirement savings account; or
(d)an income stream provided by a life insurance business (within the meaning of the Life Insurance Act 1995); or
(e)an income stream provided by a friendly society; or
(f)an income stream designated in writing by the Secretary for the purposes of this definition, having regard to the guidelines determined under subsection (1E); or
(fa)a family law affected income stream;
but does not include any of the following:
(g)available money;
(h)deposit money;
(i)a managed investment;
(j)a listed security;
(k)a loan that has not been repaid in full;
(l)an unlisted public security;
(m)gold, silver or platinum bullion."
29. It is then necessary to consider whether the Annuity meets any of the criteria specified in paragraphs (a) to (fa) of this definition.
30. As to paragraphs (a) and (b) of the definition, the Superannuation Industry (Supervision) Act ("the SIS Act") makes provision for the prudent management of certain superannuation funds, approved deposit funds and pooled superannuation trusts and for their supervision by the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission and the Commissioner of Taxation: s. 3(1) of the SIS Act. However, there is nothing in the SIS Act which would purport to govern the Annuity, which was entered into outside Australia with a company carrying out business outside Australia. The Annuity is clearly not part of a "public sector superannuation scheme", a term which is defined in s. 10(1) of the SIS Act to mean a scheme established by or under an Australian law or under the authority of an Australian government.
31. As to paragraph (c) of that definition, the term "retirement savings account" is defined, in s. 9(1) of the Act, by reference to the definition of that term in the Retirement Savings Account Act 1997 (Cth) ("the RSA Act"). Sections 8-15 of the RSA Act contain a complicated definition of the term. However, for present purposes, it is sufficient to note that such an account must be described as a retirement savings account (s. 8(1)(a) of the RSA Act) and must be an account or policy that was opened or issued on or after 1 July 1997 or such later day as is prescribed (s. 8(1)(f) of the RSA Act). It is clear that the Annuity does not satisfy either of these criteria, and so does not fall within paragraph (c) of the definition of "income stream" in s. 9(1) of the Act.
32. As to paragraph (d) of that definition, the term "life insurance business" is relevantly defined in s. 11(1) of the Life Insurance Act in the following manner:
"(1) A reference in this Act to life insurance business is a reference to:
(a) business that consists of any or all of the following:
(i) the issuing of life policies … ; and
(b) any business that relates to business referred to in paragraph (a)."
33. A "life policy" is defined in s. 9(1)(c) of the Life Insurance Act to include:
"a contract of insurance that provides for the payment of an annuity for a term dependent on the continuance of human life."
34. The Annuity is a contract of insurance which provides for the payment of an annuity for a term dependent on the continuation of Mr Smith's life. Prima facie, it falls within the definition of a "life policy" in s. 9(1) of the Life Insurance Act, so that it was entered into in the course of a life insurance business and so is provided by a life insurance business.
35. The definition of the term "life insurance business" is not expressed to depend on the business being carried on in Australia. Further, the term is used in Life Insurance Act in a manner that indicates that life insurance business may be carried on outside Australia and may not be subject to regulation by that Act.
36. For example, s. 16ZE of the Life Insurance Act provides that:
"This Act does not apply in relation to life insurance business carried on outside Australia by an eligible foreign life insurance company."
That provision recognises that a business carried on outside Australia may be a "life insurance business". I note that, at present, only foreign corporations that are incorporated, and authorised to carry on life insurance business, in the United States of America are eligible foreign life insurance companies: see s. 16ZD of the Life Insurance Act and reg 2B.01 of the Life Insurance Regulations 1995. As it appears that the Company is a Canadian company, it will not be an eligible foreign life insurance company.
37. Similarly, s. 74 of the Life Insurance Act provides for the following definitions relating to the financial management of life companies:
"In this Part, unless the contrary intention appears:
Australian fund means a statutory fund that relates only to life insurance business carried on in Australia.
Australian/overseas fund means a statutory fund that relates to life insurance business carried on in Australia and life insurance business carried on outside Australia.
overseas fund means a statutory fund that relates only to life insurance business carried on outside Australia."
The Part to which this definition applies relates to the regulation of bodies which meet the definition of "life company", a term which is defined in the Dictionary to the Life Insurance Act to mean "a company that is carrying on life insurance business in Australia". The term "company" is defined in the Dictionary in a manner that comprehends only companies incorporated in Australia or an eligible foreign life insurance company. Therefore, the Company is not a "life company" whose business is regulated by that Part of the Life Insurance Act. However, that is not to say that it does not carry on life insurance business, albeit business that is not regulated by that Part of the Life Insurance Act. Section 74 of the Life Insurance Act makes it clear that business carried on outside Australia may still meet the definition of a "life insurance business" for the purposes of the Life Insurance Act.
38. The term "life insurance business" is to be distinguished from the term "life business", which is also employed in the Life Insurance Act. The separate definition of those terms in the Dictionary to the Life Insurance Act makes it clear that the terms are used distinctly. The term "life business" is defined in the Dictionary to the Life Insurance Act to mean:
"business that consists of:
(a) the issuing of life policies or the undertaking of liability under life policies; or
(b) any business that relates to business referred to in paragraph (a)."
39. Section 18 of the Life Insurance Act provides that:
"A person is not taken to be carrying on life business merely because the person:
(a)collects premiums under a policy issued outside Australia to a person who was resident outside Australia at the time of issue of the policy; or
(b) makes payments due under such a policy."
40. The Annuity was entered into outside Australia at a time when Mr Smith was resident outside Australia. Therefore, the making of payments under the Annuity is not taken to be the carrying on of a life business, so that s. 17 of the Life Insurance Act does not require the Company to be registered under that Act. However, that is not to say that the entry into the Annuity, or the making of payments pursuant to it, is not part of a "life insurance business", as distinct from a "life business", for the purposes of the Life Insurance Act.
41. The reasons for decision of the Authorised Review Officer of the Respondent were that:
"DFaCS (Department of Family and Community Services) have advised that overseas products are not assessed as income streams under the Social Security Law as they are not governed by Australian Legislative provisions, in your case this is the Life Insurance Act of 1995. The Life Insurance Act only covers Australian registered companies."
42. In relation to this issue, the SSAT stated that:
"Whilst his [Mr Smith's] annuity comes from a life insurance company, it is not one which comes within the meaning of the Life Insurance Act 1995."
The Respondent's submissions before this Tribunal repeated that finding of the Tribunal.
43. It appears to be correct to say that the Annuity and the Company are not regulated by the Life Insurance Act. However, that is not the question posed by paragraph (d) of the definition of "income stream" in s. 9(1) of the Act. The question is whether the income stream is provided by a life insurance business within the meaning of the Life Insurance Act. The question is not whether it is provided by a life insurance business which is regulated by the Life Insurance Act. Nor is the question whether it was provided by a life company or a company registered under the Life Insurance Act. The definition of "life insurance business" in the Life Insurance Act is not cast in terms of the identity of the person who carries on the business.
44. I find that the payments under the Annuity are provided by a life insurance business within the meaning of the Life Insurance Act.
45. As to paragraph (e) of the definition of "income stream", the Annuity was not provided by a friendly society as defined in s. 9(1) of the Act. Such a society must be registered as such under a law in force in an Australian State or Territory, or to have been approved for the purposes of the definition of "friendly society" in s. 115(1) of the Social Security Act 1947 (Cth). There is nothing before me to establish that the Company satisfies either criterion.
46. As to paragraph (f) of the definition of "income stream", there is no evidence of any relevant designation by the Respondent, of the kind referred to in that paragraph. This paragraph is not applicable to the Annuity.
47. It is also clear that the Annuity is not a "family law affected income stream" within the meaning of paragraph (fa) of the definition of "income stream" in s. 9(1) of the Act.
48. Therefore. I find that payments under the Annuity fall within paragraph (d) of the definition of "income stream" in s. 9(1) of the Act, but do not fall within any of paragraphs (a)-(c) or (e)-(fa) of that definition.
49. The Respondent has not suggested that, if the Annuity falls within paragraphs (a)-(fa) of the definition of "income stream", it is excluded by any of paragraphs (g)-(m) of that definition. I find that the Annuity is not so excluded.
50. In reaching that conclusion, I have considered whether payments under the Annuity arise from "an investment in a deferred annuity", which is a species of managed investment: see s. 9(1) (definition of "managed investment") and 9(1B)(f) of the Act. However, the term "deferred annuity" is defined in s. 9(1) of the Act as:
"an annuity that is a deferred annuity for the purposes of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act."
Section 27A(1) of the Income Tax Assessment Act 1936 (Cth), in that Subdivision, defines a "deferred annuity" to be an "annuity other than an immediate annuity". An "immediate annuity" is defined by s. 27A(1) to be an "annuity that is presently payable". As the Annuity is presently payable, it is not a "deferred annuity" for the purposes of s.9(1B)(f) of the Act and so is not a "managed investment" for the purposes of paragraph (i) of the definition of "income stream" in s. 9(1) of the Act.
51. The above conclusions are consistent with the decision of the Tribunal in Re Bersee and Secretary, Department of Family and Community Services (2003) 72 ALD 461; [2003] AATA 201. In that case the Tribunal found that income received from a pension from the Netherlands did not fall within the definition of "income stream" in s. 9(1) of the Act. The difference between that case and the present is that in Bersee the income from the pension was not in the nature of a life insurance payment. The decision of the Tribunal in Re Cocci and Secretary, Department of Family and Community Services [2004] AATA 196, and the other cases referred to in that decision, were likewise concerned with the receipt of overseas pensions rather than life annuities.
52. Those conclusions are not inconsistent with the purpose of the provisions of the Act relating to income streams. Those provisions were first introduced into the Act by the Social Security and Veterans' Affairs Legislation Amendment (Budget and other Measures) Act 1998 (Cth) ("the Amendment Act"). In his second reading speech to the Bill for that Act the Minister said of the provisions:
"The reforms will give greater incentives and provide greater choices for retired people investing in longer term income streams. These amendments compliment other government policy initiatives aimed at encouraging the use of superannuation and other investments to provide income in retirement. The reforms will provide a more generous means test of long term pensions and annuities meeting specified criteria. In addition, they will ensure that very wealthy people will no longer be able to use loopholes through the use of short fixed term financial investments" (Hansard, House of Representatives 3 December 1997 at page 11839).”
To allow the recipient's of payments under life annuities purchased overseas to take advantage of the income stream provisions of the Act is consistent with providing choice to retired people investing in longer term income streams. It will not allow for a "loophole", as the investment must still satisfy the criteria specified in the definition of "life policy" in the Life Insurance Act, and the definitions of "asset-tested income stream (long term)" or an "asset-test exempt income stream" in the Act, in order to qualify for a deduction.
53. Therefore, I find that the Annuity is an "income stream" within the definition of that term in s. 9(1) of the Act. As I have noted above, it will be either an "asset-tested income stream (long term)" or an "asset-test exempt income stream". In either case, the Applicants will be entitled to a deduction from the income received from the Annuity when calculating the income reduced rate of their age pension.
CONSIDERATION OF THE ISSUES – CLAUSE 120 OF SCHEDULE 1A TO THE ACT
54. Prior to the enactment of the Amendment Act, s. 1098 of the Act provided for the deduction from income derived from an "immediate annuity" when working out the annual rate of ordinary income of a person. An "immediate annuity" was an annuity that was presently payable: see s. 9(1) and 9(5) of the Act at that time.
55. At the time the Amendment Act was enacted, a transitional provision was inserted into the Act. That transitional provision, which is now found in clause 120A of Schedule 1A to the Act, provides:
"(1) If:
(a)a person who had entered into a binding arrangement for the provision to the person of an income stream was, on 19 September 1998, receiving a social security payment; and
(b)the Minister declares, in writing, that the Minister is satisfied that the application of this Act (as amended by the amending Act) would cause the person significant disadvantage in relation to the treatment of the person’s income stream;
this Act applies to the person in relation to the income stream as if the amendments made by Part 1 of Schedule 3 to the amending Act had not been made.
(2) Subclause (1) ceases to have effect if:
(a)the social security payment referred to in subclause (1)(a) (the original payment) ceases to be payable to the person; and
(b)another social security payment, a service pension or income support supplement does not become payable to the person immediately after the original payment ceases to be payable.
(3)If a person was receiving a social security payment on 19 September 1998, the person’s annual rate of ordinary income from:
(a)an asset‑test exempt income stream; or
(b)an asset‑tested income stream (long term);
that is a defined benefit income stream whose commencement day is earlier than 20 September 1998 is to be worked out as if the amendment made by item 40 of Schedule 3 to the amending Act had not been made.
(4) In this clause:
amending Act means the Social Security and Veterans’ Affairs Legislation Amendment (Budget and Other Measures) Act 1998.
binding arrangement, in relation to a person, means:
(a)an arrangement that does not allow the person to commute an income stream; or
(b)an arrangement that may only be terminated on terms that are, in the opinion of the Secretary, likely to cause severe detriment to the person."
56. This provision only has application to a person who was receiving a social security payment on 19 September 1998. While the Applicants were qualified to receive a pension on that date, they were not actually receiving a pension at that time. It follows that clause 120A of Schedule 1A to the Act can have no application to the Applicants' situation.
57. The Applicants submit the operation of this limitation, in its application to them, is unfair. Mr Smith compares his position with that of a hypothetical twin brother, who retired at 65 and claimed the pension at that time. Because he did so, the brother would be able to potentially take advantage of the transitional provision. Mr Smith, because he has worked for longer and delayed claiming an age pension, is unable to take advantage of the provision. While I agree that this operation of the Act may be regarded as unfair, that is what the Act provides. Neither the Respondent nor this Tribunal are able to expand the operation of the transitional provision.
58. In the present case the unfairness is mitigated by the finding that the income from the Annuity is an "income stream" for the purposes of the Act. I also note that, as clause 120A itself uses the defined term "income stream", it would be doubtful whether clause 120A would have been available to assist the Applicants if the Annuity did not fall within the definition of that term, even if they had been in receipt of an age pension on 19 September 1998. However, in light of my findings above, it is unnecessary to finally resolve that question.
DECISION
59. The Tribunal is not in a position to calculate the extent of the deduction to be applied to income derived from the Annuity in working out the ordinary income of the Applicants. In part that will depend on the manner in which the income stream is to be classified, and that in turn can depend on the manner in which the Respondent exercises relevant discretion contained, for example, in s. 9B(3) and (4) of the Act. Therefore, it is appropriate that the matter be remitted to the Respondent to be determined in accordance with these reasons.
60. For the above reasons, the Tribunal sets aside the decision of the Social Security Appeals Tribunal dated 7 December 2004 and substitutes the decision that:
(a)the decision of Respondent's delegate as to the rate of the Applicants' age pension, taking effect from 21 October 2003, be set aside;
(b)the income from the life annuity entered into between the Applicant Mr Smith and Crown Life Insurance Co (Policy No 1767047) in 1979 is an "income stream" for the purposes of the Social Security Act 1991;
(c)The matter be remitted to the Respondent with a direction that the rate of the Applicants' age pension from 21 October 2003 be determined in accordance with these reasons.
I certify that the 60 preceding paragraphs are a true copy of the reasons for the decision herein of Ms LR Tovey, Member
Signed: .................(Sgd. Ms R Riberi) ............................
AssociateDate/s of Hearing 19 January 2006
Date of Decision 6 October 2006
Representative for the Applicants Mr J Smith
Representative for the Respondent Mr A Holt, Centrelink
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