Thompson; Department of Family and Community Services

[2002] AATA 550

DECISION AND REASONS FOR DECISION [2002] AATA 550

ADMINISTRATIVE APPEALS TRIBUNAL        Nº V2002/164
GENERAL ADMINISTRATIVE  DIVISION
  Re:         SECRETARY TO THE
  DEPARTMENT OF FAMILY AND
  COMMUNITY SERVICES
  Applicant
  And:       BARRYMORE THOMPSON
  Respondent

DECISION

Tribunal:       G.D. Friedman, Member
Date:             28 June 2002
Place:            Melbourne

Decision:For the reasons given orally at the hearing, the Tribunal sets aside the decision under review and substitutes a decision that debts of $1,306.57 for the period 16 January 1997 to 10 November 1997, and $12, 865.57 for the period 24 November 1997 to 20 April 2001 owed by the respondent be raised and recovered.

(sgd) G.D. Friedman
  Member

1. SOCIAL SECURITY - recovery of debt to Commonwealth - overpayment – assets and income of company - write-off - waiver
   Social Security Act 1991 s1236, s1237AAD
   Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435

REASONS FOR DECISION

28 June 2002  G.D. Friedman, Member

1. This is an application by the Secretary, Department of Family and Community Services (the applicant) for review of a decision of the Social Security Appeals Tribunal (SSAT) dated 25 October 2001. The SSAT set aside two decisions of Centrelink dated 24 April 2001, as varied by an authorised review officer dated 7 June 2001. The SSAT substituted decisions that a debt for mature age allowance be re-calculated by the applicant, and that recovery of the debts to the Commonwealth owed by Barrymore Thompson (the respondent) be written off or waived. 

2. At the hearing of this matter on 28 June 2002 Mr D. Perdon, an advocate with Centrelink, represented the applicant and the respondent represented himself, assisted by a friend, Mr H. Mitterer.
   BACKGROUND

3. The respondent claimed newstart allowance from 16 January 1997. In his claim he answered no to questions asking whether he received any income, or had any assets or money on loan.  He advised that he was involved in a private company, Barrymores (Vic) Pty Ltd (the company) and answered no to questions asking whether the company owned real estate, paid him an income or had outstanding debts or loans.  He was granted the allowance from 16 January 1997 and on 24 November 1997 he transferred to mature age allowance.  Centrelink sent the respondent numerous notices asking him to notify Centrelink of any changes in income or assets within 7 days.

4. In October 2000 Centrelink became aware that the respondent had a continuing involvement in the company, which was registered on 16 May 1996 and the respondent was the sole director and shareholder.  The company lodged returns with the Australian Tax Office and the Australian Securities and Investment Commission, and claimed wages paid to the respondent as expenses.  In late 1996 the company purchased a property for more than $65,000 and the transfer of title and mortgage to the company occurred on 10 January 1997.  The initial mortgage was $52,000, and the property was rented out.  The respondent contributed about $1,000 each year to meet mortgage repayments, together with his superannuation and the value of a truck.  The company claimed various items such as depreciation, bank fees and interest as tax deductions.  The respondent took up residence at the property in August 2000.

5. On 21 April 2001 the mature age allowance payable to the respondent was cancelled because the allowance is subject to an assets test and Centrelink found that the respondent exceeded the permitted limit.  On 24 April 2001 Centrelink raised a debt of $1166.18 in respect of newstart allowance for the period 16 January 1997 to 10 November 1997, and $27,305.68 in respect of mature age allowance for the period 24 November 1997 to 20 April 2001.  On 7 June 2001 an authorised review officer determined that the debts should be raised and recovered, but the amounts were varied after re-calculation.  On 3 August 2001 the respondent sought review by the SSAT and in its decision the SSAT found that the debts should be waived because of special circumstances, or written off.  On 15 February 2002 the applicant lodged an application with the Tribunal for review of the decision by the SSAT.
   EVIDENCE

6. The Tribunal received into evidence the documents lodged under s37 of the Administrative Appeals Tribunal Act 1975 (T1-T83), together with three exhibits (Exhibits R1-R3).   

7. The respondent gave oral evidence to the Tribunal.  He said that he was a trucking contractor until he ceased work in February 1996 because of ill-health.  He told the Tribunal that he set up the company because he believed it would assist his business, and he intended to return to work.  He said that he lent his superannuation entitlements of about $40,000 to the company, and registered several of his vehicles in the company name.  The respondent stated that he engaged an accountant to prepare taxation and business returns, and signed the necessary documents without understanding them.  He kept a ledger book and recorded all transactions.  He said that he contributed money to the company on a regular basis but never drew the wages that were listed by his accountant in the tax returns.  The respondent acknowledged that the purchase of the property in Springvale would not have been possible without the existence of the company, and confirmed that the mortgage has been fully paid off.

8. The respondent said that he had been honest and had not attempted to misuse the social security system.  He stated that any deficiency in the information provided to Centrelink resulted from his lack of knowledge or understanding at the time.  He said that he understood that an item could not be considered to be an asset until it was paid off in full.

9. The respondent described his financial circumstances as serious.  He said that he receives about $320 per fortnight in mature age allowance and lives frugally.  He stated that he owns three properties in Tarcutta, New South Wales valued at about $60,000, but has been unable to sell them.  He also owns 3000 shares in AXA Ltd but does not know their value and has not considered selling them.  In addition to the Springvale property which he estimated to be worth $100,000, the respondent said that the company owns a motor vehicle worth about $2,000.  The respondent agreed that he no longer has expenses for rent or mortgage, but must meet rates and other expenses for the properties at Tarcutta.  He told the Tribunal that he suffers from a number of health problems.  
   CONSIDERATION OF THE ISSUES

10. Section 1236 of the Social Security 1991 (the Act) provides in relation to the writing off of a debt:

    (1)       Subject to subsection (1A), the Secretary may, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise.
    (1A)     The Secretary may decide to write off a debt under subsection (1) 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.

    …
    (1C)     For the purposes of paragraph (1A)(b), if a debt is recoverable by means of:
    (a)       deductions from the debtor's social security payment; or

    (b)deductions under section 84 of the A New Tax System (Family Assistance) (Administration) Act 1999; or

    (c)       setting off under section 84A of that Act;
    the debtor is taken to have a capacity to repay the debt unless recovery by those means would result in the debtor being in severe financial hardship.

Section 1237AAD of the Act provides in relation to the waiver of a debt:

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 false representation; or

(ii)failing or omitting to comply with a provision of this 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.

1. Mr Perdon referred to financial records of the company and stated that the respondent earned, derived or received wages in 1996/97, 1997/98 and 1998/99 and he lent funds to the company each year from in 1996/97 to 1999/2000.  Mr Perdon submitted that these factors should form part of the assessment for social security benefits paid to the respondent.  He stated that the respondent had used the company structure to gain financial advantage via the taxation system, and the company had purchased the house with funds lent by the respondent before settlement of the purchase.  Mr Perdon stated further that the respondent had not complied with legislative requirements to advise Centrelink if his income changed or if his assets exceeded the prescribed limit. 

2. Mr Perdon submitted that the debts should not be written off because the respondent has an ongoing entitlement to social security benefits, so that deductions may be made without the respondent incurring undue financial hardship.  With regard to waiver, Mr Perdon referred the Tribunal to Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435 in which the Tribunal stated that the test was actual knowledge of a false statement or representation or omission to comply with the Act. Mr Perdon said that the respondent had actual knowledge of the facts from which false statements or omissions were made. He said that waiver is not available because the respondent knowingly made false statements or omitted to comply with the requirements of the Act, and there are no special circumstances that would justify waiver.

3. On behalf of the respondent it was submitted that the respondent did not have actual knowledge of the affairs of the business at the relevant time.  It was also submitted that the respondent had answered all questions asked of him by Centrelink to the best of his ability and his knowledge of the company's affairs.

4. In reaching its decision the Tribunal takes into account the written material, the oral evidence and the submissions made at the hearing.  There is no dispute between the parties that the respondent lent money to the company and placed a number of his assets in the company name.  On the material presented, the Tribunal finds that the respondent had lent money to the company for the purchase of the Springvale property before he applied for newstart allowance in 1997.

5. There is no dispute that the newstart and mature age allowances are subject to an income test.  The Tribunal finds that the income received by the respondent from the company should have been taken into account, and that his loan to the company should have been assessed as producing a deemed income amount.  From 1 September 2000 the respondent was a homeowner in view of his right or interest in the Springvale property and the reasonable security of tenure.  Therefore, the combined value of his assets, including the amount then outstanding for the loan and the properties at Tarcutta, exceeded the allowable amount and the debt resulting from overpayment of social security benefits is payable.

6. The Tribunal takes into account that the Springvale property is fully paid off and that the respondent has assets of about $60,000 comprising the properties at Tarcutta and the AXA shares. The company owns the house and a motor vehicle. He has an ongoing entitlement to benefits under social security legislation. For these reasons the Tribunal accepts the submission by Mr Perdon that the respondent has the capacity to repay the debt and in the circumstances the respondent's situation does not constitute severe financial hardship, so that s1236(1A)(b) and s1236(1C) of the Act do not apply. Consequently the Tribunal finds that there are no grounds for the debt to be written off.

7. In relation to whether the debts should waived, the Tribunal notes that the respondent concedes that he set up the company for the purpose of assisting his business interests, and that he lent money to the company to purchase the Springvale property.  The Tribunal accepts that the respondent did not have a clear understanding of all the business dealings of the company and that he signed documents prepared by his accountant.  However, the Tribunal finds that the respondent had knowledge that the company was engaged in matters such as the purchase of the Springvale property. He also knew, or should have known through inquiries to his accountant or to others, that he had obligations to disclose correct information about the company to Centrelink.  For these reasons the Tribunal accepts the submission by Mr Perdon that the respondent knew, or ought to have known that his personal income and assets and those of the company were relevant to the determination of newstart and mature age allowances.  Similarly he knew, or ought to have known, that changes in income and assets should have been notified to Centrelink.

8. In all the circumstances the Tribunal finds that the debts resulted wholly or partly from the debtor knowingly making a false statement or representation or knowingly failing or omitting to comply with a notification provision of the Act, so that the respondent does not satisfy s1237AAD(a) of the Act. Therefore, there is no necessity for the Tribunal to consider the provisions of s1237AAD(b) concerning special circumstances, and waiver of the debts is not applicable.
   DECISION

9. For the reasons given orally at the hearing, the Tribunal sets aside the decision under review and substitutes a decision that debts of $1,306.57 for the period 16 January 1997 to 10 November 1997, and $12,865.57 for the period 24 November 1997 to 20 April 2001 owed by the respondent be raised and recovered by the applicant.

   I certify that the seventeen [19] preceding paragraphs are a true copy of the reasons for the decision of:
   G.D.Friedman, Member

   (sgd)       Olympia Sarrinikolaou
                 Clerk

   Date of hearing:  28 June 2002
   Date of decision:  28 June 2002
   Advocate for applicant:               Mr D. Perdon, Advocate with Centrelink
   Advocate for respondent:        Self-represented