Clark and Secretary, Department of Family and Community Services [1999] AATA 809 (27 October 1999)

Last Updated: 1 November 1999

DECISION AND REASONS FOR DECISION [1999] AATA 809

ADMINISTRATIVE APPEALS TRIBUNAL )

) No S98/483

General Administrative DIVISION )

Re ROSANNA CLARK

Applicant

And SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal Senior Member J.A. Kiosoglous MBE

Date 27 October 1999

Place Adelaide

Decision Pursuant to s.43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the decision under review.

(Signed)

J.A. KIOSOGLOUS

(Senior Member)

CATCHWORDS

SOCIAL SECURITY - family payment - underestimation of income - criticism of system - waiver due to administrative error - waiver due to special circumstances

Social Security Act 1991 ss.838, 885, 891, 1223, 1237A, 1237AAD

Re Beadle and Director-General of Social Security (1984) 6 ALD 1

REASONS FOR DECISION

27 October 1999 Senior Member J.A. Kiosoglous MBE

1. This is an application for review by Ms Rosanna Clark (the applicant) of a decision of the Social Security Appeals Tribunal (SSAT) dated 19 November 1998 (T2), which affirmed a decision of a delegate of the respondent dated 21 July 1998 (T13) as affirmed by an authorised review officer (ARO) of the respondent on 1 September 1998 (T17), to raise and recover a debt of family payment for the period 15 August 1996 to 23 April 1998.

2. The Tribunal received into evidence the documents lodged pursuant to s.37 of the Administrative Appeals Tribunal Act 1975 (T1-T19), together with seven exhibits, two lodged by the applicant (Exhibits A1-A2) and five lodged by the respondent (Exhibits R1-R5). In addition, the Tribunal heard evidence from the applicant, who represented herself, and the respondent was represented by Ms A. Pugsley, a departmental advocate.

3. The issues before the Tribunal are whether or not there is a debt and if so, whether or not it should be waived pursuant to s.1237A or 1237AAD of the Social Security Act 1991 (the Act).

history of the application

4. The applicant was in receipt of family payment at the basic rate for several years. In 1993, the start of a new business with her husband led to a significant decrease in income. As a result, she contacted the respondent, who erroneously informed her that her family payment was based on the "base tax year" and that she was not entitled to any more family payment.

5. On 14 March 1996, the applicant was sent a letter which required her to inform the Department if (inter alia) "...your combined income will be more than $28,648.40 in the 1995/96 or 1996/97 financial year;" (Exhibit R2).

6. In August 1996, the applicant believed that the family payment she was receiving was in excess of her needs. On 29 August 1996, she lodged an "Income and Assets" form in which she advised that her and her partner's income from self-employment was likely to increase, and provided an estimate of their taxable income for the 1996/97 financial year in response to question 8 in that form of $48,840 (T3/31). Below question 8, is a box which reads:

7. Question 15 of that form (T3/34), which was signed by the applicant states (inter alia):

"...

I/We agree that my/our Family Payment and/or Childcare Assistance is to be recalculated if my/our actual income is more that 110% of my/our estimate and that I/we may have to repay any overpayment that results.

..."

8. The estimate in that form was used to calculate the applicant's rate of family payment from 15 August 1996.

9. The applicant received three letters, dated 2 September 1996, 26 November 1996 and 28 November 1997 respectively. The first letter required her to inform the Department if her and her partner's combined income for 1995/96 or 1996/97 would be more than $54,413.70 (T5). The second letter required her to inform the Department if her and her partner's combined income for 1996/97 or 1997/98 "will be more than" $69,031 (T6) and the third required notification if the income for 1997/98 or 1998/99 "will be more than" $69,239 (T7).

10. In January 1997, the applicant resigned from her position and received a lump sum superannuation payout of $30,000. Due to accounting difficulties, it was not until March 1998 that the applicant became aware that their combined income for the 1996/97 financial year would be $88, 750. The applicant informed the respondent of the increase in income in April 1998, at which time family payment was suspended at her request (T9).

11. On 11 June 1998, a data matching exercise showed that the combined income for the 1996/97 year was $88,123 (T10), and on 21 July 1998 a debt of family payment was raised (T13). This was affirmed by the ARO who stated in a letter to the applicant dated 21 August 1998 (inter alia) (T18):

"...

There is no doubt that your estimate was wrong for reasons you did not foresee on 27 August 1996. Your income in that tax year was inflated by a one off termination payment following your resignation in January 1997. You did not realise that the termination payment, by adding to your taxable income, also invalidated your estimate. Unfortunately, your tax returns for that tax year were delayed considerably by problems with your accountant, with the result that you did not realise your income was above the disqualifying income limit for family payment until April 1998.

There is no suggestion on the part of Centrelink Port Adelaide therefore that you knowingly underestimated your income. As we discussed, the purpose of the legislation is to ensure that people with the same actual incomes for a tax year receive the same amount. Otherwise, you could have the situation where one person was paid more, solely because they underestimated their income.

..."

and also affirmed by the SSAT on 5 November 1998 (T2) who stated (inter alia):

"It is not in dispute that Mrs Clark's debt did not arise either wholly or partly from a false statement or false representation made knowingly by her or another person. The Tribunal accepts that Mrs Clark's dealings with the Department of Social Security were always based on her understanding of the situation and that she did not know that the receipt of superannuation benefits would be treated as taxable income.

...

The Tribunal must be satisfied that taking into account all relevant considerations there are special circumstances other than financial hardship alone that make it desirable to waive recovery of the debt. The Tribunal accepts that Mrs Clark did not in any way intend to mislead the Department of Social Security, but the information provided to the Department by her was always correct to the best of her ability, and that she did not realise that the receipt of superannuation payment would be treated as taxable income for the purpose of social security payments. She had in fact been advised to the contrary by her accountant.

..."

legislation

12. Sub-section 885(1) of the Act provides for recalculation of a person's entitlement to family allowance if their actual income exceeds 110% of the estimate:

"885(1) If:

(a) in working out the rate of family allowance payable to a person, regard is had to the person's income for a tax year; and

(b) the income to which regard was had consisted of an amount estimated by the person; and

(c) the person's income for that tax year is more than 110% of the amount of the income on which the determination of the rate of family allowance was based;

the person's rate of family allowance is to be recalculated on the basis of that income."

13. Section 891 sets the date from which the recalculation is to apply:

"If:

(a) the Secretary makes a determination of a person's rate of family allowance; and

(b) in making the determination, the Secretary had regard to the person's income for a tax year;

(c) the income to which regard was had included an amount or amounts estimated by the person; and

(d) the person's income for the tax year is more than 110% of the amount of the income on which the determination referred to in paragraph (a) was based; and

(e) the Secretary makes a determination varying the person's rate of family allowance, or cancelling the person's family allowance, to give effect to the recalculation required by section 885;

the later determination takes effect on the day on which the earlier determination took effect."

14. Sub-section 1223(3) outlines the process by which a debt arises:

"1223(3) Subject to subsection (4), if:

(a) an amount (the 'received amount') has been paid to a person by way of family allowance; and

(b) the person's rate of family allowance is recalculated under:

(i) section 884 (amendment of assessable income); or

(ii) section 885 (underestimate of income) ; or

(iii) section 886 (failure to notify notifiable event); or

(iv) section 886A (overestimate of child maintenance expenditure); and

(c) the received amount is more than the amount (the 'correct amount') of the family allowance payable to the person;

the difference between the amount and the correct amount is a debt due to the Commonwealth."

applicant's submissions and evidence

15. The Tribunal summarises the applicant's case as follows.

16. The applicant stated that it was not mentioned at the time she made the estimate in August 1996 that her rate of family payment would be based upon that estimate. She told the Tribunal that her understanding was that it would continue to be based upon her base tax year.

17. She told the Tribunal that the combination of the erroneous advice she received in 1993 and the confusing nature of the letters led her to believe her rate would not be calculated using the estimate. She submitted that the letters were confusing and provided inadequate information. In cross-examination as to her understanding of the letters, the applicant stated that her impression from the letters is that the income from the 1995/96 year affected the 1997 calendar year family payment rate, and similarly in respect of 1996/97 and 1998 payments.

18. She told the Tribunal that she has not received family payment for the last 18 months, although remaining entitled due to being scared and thoroughly confused as to how the system operates. It is only recently that she has been convinced by a solicitor from Welfare Rights Centre to apply regardless.

19. She submitted that there is no debt, as the estimate should not have been used to calculate her rate. She conceded that the debt should stand as from January 1998 onwards, as this was after the period upon which the payment could be based upon her base tax year expired.

20. The applicant submitted in the alternative that the debt should be waived pursuant to s.1237A of the Act, as the Department had been in error in its provision of misleading information. In furtherance to this submission, and also arguing a case for waiver pursuant to s.1237AAD of the Act, she told the Tribunal that she could have claimed family payment for 1993 but was wrongly advised by the Department, and had relied upon the advice of her accountant which did not include advice as to the taxable nature of her superannuation payment.

respondent's submissions

21. Ms Pugsley submitted, on behalf of the respondent, that sub-s.885(1) requires the respondent to recalculate the applicant's entitlement because the actual income for 1996/97 is more than 110% of the estimate, and that pursuant to s.891, the date of effect from this recalculation is the date of earlier determination, namely 15 August 1996.

22. She submitted that pursuant to sub-s.838(1), the applicant's correct entitlement was nil, and the difference between that paid ($2,093.80) and that to which she was actually entitled (nil) constitutes a debt under sub-s.1223(3) of the Act.

23. She submitted that there is no sole departmental error and no circumstances so exceptional to warrant special circumstances waiver.

discussion and findings

24. The Tribunal first turns to consider the issue of whether or not there is a debt. The basis for the applicant's argument was that because she was led to believe the base tax year income would be used in place of the estimate, no debt arose prior to 1998, as the base tax year income is the proper basis upon which her family payment should be based.

25. Unfortunately for the applicant, despite her beliefs, the legislative principles are definitive on this issue. Even if her rate of family payment continued to be based on the base tax year, the applicant was required by the letter dated 14 March 1996 (Exhibit R2) to contact the Department if the combined income was to be more than $28, 648.40 for either the 1995/96 or 1996/97 financial years. The fact that this was ascertainable in August 1996 set about the chain of events leading to this Tribunal, and which in many ways were unavoidable.

26. The applicant has been diligent and attentive to all required of her by the respondent. Her honesty and assertiveness have resulted in her contacting the respondent at various times to supply information which may in effect lead to a reduction in her rate. This was so in August 1996, when the applicant went out of her way to keep the respondent abreast of a possible increase in income. For this she is to be commended. What makes things more frustrating, is that due to the difficulties with the accountants, the applicant remained unaware of the tax implications of her lump sum superannuation payment, and the jump in her taxable income.

27. The Tribunal remains bound however by the strict legislative regime in respect of family payment. It is sufficient that an estimate was provided in August 1996 on a form signed by the applicant, agreeing to the estimate being used, and the actual taxable income for the relevant year proved to be more than 110% of the estimate. As a result, ss.885(1) and 891 of the Act come into operation, and the result of those calculations raise a debt under sub-s.1223(3) of the Act. The Tribunal can see no error in the Department's calculations, and so finds that there is a debt in the amount of $2,093.80.

28. It is worth noting that even if the applicant had not provided the estimate in August 1996, her actual combined income for 1996/97 would have constituted a notifiable event in respect of the 14 March 1996 notice (Exhibit R2), and it would seem inevitable that an overpayment would have arisen, which may have been greater than that accrued in the way it has actually happened.

29. What remains of concern to the Tribunal is that an applicant as intelligent and articulate as Mrs Clark has found herself in this situation as a result of not being able to comprehend the letters, and the misleading nature of their advice. The Tribunal notes that the "Income and Assets" form (T3) does set out at the outset that it is used to calculate the rate of family payment, and that question 15 sets out that the rate is to be recalculated in accordance with the estimate, but when read in conjunction with the other correspondence received by the applicant, it is easy to see how the confusion arose.

30. It is understandable that the applicant was mislead as a result of these letters and the erroneous advice in 1993. The Tribunal was not satisfied with Ms Pugsley's explanation as to how the letters should be interpreted, and the applicant's interpretation, namely that the 1995/96 income is determinative of the 1997 rate and so on, seems reasonable. The letters are not explicit that different years can be interrelated. Notification is required on the back of these letters if the combined income is to be more than a certain figure for two financial years, eg. 1995/96 and 1996/97 in respect of the 14 March 1996 letter (Exhibit R2). Despite what Ms Pugsley asserts, it is not an obvious implication from this, that the 1996/97 income might affect the rate of payment of a person reading such a letter in 1996. The letter stipulates the income used to work out the rate (in this case $26,044), and that income is from the previous financial year in this case. The applicant was not unreasonable in her assumptions and in misinterpreting how the rate was to be calculated.

31. This case further highlights the difficulties that the system of family payment is confronted with. Not only are the methods of calculation so complex that even an intelligent person like Mrs Clark cannot follow the Department's reasoning, but demonstrably, the system of relying on estimates is clearly flawed in respect of self-employed people starting a business, or conducting a business that is of variable income. When things such as possible superannuation payouts are factored into the equation, it becomes apparent that it can be extremely difficult for someone in the applicant's position to estimate their taxable income. In this case, it was evident that even the applicant's accountant was unable to finalise the 1996/97 taxable income until sometime in early 1998.

32. The Tribunal feels that the system of family payment needs an overhaul and that such is long overdue.

33. Having found that there is a debt, the Tribunal turns to consider the waiver provisions of ss.1237A and 1237AAD of the Act.

34. In respect of s.1237A, although the Tribunal appreciates that the applicant was mislead by the Department, both by the letters in 1996/7 and advice in 1993, the fact remains that the incorrect estimate of income provided in August 1996 is to blame for the raising of the debt. This is the case despite the fact that the applicant was not in a position to provide an accurate estimate, without taking the superannuation payments and other accounting practices into account. The Department requires notification of an anticipated increase in income. This is the case whether or not family payment is being received on the base tax income year or on the basis of an estimate. In the end, the Department will use the actual income as the basis for determining the correct entitlement, but this can only occur once the actual figure is ascertainable. The Department, in requiring notification where an increase in income is anticipated, in effect asks business people with variable income to take a wild guess, which can, as in this case, turn out to be way off the mark for factors which a customer could not predict. This however, is a systemic problem and not a departmental error. Accordingly, the Tribunal is unable to waive the debt pursuant to s.1237A of the Act.

35. In respect of special circumstances, the Tribunal has had a difficult task to weigh up the evident problems which have landed the applicant in this predicament, against the fact that she has received public money to which she is not entitled. The phrase "special circumstances" has been considered in many previous Tribunal cases, and the Tribunal finds it unnecessary to discuss its meaning at length in the present matter. The Tribunal adopts the meaning given to the phrase in Re Beadle and Director General of Social Security (1984) 6 ALD 1 and followed in many subsequent cases. Weighing against a waiver in this case, pursuant to s.1237AAD of the Act, are the facts that the applicant is not in any demonstrated financial hardship, and if indeed she is to resume receipt of family payment, it would appear feasible to repay the debt through deductions. The fact that the applicant received money to which she was not entitled must be given precedence in this case, as the income which she did receive in the relevant period was income to which she had immediate access, including access to the $30,000 superannuation payment. This is not a case where what constitutes "taxable income" is not in effect something to which the applicant has access.

36. In these circumstances, despite the strong reservations expressed by the Tribunal as to the efficacy of the family payment system and the consequences it can have for business people in particular in circumstances like the applicant's, the Tribunal does not consider a waiver pursuant to s.1237AAD to be appropriate in this case and so finds.

decision

37. For the above reasons and pursuant to s.43 of the Administrative Appeals Tribunal Act 1975, the Tribunal affirms the decision under review.

I certify that the 37 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member J.A. Kiosoglous MBE

Signed: .....................................................................................

Personal Assistant

Date of Hearing 6 October 1999

Date of Decision 27 October 1999

Counsel for the Applicant In person

Solicitor for Applicant -

Counsel for the Respondent Ms A. Pugsley

Solicitor for the Respondent Centrelink