Berger and Secretary, Department of Family and Community Services [2003] AATA 169 (21 February 2003)

Last Updated: 28 February 2003

DECISION AND REASONS FOR DECISION [2003] AATA 169

ADMINISTRATIVE APPEALS TRIBUNAL )

) No Q2002/294

GENERAL ADMINISTRATIVE DIVISION	)
	Re	SHIRLEY BERGER

Applicant

And

SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Respondent

DECISION

Tribunal

Mr BJ McCabe, Member

Date 21 February 2003

Place Brisbane

Decision

The Tribunal sets aside the decision under review and remits the matter to the respondent for reconsideration in accordance with the Tribunal's reasons for decision.

(Sgd) BJ McCabe

Member

CATCHWORDS

SOCIAL SECURITY - benefits and entitlements - eligibility - disability support pension and aged pension - income - whether payments received from a trust were income within the meaning of section 8 of the Social Security Act 1991 (Cth) - whether payments should be characterised as loans or as distributions - waiver - whether special circumstances exist

Social Security Act 1991

Re Christensen and Secretary, Department of Social Security (1995) 37 ALD 795

Re Hungerford and Repatriation Commission (1990) 21 ALD 568

Secretary, Department of Family v Community Services v McLaughlin (1997) 48 ALD 536

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

REASONS FOR DECISION

21 February 2003

Mr BJ McCabe, Member

INTRODUCTION

1. The respondent, the Secretary, has raised a debt against the applicant, Mrs Shirley Berger, in the amount of $36,959.45. The respondent says Mrs Berger failed to declare an amount of income received from a family trust while she was in receipt of a disability support pension and an aged pension. The respondent says if the income had been declared, the applicant would not have been entitled to receive the amounts she was paid. The respondent now wants to recover the amount of the alleged overpayment.

2. The applicant seeks relief from the Tribunal. She says the money she received through the family trust cannot be characterised as income for the purposes of the income test. She adds that if there has been an overpayment, the amount of the debt ought to be waived because of the special circumstances of her case.

THE MATERIAL BEFORE THE TRIBUNAL

3. The Tribunal was provided with the documents required under s 37 of the Administrative Appeals Tribunal Act 1975. The Tribunal took oral evidence from the applicant and received a medical report from Dr Carmel Hawley, the director of nephrology at Princess Alexandra Hospital. Mrs Berger was represented at the hearing by her accountant, Mr Threlfall. Mr Threlfall provided written submissions. Mr McQuinlan appeared for the respondent.

THE FACTS

4. The applicant was a beneficiary of the Berger family trust. She held nine of the twelve issued shares in Beuoo Pty Ltd, the corporate trustee. The trust owned her home in Banora Point.

5. Mrs Berger drew some cash from the trust. She was liable to pay rent to the trust in respect of her occupation of the home. The weekly rent was debited against a loan account, although there was no formal loan agreement in place. Mr Threlfall emphasised in his oral and written submissions that the amounts debited against the loan account were never actually paid to the applicant. He says the respondent and the Social Security Appeals Tribunal ("the SSAT") were wrong to treat the amount of the loans as income because the amounts were merely book entries. The arrangement was an artificial one, he said. He conceded there were some cash drawings that should have been declared and taken into consideration by Centerlink.

6. The applicant proposed to repay the accumulated debt to the trust out of the proceeds of the sale of the house. The house has now been sold, although she continues to reside there and pays rent to the new owner in the amount of $200 per week. She says her only other asset was $800 in the bank, and a 1981 Datsun motor car.

7. Mrs Berger has three children. One of them was present at the hearing. The applicant says her family is very supportive.

8. The respondent says the applicant failed to disclose she held shares in a company and to provide details of her other sources of income in review forms filled out in 1993 and 1994. She did not actively mislead the authority; she simply left the relevant questions blank. The applicant says Centrelink and its predecessors had access to the income tax returns and details of the trust at all times. She conceded she might not have completed the forms correctly in 1993 and 1994, although she says she would have completed the forms with the assistance of a departmental officer. She did not consult Mr Threlfall. Mr Threlfall argued that even if the answers to the questions in the form were incorrect or incomplete on their face, they should not have been read in isolation from the documents detailing Mrs Berger's affairs that were made available to the department. He pointed out that the department had been provided with the same information, in the same way, in 1993 and 1994, and it has only taken issue with the process in respect of the information provided in1994.

9. I am satisfied from the evidence that Mrs Berger did not intend to mislead the relevant officers. It was clear she did not have a good grasp of the complexities of the trust arrangement. She obviously relied on Mr Threlfall, although he was not involved in assisting her to complete the income review forms (he apparently supplied the extra information under separate cover).

10. Mrs Berger is very sick. She has been ill for a long time. She was diagnosed with renal disease at the age of 32 (she is now 67) and commenced dialysis in 1987. She underwent a kidney transplant procedure in January 1991. Dr Hawley says she now suffers from a range of conditions, including:

§ Numerous problems with skin cancers;

§ Osteoporosis;

§ Neuromuscular symptoms related to statin therapy;

§ Gout; and

§ Hypertension.

11. In the course of her evidence, Mrs Berger explained the skin cancer problems were connected with the anti-rejection drugs she requires after the kidney transplant. She says she also suffers from high cholesterol and has reacted to the anti-cholesterol medication (the source, she explained, of the muscular problems referred to by Dr Hawley). She explained that her osteoporosis was exacerbated by an overdose of medication that occurred as a result of an error on the part of her pharmacist. She has several fractures in her spine. Although Dr Hawley says the applicant's kidney function is good, Mrs Berger is obviously in poor health.

APPLICATION OF THE LAW

12. Section 8 of the Social Security Act 1991 defines the expression "income" for the purposes of the administration of the income test applicable to Mrs Berger. Under s 8:

"`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

(b) a periodical payment by way of gift or allowance; or

(c) a periodical benefit by way of gift or allowance;

but does not include an amount that is excluded under subsection (4), (5) or (8)."

13. The SSAT concluded the payments received by Mrs Berger from the trust were income within the meaning of s 8. It obviously doubted the payments were really loans at all. The SSAT appeared to take the view that the payments were in substance distributions rather than loans, and the liability to repay was not a real one.

14. Mr Threlfall concede that some payments were in fact distributions, and they should have been declared. It is clear those payments should be considered as part of the applicant's income. What of any payments that were characterised as loans?

15. If the payments are in fact loans, the Tribunal's decision in Re Christensen and Secretary, Department of Social Security (1995) 37 ALD 795 suggests they cannot be characterised as income within the meaning of s 8. Senior Member Barnett said (at paragraph 23) that "an amount cannot be characterised as both `income' and `loan', being generically different...". That approach appears to be consistent with the Tribunal's decision in Re Hungerford and Repatriation Commission (1990) 21 ALD 568. The Tribunal said there (at 576) that in order to qualify as "income" the:

"...payment must either have been received as gains derived as a result of his providing personal exertion or services of some kind or as a result of the disposition of his property in some way."

16. The Federal Court interpreted s 8 more widely in Secretary, Department of Social Security v McLaughlin (1997) 48 ALD 536. In that case, the Dairy Industry Authority had made payments to two individuals who had agreed to surrender their licences to carry on business as milk vendors. The payments were characterised as a loan because under the terms of the agreement the money would have to be repaid if they decided to re-enter the industry. French J said there was no need to demonstrate there had been a net gain. His Honour concluded the amounts paid were properly characterised as income within the meaning of s 8, notwithstanding the label applied to them or the form of the documentation. But his Honour added (at 542):

"However wide the scope of the term `income', in my opinion it would not extend to a bona fide loan."

17. His Honour expressly rejected an argument on behalf of the Secretary that bona fide loans could be characterised as income. The Secretary had claimed that loans should be caught because they were payments made to the respondents for their immediate benefit..

18. I am satisfied the loans to Mrs Berger were bona fide loans (as opposed to distributions disguised as loans). They should not be counted as part of the applicant's income. I am persuaded to that view in particular because the loans - or accounting entries representing loans - have given rise to a real liability to repay that is in the process of being satisfied out of the proceeds from the sale of the house. If the money debited as a loan was not in fact paid out to Mrs Berger but recorded as a loan and then treated as if it had been paid so that it had to be repaid, the answer is the same.

SPECIAL CIRCUMSTANCES?

19. Even if I am wrong in my conclusion that payments characterised as loans from the trust should not be included as income, I am satisfied the amount of the debt that would otherwise arise ought to be waived under s 1237AAD in light of the special circumstances of the case.

20. It is true that the applicant did not fill out the review forms correctly, although Mr Threlfall pointed out those forms needed to be read in company with the other information that was furnished to the Secretary. In any case, I am satisfied that neither Mrs Berger or anyone acting on her behalf knowingly made a false statement or representation to the Secretary.

21. There is no reason to believe the debt should be written off in preference to a waiver.

22. I think that Mrs Berger's poor and deteriorating state of health amounts to special circumstances. Her case is special (it is "unusual, uncommon or exceptional": see Re Beadle and Director-General, Department of Social Security (1984) 6 ALD 1 at 4) because her ill-health associated with her renal failure and subsequent kidney transplant have been exacerbated by her other conditions, notably the osteoporosis that has been accelerated by the mistakes made with her medication. She is not merely ill, or seriously ill: her illness has been exacerbated by her treatment, and she has been rendered more vulnerable as a result. Her performance in the witness box and the conduct of Mr Threlfall in particular allowed me to form the view that this was an appropriate case for the exercise of the discretion in s 1237AAD.

23. To avoid any doubt, I would waive the debt that arises if the drawings otherwise described as loans are treated as income. I have already noted Mr Threlfall's concession that in any event some of the drawings should have been characterised as income. That portion of the debt arising out of that acknowledged misdescription should not be waived.

CONCLUSION

24. The Tribunal sets aside the decision under review and remits the matter to the respondent for reconsideration in accordance with the Tribunal's reasons.

I certify that the 24 preceding paragraphs are a true copy of the reasons for the decision herein of Mr BJ McCabe, Member

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

Associate

Date of Hearing 22 October 2002 (at Coolangatta)

Date of Decision 21 February 2003

For the Applicant Mr B Threlfall, Accountant

For the Respondent Mr R McQuinlan, Departmental Advocate