Stafford and Secretary, Department of Social Services (Social services second review)
[2018] AATA 2746
•10 August 2018
Stafford and Secretary, Department of Social Services (Social services second review) [2018] AATA 2746 (10 August 2018)
Division:GENERAL DIVISION
File Number: 2018/0871
Re:John Stafford
APPLICANT
AndSecretary, Department of Social Services
RESPONDENT
DECISION
Tribunal:Member C Edwardes
Date:10 August 2018
Place:Perth
The Tribunal affirms the decision under review.
............[sgd]............................................................
Member C Edwardes
CATCHWORDS
SOCIAL SECURITY – age pension – overpayment – debt due to the Commonwealth – whether recovery of debt should be written off or waived – debt not attributable solely to error made by Centrelink – no “special circumstances” – AAT1 decision under review affirmed
LEGISLATION
Social Security Act 1991(Cth) – s 8, s 9, s 9(1), s 43, s 44(1), s 55, s 55(a), s 1064,
s 1076, s 1076(2), s 1207Y(4), s 1223(1), s 1236, s 1236(1), s 1236(1A), s 1237, s 1237A, s 1237A(1), s 1237AAD, part 2.2Social Security (Administration) Act 1999 (Cth) – s 66A, s 68, s 68(2)
Social Security (Attribution of Income) Principles 2002
CASES
Angelakos and Secretary Department of Employment and Workplace Relations (2017) 100 ALD 9; [2007] FCA 25
Davy and Secretary Department of Employment and Workplace Relations [2007] AATA 1114; (2007) 97 ALD 196 (8 March 2007)
Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Locke and Secretary, Department of Social Services [2014] AATA 904
Re Gerhardt and Secretary, Department of Employment, Education and Training [1996] AATA 173
Snodgrass and Secretary, Department of Social Services (Social services second review) [2016] AATA 185SECONDARY MATERIALS
The Guide to Social Security Law – 4.4.1.10, 4.12.6.10, 6.7.3.30
REASONS FOR DECISION
Member C Edwardes
10 August 2018
BACKGROUND
On 31 July 2017, the Social Services and Child Support Division of the Administrative Appeals Tribunal (AAT1) handed down a decision which affirmed a decision made by Centrelink that an age pension debt of $9,998.53 was owed by the Applicant for overpayments by Centrelink during the period 1 July 2012 to 30 June 2016 (the Debt Period) (T2 8) (R1).
The Applicant now seeks a review of the AAT1 decision.
The Applicant was granted an age pension on 10 November 2008.
RELEVANT FACTS AND EVIDENCE
The Secretary contends that the Applicant accumulated this debt from 1 July 2012 to 30 June 2016. The Tribunal notes that the debt arose out of a number of minor variations to the Applicant’s income and assets on the rate of payment.
The documents before the Tribunal show that the debt accumulated appears to have been incurred as a result of business structures and variations in income.
The documents show the Applicant to be the sole shareholder of the companies Waterford Holdings Pty Ltd (Waterford) and Perth Children’s Contact Services Pty Ltd (PCCS), resulting in him being attributed with 100% of the income and assets of those private companies.
In addition, the documents before the Tribunal show that the Applicant’s income from St John Ambulance, Monash University, Perth Modern School and the Curriculum and Standards Authority had not formed part of the calculation for assessing the age pension.
During the Debt Period, the Tribunal notes there are multiple requests from the Department of Human Services (the Department) seeking information from the Applicant and information notices (T5 242-48) (T11 258-9) (T13 263-4) (R1).
Each of these notices were sent pursuant to section 68(2) of the Social Security (Administration) Act 1999 (Cth) (the Administration Act), which allows the Secretary to give a notice that requires a person to advise Centrelink of specified events or changes in circumstances.
The Tribunal notes for example, that the letter to the Applicant dated 10 April 2012 states
What you must tell us
You must tell us within 14 days (28 days if residing outside Australia) if any of the changes listed below happen, or are likely to you. If any of these changes happen, the amount of payment you get may change. If you are paid too much because you don’t tell Centrelink about any of these changes when you have to, Centrelink may make you pay it back (T5 244-248) (R1).
The debt of $9,998.53 was determined by the Secretary after a review was undertaken at the request of the Applicant (T62 669) (R1).
On 26 September 2017, the Applicant filed an application for review of that decision with AAT1 (T2 8) (R1).
The Applicant told AAT1:
17. …………….. that he disagrees that he has been overpaid age pension and that he owes a debt to the Commonwealth. He provided the following evidence:
(a)Waterford is a family company that has been in existence for many years. He is now the sole director and shareholder of that entity which he agrees is a private company.
(b)The family home was sold some years ago and the residual proceeds of that sale of about $300,000 was transferred to Waterford which then utilised those funds to purchase shares. These shareholdings return little by way of dividends.
(c)PCCS was established in order to provide Mr Stafford with employment. Its main business is to undertake contracts from the Family Court to undertake assessments of contact arrangements in disputed care matters. The company engages sub- contractors who together with Mr Stafford work as a team on these assignments. Mr Stafford is the sole director. Waterford is the ultimate holding company for PCCS and holds the majority of shares whilst Mr Stafford holds a minority shareholding.
(d)As noted Mr Stafford does not dispute that he has 100% control over both entities which he agrees are private companies.
(e)Mr Stafford did not disagree with the figures utilised by the Department regarding the outstanding loan amounts, income earned by the two companies or income he personally earned.
(f)The main issue is that money he originally transferred into Waterford (which was used to purchase shares) is described as a director’s loan in the financial statements drawn up by his accountants. However, these are not loans in the true sense and should not be treated as such for social security purposes. He says that the problem has arisen because the Department in effect is ‘… double counting … the same money ... the income is (being) calculated on the false capital value of the assets’.
(g)Mr Stafford also submitted that the High Court in 2008 ruled on the structure of Waterford in a previous appeal which he lodged from an unrelated tribunal decision. He says that the Department ‘… by this current action is acting contrary to the findings of the High Court of Australia’.
(h)He did not provide the Department with financial updates about the companies as the Department ceased requesting this information. He therefore assumed that such information was no longer required and that in any event there had been no change to his circumstances.
(i)Mr Stafford agrees that he received income from St John Ambulance, Monash University, Perth Modern School and Curriculum & Standards Authority but says that he declared all his earnings to the Department and so any overpayment in that regard is due to the Department’s administrative error (T2 11-12) (R1).
On 30 January 2018, AAT1 affirmed the original decision (T2 8) (R1).
On 23 February 2018, the Applicant lodged an application for second review with the General Division of the Administrative Appeals Tribunal (T1 1) (R1).
ISSUES
The issues for consideration by this Tribunal are:
·whether the Applicant has been overpaid the age pension during the relevant period;
·if so, whether this overpayment is a debt owed to the Commonwealth; and
·if so, whether recovery of all or part of the debt should be written off or waived.
In relation to the third issue listed above, in making this determination, the Tribunal must examine:
(a)whether the debt can be written off because of a number of circumstances listed in section 1236 of the Social Security Act 1991 (Cth) (the Act);
(b)whether the debt can be waived because the debt arose “solely” as a result of an administrative error on the part of the Commonwealth pursuant to section 1237A of the Act; and
(c)if not, whether the debt can be waived because of “special circumstances” that make it desirable to waive the debt as per section 1237 of the Act (noting that this can only occur if there is evidence that the person seeking to have the debt waived did not “knowingly” make a false statement or misrepresentation relevant to the debt in question).
RELEVANT LEGISLATION AND POLICIES
The relevant legislation in this matter is the:
·Act; and
·the Administration Act.
Government policy set out in the Guide to Social Security Law (the Guide) is also relevant and is usually applied in the absence of cogent reasons not to follow such policy: Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 645.
Qualification for age pension
The legislation concerning age pension is in the Act and Part 2.2 of the Act contains the provisions relating to whether a person is qualified for age pension.
Section 43 of the Act sets out the basic qualification for the payment of age pension as follows:
Qualification for age pension
A person is qualified for an age pension if the person has reached pension age and any of the following applies:
(a)the person has 10 years qualifying Australian residence;
(b)the person has a qualifying residence exemption for an age pension;
(c)the person was receiving a widow B pension, a widow allowance, a mature age allowance or a partner allowance, immediately before reaching that age;
(d)if the person reached pension age before 20 March 1997 – the person was receiving a widow B pension, a widow allowance or a partner allowance, immediately before 20 March 1997.
Calculation of rate of age pension
Section 55 of the Act provides that the rate of age pension is calculated using Pension Rate Calculator A at the end of section 1064 of the Act. Section 1064 of the Act relevantly provides:
(1)The rate of:
(a)age pension;
…
is, subject to subsection (2), to be calculated in accordance with the Rate Calculator at the end of this section.
Note 1: Module A of the Rate Calculator establishes the overall rate calculation process and the remaining Modules provide for the calculation of the component amounts used in the overall rate calculation.
This process of calculating the overall rate of age pension was outlined by Deputy President Professor Deutsch in the case of Snodgrass and Secretary, Department of Social Services (Social services second review) [2016] AATA 185 as follows:
29Steps 5 and 8 of the Module A method statement require a calculation to be made of ‘the income reduction’ calculated under Module E and for that amount to be taken away from the maximum pension amount. The net figure is the income reduced rate.
30Steps 9 and 10 of the Module A method statement require a calculation to be made of ‘the reduction for assets’ calculated under Module G and for that amount to be taken away from the maximum pension amount. The net figure is the assets reduced rate.
31Step 11 of the Module A method statement requires a comparison to be made between the income and the assets reduced rates and the lower of the two rates becomes the rate of pension (after some other adjustments are made at step 12 none of which are relevant for present purposes).
[Emphasis added.]
Section 8 of the Act relevantly defines “income” as “an income amount earned, derived or received by the person for the person's own use or benefit”. This definition includes income earned, derived or received by any means and from any source whether within or outside Australia: section 8(2) of the Act.
Section 9 of the Act defines a “financial asset” as including a “financial investment”. The same section also provides a definition of “financial investments” which includes, inter alia, deposit money and loans not yet repaid.
Section 1076 of the Act provides for deemed income from financial assets for persons other than members of couples. Section 1076(2) of the Act provides:
(2)A person who has financial assets is taken, for the purposes of this Act, to receive ordinary income on those assets in accordance with this section.
The rate of income that a person is deemed to have received from those investments is a fixed amount, regardless of the amount of income the financial assets are actually earning.
The Guide, at part 4.4.1.10, provides historical deeming rates and applicable thresholds operating since 1 July 1996. The threshold amounts applicable to the Debt Period range from $44,600 in mid-2012 to $49,200 in 2016. The current deeming rates are 1.75% for the first $49,200 and 3.25% for balances above this rate.
Change in circumstances
Section 68(2) of the Administration Act relevantly provides:
(2)The Secretary may give a person to whom this subsection applies a notice that requires the person to do any or all of the following:
(a)inform the Department if:
(i) a specified event or change of circumstances occurs; or
(ii) the person becomes aware that a specified event or change of circumstances is likely to occur;
…
Overpayment
Relevant to the overpayment of a social security payment, section 1223(1) of the Act provides:
… if
(a)a social security payment is made; and
(b)a person who obtains the benefit of the payment was not entitled for any reason to obtain that benefit;
the amount of the payment is a debt due to the Commonwealth by the person and the debt is taken to arise when the person obtains the benefit of the payment.
Write off or waive recovery provisions
Pursuant to section 1236 of the Act a debt may be written off if:
(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)it is not cost effective for the Commonwealth to take action to recover the debt.
Further, section 1237A of the Act provides that:
the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.
The “Note” to section 1237A(1) of the Act states that section 1237A(1):
does not allow waiver of a part of a debt that was caused partly by an administrative error and partly by one or more other factors (such as error by the debtor).
Section 1237AAD of the Act provides that:
the Secretary may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a)the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or a false representation; or
(ii) failing or omitting to comply with a provision of this Act, the Administration Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c)it is more appropriate to waive than to write off the debt or part of the debt.
The Act does not define what is meant by the term “special circumstances”. However, a considerable body of case law exists to assist the Tribunal in relation to this issue. In Angelakos and Secretary Department of Employment and Workplace Relations [2007] FCA 25, the Federal Court stated at [33]:
... There is less risk of overstatement if the words ‘unusual’ or ‘uncommon’” are emphasised. Those words indicate, correctly in my view, the fact that there must be something that distinguishes the case from the ordinary or usual case...
In Davy and Secretary Department of Employment and Workplace Relations [2007] AATA 1114, Deputy President Forgie stated in part at [80]:
...‘special circumstances’ are not merely directed to the person’s own circumstances. Rather, they are directed to those that are ‘special circumstances ... that make it desirable to waive’. That necessarily requires a consideration of the person’s individual circumstances but also a consideration of the general administration of the social security system. Waiver of the debt would mean that Mr Davy would have had the benefit of part of his DSP in circumstances in which he was not entitled to it ... He has had the benefit of the money and there is no injustice in requiring him to repay the money of which he has had the benefit but not the entitlement ... The system of administration of the SS Act [the Act] does not visit any injustice for many if not all social security recipients but it did not lead to any injustice or unfairness on Mr Davy that is not visited, or potentially visited, upon all other recipients of social security payments under the Act. Therefore, I am not satisfied that there are special circumstances that make it desirable to waive the debt under s 1237AAD of the Act.
EVIDENCE
The matter was heard in Perth on 27 July 2018. The Applicant appeared in person and was self-represented. The Secretary was represented by Mr Burgess of Sparke Helmore.
The Tribunal accepted into evidence the following exhibits:
·Exhibit A1 – The Applicant’s written submissions dated 24 June 2018.
·Exhibit A2 – Letter from Applicant (with attachments) dated 30 April 2018.
·Exhibit A3 – Opening statement by Applicant, undated and handed up at the hearing.
·Exhibit R1 – The T documents (T1-73 pp 1-930 and ST1-18 pp 931-1217).
·Exhibit R2 – The Respondent’s statement of facts, issues and contentions dated 24 May 2018.
The Tribunal has reviewed all of the evidence before it and refers to the relevant material below in its decision that follows.
The Secretary contends:
17… that the following income was not taken into account in calculating the Applicant’s rate of age pension during the debt period:
·employment income from various employers,
·deemed income from loans to Waterford and PCCS,
·attributable income from Waterford and PCCS.
18The Secretary contends that when the above income is taken into account the Applicant’s rate of age pension during the debt period reduces. Given the above income was not taken into account during the debt period the Secretary contends that the Applicant was overpaid age pension and that the resulting overpayment is a debt due to the Commonwealth.
19The Secretary makes the following submissions in relation (sic) the Applicant's income that should have been taken into account during the debt period.
Employment income
20Section 8 of Act includes the definition of income as that which is earned, derived or received.
21In Harris v Director-General of Social Security [1985] HCA 1 at 197 the majority of the High Court stasted (sic):
... Income can be derived from various sources, as the definition of ‘income’ in s 18 makes clear. Some items of income may be received at frequent and regular intervals during a year (for example weekly or fortnightly wages paid to an employee), some intermittently (for example profits of a business) and others at lengthy intervals (for example annual dividends on shares). Subject to the exceptions stated in the s 18 definition and subject to the limitations expressed in s 29, no income derived from any source is to be left out of account in ascertaining the annual rate of income ...
22The Department obtained the Applicant’s earnings from his various employers during the period 25 September 2012 to 25 March 2017. [T32, T52, T64, T73, p 873]
23The Secretary contends that all of the Applicant’s employment income should be taken into account when calculating the Applicant’s rate of age pension.
24For the fortnights ending 8 October 2012, 10 February 2014, 10 March 2014 and 6 May 2014, the Applicant’s actual earnings exceeded the amount he declared to the Department. [T32, p 390]
25Therefore, part of the Applicant’s employment income was not correctly taken into account in calculating his rate of age pension during the debt period and is a factor in the overpayment of his age pension.
Loans to Waterford and PCCS
26Subsection 9(1) of the Act states that a financial asset means a financial investment, which includes: (e) a loan that has not been repaid in full.
27Section 1122 of the Act states:
... if a person lends an amount after 27 October 1986 the value of the assets of the person for the purpose of this Act includes so much of that amount as remains unpaid but does not include any amounts payable by way of interest under the loan ...
28The Applicant stated that the residual proceeds from the sale of his family home were used to purchase shares in Waterford and has asserted that the transfer of those funds should not be treated as a loan (see T2, para17; T73 pp 919).
29The financial statements of Waterford confirm the Applicant’s contention that the ‘Director’s Loan’ had previously been described as share capital, with the 2014 financial year showing $490,056 in issued capital and no Director’s Loan, but from 30 June 2015 showed $130,056 in issued capital and $364,577.81 for a Director’s Loan [T40, p 494]. The Applicant’s accountant also confirmed that the Applicant and his late wife were shareholders to a total of 490,056 shares, but that this had ‘not been reflected in the ASIC records’. [T53, p 613].
30The Department contacted the Applicant’s accountant on 30 August 2017 to discuss the issue, and noted the following:
... Hamilton Accountants advised they took over the Company from a previous Accountant. When researching the Company, the Accountant came across a hand written document dated in June 2001 by Mr Stafford stating Mr Stafford invested funds into the Company to allow the Company purchase its shares. The previous Accountant had treated the funds to the Company as an injection of capital. However upon further investigation the Accountant advised the Company did not meet (sic) the criteria for a capital injection as it was not declared to ASIC and therefore has assessed the funds as a loan to the Company. The Accountant further advised they have had discussions with Mr Stafford regarding the funds but Mr Stafford was unable to provide information regarding dates & amounts. The Accountant has applied this decision from the 2015 financial year onwards ... [T73, p 919]
31The financial statements of Waterford and PCCS disclose that the Applicant made the following other Director’s Loans to PCCS and Waterford during the debt period:
$714.62 to PCCS from 1 July 2012 to 30 June 2013 [T35, p 404]
$2,921.76 to Waterford from 1 July 2012 [T36, p 420]
$6,757.13 to PCCS from 1 July 2013 [T35, p 404]
32The Secretary contends that the Director’s loans to Waterford and PCCS, which are reflected in the financial statements, are loans, in accordance with subsection 9(1) of the Act, the values of which are assessed in accordance with section 1122 of the Act. In particular, the $364,577.81 Director’s Loan in 2015 should be found to be a loan in accordance with the financial statements and advice of the Applicant’s own accountants.
33The Secretary relies on the Tribunal’s decision in Lyons and Secretary, Department of Family and Community Services and Anor [2007] AATA 1095 in which it confirmed that the balance sheet treatment of loans determined the true character of those liabilities of the company.
34Further, the Secretary relies on Riches and Secretary, Department of Social Security [1995] AATA 361, Hughes and Secretary, Department of Social Security [1992] AATA 52 and Wright and Secretary, Department of Social Security [1994] AATA 278 which support that the assessable value of a loan is its face value and not its realisable value.
35In Clayton and Secretary of the Department of Family and Community Services [2003] AATA 1225 the Tribunal confirmed that a loan was to be valued at its face value and stated that ‘[e]ven if a loan cannot be repaid, the unpaid amount still is to be treated as an asset... even if this produces unjust results in some circumstances.’ The Tribunal concluded that ‘... it is taken, for the purposes of the Act, that [the applicants] received a deemed return on those assets which affected their rate of pension.’
36The Applicant contends that, despite the financial statements referring to a Director’s Loan of $364,577.81, the amount should be taken to be capital injection into Waterford, with the funds being used by Waterford to invest in shares (which had not decreased in value) [T1, p5] (R2 2-5).
Instruction 4.12.6.10 of the Guide states:
Determining a genuine investor
A person will be considered to be a genuine investor where:
·they are aged over 18 years,
·they are not an attributable stakeholder of the private company or private fixed trust, and
·they provide capital to a private company in exchange for shares, or they provide capital to a private fixed trust in exchange for units in the trust.
Note: A person who purchases shares in a company equal to 50% or greater of the present capital value of the company is an attributable stakeholder.
The Secretary contends that:
…the Applicant cannot be a genuine investor as he is an attributable stakeholder of the private company.
Deemed income from the Loans made to Waterford and PCCS
39Section 1076 of the Act provides that a person is taken to receive ordinary income from their financial assets.
40Therefore, the Applicant is taken to receive ordinary income from the above loans to Waterford and PCCS. The deemed income from the loans to Waterford and PCCS is calculated in accordance with the following subsections in 1076 of the Act :
(3)If the total value of the person’s financial assets is equal to or less than the person’s deeming threshold, the ordinary income the person is taken to receive per year on the financial assets is the amount worked out by multiplying the value of those assets by the below threshold rate.
(3A)ff the total value of the person’s financial assets exceeds the person’s deeming threshold, the ordinary income that the person is taken to receive is worked out as follows:
Method statement
Step 1. Multiply the person’s deeming threshold by the below threshold rate.
Note 1: For deeming threshold see subsection 1081(1).
Note 2: For below threshold rate see subsection 1082(1).
Step 2. Subtract the deeming threshold from the total value of the person’s financial assets.
Note: For deeming threshold see subsection 1081(1).
Step 3. Multiply the remainder worked out at Step 2 by the above threshold rate.
Note: For above threshold rate see subsection 1082(2).
Step 4. The total of the amounts worked out at Steps 1 and 3 represents the ordinary income the person is taken to receive per year on the financial assets.
(4)The person is taken, for the purposes of this Act, to receive one fifty-second of the amount calculated under subsection (3) or (3A) as ordinary income of the person during each week.
41A simplified summary of the deeming provisions and the relevant deeming rates and threshold rates is contained at Instruction 4.4.1.10 of the Guide to Social Security Law.
42The calculation of the deemed income from the loans to Waterford and PCCS is contained in the Department’s PIAS screens at ST18.
Attribution of income derived from Waterford and PCCS
43Section 1207 of the Act establishes a system for the attribution to individuals of the assets and income of private companies and trusts. The assets and income of a private company may be attributed to an individual if the company is:
·a designated company; and
·a controlled company in relation to the individual; and
·the individual must be an attributable stakeholder of the company.
44There is no dispute that Waterford and PCCS were designated private companies, in accordance with the criteria set out at paragraph 1207N(1)(a) of the Act. Furthermore, there is no dispute that, pursuant to section 1207Q of the Act, Waterford and PCCS were controlled companies in relation to the Applicant.
45Pursuant to section 1207X the Secretary contends, and it is not disputed, that the Applicant should be deemed with a 100% attribution percentage of Waterford and PCCS during the debt period.
46Therefore, the Secretary contends that Waterford and PCCS are assessable assets.
47Section 1083 of the Act (within Part 3.10 of the Act) provides that any return on a financial asset that a person actually earns, derives or receives is taken not to be ordinary income. However, section 1208 of the Act provides that the ordinary income of a trust or company is to be worked out as if Part 3.10 of the Act had not been enacted.
48Therefore, pursuant to sections 1076 and 1208 of the Act, the ordinary income earned by Waterford and PCCS during the debt period is to be included in the calculation of the Applicant’s rate of age pension, unless there is an exercise of discretion found in section 1207Y(2) of the Act.
49The Applicant contends that there is ‘double counting’ of income by assessing deemed income on the director’s loans, as well as the attributable income of the private companies.
50Section 1207Y(2) of the Act provides that the Secretary may determine that for the purposes of a specified individual and a specified company, a specified amount is excluded income. However, pursuant to section 1207Y(4) of the Act, in making a determination the Secretary must comply with any relevant decision-making principles.
51The relevant decision-making principles are the Social Security (Attribution of Income) Principles 2002. The Secretary contends that principles regarding the double counting of income apply when there has been a distribution by the entity to the stakeholder. Therefore, the principles do not apply in this case.
52The Secretary’s position with respect to the assessment of both deemed and attributable income was confirmed by the Tribunal in Backer and Secretary, Department of Family and Community Services [2002] AATA 1335. The Tribunal stated that:
31.Under sub-sections 1207Y(2) to (4) of the Act, the Secretary may determine, in compliance with relevant decision-making principles, that a specified amount is excluded income. The relevant decision-making principles were published in the Commonwealth Government Gazette on 18 January 2002 and are called the Social Security (Attribution of Income) Principles 2002 (see T5/36,37). There, circumstances are set out where double counting of attributable income may be avoided. However, these apply where there has been a distribution to a beneficiary of the trust or the transfer of capital of the trust. I am satisfied that those circumstances do not arise in this case.
32.The ordinary income of Mr and Mrs Backer includes both the deemed income and the attributed income. I have noted their concern that the legislation has operated unfairly by introducing the concept of attributed income and by assessing it along with the deemed income level. However, the Act is clear that this must be done. Paragraph 1207Y(1)(e) of the Act requires that the attributed income be considered in addition to any other ordinary income of the individual.
53The findings in Backer were also adopted by the Tribunal in Secretary, Department of Employment and Workplace Relations and Chapman [2005] AATA 1161.
54In accordance with section 1076 and 1208 of the Act, the ordinary income earned by Waterford and PCCS which is to be taken into account is:
Waterford Income PCCS Income 1 July2012 0 0 1 July 2013 0 85 1 July 2014 7,730 0 1 July 2015 9,175 84
55The Waterford income was calculated by adding investment income and management fees and subtracting prior year losses. [T73, pp 919-921]
56The PCCS income was similarly assessed by calculating the net income and subtracting prior year losses. [T73, pp 922-927]
Summary
57The Secretary contends that the Applicant’s rate of age pension during the debt period should be calculated using:
·Employment income;
·Deemed income from the loans to Waterford and PCCS; and
·Attributable income earned from Waterford and PCCS.
The creation of the debt
58If the Tribunal agrees that the Applicant’s rate of age pension is to be calculated in accordance with the above income and assets, the Secretary contends that the Applicant’s income exceeded that which he declared to the Department during the relevant debt period and consequently he was overpaid age pension.
59Paragraph 123(3)(b) of the Administration Act states that a determination of the rate of a social security payment continues in effect until the payment becomes payable at a lower rate under section 98, 99, or 100.
60Subsection 100(1) of the Administration Act states that the failure to comply with an information notice allows for an automatic rate reduction from the date of the event or change in circumstances.
61The Applicant received various information notices prior to and during the debt period. [ST1, ST2, ST7, ST8, T5, T10, T11, T13]
62The Applicant did not comply with the above notices requiring that he update the Department about his income and assets within 14 days of any changes. Therefore, in accordance with subsection 100(1) of the Administration Act, an automatic rate reduction is to occur from the date of the event or change in circumstances.
63When the rate reduction is applied, the Applicant’s rate of age pension reduces during the debt period meaning he was overpaid age pension. The Secretary contends that the overpayment is in the amount calculated in the MultiCal – Centrelink Debt Calculator, being $9,998.53. The Secretary contends that the overpayment constitutes a legally recoverable debt under section 1223 of the Act. [T60]
64The Secretary contends that it is the attribution of income (not assets) that is the substantive cause of the debt. In particular, the attribution of income arising from loan to Waterford from 2015 when the transfer was reclassified as a loan rather than a capital injection (R2 5-8).
The Applicant contends:
The reversals of the decisions of a previous finding of the AAT and DHS-C after the matter was heard by the Federal Court of Australia, File number WAD 102 of 2008.
Prior to, during and at all times since that hearing the structure of how Stafford’s assets were held have remained unchanged. The current actions of the DHS-C and the decision of the AAT are a direct contradiction with the previous outcome of WAD of 2008. The current actions of DHS-C and AAT seek to overturn, outside of a properly constituted court, a decision previously adjudicated on by WAD of 2008. Such actions to overturn the previous decisions were reckless and unlawful.
In the prejudicial and bias presentation to AAT by DHS-C, they did not provide evidence that any particular action on the part of Stafford triggered a deeming scenario of capital and as a consequence deemed income. DHS-C referenced many lawful actions it could apply. So! Crudity to animals is not allowed. Would it have a bearing on the deeming, or specifically the decision to create deeming? Elder abuse is not allowed. The actions in the conduct of DHS-C did create a case of elder abuse, but that was left out of the DHS-C presentation.
In its conversations with Stafford staff of DHS-C repeatedly stated that the definition of capital and income applied by DHS-C was not the same used by the ATO or in standard accounting. With a difference in definition and so the meaning of such foundations of accounting terminology as capital and income, the operations applied by DHS-C are incompatible with those of the ATO. Nevertheless, with a known incompatible accounting system in 2017, the DHS-C took an accounting term allied between an accountant and the ATO and then forced that terminology into its incompatible process to achieve a deemed new asset. That was the word ‘loan’ which did not change any of the Stafford holdings nor did it create any advantage that had not previously existed.
What DHS-C failed to do was to present evidence in what manner did Stafford gain an advantage in holding his assets that restructured those assets to create a benefit he did not previously have. The basic evidence necessary from DHS-C to have provided proof was to identify what was the new creation of a benefit that had not been there before. What was its value, before deeming created its own value?
DHS-C lacks any legal authority, go to an old person and capriciously decide this asset meets the requirements of the Act so DHS-C must now treat that asset as a deemed asset and along with it a deemed income. They can, if there is a proven case that the owner of the asset made new arrangements to restructure the asset in order to hold it outside of the full dollar value of the asset. That has not happened in the case of Stafford. Stafford neither created a restructure to create a financial benefit that had not previously existed at the time of WAD of 2008. DHS-C presented no evidence to prove any action by Stafford to restructure his holdings created a new benefit that had not previously existed. Stafford had in fact at all times fully disclosed to DHS-C the full value of all assets and income. To stay focused on the $300,000 all of that capital was always fully disclosed and know about by the DHS-C. The money went into the family company Waterford. The value of Waterford was known to DHS-C.
A similar situation would be that the money was deposited by Stafford into a bank account with Westpac. Then DHS-C counted the total amount of that bank balance and said that is $200. So your asset is $200. But you had the money before you put it into the bank and we have the authority to deem you still have the original $200. Therefore your new total assets are the $200 in the bank account in your name plus the deemed $200 you had before you put it into the bank. The total of your assets is $400. It’s complex. No, it’s not complicated, it is irrational. That is having a desired outcome and then mangle the facts to prove the outcome of chose (sic).
There is, in addition, an inconsistency in the how DHS-C have applied its own accounting principles. DHS-C confirmed to Stafford during one of their calls that they (DHS-C) were not taking into account loans from Waterford to PCCS because Stafford owned both companies and so it was the same thing. That ruling was not sustained when DHS-C decided that a loan from Stafford to Stafford, with the deposit to Waterford, was different from a loan from Stafford to Stafford via funds moved from Waterford to PCCS to keep PCCS solvent.
In fact, DHS-C were not doing any favours in not counting a loan from Waterford to PCCS as a separate and standalone investment. If Waterford was valued at $500 and had a loan to PCCS of $100 the total of Waterford would then be $600.
At the same time if the value of PCCS was $500 and it had a debt to Waterford that the value of PCCS would be $500 less $100, giving a total value to PCCS of $400. The actual total value of the combined asset would be unchanged .
DHS-C were inconsistent in how they treated the different assets of Stafford. The total money invested in Waterford was invested in shales (sic). Some of those shales (sic) listed on the ASX have lost up to 90% of their listed value from the time of their purchase. In DHS-C accepting the value of Waterford is whatever the total value of its shareholdings are DHS-C have accepted there were losses of capital. DHS-C have been inconstant in that according to them the original $300,000, now deemed, has retained its original value, unlike to value of Waterford.
DHS-C were inconsistent in how they treated the different assets of Stafford. The total money invested in Waterford was invested in shares. Some of those shales (shares) listed on the ASX have never paid a dividend. In DHS-C accepting the income of Waterford is whatever were the total value of the dividends it received DHS-C have accepted the income varied. DHS-C have been inconstant in that according to them the original $300,000, now deemed, has retained its original value and has produced a deemed income of an unknown interest that has been compounding every 2 weeks. DHS-C have stated clearly that they do not operate on income over a per annum period but over a 2 week period of reporting.
The findings of the AAT stated Stafford was able to afford to repay the money claimed as outstanding. That is not correct. DHS-C spent 3 months and produced a full ream of calculations proving Stafford owed DHS-C some $50,000. When that was challenged and recalculated, it was accepted by DHS-C that their ‘proof’ of debt was in error. DHS-C then claimed Stafford owed them $10,000. The bulk of that $10,000 was created by deemed income out of the new deemed asset; by counting the same money twice. That original $300,000 has under the administration of HDS-C calculations including deemed compound interest to be of a deemed value is now somewhere from $400,000 to $600,000, and rising.
As the owner of that new deemed wealth, the DHS-C have continued to ignore Stafford request over the past 3 months for information precisely what is the new deemed capital. Waterford is worth what the shares of Waterford can be sold for. That figure is about $250,000. It would, therefore, be an impossibility for Stafford ever to repay the debt attributed to him in accordance with the DHS-C deeming double accounting and inconsistent application of even its own unique accounting practices.
The DHS-C repeatedly informed Stafford in face to face interviews and by their internet postings that as a single person who no longer owned their own home were entitled to a full paged (sic) pension if their assets are below $456,750. In 2018 DHS-C has changed their web page and now have information on it that they did not previously have.
DHS-C mislead Stafford in the information they provided in the years in question 30/06/2014 to 31/12/2017. The statement to Stafford from the staff of DHS-C was if your assets are less than $456,750 you are eligible for a full age pension. If you earn money from any source, it has to be declared, and if the pension has to be adjusted fortnight to fortnight, it wilI be.
Evidence provided by DHS-C that the information provided to Stafford, and every other member of the public, who sought information from DHS-C on eligibility for the age pension, failed. That is evidenced by the significant changes the DHS-C have made to their publicly accessed web page. Over the period relative to these matters the web page of the DHS-C was simple and without ambiguity. It stated if you owned assets of value less than $456,750 you were entitled to a full age pension. I relied on that information . My real assets in all domains and fields were less than the stated $456,750. In 2018 DHS-C have made a major restructuring of their same web page and that now gives much more details. I say this is an acknowledgement by DHS-C by actions that the previous web page on eligibility and assets was, misleading and failed to inform correctly.
In the case of Stafford, on a number of occasions prior to 2014 and after 2014 he went to the offices of Centrelink and asked the same questions of his eligibility. Without hesitation, the different staff of DHS-C and on each separate occasions immediately informed him what the DHS-C web page stated. A single, non-home owner over the pensionable age is entitled to a full pension. The assets test is under $456,750.
Apart from some, not all, of the abusive calls I received from employees of DHS-C I am of the firm opinion that the actual creation of the problem with DHS-C is the algorithm is used and mindlessly reliant on them. The reported unintended haemorrhaging of hundreds of millions of taxpayers’ dollars each year by DHS-C and its gross abuses also reported under robo-recovery (sic) that the 2 are intricacy linked as parts of the same single unit. The unit being DHS-C and its current mismanagement. I suspect the fundamental failure is understanding Al and that an algorithm is mindless. All Al remains dependant on human oversight to judge is this correct? Is this what we wanted to ask?
There is nothing new in our over-reliance on, and mindless following a formula. An algorithm. One of the earlier ones was the formula, the algorithm, to detract and deal with witches. In that case, the algorithm was the code written into the official reference, Malleus Maleficarum. The Hammer of the Witches. The authorities enforced this malpractice, application of the algorithm to identify those women who were witches in their community. Applying the formula set out in Malleus Maleficarum, they punished the offenders. Oddly enough the ‘offenders’, those proven to be witches were the most venerable of their community. In their case mainly old women. Proof was witches could fly and could change their cats into handsome young men was limited to the poor and most disadvantaged in their society.
Deeming under the algorithm of Malleus Maleficarum.
The proof a woman was a witch included the standard she could fly in the sky on dark nights, and she could change her cat into a handsome young man. What they always uncovered were old women living in a hovels with an equally malnourished cat. However, for the algorithm encoded in Malleus Maleficarum, to prove guilt it was not what was there but what could be there by deeming. In current parlance by deeming, Stafford and other like him could again own his own home again and use the real plus deemed wealth now in deemed value to be in excess of $600,000 (and rising) to buy a house of his own. Instead, Stafford lives in a rented house in a low social-economic area, has already been broken into and robbed – supported by police reports- and is subject to the landlord and any of his agents, to have strangers regularly enter his home to inspect him to see he is living clean. As with the witches, the accusers deemed the witches could have taken their handsome young men and flown away from harm and Stafford could, according to afford to buy his own home with the deemed $600,000 plus.
No matter how the DHS-C mangles facts to create complex scenarios out of simple accounting. The distilled outcome is that old people were never to be forced to sell their homes, rent and live off the proceeds. That was never the intention of any law.
I acknowledge the attention the Member gave to my attendance at the first AAT appeal. That is recognised by her record of what I said. I thank her (T1 3-7)(R1).
[Original emphasis.]
The Respondent relied on the Secretary’s statement of facts, issues and contentions (R2) in his opening address and focussed on the income streams of the Applicant. They comprised of earnings (actuals), loans and attributable income.
Out of these income streams arose the overpayment of the Applicant by Centrelink in terms of his entitlement to age pension and consequently the debt that resulted.
The Applicant questioned the assumptions that led to the debt. He did not accept the cash injection into the companies being categorised as loans, he questioned the truth and honesty of Centrelink and said the issue of Australian Securities and Investments Commission and the shares were incorrect.
The Applicant again raised the issue of double counting as he did with AAT1.
He prepared the following statement which the Tribunal understood as the basis of his opening arguments:
…The accountant believes, I say that as that was his statement to me, that it all went well and that the Department understood there had been an error at ASIC with their recording of the shareholdings…
The method of accounting calculations by the Department is ALL PREDICATED on unexamined information from ASIC. The face value of that information was in error.
The Department was told by the accountant of the ASIC error. Another Government body. If the Department of Human Services were doing its due diligence it was able to prove that the original information it acted on was incorrect about my shareholding in Waterford Company. The full value of Waterford was always known to the Department and declared.
Had the deemed loan value been deducted from the value of Waterford than the value of Waterford would have been zero. Therefore the only asset I would have had was the deemed asset NOT any value in the Waterford Company with its zero value. The counting of the same money twice (A3 3).
CONSIDERATION
Section 44(1) of the Act provides that an age pension is not payable to a person if the person’s age pension rate would be nil.
Section 55(a) of the Act provides that a person’s rate of age pension is calculated by applying “Pension Rate Calculator A” at the end of section 1064 of the Act.
The Tribunal notes the review undertaken by the Authorised Review Officer (ARO) (T62 669-674) (R1). The ARO stated:
As we discussed during our conversation on 12 September 2017, I have found that the combined amount of the above debts to be $9998.53. This means that your review was partially successful.
Explanation of Decision
In making this decision I have considered the facts and circumstances of your case and examined how the relevant legislation and policy applies to the facts.
You requested a review because you advised me on 12 September 2017 that the department has not adequately explained why it has asked you to repay the above amounts or how it has arrived at the assessed income when calculating your rate of payment.
Issues
The main issues in this review are whether:
·You have incurred an Age Pension debt and if so, if the above amounts are correct.
·Recovery of all or any part of the debts should be waived.
Law and Policy
I have applied the following:
·Section 8 of the Social Security Act 1991 includes the definition of income as that which is earned, derived or received. Income includes but is not limited to earnings from employment
·Section 1064 sets out the method determining the rate of pension payable to a person. It provides that the rate of payment payable to a person is affected by their income and assets.
·Section 1122 says that the amount of a loan, which remains unpaid, is to be assessed as an asset.
·Sections 1207N and 1207P set out when a company and trust respectively are considered a designated private company or trust.
·Sections 12070 and 1207V describe when a person meets a control and source test and is therefore considered to have control over a company or trust.
·Section 1207X says that a person who is a controller of a company or trust is attributed with 100% of the income and assets or less.
·Section 1223 that if a person is paid more than they are entitled to be paid, the excess payment is a debt to the Commonwealth.
·Section 1237A which allows the recovery of a debt to be waived if the debt is solely attributable to an error by the Commonwealth, the person received the payment in good faith, and the debt is raised more than 6 weeks from the end of the notification period.
·Section 1237AAD which allows for the recovery of a debt to be waived where there are special circumstances and the person has not knowingly made a false statement or failed to comply with provisions contained within Social Security Law.
·Section 68 of the Social Security (Administration) Act 1999. This says that a person must advise the department of changes in their circumstances. Section 72 of the same Act says that a person must advise of these changes within 14 days.
·The Social Security (Attributable Stakeholders and Attribution Percentages) Principles 2000 outlines a number of factors to be considered when determining the appropriate attribution percentage.
·Part 3.18 of the Act sets out that the assets and income of a private company or trust is attributed to a person if several conditions are satisfied. These are: the company or trust must be a designated private company or trust; it must be a controlled private company or trust in relation to the person; and the person must be an attributable stakeholder of the company or trust (T62 669-670) (R1).
The ARO’s reasons for decision outline upon what basis the overpayment was assessed. The ARO’s report states:
The amount of Age Pension payable depends upon a number of factors, including whether a person is a home or non-homeowner, their personal circumstances and their assessable income and assets.
The department will calculate a rate of Age Pension under both an income and an assets test and will pay the final rate depending upon whichever test pays the lower rate. Since November 2008 your pension has been based on the level of your assessable income.
Where a person is involved in a private trust or company Social Security Law requires the department to include income from the trust or company to anyone attributed a degree of control over the trust or company.
The department has assessed you as having 100% control of Waterford and Waterford having 100% control over Perth Contact. In effect the department has assessed you as having 100% control over both companies.
As you own 100% of Waterford's shares and in conjunction with Waterford own 100% of Perth Contact’s shares I am satisfied that the decision to attribute you 100% control of both companies is correct.
As your Age Pension is based on your income this income will include 100% of both companies adjusted net profit in addition to your personal income such as gross earnings and deemed income on financial investments. Financial investments include loans to private companies, public company shares and managed funds.
The department has assessed the company's annual income as follows;
Waterford
1 July 2012 nil income
1 July 2013 nil income
1 July 2014 $7730 income
1 July 2015 $9175 income
1 July 2016 $34624 income
Perth Contact
1 July 2012 nil income
1 July 2013 $85 income
1 July 2014 nil income
1 July 2015 $84 income
1 July 2016 $5890 income
Some deductions allowed under Taxation Law are not allowable deductions from the assessment of income in accordance with Social Security Law. These include donations, amortisation costs, borrowing costs and since 16 March 2017 past years company losses carried forward.
The above assessable income for the periods 1 July 2015 to 30 June 2016 and from 1 July 2016 onwards are both based on the company’s 2015/16 financial statements. Past years losses prior to 16 March 2017 are an allowable deduction for pension purposes whereas these losses are not an allowable deduction from that date.
The $5890 and $34624 incomes do not impact on the debts as they relate to your assessable income for a period after the debt period but are currently used by the department in calculating your current rate of payment.
In addition to the above income, any loans owed to a private company are assessed as a financial investment and deemed to be earning a rate of return. These loans are regarded under Social Security Law as a recoverable loan and will be included along with any shares, managed funds, term deposits or other financial investments as being an assessable asset.
Where a loan ceases to exist, the department will cease to include the loan as an asset.
Legally, a loan ceases to exist at the time it is repaid, or when the debtor is formally released from the loan. A debtor is released from a loan contract under a bankruptcy or where the loan is forgiven.
For pension purposes, there are some other situations where a loan is also treated as no longer existing. A loan no longer exists for social security purposes when;
·it is repaid , OR
·the borrower is bankrupt, OR
·the borrower enters a debt agreement under Part 9 or 10 of the Bankruptcy Act 1966 (Commonwealth), OR
·the lender forgives the loan usually via a deed or gift of release, OR
·the lender takes a loan contract to court to have it enforced and obtains a court order to allow collection of the money, OR
·the lender takes a loan contract to court to have it enforced and is unsuccessful in court, OR
·the lender seizes the asset against which the loan is secured, OR
·property against which the loan is secured is sold and the proceeds used to repay some or all of the loan, OR
·the company that borrowed the money is wound up , OR
·the company that borrowed the money is in the process of irreversible winding up, OR
·the period specified in the relevant state Statute of Limitations has elapsed since the date of the first breach of the loan contract , OR
·a company that borrowed the money is in administration and subsequently placed in liquidation, or loans to the company become subject to a deed of company arrangement. In these cases, the loan is taken to have ceased to exist from the date that the company was placed in administration.
The department has assessed and has deemed the following loans owed to you.
Waterford
30 June 2012 $2921
30 June 2013 $0
30 June 2014 $0
30 June 2015 $364,577
30 June 2016 $367,797
Perth Contact
30 June 2012 $714
30 June 2013 $6757
30 June 2014 $0
The above figures were obtained from the complete financial statements provided to the department by Hamiltons Accountants on 23 June 2017.
The debts occurred as in the main, the department did not include the company’s adjusted assessable income from 1 July 2014 in addition to the deemed income on the loan account owed to you by Waterford from 30 June 2015 until it received the companies complete financial statements from Hamiltons. The department then updated its records including the above income sources which ultimately led to the debts.
When the department wrote to you on 27 July 2017 stating that you had been overpaid $49388.39 it failed to allow past years company losses as an allowable deduction from the companies adjusted income for the period prior to 16 March 2017. I have arranged for the department to recalculate the debts and have found the correct amount of the combined debt to be $9998.53.
Social Security Law states that any amount overpaid is a debt that must be repaid to the Commonwealth (T62 671-673) (R1).
Is the overpayment of $9,998.53 a debt owed to the Commonwealth?
The Tribunal notes the following from AAT1:
(d)As noted Mr Stafford does not dispute that he has 100% control over both entities which he agrees are private companies.
(e)Mr Stafford did not disagree with the figures utilised by the Department regarding the outstanding loan amounts, income earned by the two companies or income he personally earned.
…
(i)Mr Stafford agrees that he received income from St John Ambulance, Monash University, Perth Modern School and Curriculum & Standards Authority but says that he declared all his earnings to the Department and so any overpayment in that regard is due to the Department’s administrative error (T2 12)(R1).
The primary dispute between the Applicant and the Secretary revolves around whether the money that the Applicant originally transferred into Waterford to buy shares constitutes a director’s loan or financial assets.
If it is found to be the latter, then the income from those loan accounts should have formed part of the calculation used to determine the Applicant’s entitlements.
Having considered all the evidence above the Tribunal accepts the finding of AAT1 that at the time of calculation, the Secretary did not have all the Applicant’s financials to make a proper assessment (T2 14) (R1).
The Tribunal does not accept the proposition put by the Applicant that the loans to the two companies were not strictly loans. The Tribunal finds these loans to be financial assets pursuant to section 9(1) of the Act, with the consequence of the Applicant receiving an income stream from these assets.
The Tribunal has considered the Applicant’s contention concerning double counting of his income. The Tribunal supports the finding of AAT1:
In this matter section 1208 of the Act has application, which as noted, provides that the ordinary income of a trust or company is to be worked out as if Part 3.10 of the Act had not been enacted – section 1083 of the Act, which provides that the actual return on an investment not be included where deemed income is, is a section contained within Part 3.10 of the Act. On this basis all of the income earned by Waterford and PCCS is to be used in the calculation of Mr Stafford’s rate of age pension unless there is an exercise of the discretion found in subsection 1207Y (2) of the Act (T2 14) (R1).
The Tribunal considered this argument further in terms of section 1207Y(4) of the Act and supports the following narrative of AAT1 in respect to the Social Security (Attribution of Income) Principles 2002 (Cth):
The tribunal reviewed the relevant principles relating to circumstances in which double counting of attributable income is to be avoided where there has been a distribution to an individual who is an attributable stakeholder, but was not satisfied that the criteria set out in those provisions had application on the facts of this matter (T2 14) (R1).
In oral evidence before the Tribunal, the Applicant was adamant that he undertook his responsibilities, as a beneficiary of a Commonwealth pension, to disclose all of his earnings to Centrelink.
The Applicant agreed with the profit and loss statement of Waterford for the financial year ending 30 June 2014 (T40 497)(R1). This dispute is over earnings which the Applicant claimed he declared at all times.
The Applicant did not dispute that he was the 100% shareholder of the two companies. He claimed his declared income in the T-Documents was not accurate but could offer no evidence to support that proposition or identify which aspects of the undeclared income were incorrect (T32 390)(R1).
The Applicant recalled receiving communication from the Department and to his credit could not say if the amounts were correct or not correct (ST1 931; ST2 933; ST7 952; ST8 954; T10 257) (R1). However, he did say at the time that if he received information that was incorrect, he would notify the Department immediately.
The Applicant accepted the loan figures in the PCCS and Waterford financial reports for the financial year ended 30 June 2013 and he said that in order to make the companies solvent in order to pay accounts, he injected funds (T35 404; T36 420)(R1).
On the basis that the Applicant could not provide documentary evidence to support his arguments, the Tribunal finds that the income stream he earned from the loans and the personal income should be incorporated into any assessment of his entitlements.
On this basis, the Tribunal finds that the Applicant has been overpaid $9,998.53 in terms of his age pension and therefore, it follows that he owes a debt to the Commonwealth. The contrary view of the Applicant is not supported in terms of what is prescribed in the legislation.
Can all or part of the debt be waived or written off?
Writing off the debt
Section 1236(1A) of the Act provides that the Secretary (and, in his shoes, the Tribunal) may write off a debt due to the Commonwealth under section 1236(1) of the Act if, and only if:
(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)it is not cost effective for the Commonwealth to take action to recover the debt.
Subsections 1236(1A)(a), (c) and (d) of the Act do not apply in this case because the Applicant’s debt is recoverable at law and his whereabouts are known.
In relation to section 1236(1A)(b) of the Act, the evidence shows that the debt is currently being recovered by means of withholdings from the Applicant’s aged pension (T2 15) (R1).
There is no evidence before the Tribunal at this stage to indicate that, as per section 1236(1A) of the Act, the Applicant is unable to repay the debt in question.
Accordingly, this is not a situation whereby the $9,998.53 debt can be waived pursuant to section 1236(1A) of the Act.
Waiver of the Debt
Can the debt be waived because of an administrative error on the part of the Commonwealth?
Section 1237A(1) of the Act provides that
the Secretary must waive the right to recover the proportion of a debt that is attributable solely to an administrative error made by the Commonwealth if the debtor received in good faith the payment or payments that gave rise to that proportion of the debt.
The “Note” to section 1237A(1) of the Act states that section 1237A(1) “does not allow waiver of a part of a debt that was caused partly by an administrative error and partly by one or more other factors (such as error by the debtor)”.
In relation to the meaning of the word “solely” in section 1237A(1) of the Act, the Tribunal notes Re Gerhardt and Secretary, Department of Employment, Education and Training [1996] AATA 173 where Deputy President Forgie states at [40]:
There is nothing...which indicates that any meaning should be given to ‘solely’ other than its ordinary meaning. Applying those ordinary meanings to the sub-section mean that the Secretary must waive the right to recover the proportion of the debt that is attributable only to the Commonwealth’s administrative error. The Secretary’s duty to waive does not extend to those debts which are attributable to errors or other factors which are independent of the Commonwealth’s administrative error. It makes no difference that those other errors or factors are minor. If those other errors or factors follow as a result of the Commonwealth’s administrative error (i.e. they are incidental to the Commonwealth’s error), then it may be that the debt is attributable solely to the Commonwealth’s administrative error. Whether it is or is not attributable in that situation to the Commonwealth’s administrative error will be a question of fact.
The Secretary argues:
70Subsection 1237A(1) of the Act provides for waiver of a debt where it has arisen solely due to administrative error and the money was received in good faith.
71Sole administrative error was considered by the Federal Court of Australia in Secretary, Department of Family & Community Services v Sekhon [2003] FCA 76 which stated:
...However, it seems to me, the Tribunal failed to consider the significance of the inclusion, in s 1237A(1), of the word ‘solely’. For the subsection to have effect, the ‘proportion’ of the debt- in this case, it is common ground, that would be the whole of it –must be ‘attributable solely’ to administrative error. It is not enough that, in the absence of administrative error, the debt would not have arisen. Administrative error must be the sole cause, not merely one of multiple causes...
72Section 66A of the Administration Act imposes a general requirement on a person to notify the Department within 14 days after the occurrence of an event or change in circumstances that might affect their social security entitlement.
73The Secretary notes that the Applicant was advised on a number of occasions prior to the commencement of the debt period and during the debt period about the obligation to advise the Department within 14 days if his income and assets changed. [see for example T5 and T10]
74The Applicant contends that:
There had not been a change in circumstances to report. The ‘loan’ to Waterford had been in existence for a number of years prior to the debt period and the Department had full knowledge of it.
The Department stopped requesting the full financial statements of his companies and so he did not consider the information had to be provided.
75The Secretary acknowledges that, in at least the financial year immediately prior to the debt period, the Department requested that the Applicant provide financial statements in respect of his private companies. The Secretary acknowledges that it did not request those financial statements in the following financial years. Notwithstanding the Department did not request information on the Applicant’s private companies, the Applicant was under an obligation to report his income and assets and his failure to do so prevents a finding of sole administrative error.
76Further, while the $364,577.81 transfer from the Applicant to Waterford may have once been considered a purchase of capital and the Department was aware of this, the Applicant’s accountants later reclassified the transfer as a loan and this was not advised to the Department. For the reasons set out in these submissions, the classification of the transfer as a loan required the Department to reassess the Applicant’s income and assets and accordingly had an impact on the Applicant’s rate of age pension.
77Therefore the Secretary contends that the debt was not caused by sole administrative error and adopts the findings of the AAT1 who stated that:
... As noted the law in relation to sole error is very strict. Any contribution to the overpayment by a recipient or other third party, no matter how minor excludes operation of the provision. The tribunal was satisfied that on the basis of its findings of fact in this matter any overpayment was not the result of sole administrative error on the part of the Department ... [T2, para 38] (R2 8-9).
This Tribunal also notes the Guide which provides at 6.7.3.30 as follows:
In general, wherever a mistake has been made in administering a payment, the debt will arise ‘solely to an administrative error’ providing the recipient’s conduct has not contributed to the debt in any way.
Examples of administrative error include mistakes in:
·Calculating the amount of a payment,
·Determining which social security payment/s a person is entitled to be paid, and
·Correctly actioning information provided by the recipient.
The requirement that part of the debt must have arisen ‘solely’ from administrative error means that there must have been no other factors that caused the debt to arise or contributed to the debt arising. The part of the debt must have arisen as a result of administrative error alone.
Having reviewed the evidence before it, this Tribunal is unable to conclude that the debt in question arose solely because of administrative error on the part of the Commonwealth. It certainly is the case that the Applicant did provide information to Centrelink. Whether he provided all of the information is a difficult issue for the Tribunal to determine.
The Applicant stated to AAT1:
36Mr Stafford told the tribunal that:
(a)As far as he was aware he was receiving his correct rate of age pension because there had been no change in his financial circumstances.
(b)He agrees that he did not provide the Department with updated financial information about the companies because the Department ceased requesting that information.
(c)He says however that he always reported personal income that he received.
37Mr Stafford provided copies of worksheets in which he has calculated his earnings for each reporting period. These documents include Department receipt numbers. The tribunal noted from the Department documents and finds that whilst Mr Stafford was regularly reporting his personal earnings, there was a slight variation between those declared earnings and the actual verified income earned. As a result Mr Stafford declared earnings of $11,034.32 when his actual income as per his payslips was $11,412.16.19 The tribunal also finds that relevant company financials were not provided to the Department until 23 June 2017. All of this means that during the debt period the Department did not have all the relevant financial information before it.
38As noted the law in relation to sole error is very strict. Any contribution to the overpayment by a recipient or other third party, no matter how minor excludes operation of the provision. The tribunal was satisfied that on the basis of its findings of fact in this matter any overpayment was not the result of sole administrative error on the part of the Department (T2 16-17)(R1).
This Tribunal agrees with these findings. It is at least arguable that, had the Applicant fully complied with the reporting requirements imposed on him, the debt for which he now finds himself liable might not have accrued. Without further evidence it is ultimately impossible to determine if this would have been the case. However, it is certainly not the case that, given his failure to comply with the reporting requirements made clear in the notices sent to them, the debt in question can be blamed solely on an administrative error on the part of the Commonwealth.
In the circumstances, section 1237A of the Act has no application to the facts of this case and the debt in question cannot be waived under section 1237A of the Act.
Can the debt be waived due to “special circumstances”?
Section 1237AAD of the Act provides that the Secretary (and, in his shoes, the Tribunal):
may waive the right to recover all or part of a debt if the Secretary is satisfied that:
(a)the debt did not result wholly or partly from the debtor or another person knowingly:
(i) making a false statement or a false representation; or
(ii) failing or omitting to comply with a provision of this Act [the Act], the Administration Act or the 1947 Act; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive; and
(c)it is more appropriate to waive than to write off the debt or part of the debt.
AAT1 did not find that the Applicant “knowingly” contributed to the debt by making false statements or failing to comply with the provisions of the social security legislation.
The Secretary is not making this assertion, nor is there any evidence before the Tribunal to indicate that is the case.
The Applicant came across as honest, truthful and completely frustrated with his dealings with Centrelink. He feels that the Department has a vendetta against him.
As such, the Tribunal turns its attention to whether or not “special circumstances” exist (other than financial hardship alone) that makes it desirable to waive the debt.
The Act does not define what is meant by the term “special circumstances” as used in section 1237AAD of the Act. As explained in the Secretary’s statement of facts, issues and contentions, however, there is a considerable body of case law to assist the Tribunal in relation to this issue:
80The term special circumstances is not defined in the Act however it has been extensively considered in case law and the most frequently cited cases are:
Beadle and Director- General of Social Security (1984) 6 ALD 1 where the Administrative Appeals Tribunal stated:
...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 upon the context in which they occur. For it is the context which allows one to say that the circumstances in one case are markedly different from the usual run of cases. This is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be described as special...
Groth and Secretary Department of Social Security (1995) FCA 1708 where the Federal Court stated:
...The phrase ‘special circumstances’, it has been said, although imprecise is sufficiently understood not to require judicial gloss...it is sufficient to observe that it would require something to distinguish Mr Groth’s case from others, to take it out of the usual or ordinary case. That was, I consider, the only enquiry to be undertaken in this case. It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary. The enquiry I have referred to would involve considering what would be the effect, if the provision in question or the principle of liability it creates, is applied...
Re lvovic and Director General of Social Services (1981) 3 ALN N95 where the Administrative Appeals Tribunal stated:
... The reference to special circumstances ‘by reason of which’ a person liable ‘should be released’ requires, in our view, that there must exist in the circumstances of the case, a factor or factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes ... Thus whilst keeping the dominant principle of [recovery of debt] in mind, [the decision maker] must nevertheless be prepared to respond to the special circumstances of any particular case by reason of which strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise...
Angelakos and Secretary Department of Employment and Workplace Relations [2007] FCA 25 where the Federal Court stated:
...There is less overstatement if the words ‘unusual’ or ‘uncommon’ are emphasised. Those words indicate, correctly in my view, the fact that there must be something that distinguishes the case from the ordinary or usual case... (R2 10-11).
AAT1 considered if special circumstances applied to the Applicant and considered the following evidence:
43The tribunal next considered whether the facts of this matter establish special circumstances. Mr Stafford provided the following evidence:
(a)He was very distressed and shocked by the manner in which he says the Department has treated him in this matter. The situation has caused him significant stress and anxiety.
(b)He receives minimal income from his age pension (about $40 a fortnight.
(c)His company PCCS is not making much profit and he does not receive any significant income from its operations.
(d)He is having to sell off shares and live off the proceeds of those sales. He believes that the current value of the remaining shares held by Waterford is about $250,000.
(e)He lives alone. He has no dependant. He lives in a rental property ($200 per week in rent).
(f)He does not owe any other debts.
44Taking into account all of the above, the tribunal concluded that the circumstances were not such that distinguished this case from the usual case, and for this reason concluded that the debts cannot be waived due to special circumstances (T2 18)(R1).
Having reviewed the evidence before it, the Tribunal agrees with these conclusions. There is no evidence before the Tribunal to indicate that the Applicant’s circumstances are “out of the ordinary” such that they fall within the term “special circumstances”.
The question this Tribunal is required to ask is whether what happened to the Applicant was sufficiently different from what can and what does occur so as to make their situation fall within “special circumstances”.
The Applicant had a clear obligation to report and provide all available documentation to Centrelink. Whilst not doubting that the Applicant did what he thought was sufficient, the fact remains that the debt in question is not a debt that is solely attributable to Centrelink.
Taken as a whole, the applicant’s circumstances are not so “unusual, uncommon, exceptional, markedly different, special or out of the ordinary that they represent ‘special circumstances’ as that expression is understood to mean”: Locke and Secretary, Department of Social Services [2014] AATA 904 at [43].
Accordingly, the Applicant’s debt should not be waived under section 1237AAD of the Act.
DECISION
For the reasons outlined above, the Tribunal affirms the decision of AAT1.
I certify that the preceding 92 (ninety-two) paragraphs are a true copy of the reasons for the decision herein of Member C Edwardes
.............[sgd]...........................................................
Administrative Assistant Legal
Dated: 10 August 2018
Date of hearing: 27 July 2018 Applicant: In person Representative for the Respondent: Ashley Burgess Solicitors for the Respondent: Sparke Helmore
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