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

Williams and Secretary, Department of Social Services (Social services second review) [2023] AATA 2832 (7 September 2023)
Division: GENERAL DIVISION
File Number(s): 2022/5733
Re:Judith Ann Williams
APPLICANT

AndSecretary, Department of Social Services
RESPONDENT

DECISION
Tribunal:Senior Member K Millar
Date:7 September 2023
Place:Adelaide

The decision under review is set aside and remitted to the Secretary for reconsideration in accordance with the directions that:
·     The overpayment is recalculated in accordance with the legislation that applies at each point in time during the debt period; and
·     Comprehensive information is provided on the calculation of any overpayment. This is to include the method used to assess each asset or income stream at each point in time where the asset or income changes, the asset value where the assets test is used, and the income value where the income test is used; and
·     The applicant is given the opportunity to make further submissions on whether part or all of any resulting debt should be waived.
........[sgnd]...................................................
Senior Member K Millar
CATCHWORDS
SOCIAL SECURITY – pensions – age pension – claim for age pension – debt – overpayment of age pension – grounds to waive debt – income stream not taken into account – error not corrected by applicant – calculation of debt – lengthy debt period – accuracy of debt calculation – insufficient information on income and assets streams at different points in time in debt period – decision under review is set aside and remitted for reconsideration
LEGISLATION
Budget Savings (Omnibus) Act 2016 (Cth)
Social Security Act 1991 (Cth)
Social Security (Administration) Act 1999 (Cth)
Social Services and Other Legislation Amendment Act 2014 (Cth)
Social Services Legislation Amendment (Defined Benefit Income Streams) Act 2015 (Cth)
Superannuation Industry (Supervision) Act 1993 (Cth)
Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth)
SECONDARY MATERIALS
Department of Social Services, Social Security Guide (Web Publication, 3 July 2023)
REASONS FOR DECISION
Senior Member K Millar
7 September 2023
BACKGROUND

Ms Williams has received age pension from 20 September 2007. When she claimed age pension, Ms Williams declared certain income and assets, with an annual income reported in her claim of $2,195.55.
The information Ms Williams provided when she claimed age pension included that an amount of over $250,000 had been retained within her superannuation fund. This was an income stream known as HP Super. The income from HP Super was not taken into account in calculating her rate of age pension, and Ms Williams did not correct the information when she received a letter from Centrelink specifying her assets.
As a result, on 11 June 2021, a debt of $127,911.63 was raised against Ms Williams for the period 21 September 2007 to 27 August 2020 (the “debt period”). Ms Williams sought internal review of this decision, and on 16 February 2022 an authorised review officer varied the decision by reducing the debt to $115,685.25.
Ms Williams sought a review of the decision through the Social Services and Child Support Division of this Tribunal (AAT1) and was represented by her financial adviser Mr David Stackleroth. Mr Stackleroth provided alternative calculations for the debt. Following review of Mr Stackleroth’s calculations, and further submissions from Centrelink, AAT1 found that the calculation of the debt was accurate. It further found that there were no grounds on which to waive part or all of the debt and affirmed the decision to raise and recover a debt of $115,685.25.
Ms Williams has sought a further review of this decision and was represented by Mr Stackleroth at the hearing.
ISSUES
The issue in this matter is whether Ms Williams was overpaid age pension, and if so whether the overpayment has been correctly calculated. If there is an overpayment, the Tribunal must consider if this is a debt due to the Commonwealth, and whether there are any grounds on which to waive all or part of the debt.
Rate of Age Pension
Section 55 of the Social Security Act 1991 (“the Act”) provides for the rate of age pension for a person who is not permanently blind to be calculated using Pension Rate Calculator A at the end of s 1064 of the Act.
Section 1064 in Chapter 3 of the Act contains general provisions relating to payability and rates. Section 1064-A1 provides the method to calculate the rate of age pension.
Pension Rate Calculator A sets out an assets test and an income test. After each test is applied, the test that results in the lower rate of pension is the one that is used to calculate the rate of age pension. The ordinary income test is set out in Module E of s 1064 of the Act, and the assets test is set out in Module G of s 1064.
The Secretary states that the income test was used for Ms Williams for the period 21 September 2007 to 22 November 2023, the assets test was used for the period from 23 November 2007 to 17 February 2008, and the income test was again applied in the period from 18 February 2008 to 27 August 2020.
Assets test
The Secretary states that the assets test resulted in the lower rate, and in accordance with s 1064 of the Act was used to determine the correct rate of Ms Williams’ age pension in the period from 23 November 2007 to 17 February 2008.
Amendments came into effect changing how a reduction for assets was calculated on 20 September 2007, reducing the amount of the reduction for assets over the relevant threshold and removing the 50% assets-test exemption for certain income streams purchased from 20 September 2007.[1] For a single day on 20 September 2007, the Centrelink records show that Ms Williams was subject to the assets test.[2] The test then reverted to the income test until the period 23 November 2007 to 17 February 2008 when the assets test was used.[3]
[1] These amendments were made by the Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth).
[2] T15, 402.
[3] T15, 401.
At the time of her claim, Ms Williams held a HP Super income stream, the Westpac Flexible Income Plan, Westpac shares, money in three Westpac bank accounts, and her household contents and car.
(i) HP Super
The HP Super income stream is asset test exempt.
(ii) Westpac Flexible Income Plan
The Westpac Flexible Income Plan was purchased on 16 March 2007 and had a value of $210,000 at the time it was purchased. It is not an asset test exempt income stream or a partially assets test exempt income stream as it does not comply with s 9A, B or 9BA of the Act.[4] It is an account-based income stream.
[4] T9, 146.
The value of an asset tested income stream that is not a defined benefit income stream is set out in s 1119 of the Act. It is the account balance at the beginning of each 12-month period as Ms Williams was paid annually. The table provided at Attachment C of the Secretary’s further submissions shows that at 20 September 2007 the asset value was $211,943, and it continued to hold that asset value in the period Ms Williams was assessed under the assets test.[5]
[5] Ex R5, 1.
(iii) Westpac Lifetime Superannuation
Ms Williams also had a Westpac Lifetime Superannuation with a value of $31,434 at 23 November 2007, when Ms Williams began being assessed under the assets test.[6]
[6] Ex R6, 1; T15, 626.
(iv) Westpac shares
The value of Ms Williams’ Westpac shares is in the listed securities screens.[7] These shares had a value of $5,820 from 23 November 2007 to 8 March 2008.[8]
[7] T15 584 – 605.
[8] Ex R5, 1; T15, 604.
(v) Bank accounts
Ms Williams had bank accounts totalling $18,777 up to 21 November 2007, when this amount was $16,992.[9]
[9] Ibid.
The Secretary’s Statement of Facts, Issues and Contentions (“SFIC”) states Ms Williams had $54,246 in cash and shares at 23 November 2007.[10] This is not the total of her cash ($16,992) and shares ($5,820), which total $22,812. While this adds to the confusion in this matter, it does not appear to be reflected in the debt calculations.
[10] Ex R1, 9.
(vi) Household contents and car
The value of Ms Williams’ household contents was consistently $50,000 and her car was $5000.
On this information, at the date of her claim at the time the assets test commenced her assets were:

Asset	Value
Westpac Flexible Income Plan	211,943
Westpac Lifetime Superannuation	31,434
Westpac Shares	5,820
Bank accounts	16,992
Household contents	50,000
car	5,000
Total	$321,189

This is the assets amount used by Centrelink in the debt calculations.[11] As would be expected as the HP Super is not assets tested, there was no overpayment contained in the debt calculations for the period 23 November 2007 to 14 February 2008.[12]
[11] T12, 277.
[12] T12, 280.
Income test
According to s 8 of the Act, the term “income” is affected by Division 1B and 1C of the Act. Part 3.10 of Chapter 3 sets out general provisions relating to the ordinary income test.
The effect of Division 1B of Part 3.10 is to deem a particular amount of ordinary income for financial assets, regardless of the income the person actually receives. The aim of the deeming provisions is for pensioners to choose investments on merit, rather than on the effect the investments have on the person’s entitlement to a pension.[13]
[13] Department of Social Services, Social Security Guide (Web Publication, 3 July 2023) 4.4.1.10 <>
Ms Williams was deemed to receive income from her assets in the period that her rate was assessed using the income test. Her assets include three income streams, cash held at the bank, shares, a modest amount of household contents and a car. There is a small amount of employment income recorded from AFM Unit Trust on 20 September 2017, 21 November 2007 and 18 April 2008.[14]
[14] T12, 277.
At the time of her claim, Ms Williams held money in various bank accounts, shares, household goods, a car and three income streams.
Deemed income from income streams
In the debt period, Ms Williams held three income stream products:
·     A Westpac Flexible Income Plan account-based income stream which Ms Williams held from 20 September 2007 until 27 April 2010.
·     The HP Super Lifetime Pension (“HP Super”) plan currently under DXC Technology Superannuation Plan, which has also been known as Plum and Citistreet. This is a defined benefit income stream and which Ms Williams has held from 1 July 2007 to date.
·     A BT Funds Management account-based income stream which Ms Williams has held from 23 February 2018 to date.
Under s 1076 of the Act, income deemed to have been received from assets is calculated by adding together certain assets and applying a percentage below a threshold amount to deem an income on assets up to a certain value, and another percentage to deem an income from assets above a particular value. Both the percentages used to deem an income from assets and the thresholds change over time.
Income is deemed on “financial assets” which are currently defined in s 9 of the Act as a “financial investment” or a “deprived asset,” with the term “financial investment” currently including an asset tested income stream. However, this was not the case for the whole of the debt period.
Deeming for account-based income streams (allocated pensions) – in this case, the Westpac Flexible Income Plan and the BT Funds Management - that are not asset test exempt income streams was introduced from 1 January 2015 in the Social Services and Other Legislation Amendment Act 2014 (“Amending Act”). Under the transitional provisions in Item 48 of Schedule 11 of the Amending Act, account-based income streams, such as Ms Williams’ Westpac Flexible Income Plan,[15] were exempt from the deeming provisions if:
·     they were held on or before 31 December 2014, and
·     the person was receiving an income support payment before 1 January 2015, and
·     the person has been continuously receiving an income support payment.
[15] T9, 146. The determination of whether a plan is an asset tested income stream, an account-based pension, or an annuity is made by reference to s1.06(9A)(a) of the Superannuation Industry (Supervision) Regulations 1994. Details of the account are not before the Tribunal, and it has relied on the Centrelink Schedule provided by the plan as the source of income on this product.
Prior to 1 January 2015, deemed income from account-based income streams was calculated on a return on capital approach according to the formula:
·Annual Payment − [(Purchase Price − RCV) ÷ Relevant Number][16]
Where RCV is the residual capital value, and the term “relevant number” relates to the period in which the income stream is or is reasonably expected to be payable.[17]
[16] Social Security Act 1991 (Cth) s 1099C, as it was prior to 1 January 2015.
[17] Ibid s 9(1).
(i)Westpac Flexible Income Plan
The Westpac Flexible Income plan with the correct account number appears in the Secretary’s documents in the pension/annuities summary,[18] but unlike HP Super[19] and BT Funds Management,[20] the Tribunal could not locate information on how this plan was used to assess income as an income stream, or the values used to calculate a deemed income in accordance with the formula.
[18] T15, 628.
[19] T15, 635 – 641.
[20] T15, 629 – 634.
The information provided by the Secretary at Attachment C to the further submissions includes the balance of the Westpac Flexible Income Plan, used to calculate a deemed income under s 1076 of the Act from total financial assets for the purposes of the income test.[21] This can be seen as the sum of the amounts “managed investments”[22] includes the balance of the Westpac Flexible Income Plan.
[21] R5 and R6.
[22] R5, 27.
This is incorrect because Ms Williams held this account on or before 31 December 2014, was receiving income support at this time, and has been continuously receiving income support. The pre-1 January 2015 legislation applies and the income from the Westpac Flexible Income Plan, an account-based income stream, did not come within the deeming provisions. Income from this plan was required to be calculated according to the formula above.
It was submitted for the Secretary that the calculations in the further submissions at R3 – R6 were prepared for the benefit of the Tribunal at its request and should not be seen to override the amounts in the debt calculations in the computer generated debt calculations in the MultiCal calculations.[23] Mr Stackleroth observed that it should not be for the applicant to pick through different calculations and see if there are errors in each calculation, then revert to previous calculations if there are errors.
[23] T12, 285.
There is considerable force in this argument. This is a complex area, and a straightforward explanation is required to allow a person a reasonable opportunity to check that the calculations are correct. An applicant should not be required to pick through contradictory calculations and choose less recent information provided if the more recent information is now considered correct.
Ms Williams held the Westpac Flexible Income Plan from 20 September 2007 until 27 April 2010. This encompasses a period in which the Secretary states the correct rate should be calculated by using the income test.
As the most recent information from the Secretary shows income has been incorrectly deemed from the Westpac Flexible Income income stream, the Tribunal is not satisfied any overpayment is correctly calculated for the period she held this income stream.
(ii) BT Funds Management
BT Wrap was purchased 27 April 2010. The Tribunal has very little information on this fund. It appears as a managed investment in the Centrelink documents.[24] It appears to have been from the Westpac income stream and lifetime superannuation funds. The Tribunal cannot determine how this fund was used in calculating a rate, the legislation used to assess this fund, or whether this was correct. This fund ends on 23 February 2018, the same time the BT SuperWrap commences.
[24] T15, 606 – 621.
The BT SuperWrap is an income stream that was purchased 23 February 2018. As this commenced after 1 January 2015, deeming rules apply to this account-based pension for the purposes of the income test.
This means that from the date of purchase, income is deemed on this asset value above and below particular threshold amounts when combined with Ms Williams’ other assets.
(iii) Income from asset test exempt income streams (HP Super)
Division 1C of Part 3.10 of the Act sets out how income is calculated from asset test exempt income streams.
Mrs Williams received funds from a defined benefit income stream, HP Super, defined in s 9(1F) of the Act as including an income stream arising under arrangements regulated by the Superannuation Industry (Supervision) Act 1993. It has been accepted that this is an asset test exempt defined benefit income stream. Details of the characteristics of this fund are not before the Tribunal.
The commencement date for HP Super is 19 January 2007.
Under s 1099A of the Act, for an asset test exempt income stream which is a defined benefit income stream, the income a person is taken to receive from the income stream each year is worked out by the formula (annual amount - deductible amount).
The “deductible amount” is defined in s 9(1) of the Act as the sum of the amounts that are the tax free components (worked out under subdivision 307-C of the Income Tax Assessment Act 1997 or, if applicable, ss 307-125 of the Income Tax (Transitional Provisions) Act 1997) of the payments received from the defined benefit income stream during the year.
A cap on the deductible amount was introduced in the Social Services Legislation Amendment (Defined Benefit Income Streams) Act 2015. If the amount worked out by this formula was more than 10% of the amount payable per year, the deductible amount is 10% of the amount payable to the person per year under the income stream.
The amounts received by Ms Williams under HP Super are assets test exempt and the general deeming rules do not apply. As the non-taxable amounts received are greater than 10%, the amount of income from 1 January 2016 she is deemed to have received is the gross amount actually received less 10% of the gross amount actually received.
Before this date, the deductible amount in s 9(1) of the Act applies, and the income for the purposes of the income test is the annual payment less the deductible amount. The deductible amount is the undeducted purchase price, divided by a “relevant number” defined in s 9(1) of the Act. The relevant number is contained in the Centrelink Schedules from HP Super. The relevant number changes over time and may result in a net negative amount which is zero for the purposes of the income test.
From the information available to the Tribunal, the income amounts recorded by Centrelink match the amount on the available Centrelink Schedules for this income stream where these are available. The gross income amounts match letters from the funds regarding this pension as calculated on a fortnightly gross payment.
The income from this fund was not taken into account in assessing Ms Williams’ rate of pension. As the amounts she received affect her rate of pension, she has been overpaid.
A Centrelink Schedule is sent by the payer company, and some, but not all, of the Centrelink Schedules from HP Super (Plum) are included in the documents. It is not possible to see if this overpayment has been correctly calculated in the absence of all the Centrelink Schedules, and clear information is required on how each income stream and asset is assessed and affects Ms Williams’ rate.
Debt calculations
While this matter commenced with the effect of the HP Super, issues have been raised with the calculation of the debt from the commencement of the matter, and in particular the income deemed from the Westpac Flexible Income Plan. To be satisfied the debt is correctly calculated sufficient information is required on each asset, source of income and income stream.

Providing the total of deemed income from assets and the income streams at a total in the debt calculations using the ADEX or Multical calculators used by Centrelink does not assist in this case where there are a number of assets and income streams.
Examining if a debt is correctly calculated involves having sufficient information on each of Ms Williams’ assets, income streams and income at various points in time. This involves a complete list of assets, income streams and income at the time of her claim, information on how her assets and income streams have changed over time, and how each were assessed according to the correct legislation at each point in time
Information is also required on how each asset and income stream was treated under the income test and the assets test. This requires sufficient primary source information and submissions on each asset and income stream to allow the Tribunal to determine which section of the Act applies and the correct point-in-time legislation. While the Secretary provided a further explanation of the debt, this does not show the treatment of each asset and the income taken to be received from each asset or that these were assessed in accordance with the correct provisions.
This is necessary where the debt is over a lengthy period, and there have been significant changes to the Act. The Tribunal did not have the benefit of submissions from the Secretary on the effect of amendments to the Act on the assessment of Ms Williams’ assets and income streams in the debt period.
This information is also necessary to allow Ms Williams and Mr Stackleroth to adequately assess the calculations of the overpayment and the opportunity to make submissions on these calculations.
It may assist the Tribunal for matters such as these that the Secretary provides this detail for all assets and income and considers calling a witness from Centrelink to explain the debt that has sufficient knowledge to address questions from the applicant and the Tribunal.
The Tribunal will set aside the decision to raise and recover the debt and remit it to the Secretary for reconsideration in accordance with directions that the debt is recalculated to correctly apply the legislation that applies at each point in time during the debt period, and further information on the debt is provided to Ms Williams.
Other matters
Mr Stackleroth submits that the debt should be waived due to administrative error. He argues that errors in calculation are administrative errors that must result in the waiver of the debt.
For a debt to be waived, it must be solely attributable to administrative error. This is not the case for the whole of the debt period.
While Ms Williams did provide information with her claim that stated that an amount has been retained in the fund and this was not taken into account by Centrelink, she did not correct this information in response to letters sent to her by Centrelink, notably the letter dated 23 November 2007.[25] This letter set out her income and assets and required her to advise Centrelink if the details of her income and assets were inaccurate.
[25] T5, 743.
In this letter Centrelink specified one income stream with the value of the Westpac income stream and no other income streams. Ms Williams did not correct this to include HP Super, nor did she provide annual Centrelink Schedules from the HP Super income stream. Any debt resulting from a failure to disclose this income stream will not be solely due to administrative error from the time she was notified of her obligation to disclose this information.
Debts may also be waived under s 1237AAD of the Act if the debt does not result wholly or partly from a false statement, or a false representation or for failing or omitting to comply with a provision of the Act, or of the Social Security (Administration) Act 1999 (“Administration Act”), and there are special circumstances other than financial hardship alone that make it desirable to waive.
The debt cannot be waived under s 1237AAD because Ms Williams failed to comply with the requirements under an information notice issued under s 63 of the Administration Act to tell Centrelink about changes to her income.
Ms Williams told the Tribunal there were no special circumstances that applied to her and that her finances are “okay”. Nevertheless, Ms Williams should be provided the opportunity to make any further submissions on whether any waiver should apply when the debt is recalculated.
It was submitted by Mr Stackleroth that the statute of limitations prevented recovery of the debt. Section 1234B of the Act states that legal proceedings, or any other action, for recovery of a debt or overpayment may be taken at any time. This provision was inserted on 1 January 2017 by the Budget Savings (Omnibus) Act 2016. It applies to any debt or overpayment that arises after the commencement of that provision.[26] As the debt was raised after 1 January 2017, it is legally recoverable.
[26] Budget Savings (Omnibus) Act 2016 (Cth) sch 13 cl 41.
DECISION
The decision under review is set aside and remitted to the Secretary for reconsideration in accordance with the directions that:
·     The overpayment is recalculated in accordance with the legislation that applies at each point in time during the debt period; and
·     Comprehensive information is provided on the calculation of any overpayment. This is to include the method used to assess each asset or income stream at each point in time where the asset or income changes, the asset value where the assets test is used, and the income value where the income test is used; and
·     The applicant is given the opportunity to make further submissions on whether part or all of any resulting debt should be waived.

I certify that the preceding seventy (70) paragraphs are a true copy of the reasons for the decision of Senior Member K Millar

................[sgnd]..................................
Legal Associate

Dated:
Date of hearing:

7 September 2023

20 March & 4 August 2023

Advocate for the Applicant:
David J Stackelroth
RedThorn Private Wealth

Advocate for the Respondent: Nadia Markov
Services Australia

[2023] AATA 2832

7 September 2023

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