|
|
Home
| Databases
| WorldLII
| Search
| Feedback
Social Security Reporter |
Family tax benefit and child care benefit debts: whether debts provable in bankruptcy
Decided: 19th July 2006 by R. N. J. Purvis
On 16 June 2004 Pollock provided an estimate ($47,000) to Centrelink of the combined taxable income of her and her partner for the 2004/05 financial year (‘the estimate’). On 23 June and 1 July 2004 Centrelink acknowledged that it would pay family tax benefit instalments (‘FTB’) and child care benefit (‘CCB’) at rates based upon the estimate. During the financial year Pollock revised the estimate on 3 occasions. On 10 August 2005 Pollock became a bankrupt under section 55 of theBankruptcy Act 1966 (the Bankruptcy Act). The combined taxable income of Pollock and her partner for the 2004/05 year was actually $74,050. Centrelink determined that Pollock had been overpaid $3,574.82 FTB and $1,282.21 CCB. ‘On 9 September 2005 Centrelink notified Pollock that she had been overpaid CCB for the 2004/05 year. On 17 September 2005 the Secretary notified Pollock that she had been overpaid FTB. On 5 October 2005 an ARO’ affirmed the decision that Pollock was indebted to the Commonwealth in the amount of $4,857.03. Pollock appealed to the SSAT and on 14 November 2005 the SSAT decided that the Commonwealth did not have the right to recover the overpayments because this right had been replaced by the right to prove the debts in Pollock’s bankruptcy. The Secretary sought a review by the AAT of this decision.
The Secretary argued that the issue for the Tribunal was whether in the circumstances of this case (i.e. where a person provides an estimate of income for the purposes ofA New Tax System (Family Assistance) (Administration) Act 1999 (the Administration Act), Centrelink pays FTB instalments and CCB instalments under the Administration Act, and the person becomes bankrupt, then a reassessment is done as a result of which the person owes money to the Commonwealth) there is a debt provable in the bankruptcy of the person such that the Commonwealth is precluded from recovering it from the person?
Pollock raised the following additional issues:
· Whether the power in section 105 of the Administration Act can operate to retrospectively remove an entitlement to an instalment claim;
· Whether there was in fact a decision made under section 105 of the Administration Act - section 105 requires a decision-maker who reconsiders the instalment decision based upon an estimate to consider whether the estimate was reasonable; and
· Even if section 105 of the Administration Act allows the retrospective removal of the entitlement, then it was a contingent liability at the time of the bankruptcy and therefore provable in the bankruptcy.
The Tribunal set out the following provisions of the relevant legislation.
Section 20 of the Administration Act provides for the payment of FTB based on a person’s estimate of income where the Secretary considers the estimate to be reasonable. Sections 70 and 71 set out when an amount of family assistance that has been paid is a debt due to the Commonwealth. Section 71C sets out when an amount of CCB that has been overpaid is a debt due to the Commonwealth. Sections 104 and 105 of the Administration Act set out the circumstances in which a decision of an officer under family assistance law can be reviewed by the Secretary.
The A New Tax System (Family Assistance) Act 1999 (‘the Act’) at clause 2(1)(a) of Schedule 3 – Adjusted Taxable Income provides that a person’s adjusted taxable income for a year is the person’s taxable income for that year.
Section 82 of the Bankruptcy Act provides:
82. Debts provable in bankruptcy
(1) Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
...
(8) In this section, liability includes:
...
(b) an obligation or possible obligation to pay money or money’s worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and
...
The Secretary argued that a debt arises under s.71 of the Administration Act at the time it is determined that the amount a person has been paid in a financial year is greater than the amount that should have been paid to that person in that year. If the person becomes bankrupt prior to the determination, the debt is not provable in the bankruptcy but is recoverable against the individual. If the bankruptcy occursafter the determination then the indebtedness is one provable in the bankrupt’s estate.
The Tribunal noted that because the components of adjusted taxable income cannot be finally quantified until the end of the financial year then even though a person is paid FTB on a fortnightly basis, a person’s actual yearly entitlement cannot be ascertained until the year has ended. For example, the amount of a person’s taxable income will depend on how much assessable income they receive, the level of deductions, whether they incurred business losses, etc.
The Secretary further submitted that there was no relevant obligation of which Pollock was in breach that created a liability (within the meaning of s.82(8) of the Bankruptcy Act) before the date of the bankruptcy.
The Secretary also contended that there is not a contingent debt for there may have been an underpayment in which event Centrelink would be liable to make payment to the recipient. Before a reconciliation which results in a determination that a person has been overpaid there is no existing obligation out of which a liability to pay an amount will or could arise in the future. The Secretary referred to Community Development Pty Limited v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455 at 459. The Secretary also relied on the decision in Health Insurance Commission v Trustee in Bankruptcy of the Estate of Ioakim Alekozoglou (2003) FCA 848 which at para 50 set out the factors which determine whether a debt is provable in a bankruptcy:
· A debt need not be due and payable at the date of bankruptcy to be provable in the bankruptcy, but there must be an obligation upon which the debt is founded, being an obligation which was incurred before the time of bankruptcy: Jones as Trustee of the Bankrupt Estate of Graham v Deputy Commissioner of Taxation (1998) 157 ALR 349 at 354;
· For a debt to be ‘contingent’, ‘there must be an obligation upon which the contingency can operate’, being an obligation which ‘must exist as at the date of bankruptcy’: Lyford v Carey (1985) 3 ACLC 515 at 518;
· Where discretion is required to be exercised in a way which impacts on or is relevant to a debt there is no obligation to pay until the discretion is exercised: Lyford (supra) at 519.
· For a debt to be provable in bankruptcy there must be: ‘... existing circumstances which (give) rise to a contingent debt or liability, and which would crystallise by the happening of some future event’: Gaffney v Commissioner of Taxation (1998) 81 FCR 574 at 578;
· A contingent liability within section 82 of the Bankruptcy Act can include a potential liability arising from an obligation:Lofthouse v Commissioner of Taxation [2001] VSC 326; (2001) 164 FLR 106; and
· ‘The questions for determination must be decided by reference to the language of the relevant statutes, rather than by resort to consequences which ... would appear to produce injustice ...’: Re Kavich; Kavich v Official Trustee in Bankruptcy (1995) 58 FCR 82 at 86-87.
Pollock’s arguments concerned 2 separate submissions. The first was as follows:
· as sections 71 and 71C of the Administration Act refer to amounts that ‘should have [been] paid’ or amounts to which a recipient was ‘entitled’ in respect of family assistance it is necessary to look to ‘the source of a person’s entitlement’ and the means ‘by which it can be determined how much they should have been paid’.
· subdivision B of Part 3 of the Administration Act provides a scheme for the determination of claims by a person. A different provision applies depending on whether a person is claiming FTB after the end of a financial year or in respect of a claim for payment of FTB by instalments.
· section 16 of the Administration Act provides that if a claim for payment of FTB by instalments is made and the Secretary is satisfied that the claimant is eligible for FTB then the Secretary must determine ‘that the claimant is entitled to be paid [FTB] for each day in which the determination was in force at the daily rate at which the Secretary considers the claimant to be eligible’. Section 20 of the Administration Act provides the Secretary with a discretion to determine the person’s ‘eligibility for or rate of family tax benefit’ based upon an estimate of a person’s income provided inter alia he ‘considers the estimate to be reasonable’. Once a determination is made under section 16 ‘invoking section 20 then section 21(1) applies’. A person’s entitlement to receive FTB comes into existence by the making of a determination under section 16 of the Administration Act. From the making of that determination a person is entitled to receive payment pursuant to subsection 23(1) of the Administration Act. The determination made under section 16 comes into force when it is made and remains in force at all times thereafter.
· there is no express provision in subdivision C of Part 3 of the Administration Act enabling the variation of an instalment determination made under section 16 because of the contents of an income tax assessment lodged after the end of the relevant financial year. There is no provision which enables the Secretary to make a determination with a retrospective effect so as to deny from inception the person’s entitlement to the force of the determination made in that person’s favour. The determination by the Secretary is the source of the entitlement to be paid. The entitlement to be paid can only be altered if the determination is altered in accordance with the provisions of the Administration Act. Pollock argued that the Secretary had not identified any statutory power or any decision made which enabled him in September 2005 to vary the determination that had previously been made under section 16 retrospectively so that at the time Pollock received her payments she was not entitled to them or should not have been paid them. There was no basis for asserting that she was not entitled to receive the monies that she did.
The alternative submission was that the FTB and CCB debts are ones to which Pollock became subject by reason of an obligation incurred before her bankruptcy; her obligation to lodge an income tax return. As at 1 July 2005 her income and her partner’s income for the 2004/05 financial year were either known or ascertainable. All that remained for her liability to crystallise was the lodging of her tax return and the performance of reconciliation by the Secretary. If a liability arose it was by reason of the obligation to lodge a tax return and it thus fell within section 82 of the Bankruptcy Act.
Arguments referable to section 105 of the Administration Act
Pollock contended that section 105 of the Administration Act is not a power to treat an instalment claim based on estimates as though it was a past period claim based on a tax assessment. The power given to the Secretary by section 105 is to review the original decision; that is the decision made pursuant to section 16. The Secretary can review whether the original estimate that was provided was reasonable but it is not open to the Secretary to carry out a reconciliation exercise because that is not what section 16 of the Administration Act originally demanded. Pollock submitted that there has been no decision under section 105 because it did not provide ‘a free-ranging power’ to look at what would have been paid had a past period claim been made.
The Secretary contended that a debt can and had arisen by virtue of a review under section 105 of the Administration Act. The scheme of the Act is that it is one whereby the estimate is measured against the adjusted taxable income and a person is paid on the basis of an estimate subject to a final figure being provided as to what the person’s income in fact was.
The Tribunal was satisfied that the reconciliation conditions of section 105 are not satisfied until a recipient has been assessed under the income tax legislation (consequent upon the requirement to lodge an income tax return by section 32C of the Administration Act). The Tribunal did not accept that the power to review conferred by section 105 of the Administration Act was to be given the narrow interpretation contended on behalf of Pollock. It found that the power was wide enough to cover the exercise of reconciling payments made pursuant to estimates provided by a recipient against adjusted taxable income.
The Family Assistance legislative framework
The Tribunal set out its view of the legislative scheme for payment of FTB and CCB.
· The income test for FTB and CCB is based on an individual’s adjusted taxable income for a particular income year.
· Section 20 of the Administration Act empowers the Secretary to determine eligibility based on an estimate of income if the Secretary decides the estimate provided by the recipient is reasonable.
· Payments are made as instalments of the amount.
· When the adjusted taxable income figure for the relevant year is available, the actual entitlement of the recipient to FTB and CCB for that year is determined.
· The Secretary is then empowered to review the decision and apply the rate calculator using the adjusted taxable income figure in order to arrive at the actual entitlement for the relevant year.
· The decision that has been reviewed by the Secretary is a decision made under section 71(2) of the Administration Act; that is, ascertaining the difference between ‘the received amount and the correct amount’ that should have been paid to the recipient. It is this difference that then can become a debt due to the Commonwealth or an amount of money owed to the recipient.
The Tribunal referred to the decision in Secretary, Department of Family and Community Services and Tough (2002) 71 ALD 458 at 466:
. ... s. 71(1) of the FAA Act the Administration Act speaks in terms of lack of entitlement. It provides that an amount paid to a claimant in respect of a period is a debt due to the Commonwealth if the claimant was not entitled to the FTB in respect of that period. ...
and to the explanatory memorandum to the Administration Bill 1999:
Families who choose to receive fortnightly payments will estimate their income for the current financial year. Their estimated income will be compared with their actual income at the end of the year. Families who have overestimated their income during the year and have been underpaid will receive a top up payment at the end of the year. On the other hand, families who have underestimated their income and have been overpaid, will be required to pay back the amount they were overpaid during the year.
The Tribunal accepted the submission made on behalf of the Secretary that ‘it is a process that requires the original estimate to be verified’ and that under section 105 the Secretary may review the decision on verification. As stated in Tough (supra) at 468:
... A decision under s. 105, ... may be substituted for the original decision and so affect FTB paid after the date of effect of the original decision ...
The Tribunal found that Pollock’s debt arose at the time of the review decision made pursuant to section 105 of the Administration Act. That was subsequent to the bankruptcy. Even if some factors may have existed prior to the bankruptcy, additional events needed to occur before a debt arose. There was not an obligation incurred by Pollock to the Secretary prior to her bankruptcy. It was a post-bankruptcy debt which was only determined upon the availability of the adjusted taxable income figure.
The decision of the SSAT of 14 November 2005 was set aside. The amounts of FTB and CCB paid to Pollock by the Secretary and in respect of which she was not entitled were debts due to the Commonwealth by Pollock and were not provable by the Secretary in Pollock’s bankruptcy.
[C.E.]
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/journals/SocSecRpr/2006/48.html