Torv and Bond University Ltd
[2004] AATA 182
•24 February 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 182
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2003/534
GENERAL ADMINISTRATIVE DIVISION )
Re DYLAN TORV
BOND UNIVERSITY LIMITEDApplicants
And
SECRETARY, DEPARTMENT
OF FAMILY AND COMMUNITY SERVICES
Respondent
DECISION
Tribunal Mr O Rinaudo, Member Date24 February 2004
PlaceBrisbane
Decision The Tribunal sets aside the decision under review and in substitution therefor determines that the scholarship received by Mr Torv is not income within the meaning of section 8 of the Social Security Act 1991. ..............................................
O Rinaudo
Member
CATCHWORDS
Social Security – youth allowance- partial scholarship to university – reduction in up front fees- the scholarship does not constitute income – decision set aside
Social Security Act 1991 s8 (1)
Read v Commonwealth (1989) 167 CLR 57
Secretary Department of Social Security v McLaughlin (1997) 48 ALD 536
Kelleners v Secretary, Department of Social Security (1988) 84 ALR 509
REASONS FOR DECISION
Mr O Rinaudo, Member Decision under Review
1. The Applicants, Mr Dylan Torv and Bond University Limited, seek review of a decision of the Department of Family & Community Services, the Respondent, made on 17 February 2003 to assess as “income”, pursuant to section 8 of the Social Security Act 1991 (“the Act”), the scholarship received by Mr Torv to attend Bond University. The decision was affirmed by an authorised review officer on 13 March 2003 and by the Social Security Appeals Tribunal on 23 May 2003.
History
2. The background to this matter is not in dispute and the Tribunal finds as follows:
(a) On 12 December 2002, Mr Torv was offered a half scholarship to Bond University to undertake studies in Law.
(b) The scholarship was valued at $40,800.00 for the four-year degree. This equated roughly to a $12,000.000 tuition reduction per annum.
(c) The scholarship was structured so that the total amount of the up front fees Mr Torv would have to pay would be reduced from roughly $80,000 to $40,000. Mr Torv did not receive any of the scholarship money in his hand.
(d) On 23 December 2002 Mr Torv lodged a claim for Youth Allowance with Centrelink.
(e) On 17 February 2003 Centrelink decided to include the amount of $12,000.00 for the 2003 financial year as a part of Mr Torv’s income pursuant to section 8 (1) of the Act. This decision meant that Mr Torv was no longer entitled to receive Youth Allowance as his income exceeded the threshold for eligibility for Youth Allowance.
(f) For completeness sake, it should be noted that the claim for Youth Allowance was subsequently withdrawn, as Dylan Torv’s mother, Mrs Torv wished to remain on Family Tax Benefit. The Respondent advised the Tribunal, that the Respondent did not intend to make any issue of this. The Respondent noted that the claim had proceeded on the basis of a decision to treat the scholarship as income under section 8 of the Act.
(g) On 12 March 2003 Bond University, having an interest in this issue, wrote to Centrelink seeking clarification of the decision to treat the scholarship as income.
(h) On 31 March 2003, the Bond University Registrar received a reply from the Respondent in the following terms:
“Where a scholarship pays course fees or HECS debt (even where the payment goes directly to the institution, not directly to the student), this is valuable consideration and is also assessed as income. However, where a scholarship provides a student with HECS-exempt place, or waives fees, it is not valuable consideration and no income is assessed. I have recently advised Centrelink of this clarification of existing policy and the Guide to Social Security Law will be updated shortly to take this into account.”
(i) The Guide to Social Security Law was subsequently amended and published on 16 July 2003. It read as follows:
“A scholarship that provides a student with HECS exempt place or waives fees, is not valuable consideration and no income is assessed. Example: Bond University provide a ‘scholarship’ that is actually a reduction in fees. The amount of fee reduction is not valuable consideration and is not treated as income”. (Respondent’s emphasis).
(j) By letter dated, 23 June 2003 the Respondent again corresponded with Bond University (exhibit 3) in the following terms:
“The external legal advice provided indicates that if a course is usually subject to fees and the effect of an award or scholarship means that the fees are waived or reduced, the amount of the reduction is considered ‘valuable consideration’ and therefore falls under the definition of income for social security purposes. …To ignore the value of the consideration provided would place recipients of the Bond University Scholarships in a more favourable position than people who receive other types of scholarships, for example those that pay fees would, in a needs based social security system this would not be fair.”
(k) On 18 August 2003 the Respondent again wrote to Bond University with the following further clarification:
“…where a scholarship provides a student with a HECS-exempt place it is not valuable consideration and no income is assessed. This is because liability is ever (sic) accrued by a student who accesses a HECS exempt place and therefore there is nothing to be paid on their behalf. Because nothing has been paid to the student, or on their behalf, the student has not received anything that can be valued.” However, external legal advice …,indicated that if a course is usually subject to fees and the effect of an award or scholarship means that the fees are waived or reduced, the amount of the reduction can be valued and under social security law falls under the definition of income and will be assessed”. (Exhibit 4)
(l) The Guide to Social Security Law was changed again in August to read under the heading “Waiver of fee”:
“A scholarship that waives a fee is valuable consideration and the amount of the waiver is income”.
(m) The later guide goes on to say under the heading, “HECS Exempt Places”,
“A scholarship that provides a student with a HECS exempt place is not valuable consideration and no income is assessed.”
(n) And further under the heading “Fee exempt scholarships” :
“From 1 January 2005 scholarships OFFERED BY HIGHER EDUCATION PROVIDERS that FULLY exempt a student from fees and/or contribution amount are NOT income.”
Issue
3. The Tribunal has to determine is whether the scholarship received by Mr Torv should be regarded as income within the meaning of section 8 of the Act.
Evidence
4. The Applicants were represented by Mr Chris Nyst, solicitor and the Respondent by advocate Helen Wallis-Dunn. No oral evidence was given at the hearing.
5. The Tribunal had before it the following documentary evidence:
Exhibit 1 T Documents
Exhibit 2Affidavit of Alan Douglas Finch dated 23 January 2004 and filed by leave
Exhibit 3Letter of Alex Dolan Assistant Secretary of the Respondent dated 23 June 2003
Exhibit 4Letter of Leonie Corver Acting Assistant Secretary of the Respondent dated 18 August 2003
Exhibit 5 Guide to Social Security Law 4.3.9.40.
Legislation
6. The legislation relevant to this application is set out in section 8 of the Act which sets out the definition of income.
7. Section 8(1) provides as follows:
‘income’, in relation to a person, means:
an income amount earned, derived or received by the person for the person’s own use or benefit: or
a periodical payment by way of gift or allowance; or
a periodical benefit by way of gift or allowance;…
‘Income amount’ means:
valuable consideration; or
personal earnings; or
moneys; or
profits;
(whether of a capital nature or not)
8. It is also necessary to note the definition of the words “earned, derived or received” set out in section 8(2) as follows;
“8.(2) A reference in this Act to an income amount earned, derived or received is a reference to:
an income amount earned, derived or received by any means; and
an amount earned, derived or received from any source (whether within or outside Australia).”
Submissions
9. In addition to oral submissions the solicitor for the Applicants, Mr Nyst, provided the Tribunal with written submissions which were most helpful.
10. In respect of the legal issue Mr Nyst noted that his submissions revolved around the legal interpretation of section 8(1) of the Act and in particular whether the amount to income the scholarship was an “income amount earned, derived or received by a person and for the person’s own use or benefit.”
11. In any event, Mr Nyst argued, the scholarship was not earned, derived or received. He submitted that by giving the discount the recipient does not receive anything, but “merely gives less than may have otherwise given if they had elected to pay the higher price”.
12. He further submitted that, “Insofar as Mr Torv receives tuition, he is obliged to pay it. Although the Respondent asserts that the recipient of the fee discount receives “half of the value of the tuition fee without charge” in fact that the recipient receives the whole of the tuition at half the charge. The value of the tuition provided is the fee charged for it which, in the case of the fee discount recipients, is a fee equivalent to half that charged to other students. If the amount by which the usual fee charged is reduced in the case of “scholarship” recipients was to be counted as income for the purpose of the Act, then the purchase of discount items at retail “sales”, the discount of cinema, transport, and other fares by way of student discount”, and the receipt of pro bono services, would all similarly constitute income for the purpose of the Act. It is unlikely that the legislature intended such an unwieldy and incongruous result”.
13. He rejected the Respondent’s contention that the scholarship amounted to valuable consideration noting that generally parties to a transaction agreed to mutually exchange rights, forbearances or benefits. In this case, it was submitted, the student does not provide any right, forbearance or benefit in exchange for the fee discount.
14. Mr Nyst also submitted that in so far as it could be said that the amount of any valuable consideration could be said to have been received it could not satisfy the “own use or benefit” requirement (see section 8(1)(a)). Mr Nyst noted that “the recipient has no power to direct the application of the discount, the value of which remains always with Bond”.
15. The Respondent was represented by Ms Wallis-Dunn. She submitted that the scholarship was valuable consideration and therefore met the test of “income amount” as set out in the section of the Act. Ms Wallis-Dunn referred the Tribunal to the decision of Read v The Commonwealth of Australia [1989] 167 CLR 57 at 64.
16. Ms Wallis-Dunn argued that consistent with the decision in Read’s case the exceptions to “income amount” listed in subsection 8(8) of the Act include several items which are not payments of money and which would not otherwise be “income amounts” unless they constitute valuable consideration. These are set out in subsection (d), (f), (u), (za) and (zl) of section 8(1) of the Act.
17. Ms Wallis-Dunn submitted that these exceptions show that it was envisaged that goods and services could be valuable consideration even if no money is paid to the person.
18. The Respondent’s statement of facts and contentions concluded:
“The scholarship awarded to the Applicant entitles him to attend that university and receive half of the value of the tuition fee without charge. The Applicant receives the benefit of the tuition. That benefit can easily be valued in monetary terms by the cost of the tuition fees, which the Applicant would otherwise have had to pay. This is a form of valuable consideration received by the student. Valuable consideration is an income amount and, in the absence of any relevant exceptions, will form part of the Applicant’s income for social security purposes.”
19. Ms Wallis-Dunn referred the Tribunal to the letter at T9 p59 of Exhibit 1 as evidence that mutual obligations were undertaken by the parties on the awarding of the scholarship.
Discussion and Decision
20. In considering the Applicant’s claim for youth allowance Centrelink took into account the Applicant’s scholarship with Bond University. The scholarship is a half scholarship so Mr Torv is only required to pay half the amount of tuition as other students who are required to pay full fees. Bond is a private University and students cannot obtain HECS places or pay off their tuition fees as do students who accumulate HECS debts. Bond requires students to pay their fees progressively. The Tribunal was told that in Mr Torv’s case he will be relieved of paying about $40,000.00 of the $80,000.00 fee if he completes his Law Degree.
21. The argument of the Respondent is that the scholarship represents income as defined in the Act and accordingly must be included when considering the Applicant’s claim for Youth Allowance. As the amount of the scholarship was greater than the allowable income the Applicant was not entitled to youth allowance.
22. The Applicants argue that the scholarship is not income as defined in the Act.
23. The issue has become somewhat confused by the Respondent changing its mind about how to treat the scholarship as evidenced by the various published guidelines set out above. The Tribunal is not bound by these guidelines.
24. It is the legislation, which ultimately determines the issue. In this case for the scholarship to be regarded as income it must satisfy the definition set out in section 8 of the Act as set out above. For present purposes the scholarship will be income if it is an income amount earned, derived or received by the person for the person’s own use or benefit.
25. The definition of “Income Amount” includes “valuable consideration, personal earnings, moneys or profits”. In this case there is no element of “personal earnings, moneys or profits” so it is necessary for the Tribunal to confine itself to the concept of valuable consideration.
26. Before embarking on this consideration it is appropriate to keep in mind the comments of the High Court in Read v The Commonwealth of Australia [1989] 167 CLR 57 when the Court said:
“The definition is exhaustive: the term "income" means what it is defined to mean; it does not mean what "income" would be understood to mean if the definition were not in the Act. The definition is couched in the widest terms, presumably to ensure that public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide ...
The definition of "income" in the Act is therefore directed to a statutory scheme which is entirely different from the scheme to which the several provisions of the Income Tax Assessment Act 1936 (Cth) relating to income are directed. Under the Income Tax Assessment Act the receipts of an income year are examined to ascertain whether they bear the character of income and are brought to charge accordingly, but under the Social Security Act a receipt of "income" is relevant to the determination of the rate of pension only to the extent that it affects "the annual rate of income". To have that effect, a payment must be related in some way to a period; an isolated receipt of what is, by ordinary notions, a capital sum cannot affect "the annual rate of income". (at 167 CLR 69)
27. Brennan J, in his dissenting judgment, said:
“It is neither possible nor necessary to attempt a general declaration as to what receipts are within the definition of "income" in the Act and what are outside it. But one general proposition can be affirmed by reference to the phrase "from any source whatsoever", namely, that a receipt which has its source in an increment in the value of a capital asset is not on that account alone excluded from the category of "income". That proposition immediately distinguishes the definition of "income" in the Act from statutory definitions, which do not contain the quoted or any similar phrase. The definition of "income" in the Act falls to be construed in its unique context and care must be exercised in applying decisions on the meaning of "income" in other statutes or in other jurisdictions.” (at 167 CLR 70).
28. In Re Hungerford and Repatriation Commission (1990), the Tribunal considered that income connotes “gains derived by a person as a result of the provision by that person of consideration in the form of personal exertion or other services or the disposition of property … whether of a capital nature or not”. The Tribunal observed that windfall gains, such as a Lotto win, or the repayment of loans to a person which produce no net increase in their wealth per se, are examples of payments which are outside the concept of “income”.
29. However, doubt has been cast on this approach by he Federal Court extended the definition of “income” in Secretary, Department of Social Security v McLaughlin (1997) 48 ALD 536 at 543 where French J took a very broad approach to "income" in relation to the Act:
“The definition of “income” extends to income amounts “received” by a person. There is no requirement in the Act that such amounts are received in exchange for anything. They may therefore extend to gifts. This is reinforced by the extension of the definition of “income” to “a periodical payment by way of gift or allowance”.
There is no requirement in the definition for the payment received to constitute a net gain. Absent such a requirement a payment of money received by a person for that person’s own use or benefit is a payment of an income amount. No doubt examples may be generated and multiplied of apparently startling or unfair results of this construction. The receipt of the proceeds of the sale of a house or a lottery win may constitute “income” for the purposes of the Act. Such debates, however, are best reserved for the legislature. There is, in my opinion, no room in the language of the definitions of “income” and “income amount” for the kind of construction adopted by the Tribunal.”
30. In Read v Commonwealth (1988), the High Court held that "valuable consideration" could be payable in kind (eg. board, food, services, etc.) and not just in money. Mason CJ, Deane and Gaudron JJ, in their majority judgment, said:
“The words "valuable consideration" would seem intended to embrace receipts not in money form, but capable of being valued in money terms. Implicit in them is the notion of a quid pro quo or a material "reward, remuneration; a compensation" (The Shorter Oxford English Dictionary (3rd ed.) 1977). As identified in the judgment of Fisher J. in the Federal Court, "valuable consideration" includes "board and lodgings, goods, meals, rent free accommodation or provision of gratuitous services." The additional units (like the goods and services identified by Fisher J), are capable of being valued in money terms. That value may be ascertained by reference to the repurchase price per unit assigned in the Deed.”
31. In this case the Respondent says that the scholarship represents a reduction in the amount which would otherwise be paid by the Applicant and which is payable by other students, therefore it is a financial benefit to the Applicant and constitutes income. It is therefore valuable consideration and falls within the definition of “income amount”.
32. There are and it is conceded by the Respondent different types of scholarships. Some provide for the payment of monies to the tertiary institution from some external fund. Others as in this case are provided by the University directly to the student in the form of reduced fees. In the Tribunal’s view there is a distinct difference between the two types of scholarships.
33. It was acknowledged by the solicitor for the Applicant that Bond seeks to induce sought after students to attend the University for various reasons, including attracting students with the highest senior pass marks to enhance the student alumni and hence the Universities appeal in the market place.
34. The student is told, if you come to Bond you will only be required to pay half tuition fees. You will have to pay the other half and you will have to be good otherwise you will have to pay all the fees. The student either accepts the offer or rejects it. If the student rejects it, one assumes the student would attend a public University, accumulate a HECS debt and be entitled to Youth Allowance in the meantime.
35. In this sense the student does not make any promise to the University. So that in the strict sense it could not be said that there has been any valuable consideration passing between the parties, ie the student and Bond.
36. The student undertakes the course and passes the exams not because the student is receiving a scholarship but because the student wants the qualification. The scholarship offered by Bond University is no more than an inducement to attend the institution and not another.
37. In the Tribunal’s view the Respondent has made too much of the fact that this student will be paying less for his degree than other students and therefore the student or his parents will have a saving and therefore this constitutes income. What other students pay is irrelevant to this student. Most other students may pay less than a student who repeats a subject or two and has to pay more for a degree than the maximum. In the Tribunal’s view, it is necessary to look at the Applicant’s case alone.
38. The Tribunal cannot see any difference between the present circumstances and HECS exempt place. In each case, a university makes a decision not to receive fees it would otherwise be entitled to. In this case Bond University does not receive any money nor does the student. The fees are simply not payable from the outset.
39. In this regard it seems to the Tribunal that the Respondent got it right as set out in its guidelines published on 16 July 2003 that:
“Bond University provides a ‘scholarship’ that is actually a reduction in fees. The amount of the fee reduction is not valuable consideration and is not treated as income.”
40. When changing its position from this interpretation of the Act the Respondent wrote in letters Exhibit 3 and 4 that:
“To ignore the value of the consideration provided would place recipients of Bond University Scholarships in a more favourable position than people who receive other types of scholarships, for example those that pay fees.”
41. Although the advocate for the Respondent was unable to explain fully what this meant it is assumed that the Respondent meant scholarships, which are awarded and paid from a fund. In the Tribunal’s view there is a significant difference between a scholarship which draws monies out of a trust fund to pay university tuition and the scholarship, as in the present case, where the fees a simply never payable.
42. In the case of a scholarship that actually pays the fees on behalf of he student the University expects and indeed receives full payment for the course. The student is required to pay the full fee and would pay that fee but for the payment of some or all of it by a third party. A scholarship of this nature would certainly involve a gift, at the very least. In the latter case the fees are never incurred nor are they ever payable. No monies change hands (see affidavit of Alan Douglas Finch para 8).
43. In the Tribunal’s view this is distinguishable from other amounts regarded as “valuable consideration” as expressed in Read’s case as including “board and lodgings, goods, meals, rent free accommodation or provision of gratuitous services.” In this case if the University offered the student free accommodation or meals that would be clearly income. Because these items are “capable of being valued in money terms”. The Scholarship received by Mr Torv is in a different category, if it is not accepted by the student nothing is payable by the University. If the student accepts the scholarship then the amount the student is required to pay in tuition fees is reduced. The Tribunal accepts the Applicants’ argument that the student does not provide any right or benefit in exchange for the reduction in university fees and therefore the scholarship does not amount to valuable consideration.
44. In addition, the Tribunal does not accept the submission of the Respondent, that the scholarship meets the definition of “income” of being a periodical payment by way of gift or allowance or periodical benefit by way of gift or allowance.
45. The meaning of the word “allowance” was considered by the Federal Court by Ryan J in Kelleners v Secretary, Department of Social Security (1988) 84 ALR 509 at 518 in the following terms:
“In my view, that context creates a distinction between gains derived by a person as a result of the provision by that person of consideration in the form of personal exertion or other services or the disposition of property on the one hand, and the acquisition on the other hand of a sum of money or other benefit advanced ex gratia. The words "payment or benefit by way of gift or allowance" comprehend acquisitions of the latter kind irrespective of whether they are referable to the possession by the donor of some special characteristic or status.
Support for this view of the effect of the context provided by the definition of "income" is afforded by [paragraphs (s) and (t)] of that definition ...
[Paragraph (t)], in particular, by repeating precisely from the body of the definition the words "a periodical payment or benefit by way of gift or allowance" is a cogent indication that the legislature regarded periodical payments or benefits received ex gratia from any source as being within the definition, and was concerned to exclude only payments or benefits received from a donor within the specified degrees of family relationship to the recipient.”
46. In the Tribunal’s view there is no element of an ex gratia payment in awarding the scholarship to Mr Torv. The word “gift or allowance” connotes receipt of an amount or something in lieu of an amount payed without legal obligation.
47. Accordingly, the Tribunal is not satisfied that even on the widest interpretation of the term “income” as expressed by French J in Secretary, Department of Social Security v McLaughlin (1997) 48 ALD 536 that the scholarship received by Mr Torv constitutes “income” for the purposes of section 8 of the Act.
48. The Tribunal therefore sets aside the decision under review and in substitution determines the scholarship is not “income” within the meaning of section 8 of the Act.
I certify that the 48 preceding paragraphs are a true copy of the reasons for the decision herein of Mr O Rinaudo, Member
Signed: .....................................................................................
AssociateDate/s of Hearing 27 January 2004
Date of Decision 24 February 2004Solicitor for the Applicant Mr CJ Nyst, Nyst Lawyers
For the Respondent Ms H Wallis-Dunn
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