Zohar and Secretary, Department of Social Services (Social services second review)
[2015] AATA 772
•23 September 2015
Zohar and Secretary, Department of Social Services (Social services second review) [2015] AATA 772 (23 September 2015)
Division
GENERAL DIVISION
File Number(s)
2015/0879
Re
Philippa Zohar
APPLICANT
And
Secretary, Department of Social Services
RESPONDENT
DECISION
Tribunal Senior Member CR Walsh
Date 23 September 2015 Place Perth The Tribunal affirms the decision under review.
....(Sgd) CR Walsh.....................
Senior Member CR Walsh
CATCHWORDS
SOCIAL SECURITY - whether applicant overpaid age pension during relevant debt period – whether overpayment of age pension a debt due to the Commonwealth – whether all or part of the debt should be waived – whether debt due solely to administrative error by Centrelink – whether “special circumstances” exist – whether debt should be written-off - decision under review affirmed
LEGISLATION
Social Security Act 1991 - s 8 – s 8(1) – s 9 – s 11 - s 43 – s 55(a) – s 1064 – s 1064-E1-E11 – s 1073 – s 1073(1) – s 1076 - s 1121- s 1121(1) – s 1122 – s 1223 – s 1236(1) –s 1236(1A) - s 1237A – s 1237AAD - Division 1B of Part 3.10 – Part 5.4
Social Security (Administration) Act 1999 – s 110(1)
CASES
Angelakos and Secretary Department of Employment and Workplace Relations [2007] FCA 25
Bayliss v Secretary, Department of Social Services [2014] AATA 532
Beadle and Director-General of Social Security (1985) 60 ALR 225
Corporate Initiatives Pty Ltd v Commissioner of Taxation [2005] FCAFC 62
Davy and Secretary, Department of Employment and Workplace Relations [2007] AATA 1114
Dranichnikov v Centrelink [2003] 75 ALD 134
Fischer v Secretary, Department of Families, Housing, Community Service & Indigenous Affairs (2010) 185 FCR 52
Flaskas and Secretary, Department of Family and Community Services [2002] AATA 1255
Greenhill and Secretary, Department of Family and Community Services [2006] AATA 176
Groth and Secretary, Department of Social Security (1995) 40 ALD 541
Pope v Commissioner of Taxation [2014] AATA 532
Re Anderson and Secretary, Department of Families and Community Services (2002) 69 ALD 484
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435
Re Christensen and Secretary, Department of Social Security (1995) 37 ALD 795
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Re Ivocic and Director-General of Social Services [1981] AATA 57
Re Lyons and Secretary, Department of Family and Community Services [2007] AATA 1095
Re Secretary, Department of Family and Community Services and Jonauskas [2001] AATA 72
Sangster v Secretary, Department of Family and Community Services [2004] AATA 991
Sekhon v Secretary, Department of Family and Community Services (2003) 132 FCR 126
SECONDARY MATERIALS
Guide to Social Security Law – s 1.1.L.65 – s 4.4.1.30 - s 4.6.2.20 – s 4.6.5.65 – s 4.7.3.20 – s 4.12.5.10 – s 4.12.7.50 -
REASONS FOR DECISION
Senior Member CR Walsh
23 September 2015
INTRODUCTION
Mrs Zohar seeks review of a decision of the Social Security Appeals Tribunal (SSAT), dated 19 January 2015, which affirmed a decision made by Centrelink to raise and recover a debt of $24,652.20 from Mrs Zohar for an overpayment of age pension (AP) during the period 2 September 2010 to 29 June 2013 (Debt Period).
FACTUAL & PROCEDURAL BACKGROUND
Sanvar Pty Ltd (Sanvar) was incorporated on 9 June 2005 with Mrs Zohar as its sole director. As at 30 June 2013, Sanvar was trading under the name “Poppies café”.
On 2 September 2010, Mrs Zohar lodged a Centrelink “Claim for Age Pension and Pension Bonus” form and a Centrelink “Income and Assets” form (Income and Assets Form).
On the Income and Assets Form, in response to:
· question 8, “Do you (and/or your partner) CURRENTLY receive any income from work other than self-employment”, Mrs Zohar stated that she earns $200 per fortnight from her employer Sanvar;
· question 18, “Do you (and/or your partner) have money on loan to another person or organization”, Mrs Zohar ticked the box marked “No”;
· question 35, “Are you or have you (and/or your partner) been involved in a private trust?”, Mrs Zohar ticked the box marked “No”; and
· question 38, “Are you (and/or your partner) involved in any type of business?”, Mrs Zohar ticked the box marked “No”.
On 21 September 2010, Mrs Zohar provided Centrelink with proof of her wages of $400 per month from Sanvar.
On 22 September 2010, Centrelink notified Mrs Zohar of the details of “all of [her] income and assets that Centrelink currently holds on [her] records” and requested that Mrs Zohar advise Centrelink, within 14 days of receiving the notice, if the details were incorrect.
On the same day, Centrelink sent the applicant a notice setting out information relating to her AP and requiring Mrs Zohar to inform Centrelink, within 14 days, of any change in her circumstances.
On 14 March 2012, Centrelink provided Mrs Zohar with her Centrelink statement for the period 15 March 2011 to 14 March 2012.
On 4 April 2013, Centrelink wrote to Mrs Zohar, requesting the following information:
REQUEST FOR INFORMATION
To help make sure we are paying you the correct amount we regularly check our records with other government agencies.
In one of our checks, we looked at the records from the Australian Taxation Office.
Australian Taxation Office records showed that in the 2010/2011 financial year, you were the beneficiary of the following trust(s) THE TOPEZ TRUST; ZOHAR FAMILY TRUST.
Please tell us if the above Australian Taxation Office Records are incorrect. Please complete and provide the information requested in the enclosed Module PT – Private Trust form(s).
…….
Please return this information to us in the enclosed reply paid envelope by 25 April 2013. If you do not contact us before 25 April 2013 your payment may stop.
On 7 June 2013, Centrelink suspended Mrs Zohar’s AP as a result of her failure to provide the information requested.
On 20 June 2013, Mrs Zohar filed a Centrelink “Income and Assets Update” form with Centrelink (Income and Assets Update Form). On the Income and Assets Update Form, Mrs Zohar ticked “No” in response to Question 13, “Do you (and/or your partner) have money on loan to another person or organization?” and confirmed that she was employed by Sanvar and that she was involved with Sanvar, but noting that she was “not drawing any income from Sanvar”.
On the same day, Mrs Zohar’s accountant, Butler Settineri, wrote to Centrelink stating:
For the year ended 30th June 2010, Mrs Zohar’s taxable income was $111,017.00.
We have not prepared any tax returns for Mrs Zohar for the 2011 and 2012 financial years.
Mrs Zohar informs us, and from the information and explanations that we have to hand, her income was below the tax free threshold for these two financial years.
On 25 June 2013 and 4 July 2013, Mrs Zohar’s accountant, Butler Settineri, and Mrs Zohar’s son, Mr Eli Zohar, provided Centrelink with information regarding the Topez Trust and The Zohar Family Trust.
On 30 June 2013, Mrs Zohar completed a Centrelink “Private Company Mod PC” form, indicating that she was the sole director of Sanvar.
On 1 August 2013, Centrelink restored Mrs Zohar’s AP on the basis that she had provided Centrelink with the requested documentation.
On 2 August 2013, a Centrelink complex assessment officer (CAO), having review the Trust Tax Return, Profit & Loss Statement, Balance Sheet and depreciation schedule of The Topez Trust for the 2009/2010, 2010/2011 and 2011/2012 financial years reported the following:
Philippa Zohar is only a beneficiary of The Topez Trust and has no controlling interest in it.
Philippa Zohar received a distributions of $5,000 in respect of the financial year 2010/2011 and $2,819 in respect of the financial year 2011/2012. There was no distribution allocated to Philippa Zohar in respect of the financial year 2009/2010.
On 16 August 2013, Centrelink decided to raise a debt of $24,652.20 against Mrs Zohar in respect of an overpayment of AP during the Debt Period (Original Decision).
The following table is a summary of Mrs Zohar’s income and assets, as determined by Centrelink:
Date
Description
Value
2/09/2010
Assets-customer
$235,418
Customer Employment Income (Declared Wages)
$200.00 2WE
Customer Other Income (Deemed Income)
$9495.81 ANN
Customer Other Income (Trust-Topez)
$0.00 ANN
Customer Other Income (Trust- Zohar)
$111017.00 ANN
Rent Assistance payability- customer
Not Payable
Rental Circumstances- customer
$0.00 1WE (Home Owner)
30/06/2011
Customer Other Income (Deemed Income)
$11304.00 ANN
Customer Other Income (Trust-Topez)
$5000.00 ANN
Customer Other Income (Trust- Zohar)
$0.00 ANN
1/07/2011
Assets-customer
$275,600
Customer Other Income (Deemed Income)
$11283.00 ANN
7/09/2011
Rental Circumstances- customer
$0.00 1WE (No Rent Paid)
30/06/2012
Assets-customer
$186,549
Customer Other Income (Deemed Income)
$7275.70 ANN
Customer Other Income (Trust- Topez)
$2819.00 ANN
1/07/2012
Customer Other Income (Deemed Income)
$7263.70 ANN
20/03/2013
Customer Other Income (Deemed Income)
$6380.96 ANN
20/06/2013
Assets-customer
$189,549
On 7 April 2014, Mrs Zohar’s accountant, Butler Settineri, stated that Mrs Zohar did not receive income from Sanvar for the years ended 30 June 2011, 30 June 2012 and 30 June 2013, and that Sanvar was not presently trading and would be deregistered at a later stage.
On 10 April 2014, Mrs Zohar sought a review of the Original Decision by a Centrelink authorised review officer (ARO).
As part of her review, the ARO took into account an explanation provided by Mrs Zohar’s son, Mr Oren Zohar, regarding the background to the overpayment of AP to Mrs Zohar during the Debt Period. This explanation is set out below, under the heading “Relevant Evidence”.
The ARO also consulted with a Department of Human Services officer regarding the correctness of the Original Decision. That officer provided the ARO with the following response:
As I understand it, the customer’s son is saying that:
·the customer owed an amount of $84,000 to the Zohar trust, which was leant to her in approx 2008.
·that this amount was later written off (forgiven),
·that the trust then made income distributions to the customer and her company in order to recoup the amount forgiven through tax minimisation.
This does not change the fact that an income distribution was declared to the ATO as having been made to the customer, and as she is a non-attributable stakeholder of the trust, it is correct that this has been assessed under SSA Section 1073 as income for 12 months from the date of the resolution to distribute as per Guide 4.12.7.50 Distributions of the Income of a Private Trust or Private Company to a Non-attributable Stakeholder & OB Assessing and recording distribution income 043-04050030.
It is also correct that the unpaid distribution was assessed as a loan to the trust from the customer, and therefore her personal financial asset subject to deeming as per OB Assessing and recording loans and liabilities for trusts and companies 043-04090000.
It is possible that a previous amount borrowed by the customer from the trust could be repaid by a later unpaid distribution through an adjustment to the beneficiary loan account balance. However, this would just be an adjustment to the loan account balance - the income from the distribution would still be assessable.
The balance sheets provided for the trust do not provide details of beneficiary loan account adjustments for this case. However, this may not be relevant as from what the controller (the son) has advised, the loan to the customer was actually written off (forgiven) rather than being adjusted through the beneficiary loan account.
With regard to the query raised about the assessment of distributions from the Topez Trust, the answer would be the same as that provided above for the distributions from the Zohar trust as per the references given.
With regard to the assessment of the customer's loan to her company Sanvar Pty Ltd, as the amount is recorded on the company balance sheet as a loan it has to be assessed that way as per Guide 4.12.5.10 Recognised & Non-Recognised liabilities of a Controlled Private Trust or Controlled Private Company and OB Assessing and recording loans and liabilities for trusts and companies 043-04090000. The loan would only be considered to have ceased to exist if one of the criteria were met as per Guide 4.6.5.65 Loans that No Longer Exist - for example, if the company was wound up, or the customer decided to forgive the loan. If forgiving the loan was being considered, she should speak to her accountant about any possible tax implications of this. Deprivation would not apply if the loan was forgiven as the customer is the 100% controller of the entity as per Guide 4.12.10.20 Disposal of Assets to a Private Trust or Private Company On or After 01/01/2002.
Where the assessment of a loan to an entity is impacting on a customer’s rate under the assets test, assets hardship may be considered if all other eligibility criteria are met, and the loan is unable to be realised (ie if no assets in entity to repay the loan). However, this would not apply for this case as the customer is income tested.
On 4 July 2014, Mrs Zohar’s Debt withholding repayments (i.e. from her AP) were reduced to $15 per fortnight.
On 13 August 2014, the ARO affirmed the Original Decision (ARO Decision). In the ARO Decision, the ARO stated:
I decided the amount of the debt was correct……
I have considered the rules that allow a debt to be waived. Firstly, your debt was caused by you failing to notify of the details of your financial circumstances and specifically your failure to notify of your involvement in the trusts and company. As the debt was not caused solely by the department’s error, it cannot be waived on this ground.
A debt may also be waived if there are special circumstances. Your circumstances need to be sufficiently unusual or uncommon as to be termed special. I accept that you knew very little about the functioning of the trusts but cannot say that you were disadvantaged by the distribution of $111,017 if your family had a taxation benefit from this transaction. You have indicated you did in fact have financial support from your family and persisted in business enterprises which were not profitable. I therefore decided your circumstances were not beyond your control and not to waive the debt under this section.
On 11 November 2014, Centrelink revised its records of Mrs Zohar’s earnings from Sanvar in light of Mrs Zohar’s accountant’s letter, dated 7 April 2014.
Mrs Zohar subsequently applied the SSAT for a review of the ARO Decision.
On 19 January 2015, Mrs Zohar and her son, Mr Oren Zohar, attended a hearing before the SSAT (each providing oral evidence to the SSAT). On the same day, the SSAT affirmed the ARO Decision (SSAT Decision). In the SSAT Decision, the SSAT summarised Mrs Zohar and Mr Zohar’s evidence at the hearing as follows:
7. Ms Zohar and Mr Zohar explained:
·Ms Zohar had been a business woman prior to her divorce about 20 years ago. After her divorce she continued owning and managing a clothing business and factory outlet shops in Melbourne. She came to Perth in 2001 and had started a café business in Perth
·In 2007 Mr Zohar gave Ms Zohar $84,000 to assist her start a café business in Perth. He was optimistic the business would be successful.
·The business ran into trouble because of the impact of the Goods and Services Tax and unreasonable rents. Ms Zohar sold the equity she had in her home and placed that money in Sanvar Pty Ltd to prop it up.
·When Mr Zohar was in the midst of a divorce, on his accountant’s advice, he distributed $111,017 from the Zohar Family Trust fund to Ms Zohar as a means of getting a better outcome in his divorce dispute and to gain a tax advantage (of about $30,000). The distribution was a paper transaction only and Ms Zohar agreed to the arrangement as a way of helping him. She did not anticipate receiving a financial benefit from it.
·All of Ms Zohar’s actions with respect to the business were aimed at her avoiding the need to rely on Centrelink, which she now does.
·Ms Zohar told the Tribunal she is currently receiving an underpayment in her age pension because income she declared she was earning when she was being paid by Sanvar Pty Ltd is being held against her.
In the SSAT Decision, the SSAT found:
· Mrs Zohar was overpaid $24,652.20 in AP during the Debt Period: SSAT Decision at [22];
· repayment of this debt could not be waived because the debt was due Mrs Zohar’s errors: SSAT Decision at [30]; and
· Mrs Zohar knowingly failed to comply with legislative requirements placed on her by the SSA: SSAT Decision at [37].
On 24 February 2015, Mrs Zohar applied to the Administrative Appeals Tribunal (Tribunal) for a review of the SSAT Decision. Mrs Zohar’s stated “Reasons for Application” are as follows:
During the hearing Dr Budiselik advised that even with good cause for arguing that I did not profit from loans made to the company, that Centrelink was in the habit of arbitrarily making decisions contrary to ATO findings and that his hands could be tied.
Centrelink has already deducted over $6000 from the “debt” from my pension causing me hardship and is continuing, albeit in lesser amounts, to do so; it took Centrelink 10 months to reach their decision causing more pressure and frustration.
It is grossly unfair to deduct money from my pension even though it has been shown that I was never overpaid on my pension having never benefited from monetary gains due to money lent to the company and subsequently irretrievable and forgiven. My representative explained to Dr Budiselik exactly why, based on his many years as a CPA and official receiver, that Centrelink was wrong. With respect Dr Budiselik on his own admission has only a basic knowledge of accounting. I wish to appeal against Centrelink’s findings because it is wrong. I am asking them to reverse their decision and to cancel the “debt” and reimburse me for the full amount that has been deducted to date.
RELEVANT EVIDENCE
Loans from Mrs Zohar & The Zohar Family Trust to Sanvar
Sanvar’s financial accounts for the year ended 30 June 2010, signed by Mrs Zohar and her accountant, Butler Settineri, on 17 November 2010, record that Sanvar had a “non-current liability” in the form of a $136,288 “Loan - P Zohar” in the year ended 30 June 2010, and a “non- current liability” in the form of a $94,895 “Loan – P Zohar” in the year ended 30 June 2009.
Sanvar’s financial accounts for the year ended 30 June 2011 (unsigned), record that the loan from Mrs Zohar increased to $176,449.16 in that financial year.
Sanvar’s 2010 and 2011 company tax returns indicate that Sanvar operated at a loss in those income years.
In his explanation to the ARO, Mrs Zohar’s son provided the following background in relation to the loans to Sanvar from Mrs Zohar and the loans from The Zohar Family Trust to Sanvar:
3. Sanvar- Loans from my mother
My mother was advised to run her business through a company structure - Sanvar, Her alternative would have been to run it as a sole trader. The intent behind doing so was to give her some degree of protection if things went bad or "pear-shaped" - which they ultimately did. My mother was reliant upon the business to provide her with a steady income - albeit a small one. She did not want to have to rely on social security. Like many business people who are emotionally attached to something, she made the decision to invest her life savings into the business. As the business lost money she continued to advance more funds in order to fund the accrued losses and ensure that the business could pay its debts. She took the extraordinary step of selling her house in order to advance her remaining life savings into the business also.
These advances / loans from my mother could and more properly should have been considered or treated as equity contributions / shareholders equity but the external accountant simply journalled the advances as "loans" in the books of account. There was never an expectation from my mother that these loan funds would be repaid. The money was considered lost and the only way in which Sanvar could ever be in a position to repay these funds, would be if it were able to start trading at a profitable level, and if my mother would then have been able to sell the business as a going concern and receive a "premium" for goodwill - which didn't otherwise exist and generally doesn't exist in businesses which trade at a loss. This was at best a remote possibility.
Sanvar traded at a loss year after year and eventually my mother was unable to keep going due to substantial arrears owing to the landlord. It has no assets and still owes money to several trade suppliers.
In hindsight, if my mother had operated the business as a sole trader, then the advances would simply have been written off as "losses" year after year. The reality was that the loans she had made to the company were effectively "written off" the minute she advanced the funds as they were simply used to pay existing debt which had accrued, so she was advancing money to pay old debt, not to have it sit there in a bank account as an asset of the Company. If my mother herself had to prepare a statement of her assets and liabilities - then if one were to apply generally accepted accounting principles she would have had to have raised a bad / doubtful debt provision against these loans to Sanvar-as there was no way that Sanvar could reasonably have expected to be in a position to repay the loans.
My mother has been unemployed since the business ceased trading and the only reason that Sanvar has not been placed into liquidation, or steps taken to have it deregistered is because my mother does not have the funds to pay a liquidator to carry out the process. The only way to have an asset-less company placed into liquidation is to petition the court (if one is a creditor) or to pay a liquidator to take on the role {if one is a member / director). So the company sits dormant until such time as ASIC takes steps to have it deregistered for want of the registration fees / annual return not being lodged.
My mother has agreed verbally over the years and is happy to put this in writing if you need her to, that the loan funds which she advanced to Sanvar have effectively been forgiven on commercial grounds ie on the basis that Sanvar has no ability and no reasonable expectation nor has it ever had of being able to repay these loan funds, As noted, my mother has in effect run a full doubtful / bad debt "provision" in her mind against these loans since they were first made which is why she never would have considered the advances to be an asset of hers as they were not and are not recoverable and have nil value.
I have attached an extract below from my court proceedings which refers to the money I had lent my mother and the distribution from the ZFT to repay/offset it.
ZFT Loan to Sanvar Pty Ltd
1. We never advanced the sum of $100,000.00 to my mother but in fact the ZFT advanced the sum of $84,000 to my mother's company Sanvar Pty Ltd ("Sanvar'). It is an owner operated lunchbar business situated in the Perth CBD. The business was struggling and my mother wanted to purchase another lunchbar in West Perth she could achieve economies of scale and share the staff and cooking between the two venues.
2. The ZFT advanced Sanvar a sum of $84,000.00 to buy the second lunchbar in West Perth. This is the amount recorded in the accounts of the ZF as at the 30 June 2008 and in the management accounts as at 31 December 2008. Annexed hereto and marked “OZ” is a copy of the said accounts. Reference a copy of the said accounts was attached to the form 11.
3. The combined business did not run profitably and my mother's company continued to lose money across both lunchbars. My mother tried to sell the lunchbar in the CBD with the view of repaying me the money. She was unsuccessful in selling the lunchbar as it made no profit and ended up shutting it down when the lease came to a renewal. My mother became very distressed about the ability to repay the monies to me and I told my mother in early 2008 not to worry about repaying the money. The second lunchbar in West Perth does not make a profit either, it never has. It pays my mother a small income only which is not commensurate with the effort that she puts in to run it. My mother has tried to sell unsuccessfully this lunchbar. If attempts were made to demand repayment of the money the business would simply cease to operate and little or nothing would be recoverable.
4. Galit and l discussed on numerous occasions and agreed that whilst it would be nice if my mother’s company would one day repay the funds we did not expect the money to be ever repaid and we were happy to have assisted and considered it to be a gift.
5. The loan to my mother’s company was written off for accounting and taxation purposes in the books of the ZFT. On advice from my external accountant l have caused distributions of profit from the ZFT to be made to my mother’s company, Sanvar, as well as to my mother and my new wife Carolyn, with a view to attempting to minimise the amount of taxation needed to be paid. These distributions have been declared but never paid i.e, no cash has changed hands. The effect of this is that it has assisted me to reduce the amount of the future tax liability in relation to the unappropriated profits that sit m Anna Enterprises which is discussed further m the preceding paragraphs.
6. The effect of these distributions is also that they serve as an offset against the amount owed by Sanvar of $84,000. So, all in all, and notwithstanding that Sanvar has no ability to repay the funds which it was given, I have been able to reclaim some benefit by distributing unappropriated profits to Sanvar and by utilising tax losses which Sanvar has sustained This has resulted in a benefit to the matrimonial asset pool by reducing the extent of liability which I must pay on those unappropriated profits - which I note was not a liability which was taken into account at the time of the consent orders.
7. My mother is 65 years of age. She has recently sold her house in which she lived for the past several years and she made a small capital gain on the sale of the house. She has used those funds to buy a business called Poppies which she effectively took control of on 1 June 2012. This business has absolutely nothing to do with me. It is owned by my mother not by Sanvar. I am not privy to details of the purchase price however I am aware that my mother has vendor financed the purchase as she did not have enough money to buy it. It is a small coffee shop operating from leased premises in North Perth.
8. My mother has told me that she may end up shutting down the West Perth lunch bar belonging to Sanvar in the coming months as she is unable to sell it. The /ease has expired and her previous attempts to sell have been unsuccessful. There will be no return from Sanvar.
Distributions from The Zohar Family Trust to Mrs Zohar
Mrs Zohar’s son, Mr Oren Zohar, is the guardian and appointer of The Zohar Family Trust, and is one of two of the directors of its corporate trustee, Monni Enterprises Pty Ltd.
The Zohar Family Trust tax return for the 2010 tax year recorded that Mrs Zohar, as a beneficiary, was distributed $111,017 of the trust’s income in that period. The tax returns for The Zohar Family Trust for 2011 and 2012 years record that no distributions were made to Mrs Zohar during those income years.
In his explanation to the ARO, Mrs Zohar’s son provided the following background in relation to the distribution from The Zohar Family Trust to Mrs Zohar in the 2010 year:
1. Distributions from Zohar Family Trust
The trustee of this trust is Monni Enterprises Pty Ltd. My current wife and I are the directors of Monni and prior to that I was the sole director. My mother has had no involvement whatsoever in the trustee company or the trust and has no knowledge of its affairs or past accounts - other than as noted below.
This trust is a discretionary private trust which l maintain for the benefit of my wife and children. I am able to also distribute to other family members / relatives as the definition of beneficiary is wide enough to do so however this is rare.
This trust lent my mother an amount of $85,000 approximately 7 or 8 years ago which she used to purchase a lunchbar business in the name of her company, Sanvar Pty Ltd.
I am not entirely certain how the accountant would have treated these funds but possibly as a loan from the trust to my mother and then from my mother to Sanvar Pty Ltd - which would mean that the Zohar Family Trust would not have appeared as a creditor of Sanvar at the time, but instead my mother's loan to Sanvar would be inflated by this amount.
I went through a difficult divorce in 2009 with protracted litigation through the courts which only ended in December 2012. Throughout this time the issue of the funds lent to my mother/Sanvar were a live issue and it was submitted to the Court and accepted by my ex-wife and ultimately the Court that Sanvar - because of its continuing trading losses and precarious financial position, did not have an ability to repay these funds and therefore no recovery was likely.
The distribution of $110,000 (approx.) which is referred to in your letter to my mother, relates to a non-cash transaction whereby my external accountant effectively distributed certain income to Sanvar P/L which I had either generated through other business interests or through the sale of assets (I can’t exactly recall as it was a difficult period and I was in the process of selling off assets to reduce debt and resolve my previous marital affairs). The effect of this distribution was that Sanvar was able to offset the income against past losses and to then use the funds to repay the money (including interest) which the trust had lent it (or my mother) years earlier.
There was no cash that changed hands. The distribution was effected via journal entry and was basically a legitimate manner in which to reduce tax and have the loan repaid. The net effect for my mother was nil. She did however have the use of the funds for several years which had allowed her to acquire the business and endeavour to earn a living therefrom.
My mother would not have had knowledge of the tax effect of all of this-as to her it was a nil net effect outcome and she wouldn't have known it would have any effect or be considered as part of her income.
The ARO’s notes of her discussion with Mrs Zohar’s accountant, Butler Settineri, on 12 August 2014 records Mrs Zohar’s accountant’s statement that distributions by The Zohar Family Trust for the 2010 tax year would have been made on 30 June 2009.
The Zohar Family Trust balance sheets indicate that as at 30 June 2010 and 30 June 2011 The Zohar Family Trust had a “current liability” described as “Phillipa Zohar- Unpaid Distribution from 2010” valued at $89,051.89. However, The Zohar Family Trust’s balance sheet, as at 30 June 2012, records no liabilities in respect of Mrs Zohar.
Distributions from The Topez Trust to Mrs Zohar
The Topez Trust’s tax returns record that Mrs Zohar was distributed nothing in 2010, $5,000 in 2011 and $2,819 in 2012.
In his explanation to the ARO, Mrs Zohar’s son provided the following background in relation to the distributions from The Topez Trust to Mrs Zohar in the 2011 and 2012 years:
2. Distributions from Topez Trust
As discussed, this trust is an entity which is controlled by my father and always has been - for at least the last 20 years since my mother and father were divorced. It is a discretionary trust and my father receives some passive investment income which he holds for his grandchildren's future benefit. My sister and I have over the last few years asked my father if he would be prepared to give some of this money to my mother to assist her financially when she needed it-generally when the business wasn't paying its way and she had exhausted her own savings.
The amounts my father was prepared to give my mother were done as a distribution from this trust. My mother would not have known the tax effect of the distribution and probably thought it was simply a gift of some sort.
ISSUES
The relevant issues for consideration by the Tribunal is this application are:
(i) whether Mrs Zohar was overpaid AP in the Debt Period;
(ii) If so, whether the overpayment is a debt due to the Commonwealth; and
(iii) If so, whether recovery of all or part of the debt should be waived or written off.
ANALYSIS
(i) Was Mrs Zohar overpaid AP in the Debt Period?
It is not in dispute that at all relevant times Mrs Zohar was qualified for AP pursuant to s 43 of the Social Security Act 1991 (SSA).
Section 55(a) of the SSA provides that if a person is not permanently blind, the person’s AP rate is worked out using Pension Rate Calculator A at the end of s 1064 of the SSA.
Pension Rate Calculator A sets out a formula for calculating a person’s pension. Pursuant to Pension Rate Calculator A, a number of factors will affect the rate of pension payable to a person. Further, Pension Rate Calculator A requires Centrelink to assess a person under an “income test” and an “assets test” and determine the person’s rate of payment in accordance with the test that produces the lower rate.
In Mrs Zohar’s case, the “income test” is the relevant test to be applied. The “income test” is applied by reducing the rate of pension payable to a person by 50 cents for every dollar of income earned by the person which is above the “income cut-out amount” applicable to that person: s 1064-E1-E11 of the SSA.
“Income” is defined in s 8 of the SSA, as follows:
“income”, in relation to a person, means:
(a)an income amount earned, derived or received by the person for the person’s own use or benefit; or
“Income amount” is defined in s 8 of the SSA, to mean:
(a) valuable consideration; or
(b) personal earnings; or
(c) moneys; or
(d) profits
Section 8(11) of the SSA provides that an amount received by a person is an “exempt lump sum” if:
(a)the amount that is not a periodic amount (within the meaning of subsection (11A));
(b)the amount is not a leave payment within the meaning of points 1067G-H20, 1067L-D16 and 1068-G7AR;
(c)the amount is not income from remunerative work undertaken by the person; and
(d)the amount is not an amount, or class of amounts, determined by the Secretary to be an exempt lump sum.
For the reasons set out below, the Tribunal finds that the correct amount of Mrs Zohar’s “income” from the following sources was not taken into account in calculating the rate of AP payable to her during the Debt Period resulting in an overpayment of AP to Mrs Zohar in the Debt Period:
· The distribution of $111,017 from The Zohar Family Trust to Mrs Zohar;
· The distributions of $5,000 and $2,819 from The Topez Trust to Mrs Zohar in the 2011 and 2012 years respectively;
· Mrs Zohar’s loan to Sanvar.
· The transaction recorded in The Zohar Family Trust’s financial accounts as “Philippa Zohar - Unpaid Distribution from 2010”; and
· Mrs Zohar’s earnings, in the form of wages, declared by Mrs Zohar as having been paid to her by Sanvar.[1]
[1] In the SSAT Decision, the SSAT found, contrary to the Original Decision, that a transaction recorded in The Zohar Family Trust’s financial accounts as “Sanvar Pty Ltd – Unpaid Distribution from 2010” should have been taken into account in calculating Mrs Zohar’s debt amount (although the SSAT did not vary the debt amount). For reasons discussed below, the Tribunal does not consider that this transaction should be taken into account in calculating Mrs Zohar’s debt.
Distributions from The Zohar Family Trust & The Topez Trust to Mrs Zohar
Section 1073(1) of the SSA states:
1073 Certain amounts taken to be received over 12 months
(1) Subject to points 1067G-H5 to 1067G-H20 (inclusive), 1067L-D4 to
1067L-D16 (inclusive), 1068-G7AA to 1068-G7AR (inclusive), 1068A-E2 to 1068A-E12 (inclusive) and 1068B-D7 to 1068B-D18 (inclusive), if a person receives, whether before or after the commencement of this section, an amount that:
(a)is not income within the meaning of Division 1B or 1C of this Part; and
(b) is not:
(i) income in the form of periodic payments; or
(ii)ordinary income from remunerative work undertaken by the person; or
(iii) an exempt lump sum
the person is, for the purposes of this Act, taken to receive one fifty-second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount. [Emphasis added]
The Department of Social Security’s Guide to Social Security Law (Guide) provides decision-makers with policy guidance in relation to the application of the SSA.[2]
[2] The Tribunal should apply lawful ministerial policy unless there are cogent reasons not to. For example, its application would produce an unjust decision in the particular circumstances of the case: Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645 per Brennan J.
Section 4.7.3.20 of the Guide states:
A beneficiary is entitled to receive an amount under a discretionary trust when the trustee exercises their power under the trust deed and makes a RESOLUTION to distribute in favour of the beneficiary. Allocations and distributions are assessed as income for 12 months under SSAct subsection 1073(1) from the date of the resolution to distribute.
There may be instances where a resolution to distribute was made but the trust tax return has not been lodged at the time of resolution. Where this is the case, the onus is on the income support recipient to find out how much s/he is entitled to receive. Distribution income should still be assessed from the date the resolution was made and not from the date the tax return was lodged.
An example would be where a resolution was made on 1 July 2001, but the tax return was done on 1 October 2001. The income support recipient, as trustee, may know of the distribution prior to receipt, or may be ignorant of the distribution until it is paid. In either case, assessment is from the date of resolution which is the 1 July 2001.
Section 4.12.7.50 of the Guide provides that distributions paid to a non-attributable stakeholder, on or after 1 July 2000, will be assessed as “income” of the non-attributable stakeholder for 12 months from the date of the resolution to distribute.
On 27 August 2015, Mrs Zohar’s son emailed Mrs Zohar’s response to the “Respondent’s Statement of Fact and Contentions”, dated 31 July 2015, which included the following “summary and conclusion”:
The distribution from [The Zohar Family Trust] to the applicant was made. The applicant was not then entitled to receive the distribution and it was not recorded as being unpaid at that time. It was – immediately at the time of distribution – offset against the amount owing by the applicant to [The Zohar Family Trust]. The applicant refers to section 564 of the Corporations Act regarding set off provisions of mutual debts.
The distribution of $111,017 from The Zohar Family Trust to Mrs Zohar in the 2010 year and the distributions of $5,000 and $2,819 from The Topez Trust to Mrs Zohar in the 2011 and 2012 years, respectively, constitute “income’”, within the meaning of s 8 of the SSA, that should be assessed as having been received by Mrs Zohar over 12 months from the date of the relevant resolution pursuant to s 1073 of the Act and s 4.7.3.20 and s 4.12.7.50 of the Guide.
With regard to The Topez Trust, the trust tax returns are the only documentary evidence of the distributions from the trust to Mrs Zohar. That is, there is no evidence of any resolutions having been made by the trustee in respect of the distributions: s 4.7.3.20 of the Guide; Re Christensen and Secretary, Department of Social Security (1995) 37 ALD 795 at [17] and Flaskas and Secretary, Department of Family and Community Services [2002] AATA 1255 at [44]. In the absence of resolutions by the trustee, the Tribunal considers it is appropriate to determine that Mrs Zohar received the income from The Topez Trust on 30 June of the relevant tax year (i.e. 30 June 2011 year in respect of the $5,000 distribution and 30 June 2012 in respect of the $2,819 distribution).
Mrs Zohar’s loan to Sanvar
Division 1B of Part 3.10 of the SSA (General Provisions Relating to the Ordinary Income Test), titled “Income from Financial Assets”, provides for the calculation of deemed income from “financial assets”.
Of particular relevance to this application is s 1076 of the SSA, titled “Deemed income from financial assets – persons other than members of couples”, which provides that a person who is not a member of a couple and who has “financial assets” is taken, for the purposes of the SSA, to receive “ordinary income” in respect of those assets and prescribes a formula for calculating the person’s deemed “ordinary income” based on the “total value of the person’s financial assets”.
“Financial asset” is defined in s 9 of the SSA as follows:
financial asset means:
(a) a financial investment; or
(b) a deprived asset.
Note: For deprived asset see subsection (4). [Emphasis added]
“Asset” is defined in s 11 of the SSA to mean:
property or money (including property or money outside Australia).
“Financial investment” is defined in s 9 of the SSA as follows:
financial investment means:
(a) available money; or
(b) deposit money; or
(c) a managed investment; or
(d) a listed security; or
(e) a loan that has not been repaid in full; or
(f) an unlisted public security; or
(g) gold, silver or platinum bullion; or
(h) an asset-tested income stream (short term); or
(i)an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994; or
(j)an asset-tested income stream (long term) that is an annuity (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the requirements determined in an instrument under subsection (1EA);
but does not include a designated NDIS amount.
Section 1121 of the SSA, titled “Effect of charge or encumbrance on value of assets”, makes provision in respect of a charge or encumbrance over assets. However, s 1121 of the SSA does not allow a reduction in the value of an asset for the purpose of Division 1B of Part 3.10 of the Act, including s 1076 of the SSA as set out above. Section 1121(1) of the SSA states:
(1) If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person’s assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance. [Emphasis added]
Section 1122 of the SSA, titled “loans” states:
If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.
Section 4.12.5.10 of the Guide provides that loans to an entity will be recognized as a genuine liability of the entity and therefore allowed as a genuine deduction from the gross asset value of the borrowing entity if:
·They appear on the balance sheet, and
·They are made under a written agreement signed by all parties to the agreement and witnessed by a third party (associates are not considered to be third parties), and
·They are not made by a person who is under 18 years of age, and
·Considering the circumstances of, nature of and parties to the loan, the loan can be considered to be genuine and not created as part of a scheme to gain social security advantage.
………
Note: Regardless of whether a loan is recognized as a liability of an entity or not, the value of the loan is considered to be a personal financial asset of the lender and is subject to deeming.
Therefore, s 4.12.5.10 (read together with s 4.4.1.30 of the Guide) makes it clear that regardless of whether a loan is recognized as a liability of an entity or not, the value of the “loan” is considered to be a personal “financial asset” of the lender and is subject to deeming.
Section 1.1.L.65 of the Guide provides the following definition of a “loan”:
To be a loan there MUST be:
·An actual lending of money or an asset (1.1.A.290) of a particular value, AND
·A clear intention to repay.
A loan is:
·An advance of money, or
·The payment of an amount for, on account of, on behalf of or at the request of a person where there is an obligation, whether expressed or implied, to repay the amount.
The Tribunal finds that because Mrs Zohar’s loan to Sanvar was “a loan that has not been repaid in full” it was a “financial investment” and, it follows, a “financial asset” of Mrs Zohar, pursuant to the relevant definitions in s 9 of the SSA, that generated deemed income under s 1076 of the SSA.
Further, pursuant to s 1122 of the SSA, the value of Mrs Zohar’s loan to Sanvar was the face value of that loan recorded in Sanvar’s financial accounts, and not some lesser or reduced rate reflecting recoverability or unrealisability, that must be taken into account for the purpose of calculating pension entitlements: Re Lyons and Secretary, Department of Family and Community Services [2007] AATA 1095 at [49], and authorities referred therein.
In Mrs Zohar’s son’s response (dated 27 August 2015) to the “Respondent’s Statement of Fact and Contentions”, dated 31 July 2015, he states:
Any loans made to Sanvar by my mother – were not loans to a solvent entity they were loans made to prop up and replenish working capital which had been lost already – as such the funds being “loaned” / injected into the business were to prop it up and provide working capital to trade and pay existing creditors – this being the case there would not and could never be a surplus of fund or an ability for these funds to be repaid by my mother.
Where income of a related entity is deemed to form part of my mother’s income then so too should the expenses of that entity (and debts payable) be treated as expenses of my mother – i.e. The net income of the entity should be considered.
So any purported loans to Sanvar were not able to be recovered and any accounting standards would not recognized such loans as assets – but rather the realisable value / recoverable value of them is nil.
The accountant would not write this however as there remained a legal obligation to pay and therefore any slim prospect of future profit – dictates that losses carry forward can be used down the track to erduce (sic.) tax – hence the c/f loss rules.
Based on the above response and the background provided to the ARO (refer to paragraph 33 above), Mrs Zohar’s son appears to contend that Mrs Zohar’s loan to Sanvar should have been characterised by her accountant as a shareholder contribution to Sanvar’s capital. The Tribunal considers that Sanvar’s financial accounts are contemporaneous documentary evidence establishing that the proper characterisation of the transaction which occurred between Mrs Zohar and Sanvar is that of a “loan” (refer to paragraphs 61-63 and 65 above), noting that Sanvar’s financial accounts have been prepared by Mrs Zohar’s accountant, Butler Settineri, and that at least one of the sets of accounts before the Tribunal (i.e. the accounts for the year ended 30 June 2010) was signed off by Mrs Zohar and her accountant: refer to paragraph 30 above. On this basis, the Tribunal finds that Sanvar’s financial accounts are conclusive evidence of the nature of the relevant transaction between Mrs Zohar and Sanvar, being that of a “loan”. In any event, the Tribunal does not have the power to re-characterise the transaction contrary to the evidence in the financial accounts: Lyons at [36]-[37].
Section 4.6.2.20 of the Guide provides that once a “loan” ceases to exist for social security purposes it is no longer assessed under s 1122 of the SSA. Section 4.6.5.65 of the Guide (the relevant portion of which is set out at Attachment 1) indicates when a loan will be taken to no longer exist.
There is nothing to indicate that, during the Debt Period, Mrs Zohar had taken the necessary legal steps in respect of her loan to Sanvar such that the loan could be considered to no longer exist pursuant to s 4.6.5.65 of the Guide. Further, Mrs Zohar’s alleged understanding that her loans to Sanvar were “forgiven” and that Sanvar was on the “path to winding up” is not sufficient to satisfy the requirements of s 4.6.5.65 of the Guide: Greenhill and Secretary, Department of Family and Community Services [2006] AATA 176 at [42]- [43].
For the above reasons, the Tribunal finds that Centrelink was correct to determine that Mrs Zohar received deemed income from her “loan” to Sanvar, pursuant to s 1076 of Division 1B of Part 3.10 of the SSA, and finds that the amount of deemed income has been correctly calculated for the purpose of raising the debt for overpayment of AP to Mrs Zohar during the Debt Period.
The transaction recorded in The Zohar Family Trust’s financial accounts as “Philippa Zohar- Unpaid Distribution from 2010”
The Zohar Family Trust balance sheets indicate that, as at 30 June 2010, and, as at 30 June 2011, The Zohar Family Trust had a “current liability” described as ‘Phillipa Zohar - Unpaid Distribution from 2010’ valued at $89,051.89. However, The Zohar Family Trust’s records indicate no liabilities in respect of Mrs Zohar, as at 30 June 2012.
Mrs Zohar’s son’s explanation of this transaction indicates that the net result of the distribution was a reduction in The Zohar Family Trust’s tax liability: refer to paragraph 36 above.
The Zohar Family Trust’s 2010 tax return indicates that Mrs Zohar was distributed $111,017 in the year ended 30 June 2010. The Zohar Family Trust’s accountant indicated that the resolution effecting the distribution would have occurred on 30 June 2009: refer to paragraph 13 above. There is no evidence before the Tribunal that The Zohar Family Trust has lodged an amended tax return for the 2010 tax year. A letter from Mrs Zohar’s accountant, dated 20 June 2013, indicates that Mrs Zohar received the full $111,017 distribution as taxable income during the year ending 30 June 2010: refer to paragraph 12 above. The Zohar Family Trust’s accounts indicate that $89,051.89 of that distribution remained unpaid until 30 June 2012: refer to paragraph 38 above.
The Tribunal takes the view that, in such circumstances, the only rational inference to be drawn is that the amount of “$89,051.89”, recorded in the Zohar Family Trust’s financial accounts as “Phillipa Zohar - Unpaid Distribution from 2010”, was an amount which was loaned back to The Zohar Family Trust by Mrs Zohar out of the distribution to her of $111,017. That is, the amount of $89,051.89 was “a loan that has not been repaid in full” and, therefore, a “financial investment” and “financial asset” (as defined in s 9 of the SSA) of Mrs Zohar which was subject to deeming under s 1076 of the SSA while it remained unpaid: see Sangster v Secretary, Department of Family and Community Services [2004] AATA 991 at [12]-[13]; Corporate Initiatives Pty Ltd v Commissioner of Taxation [2005] FCAFC 62 at [25] per Spender, Fleerey and Lander JJ and Pope v Commissioner of Taxation [2014] AATA 532 wherein DP Hack accepted at [15] that where a trust’s balance sheets indicated a current liability to a beneficiary following a distribution, the only rational inference is that the balance of the distribution was effected under the trust deed and that the monies distributed in that way constituted a loan at call between the beneficiary and the trust.
The Tribunal considers that The Zohar Family Trust’s 2010 tax return and Mrs Zohar’s accountant’s letter, dated 20 June 2013, read with The Zohar Family Trust’s financial accounts, provide objective evidence that a “loan” occurred: refer to paragraphs 76-77 above. Further, the SSAT recorded Mrs Zohar’s evidence that she was aware of, and agreed to, the distribution: refer to paragraph 27 above: cf Bayliss v Secretary, Department of Social Services [2014] AATA 964 at [30] and [34].
For the above reasons, the Tribunal finds that in relation to the “loan” from Mrs Zohar to Sanvar, the amount of deemed income has been correctly calculated for the purpose of raising the debt for overpayment of AP to Mrs Zohar during the Debt Period.
Mrs Zohar’s wages from Sanvar
Section 110(1) of the Social Security (Administration) Act 1999 (SSAA) provides that if a favourable determination is made following a person informing Centrelink of an event or change of circumstance, the determination takes effect on the later of the day on which the person informed Centrelink, or the day on which the event or change occurred.
In the Income and Assets Form (lodged by Mrs Zohar along with her claim for AP), Mrs Zohar states that she was earning a $200 per fortnight wage from Sanvar: refer to paragraph 4 above. Mrs Zohar did not inform Centrelink that she was in fact not receiving that wage until April 2014: refer to paragraph 19 above. Mrs Zohar’s handwritten notation in the Income and Assets Update Form *lodged with Centrelink on 20 June 2013) was not sufficiently clear to amount to a notification of a change in circumstances: refer to paragraph 11 above.
On this basis, the Tribunal finds that Mrs Zohar’s income from Sanvar has been correctly calculated for the purpose of raising the debt for overpayment of AP to her during the Debt Period.
(ii) Is the overpayment a debt due to the Commonwealth?
Pursuant to s 1223 of the SSA, if a social security payment is made and the person who obtains the benefit of the payment was not entitled for any reason to obtain the benefit, the amount of the payment is a debt due to the Commonwealth.
In accordance with s 1223 of the SSA, the overpayment of AP to Mrs Zohar in the Debt Period is a debt due to the Commonwealth.
(iii) Should all or part of the debt be waived or written off?
Part 5.4 of Chapter 5 of the SSA allows for debts to the Commonwealth to be waived or written off for a period in certain circumstances.
Waiver of debt due solely to administrative error of the Commonwealth
Section 1237A of the SSA 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(s) that gave rise to that proportion of the debt.
In Sekhon v Secretary, Department of Family and Community Services (2003) 132 FCR 126, the Full Federal Court considered the meaning of the phrase “attributable solely to” for the purposes of s 1237A of the SSA. The Court said at [35]:
The ordinary or usual interpretation of the phrase “attributable solely to” is that it refers to the single or sole cause of the relevant act or event. The word “attributable” means “capable of being attributed”. It involves an objective assessment of causation. The words “a debt attributable solely to an administrative error” can be paraphrased as meaning that the only cause that objectively can be ascribed to the relevant debt is an administrative error.
Mrs Zohar’s evidence before the SSAT was that she did not know why she had answered questions on her Income and Assets form incorrectly, and that she may have mis-read the questions. Further, in Mrs Zohar’s response (dated 27 August 2015) to the “Respondent’s Statement of Facts and Contentions”, dated 31 July 2015, Mr Zohar stated:
The applicant denies that she knowingly failed to comply with the relevant legislative requirements – the applicant maintains that any non-compliance was an inadvertent error and/or misunderstanding
On the available evidence, the Tribunal finds that Mrs Zohar’s overpayment of AP (i.e. her debt due to the Commonwealth), arose, at least in part, from her failure to accurately declare her circumstances to Centrelink. Mrs Zohar’s debt cannot, therefore, be said to be “attributable solely to” an administrative error by Centrelink. As such, it is not appropriate to waive any part of Mrs Zohar’s debt pursuant to s 1237A of the SSA.
Waiver due to “special circumstances”
Section 1237AAD of the SSA 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 representation; or
(ii)failing or omitting to comply with a provision of this Act [i.e. the SSA], or the Administration Act [i.e. the SSAA]; and
(b)there are special circumstances (other than financial hardship alone) that make it desirable to waive the debt; and
(c) it is more appropriate to waive than to write off all or part of the debt. [Emphasis added]
The term “knowingly” is not defined in the SSA for the purposes of s 1237AAD(a) of the SSA but has been interpreted by the Tribunal as meaning “actual” as opposed to “constructive” knowledge: see Re Callaghan and Secretary, Department of Social Security (1996) 45 ALD 435 at [48] and [49]; Re Secretary, Department of Family and Community Services and Jonauskas [2001] AATA 72 at [69]; Re Anderson and Secretary, Department of Families and Community Services (2002) 69 ALD 484 at [47] and Davy and Secretary, Department of Employment and Workplace Relations [2007] AATA 1114 at [74].
As stated above (in the “Factual & Procedural Background), on 22 September 2010, Centrelink informed Mrs Zohar of its understanding of her assets and income, based on information provided to it by Mrs Zohar in in the Income and Assets Form.: refer to paragraphs 4 and 6 above. On the same day, Centrelink notified Mrs Zohar that she must tell Centrelink within 14 days if, among other things, her income changes or her financial investments were more than $1,100 above the value of financial investments Centrelink had recorded for her: refer to paragraph 7 above. There is no evidence to support a finding that that Mrs Zohar was not aware of the distributions made to her from The Zohar Family Trust or The Topez Trust. Mrs Zohar’s son’s explanation suggests that Mrs Zohar was aware of the distribution from The Topez Trust (if not its tax implication): refer to paragraph 40 above. In addition, Mrs Zohar’s and her son’s evidence before the SSAT indicates that Mrs Zohar was aware of and agreed to the distribution from The Zohar Family Trust: refer to paragraph 27 above. Further, there is no evidence to support a finding that Mrs Zohar, as sole director and shareholder of Sanvar, would not have been aware of her ongoing loan to Sanvar. Mrs Zohar’s son’s explanation indicates that, despite any view Mrs Zohar may have had regarding the recoverability of her loan to Sanvar, Mrs Zohar was at least aware of this loan: refer to paragraph 33 above. The verbal evidence given by Mrs Zohar at the hearing of this application supports these findings.
As stated above (in paragraph 88), Mrs Zohar’s position is that she did not knowingly fail to comply with the relevant legislative requirements. However, for the above reasons, the Tribunal finds that Mrs Zohar did knowingly fail to accurately declare her circumstances in the Income and Assets Form (refer to paragraph 4 above) such that she knowingly made a false statement or representation for the purposes of s 1237AAD(a)(i) of the SSA. Alternatively, the Tribunal finds that Mrs Zohar failed to notify Centrelink of relevant changes in her income and the value of her financial investments, as required by the s 67(2) notices sent to her in the relevant period, such that she knowingly failed or omitted to comply with the provisions of the SSA for the purposes of s 1237AAD(a)(ii) of the SSA .
Even if the Tribunal is incorrect in this regard, it nevertheless finds that Mrs Zohar’s debt should not be waived under s 1237AAD of the SSA as no “special circumstances” exist in her case, making it desirable to do for her debt to be waived pursuant to s 1237AAD(b) of the SSA.
The expression “special circumstances” has been considered extensively by the Federal courts and Tribunal in the social security and family assistance law context. Broadly, it has been held that for circumstances to constitute “special circumstances” they must be circumstances which are “unusual, uncommon or exceptional,” “markedly different from the usual run of cases,” “special” or “out of the ordinary” and they include “events which would render the (strict application of the rule in question) unfair or inappropriate:” see for example, Re Ivocic and Director General of Social Services [1981] AATA 57 at [45]; Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 per Toohey J; Beadle and Director General of Social Security (1985) 60 ALR 225 at 228 as per Bowen CJ, Fisher and Lockhart JJ; Groth and Secretary, Department of Social Security (1995) 40 ALD 541 at 545 per Kiefel J; Dranichnikov v Centrelink [2003] 75 ALD 134 at [66] per Hill J; Angelakos and Secretary Department of Employment and Workplace Relations [2007] FCA 25 at [33] and Davy and Secretary Department of Employment and Workplace Relations [2007] AATA 1114 at [80]. Circumstances might be “special”, although they apply to more than one person or class of persons, provided they are not of universal application (for example, they are a common or universal characteristic of social security recipients): see Fischer v Secretary, Department of Families, Housing, Community Services & Indigenous Affairs (2010) 185 FCR 52 at [65].
In Mrs Zohar’s sons response (dated 27 August 2015) to the “Respondent’s Statement of Facts and Contentions”, dated 31 July 2015, Mrs Zohar appears to raise the financial hardship caused by Centrelink’s decision to raise the debt, and the fact that her loan to Sanvar was “subsequently irretrievable and forgiven”, as “special circumstances”. However, s 1237AAD(b) of the SSA, expressly states that “financial hardship alone” will not constitute “special circumstances”: refer to paragraph 89 above. Regarding Mrs Zohar’s loans to Sanvar, the Tribunal is of the view that Mrs Zohar’s decision to loan money, to what eventually turned out to be a failed business venture, does not amount to “special circumstances” for the purposes of s 1237AAD of the SSA. Beyond these circumstances, there is nothing sufficiently unusual or uncommon about Mrs Zohar’s circumstances to render them “special circumstances” for the purposes of s 1237AAD of the SSA.
Write off
Section 1236(1A) of the SSA Act provides that the Secretary “may”, on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise under s 1236(1) of the SSA, if, and only if, one or more of the following applies:
(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.
In short, none of the circumstances referred to in s 1236 of the SSA apply in Mrs Zohar’s case.
DECISION
For the above reasons, the Tribunal affirms the SSAT Decision.
I certify that the preceding 99 (ninety nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member CR Walsh ...(Sgd) T Freeman..............
Administrative Assistant
Dated 23 September 2015
Date of hearing 8 September 2015 Applicant In person Representative for the Applicant Mr O Zohar Representative for the
RespondentMr D Carroll Solicitors for the Respondent Australian Government Solicitor
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