Tapp v Chief Executive Officer of the Department of Work and Income Ca267/02

[2003] NZCA 347

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 267/02

BETWEENJ. TAPP

Appellant

ANDTHE CHIEF EXECUTIVE OFFICER OF THE DEPARTMENT OF WORK AND INCOME

Respondent

Hearing:29 April 2003

Coram:McGrath J
Fisher J
Rodney Hansen J

Appearances:  G E Minchin & T J McGurk for Appellant

W G Liddell for Respondent

Judgment:14 May 2003      

JUDGMENT OF THE COURT DELIVERED BY FISHER J

Introduction

[1]       Mrs Tapp appeals from the High Court decision of Durie J with respect to her entitlement to a Community Wage (Sickness) Benefit under the Social Security Act 1964. The point concerns the way in which the four‑weekly payments of her husband’s retiring allowance are to be brought to account when assessing the net weekly benefit to which she is entitled. She contends that because the retiring allowance is paid only once every four weeks, only one in every four of her weekly benefit payments should be subject to the abatement provisions of the Social Security Act. The Chief Executive of the Department of Work and Income determined that the abatement would apply to every one of her weekly benefit payments. His determination was upheld by the Benefit Review Committee, the Social Security Appeal Authority and the High Court.

Background

[2]       It is common ground that the relevant date for present purposes was that of the Chief Executive’s decision in March 1999. That is important in view of changes to the relevant legislation since that date.

[3]       As at March 1999 Mrs Tapp had been a sickness beneficiary for a number of years. She received a benefit which was then called a Community Wage (Sickness) Benefit. Her husband was in receipt of a retiring allowance under the Government Superannuation Fund Act 1956.

The benefit

[4]       At the relevant time Mrs Tapp’s benefit was paid by community wage pursuant to s 89 of the Social Security Act which at that time materially provided:

89. Community wage: standard eligibility requirements –

(1)A person is entitled to a community wage if he or she satisfies the criteria in subsections (2), (3) and (4), and

(a)       Is not in full-time employment, but -

(i)       Is seeking it; and

(ii)Is available for it; and

(iii)Is willing and able to undertake it; and

(iv)Has taken reasonable steps to find it; or

(b)Is not in full-time employment, is willing to undertake it, but because of sickness, injury or disability is limited in his or her capacity to seek, undertake, or be available for it; or

(c)Is in employment, but is losing earnings because, through sickness or injury, he or she is not actually working, or is working only at a reduced level.

(2)An applicant for a community wage must be –

(a)       Aged 18 years or over; or

(b)Aged 16 years or over, be married, and have one or more dependent children.

(3)An applicant for a community wage must have resided continuously in New Zealand for at least 2 years at any time.

(4)An applicant for a community wage must have –

(a)      No income; or

(b)An income of less than the amount that would fully abate the community wage under the appropriate income test referred to in the Ninth Schedule.

(5)Nothing in subsection (4) affects the entitlement of a person to receive a community wage if, during a temporary period, the person has income sufficient to fully abate the community wage but the person otherwise fulfils the conditions of entitlement to the wage. …

[5]       In terms of s 89(1)(b) Mrs Tapp was not in full‑time employment, was willing to undertake it, and because of sickness was limited in her capacity to seek, undertake, or be available for it. She also satisfied the other eligibility criteria in s 89. Consequently she was entitled to a “community wage”. As to the terms of the community wage, s 99 materially provided:

99. Community wage: rates –

(1)A community wage must be paid to a community wage earner at the appropriate rate in the Ninth Schedule, unless subsection (2) applies.

(2)The appropriate rate in the Eighth Schedule that was payable immediately before 1 July 1998 must, while it is greater than the appropriate rate in the Ninth Schedule, be paid to a person who -

(a)Was a sickness beneficiary immediately before 1 July 1998; and

(b)Continued to receive that benefit until it was changed to the community wage; and

(c)Continues to receive the community wage. …

[6]       Given that Mrs Tapp had been a sickness beneficiary immediately before 1 July 1998, the effect of s 99(2) was to entitle her to the appropriate rate in the Eighth Schedule. At that time the Eighth Schedule provided:

EIGHTH SCHEDULE               [Section 55 (3)]

[Rates of Benefit Payable to Person Receiving a Sickness Benefit Immediately Before 1 July 1998]

1.(a) Repealed by s. 10(1) of the Social Security
Amendment Act (No. 3) 1997.
…

(f) To a married beneficiary (with or without                   [$139.54] a week, increased by [$139.54] a week

dependent children) whose spouse is not granted a             in respect of his or her spouse, the total rate to be
benefit in his or her own right  subject to Income Test 3.

[7]       For present purposes the critical provision in the Eighth Schedule was that the total rate of the benefit was to be “subject to Income Test 3”. The expression “Income Test 3” was defined in s 3(1) of the Act as follows:

Income Test 3 means that the applicable rate of benefit shall be reduced by 70 cents for every $1 of the total income of the beneficiary and his or her spouse which is more than $80 a week.

[8]       “Income” was materially defined in s 3(1) as follows:

income, in relation to any person, -

(a)means any money received or the value in money’s worth of any interest acquired, before income tax, by the person which is not capital (except as hereinafter set out); and

(b)includes, whether capital or not and as calculated before the deduction (where applicable) of income tax, any periodical payments made, and the value of any credits or services provided periodically, from any source for income-related purposes and used by the person for income‑related purposes; and …

[9]       Mr Minchin submitted that s 64(2A) and regulations made pursuant thereto were also relevant. Section 64(2A) provided:

Where, in relation to the rate of any benefit or additional benefit, reference is made in [this Act] or in any Schedule to this Act [[or in the Social Welfare (Transitional Provisions) Act 1990]] to the weekly income of the beneficiary, such income shall, unless the context otherwise requires, be determined by dividing the beneficiary’s total income over [[the appropriate number of weeks specified in regulations made under this Act]] (not exceeding 52 weeks) by the number of weeks in that period.]

[10]     Pursuant to s 132 of the Social Security Act the Social Security (Period of Income Assessment) Regulations 1996 materially provided:

2. Period over which income to be calculated –

(1)For the purposes of determining the weekly income of any person in accordance with section 64(2A) of the Social Security Act 1964, the number of weeks over which that income is to be determined shall be the appropriate number of weeks set out in the Schedule to these regulations.

…

Regulation 2      SCHEDULE

Number of Weeks Over Which a Person’s Weekly Income is to be

Determined under Section 64(2A) of the Social Security Act 1964

Benefit

Weeks over which income to be
Determined

1.         Widow’s benefit

Invalid’s benefit
Domestic purposes benefit

New Zealand superannuation or veteran’s pension (in respect of any rate set out in clause 2 of the First Schedule to the Social Welfare (Transitional Provisions) Act 1990 (as substituted by section 3 of the Social Welfare (Transitional Provisions) Amendment Act 1996)

Transitional retirement benefit

2.         Any other benefit

In each case,
52 weeks

1 week

The retiring allowance

[11]     Mr Tapp’s entitlement to a retiring allowance stemmed from s 35 of the Government Superannuation Fund Act 1956. It materially provided:

35       Retiring allowance

(1)Every contributor to whom this section applies may at any time retire from the Government service, and shall after his or her retirement in any manner from the Government service be entitled to receive from the Fund an annual retiring allowance for the rest of his or her life.

(1A)The amount of any such annual retiring allowance shall, except as provided in subsection (6) of this section, be the pension percentage of the contributor’s annual salary calculated in accordance with this section and increased in accordance with subsection (1D) of this section. …

It will be noted that the retiring allowance was described as an “annual” one payable to Mr Tapp “for the rest of his … life”. The entitlement will continue until he dies.

[12]     As to the manner in which the retiring allowance was paid, s 89 of the Government Superannuation Fund Act materially provided:

89. Payment of retiring allowances and annuities –

(1)Every retiring allowance or annuity under this Act shall be paid in advance by 4-weekly or monthly instalments as the Board may direct, and no portion of any such instalment shall be recoverable when the retiring allowance or annuity ceases to be payable.

(2)Except as otherwise provided in this Act, every such instalment shall be payable to the person entitled to the retiring allowance or annuity (in this section referred to as the beneficiary) personally, unless the Board in its discretion directs that it shall be payable to some other person on behalf of the beneficiary: …

[13]     It will be noted that the allowance was paid in advance. In Mr Tapp’s case the instalments were four-weekly. Although in terms of s 35 the entitlement was limited to life, the effect of s 89(1) was that no refund was required if the payee died before the expiration of the period in respect of which payment had been made in advance.

Decision in the High Court

[14]     Durie J noted that the benefit was payable at a rate that was subject to abatement if the beneficiary or her spouse had an income in excess of a certain amount “a week”. He noted that “income” was defined as “money received”; that the definition did not say “money received in the hand”; that something may be received in possession or in right; that the effect of s 64(2A) and the regulation in combination was that the amount to be assessed in a week was the amount “received” for that week; and that given the inclusion of money received in right as well as in possession, Mr Tapp’s retiring allowance was received every week and not merely every four weeks. It followed that the abatement provision in the definition of “Income Test 3” operated every week.

The issues

[15]     The question is how the provision for abatement contained in the definition of Income Test 3 applies to a situation in which the benefit is paid on a weekly basis but the independent source of income is paid on a four-weekly basis. It is common ground that the answer lies in the meaning of the expression “total income of the beneficiary and his or her spouse” found in the definition of Income Test 3. For Mrs Tapp, Mr Minchin argued that the meaning of that expression is governed by s 64(2A) and regulations made pursuant thereto; that the regulations require that each week be considered in isolation from any other weeks; that Mr Tapp’s four‑weekly instalment of the retiring allowance was to be deducted in the week in which it was paid to him; and that in consequence there could be no deduction of any part of that instalment in any of the other three weeks in which the benefit was paid. For the Department, Mr Liddell submitted that s 64(2A) had no application and that for present purposes Mr Tapp’s retiring allowance was to be apportioned in equal sums between each of the weeks in which a benefit was paid. He argued that even if s 64(2A) and the regulations did apply, on a proper construction of the legislation Mr Tapp’s retiring allowance represented income attributable to each of the weeks in question.

Meaning of “total income of the beneficiary and his or her spouse”

[16]     The principal question is whether for present purposes Mr Tapp’s retiring allowance is to be regarded as income received continuously throughout the period of entitlement or whether its receipt is confined to the day on which actual payment is effected.

[17]     In our view the answer lies in the effect of the Government Superannuation Fund Act. Pursuant to s 35 of that Act, Mr Tapp’s entitlement is a continuing one. It began when he retired from Government service. It will continue until he dies. At no point during that period could it be said that he lacked, or will lack, an income from that source. Entitlement turns on the superannuitant’s survival for the period in question, as distinct from the mechanics of payment.

[18]     It is immaterial that pursuant to s 89(1) the cash is paid in advance. In the absence of any legislative provision to the contrary the period to which income is attributable will usually be identified by reference to the dates upon which rights and interests are acquired. That approach is consistent with the meaning of “income” as defined in s 3(1) of the Social Security Act. Where retiring allowance payments are made in advance they represent “money received” in respect of the subsequent period of entitlement to which they relate, just as any payment in arrears would represent a liquidation of the “interest acquired” consequent upon the superannuitant’s survival for the period that had already elapsed.

[19]     That interpretation is also consistent with the implied purpose of the legislation. The implied purpose of the abatement function contained in the definition of “Income Test 3” in the Social Security Act is to balance self-support incentives against reservation of benefits to those in need. Steps by way of self‑support are encouraged if a beneficiary is not unduly penalised for the resultant income. Social security benefits are to be reserved for those who truly need them. In this instance the balance has been struck by allowing a complete exemption of combined incomes from independent sources to a maximum of $80 per week, an abatement of 70 cents for every one dollar of such income above that level, and extinction of the benefit at the point that that abatement equals the value of the social security benefit. To consider income from independent sources in only one week out of every four, and assume that cash receipts during a given week are the determining factor, would be contrary to the evident intention to consider income as a matter of substance rather than form.  It could not be suggested that a person receiving income on a monthly basis has any greater need for support than one receiving it on a weekly basis in circumstances where the total value of the income is the same.

[20]     There is nothing in Income Test 3 limiting the period for consideration as is the case in other parts of the legislation. Consequently there is no justification for taking each week in isolation without regard to the income from independent sources viewed over a more lengthy period. But even if the exercise were confined to each week considered in isolation, the implied policy objective would be achieved by considering the income enjoyed by the beneficiary and his or her spouse by reference to the period during which an entitlement was derived rather than the mechanics of payment. The appellant’s argument concentrates upon cash flow. Carried to its logical conclusion, the argument would mean that throughout his retirement Mr Tapp has had an income from his retirement allowance on only one day in 28. For the remaining 27 days he would be without any income from that source. An absurd result of that kind is not mandated by the legislation.

[21]     It follows that it is immaterial what interval might be chosen for the purpose of asking whether Mr Tapp had, or will have, an income from his retirement allowance. Whether considered by the year, month, week or day, he has been in continuous receipt of a retiring allowance income. Abatement under the Social Security Act must be approached on that basis.

Is the meaning of “total income of the beneficiary and his or her spouse” affected by s 64(2A)?

[22]     Section 64(2A) invoked a regulatory regime adopting prescribed periods for the setting off of income against benefits in circumstances “where, in relation to the rate of any benefit or additional benefit, reference is made in this Act … to the weekly income of the beneficiary”. We accept that the definition of “Income Test 3” is concerned with “the rate of” a “benefit” for present purposes but the relevant income in the present case is not the “income of the beneficiary”. The retiring allowance is the income of the beneficiary’s spouse, Mr Tapp. Consequently s 64(2A) does not apply.

[23]     Nor do we think that it would have made any difference if s 64(2A) had applied. The combined effect of s 64(2A) and the regulations would be to confine the inquiry to each week considered in isolation from other weeks. But given our conclusion that Mr Tapp’s retiring allowance was attributable to every week between retirement and death, it becomes immaterial which interval during that period is chosen for abatement purposes.

Conclusions

[24]     The appeal fails for two reasons. The periods to be adopted for abatement purposes were not confined to a week. In any event Mr Tapp’s income by way of retiring allowance represented his continuous income throughout the whole period of his retirement, as distinct from the particular days or weeks on or in which payments were effected.

[25]     The appeal is dismissed. Costs are reserved for consideration in the light of such memoranda as the parties may wish to file.

Solicitors:
Otene & Ellis, Auckland for Appellant
Crown Law Office, Wellington for Respondent