Editors --- "Family tax benefit debt: administrative error and good faith; special circumstances waiver" [2006] SocSecRpr 45; (2006) 8(4) Social Security Reporter, Article 2

• SECRETARY TO THE DFaCSIA and FOXLEY-DESCHAMPS
• Background
• The law
• Formal decision

---

Family tax benefit debt: administrative error and good faith; special circumstances waiver

SECRETARY TO THE DFaCSIA and FOXLEY-DESCHAMPS

Decided: 30th October 2006 by L. Tovey

Background

Foxley-Deschamps was in receipt of family tax benefit (FTB). On 6 June 2003 she applied for Parenting Payment (PP) indicating in her application that ‘I live in a home that I (or my partner) own’. She subsequently received Rent Assistance (RA) totalling $4098, as one component of her FTB payments, from June 2003 to May 2005. It was agreed that this payment component had been made in error and arose due to a coding mistake when data from her PP claim form was entered by the Department. It was also not disputed that, as a homeowner, Foxley-Deschamps was ineligible for RA payments, whether as part of her FA or her PP payments. A debt for the amount of the RA payments was raised in May 2005, and this debt was confirmed by an ARO in July 2005. In October 2005 the SSAT set aside the decision to raise and recover the $4098 amount, and determined that, although a debt existed it should be waived in whole, applying the waiver provisions of s.1237A of theSocial Security Act 1991(the Act).

The law

Under the Act one component of PP may be a RA payment (s.503 of the Act) but this is not payable if the person is an ineligible homeowner (ss.11(4) and 13(1) of the Act). Similarly, under theA New Tax System (Family Assistance) Act 1999(Cth) (the FA Act), it is provided by s.58(1) and in turn by Clause 3 of Schedule 1, that the rate of FTB may include a RA component. Clause 13(1)(c) of Schedule 1 to the FA Act provides that an individual is not entitled to the payment of RA if that person is an ‘ineligible homeowner’.

Both legislative schemes provide for waiver of a debt where the debt arises solely from administrative error and the payments are received in good faith (s.1237A of the Act and s.97 of the A New Tax System (Family Assistance) (Administration) Act 1999(the FA Administration Act). However, an additional requirement in s.97(2)(b) of the FA Administration Act is the requirement that the person would suffer ‘severe financial hardship’ if the debt was not waived. Both legislative schemes also provide for waiver of a debt on the basis of special circumstances.

The applicable waiver provisions

The Tribunal concluded that both the ARO and the SSAT, having treated the RA debt as arising from an overpayment of PP rather than of FTB, had incorrectly applied s.1237A(1) of the Act to Foxley-Deschamps’ situation.

On the basis that RA was paid as a component of FTB, the Tribunal determined that the applicable waiver provisions were those contained in the FA Administration Act.

Good faith

The Tribunal considered whether Foxley-Deschamps could be said to have received the RA payments ‘in good faith’, as she acknowledged that as a homeowner she was aware that she was ineligible for RA. However, her contention was that she had advised Centrelink of this fact, that she did not think she was in fact receiving any RA as part of her ongoing payments, and that the references in Centrelink letters to RA payments were ambiguous and seemingly did not apply to her. The Tribunal determined that Foxley-Deschamps was an honest and reliable witness, and that her conclusions regarding the Centrelink letters were reasonable for her to make, and concluded that ‘[in] a colloquial sense, the Respondent [Foxley-Deschamps] did receive the payments honestly and in good faith’. (Reasons, para. 36)

However, applying several Federal Court decisions the Tribunal nonetheless concluded that where a person receives a payment to which they know they are not entitled, they do not receive the payment ‘in good faith’. The Tribunal noted the decision in Secretary, Department of Education, Employment, Training and Youth Affairs v Prince [1997] FCA 1565; (1997) 152 ALR 127 where it was concluded that -

[the question of good faith] is with the state of mind of a person concerning his or her receipt of the payment: if that person knows or has reason to know that he or she is not entitled to a payment received — ie is not entitled to use the moneys received as his or her own — that person does not receive the payment in good faith. Absent such knowledge or reason to know, the receipt would be in good faith and later in the same matter... can a receipt be otherwise than in good faith when the recipient is unaware that the payment has been received? The short answer to that in my view is ‘yes’.... Knowing that, in the relevant period, he had no entitlement to receive [a particular] payment, he was never in a position to be able to assert that any mistaken payment made to him was one to which he had an entitlement. Thus while he may have received a payment of which he was ignorant, he could not.... have received it in good faith.

Applying this reasoning, the Tribunal concluded that as Foxley-Deschamps knew she had no entitlement to RA she could not be said to have received the payments ‘in good faith’ for the purposes ofss.97(2)(a) and (3)(c) of the FA Administration Act. In passing, the Tribunal concluded that it would not have found that Foxley-Deschamps would suffer ‘severe financial hardship’ if the debt were not waived (s.97(2)(b)) as although in constricted financial circumstances she had an income and an arrangement to repay the debt could have been negotiated.

Thus, the RA debt could not be waived under s. 97 of the FA Administration Act.

The AAT went on to consider whether the debt might be waived under s. 101 of the FA Administration Act, on the basis of special circumstances.

The Tribunal noted the ‘special circumstances’ criteria established in Beadle and Director-General of Social Security (1984) 6 ALD 1, where it was concluded that -

[an] expression such as ‘special circumstances’ is by its nature incapable of precise or exhaustive definition. The qualifying adjective looks to circumstances that are unusual, uncommon or exceptional... [that is] markedly different from the usual run of cases. That is not to say that the circumstances must be unique but they must have a particular quality of unusualness that permits them to be regarded as special.

The Tribunal also noted the decision in Secretary, Department of Family and Community Services v Allan [2001] FCA 1160; (2001) 116 FCR 1 that ‘...[ill] health, financial circumstances and the unfairness of a strict application of the Act are some matters which may in an individual case, constitute special circumstances’. The Tribunal determined that the circumstances of Foxley-Deschamps’ situation lead to the conclusion that there were special circumstances (other than financial hardship alone) that made it desirable to waive the whole of the debt.

In reaching this conclusion, the Tribunal noted three aspects of the case which could be said to be out of the ordinary, and where the strict application of the debt recovery provisions of the Act would result in harshness and unfairness. First, Foxley-Deschamps had properly informed Centrelink of her circumstances, had reasonably assumed that she was not receiving RA, and the debt was solely the result of administrative error. Secondly, Centrelink and then the SSAT had incorrectly applied the provisions of the Social Security Act, as a result of which the repayments of the debt which Foxley-Deschamps had made were refunded to her. To now require her to recommence repayments would entail a longer period of deductions from her entitlements than would have otherwise been the case but for the SSAT decision. Finally, the Tribunal accepted Foxley-Deschamps’ financial circumstances were ‘straitened’, having regard to her salary and Centrelink payments, her sole care of her son, the lack of financial support from her former husband, her mortgage repayments, and what could be described as her difficult family situation. In addition the Tribunal noted that, given her financial situation, it was to be expected that Foxley-Deschamps would have spent at least some of the RA payments, and so to require repayment would impose a significant additional financial strain.

Formal decision

The Tribunal varied the decision of the SSAT by deleting the reference to the Social Security Act waiver provisions but otherwise affirmed the decision. This meant that recovery of the whole of the debt raised against Foxley-Deschamps was waived.

[P.A.S.]