Editors --- "Jurisdiction: exempt lump sums: powers of decision-makers and powers on revie" [2005] SocSecRpr 2; (2005) 7 Social Security Reporter, Article 2

• STRAUSS and SECRETARY TO THE DFaCS
• Background
• The issues
• The law
• Discussion
• Formal decision

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Jurisdiction: exempt lump sums: powers of decision-makers and powers on review

STRAUSS and SECRETARY TO THE DFaCS

(2005/608)

Decided: 28th June 2005 by Justice Downes

Background

In September 1964, Strauss took out an endowment policy of life insurance. Thereafter, he made the required premium payments until the policy matured in September 2003. During this period, bonuses accrued to the policy. When the policy matured, Strauss was paid $16,825.50. This was made up of $6,236.10 in premiums and $10,589.40 in bonuses.

Centrelink decided that the balance of the bonuses received from the life insurance was to be assessed as income for 12 months pursuant to s.1073(1) of the Social Security Act 1991(the Act).

Strauss contended that the payment representing the bonuses should be treated as an exempt lump sum under s.8(11) of the Act.

The issues

A number of issues arose in this case. Firstly, the AAT had to determine whether the payment received by Strauss had been determined to be an exempt lump sum under s.8(11)(d) of the Act or whether it was to be treated as ordinary income under s.1073(1) of the Act.

Secondly, the AAT had to determine whether the decision-maker had the power to make a determination under s.8(11)(d) of the Act. Thirdly, the AAT had to determine whether the ARO, the SSAT or the AAT had any power to make determinations unders.8(11)(d) of the Act on review.

The AAT then considered whether it would have the power to review a decision by the Secretary not to determine that a particular amount or class of amounts was an exempt lump sum under s.8(11) of the Act.

“Exempt lump sum” is defined in s.8(11) of the Act as follows:

The law

8(11) An amount received by a person is an exempt lump sum if:

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(d) the amount is an amount, or class of amounts, determined by the Secretary to be an exempt lump sum.

Note: Some examples of the kinds of lump sums that the Secretary may determine to be exempt lump sums include a lottery win or other windfall, a legacy or bequest, or a gift – if it is a one-off gift.

Discussion

The AAT found that the payment in this case was to be treated as ordinary income (under s.1073(1)),unless it was an exempt lump sum under s.8(11) of the Act. The AAT was critical of the approach taken by DP Muller in the decisions of Clark(2003/1291), AXO3C (2003/1292) and Reye [2003] AATA 1293; (2003) 79 ALD 648, to treat the amounts received in those cases as “assets” and not “income”.

The AAT then considered whether the amount received by Strauss was an exempt lump sum under s.8(11) of the Act. The AAT found that there was no express determination or determination in relation to a class of amounts which would apply in Strauss’s circumstances.

This led to the question of whether the original decision maker, the ARO, the SSAT or the AAT had the power to make a determination under s.8(11)(d). The AAT considered the relevant delegations issued by the Secretary and found that the original decision maker and the ARO had no authority to make determinations under s.8(11)(d)of the Act. The AAT found that, as part of their decision-making, the original decision maker and the ARO could consider whether the Secretary had made a determination under s.8(11)(d), but they could not make such a determination themselves.

The AAT further found that, as a general principle, the SSAT and the AAT had no power to make determinations under s.8(11)(d) where no such determination had been made by the Secretary. The AAT noted that it is fundamental that the AAT, the SSAT, and any review body, cannot have power to make a decision which the original decision-maker did not have.

However, the AAT considered that it would have the power to review a decision by the Secretary not to make a determination under s.8(11)(d) of the Act, by virtue of s.23(1) of the Act ands.140(1) of the Social Security (Administration) Act 1999.

Although not strictly relevant in this case, the AAT went on to consider whether, had the Secretary determined that the payment Strauss received was not an exempt lump sum, the AAT would have made a different finding on review. The AAT noted that, pursuant to the note to s.8(11) and the Guide to the Social Security Law, the kinds of payments which could be treated as exempt lump sums under s.8(11)(d) were payments over which the recipient has no control as to entitlement. The AAT observed that person can buy a lottery ticket but have no control over whether it wins; or can look after a relative without any control over whether this will be remembered in a will. However, in Strauss’s case, he had made a contract of endowment life assurance which specified entitlements, including bonuses, payable under the plan.

The AAT also rejected Strauss’s argument that the denial of an “exempt status” for the bonus payment she received would give retrospective effect to s.1073(1). The AAT rejected this argument on the basis that s.1073(1) operates on the receipt of an amount and is not retrospective. The AAT also considered that the provision has the requisite degree of specificity to operate, even if its operation was retrospective.

Formal decision

The AAT affirmed the decision under review.

[S.O.]