Rowan and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2009] AATA 96 (13 February 2009)

Last Updated: 17 February 2009

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 96

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2008/4140

GENERAL ADMINISTRATIVE DIVISION		)
	Re		ROBERT ROWAN

Applicant

And

SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal

Mr G L McDonald, Deputy President

Date 13 February 2009

Place Melbourne

Decision

The decision under review is affirmed.

..............................................
Deputy President

CATCHWORDS – SOCIAL SECURITY ACT – age pension – superannuation pension – asset-test exempt income stream – tax free component of a superannuation benefit – taxable component of a superannuation benefit – deductible amount – decision under review affirmed

Administrative Appeals Tribunal Act 1975 s 37

Income Tax Assessment Act 1936 (as in force before 1 July 2007) ss 27A and 27AA

Income Tax Assessment Act 1997 ss 307-120, 307-210 and 307-225

Social Security Act 1991 ss 9, 9A, 9B, 9BA, 43 and 1099A

REASONS FOR DECISION

13 February 2009

Mr G L McDonald, Deputy President

1. Mr Rowan is seeking review of a decision by a delegate made under the provisions of the Social Security Act 1991 (the Act), affirmed on review by the Social Security Appeals Tribunal, that he is not entitled to be paid an age pension.
2. At the hearing Mr Rowan was self-represented. The Department was represented by Mr Carson from Centrelink’s Legal Services and Procurement Branch. The Tribunal had before it the documents filed for the purposes of satisfying s 37 of the Administrative Appeals Tribunal Act 1975 (T documents).
3. The facts are not in dispute and the Tribunal is satisfied they are as follows.
4. The applicant was born on 25 November 1936 and qualifies on the basis of his age to receive an age pension.[1] The applicant retired as a Commonwealth public servant on 21 January 1988 on the basis of invalidity. He is not married. He has entitlement to, and is in receipt of, superannuation paid under the Commonwealth Superannuation Scheme (the scheme). On 16 November 2007, following changes in the law, to which the Tribunal will return later in these reasons, the applicant applied to be paid an age pension. It is the decisions refusing that application which have resulted in the application to this Tribunal.
5. The scheme is a hybrid scheme. It consists of moneys contributed by the applicant from his wages which constitute the accumulation part of the account. Other money is contributed by the Commonwealth which constitutes the defined benefit part of the account. Upon retirement the applicant could have taken the accumulation part of the account as a lump sum or reinvested it to receive a return. He chose the latter course. He thus receives a pension based on a part defined benefit which is indexed to the consumer price index and the balance from investment returns which are not, by definition, indexed.
6. The total pension payment received by the applicant is $1,540.18 gross per fortnight.[2] There are three components to this amount: $265.45 is paid from the investment of the accumulation fund, $1,269.91 is paid by way of defined benefit and a further sum of $4.82 is paid from the accumulated funds where that part of the accumulation was made before 1 July 1983.[3] The latter figure is advised by the scheme. It is the only figure which the respondent has deducted from the fortnightly superannuation pension paid to the applicant for purposes of calculating his entitlement to be paid the age pension. At the time his application was refused his fortnightly income for calculation purposes was $1,540.18 minus $4.82 resulting in a figure of $1,535.36 which exceeded the then allowable limit before the age pension, to a single person with no dependents, became payable which was $1,490.75.[4]
7. The applicant claims that the changes to the law effective from 1 July 2007 should result in the accumulation component of his superannuation pension (an amount of $265.45) not being included in the calculation thereby reducing his pension income below the allowable limit. The issue is restricted to the calculation of the rate of any pension payable to the applicant. The starting point is s 1064 of the Act which provides that the rate of any pension is to be calculated in accordance with the ‘rate calculator’ at the end of the section.
8. The module in s 1064-E1 sets out how the calculation of a person’s ‘ordinary income’ is to be undertaken. The first step in the module requires the amount of a person’s ‘ordinary income’ per year to be calculated. ‘Ordinary income’ is a term defined in s 8(1) of the Act by reference to what is excluded. Relevantly neither of the two exclusions apply in this case. It follows that ‘ordinary income’ means ‘income.’ Section 8(1) relevantly provides:

“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).

9. The term ‘income amount’ is given a wide definition in s 8(1) including meaning ‘moneys.’ The superannuation pension being ‘moneys’ is an income amount.
10. Neither of sub-s 8(4) or (5) are relevant. Sub-section 8(8) sets out a number of amounts which will be excluded including in (b)(i) “any return on a person’s investment in a superannuation fund” but only until the person reaches pensionable age or commences receiving a benefit from the fund. The applicant is both of a pensionable age and in receipt of a pension from the fund. Not any of the other exclusions in sub-s (8) extend to the applicant.
11. Section 1099A of the Act refers to an ‘asset-test exempt income stream’ as the annual payment arising from a defined benefit less the ‘deductible amount.’ Both ‘asset-test exempt income stream’ and ‘deductible amount’ are terms defined in s 9(1) of the Act.
12. ‘Asset-test exempt income stream’ has the meaning given in ss 9A, 9B and 9BA of the Act. The respondent asserts that the applicant receives an asset-test exempt income and that is not disputed by the applicant. The receipt of that form of income entitles him to the claim the deductible amount.
13. ‘Deductible amount’ is defined in s 9(1) as:

deductible amount, in relation to a defined benefit income stream for a year, means the sum of the amounts that are the tax free components (worked out under Subdivision 307-C of the Income Tax Assessment Act 1997 or, if applicable, section 307-125 of the Income Tax (Transitional Provisions) Act 1997) of the payments received from the defined benefit income stream during the year.

14. Section 307-120(1) of the Income Tax Assessment Act 1997 (the ITAA 1997) divides the components of a superannuation benefit into two parts – a tax free component and a taxable component. Section 307-210 relevantly provides that the tax free component of a superannuation interest is so much of the value of the interest as consists of the ‘crystallised segment’. The ‘crystallised segment’ of the superannuation interest is so much of the interest as consists of a number of stated ‘components.’[5] The components are subject to differing taxation treatments. One of those components and the only one relevant in this case is ‘the pre-July 1983’ component.[6] Section 307-225(4) defines the ‘pre July 1983’ component by reference to the meaning given in s 27A(1) of the Income Tax Assessment Act 1936 (the ITAA 1936) as in force just before 1 July 2007 amendments. Section 27AA(1) is the ‘pre-1983 component.’ Section 27A defines the term by reference to s 27AA of the same Act. Section 27AA(1)(d) establishes a formula to be used to calculate the pre-1983 component. This was presumably the formula used by the fund to calculate the component. The formula is complicated but since the applicant does not challenge it, and there is no reason to challenge it, the Tribunal accepts the sum of $4.82 per fortnight as accurately representing the deductible amount.[7]
15. It is clear from the taxation legislation that the term ‘superannuation component’ has the meanings as defined in the ITAA 1936 and ITAA 1997 and that it is those meanings which are to be applied in determining what is constituted by ‘deductible amount’ as defined in s 9(1) of the Act. That deductible amount is the sum which is to be deducted from the asset-test exempt income.[8]
16. From 1 July 2007 the law relating to the payment of tax on superannuation benefits changed. The fund wrote to the applicant on 1 March 2007 advising him of the effect of the proposed changes to his superannuation payments should those changes come into law. It advised that that part of the benefit arising from the contributions he made during the accumulation stage would ‘not be included in your taxable income.’[9] There is a difference between income which may not be used in the calculation of a person’s liability to pay income tax and any sum which may be the tax free component of a superannuation benefit. It is clear that the Act definition of ‘income’ extends only to exclude superannuation components which are tax free from the calculation of a person’s eligibility to receive an age pension. It does not extend to exclude other sums in respect of which a person may not be assessed for the payment of income tax. Unfortunately the applicant seems to have interrelated the meanings and misunderstood the nature of the separate operation of the income, one for the purpose of the Act, the other for the separate purpose for the calculation of liability to pay income tax.
17. For the above reasons the decision under review is affirmed.

I certify that the seventeen preceding paragraphs are a true copy of the reasons for the decision herein of

Mr G L McDonald, Deputy President

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

Grace Horzitski Associate

Date of Hearing 27 January 2009

Date of Decision 13 February 2009

Solicitor for the Applicant self represented

Solicitor for the Respondent Mr A Carson, departmental advocate

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[1] Qualification for age pension is set out in s 43 of the Act.
[2] T documents, T2, page 5.
[3] T documents, T2, page 5.
[4] T documents, T2, page 7.
[5] Section 307-225(2).
[6] Section 307-225(2)(e).
[7] T documents, T5, page 42.
[8] Section 1099A.
[9] T documents, T7, page 45.