Editors --- "Overpayment of family tax and child care benefits; whether a provable debt in bankruptcy" [2007] SocSecRpr 31; (2007) 9(3) Social Security Reporter, Article 5

• HUGHES and SECRETARY TO THE DFaCS
• The issue
• Background
• The effect of bankruptcy
• Formal decision

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Overpayment of family tax and child care benefits; whether a provable debt in bankruptcy

HUGHES and SECRETARY TO THE DFaCS

(2007/1544)

Decided: 13th July 2007 by E. K. Christie

The issue

In this matter the issue for consideration was whether the debts could be recovered given Hughes’ bankruptcy. The SSAT in September 2005 had determined that the FTB and CCB debts could be recovered.

Background

Hughes was paid FTB and CCB in2002-2003 on the basis of an estimate of her combined family income, which estimate she updated twice in November 2002. Although the new estimates had overstated her combined family income, her overestimates were insufficient to cover the earlier underestimate of her combined family income, as a result of which she was overpaid a total of $5714 in FTB and CCB in the 2002-2003financial year. She was notified of the debts by Centrelink in January 2004.

Hughes was declared bankrupt on 13 November 2002, and was discharged from bankruptcy on 14 November 2005. The debts under consideration in this matter had arisen both before and during the period of bankruptcy, but were raised as a result of a reconciliation exercise carried out after Hughes received her 2002-2003 income tax assessment notice, issued on 20January 2004. It was not in dispute that the overpayments had occurred, nor that Hughes had acted honestly at all times; the issue was whether the overpayments could be recovered.

The effect of bankruptcy

The Tribunal considered whether the debts were provable within the provisions of the Bankruptcy Act1966. The Tribunal noted that the debts themselves did not arise until after the reconciliation process occurred, that is after an income tax assessment notice was issued for the 2002-2003 year, and that indeed the statutory power under A New Tax System (Family Assistance) (Administration) Act 1999 to review decisions regarding benefit entitlements itself did not arise until after the relevant financial year when income tax assessments had been lodged. As Hughes became bankrupt on 13 November 2002, the FTB and CCB debts were not ones to which she was subject when she became bankrupt.

Further, debts occurring prior to or during bankruptcy may be provable in bankruptcy if they can be said to be either contingent debts, future liabilities, or debts and liabilities to which the bankrupt may become subject before discharge by reason of an obligation incurred at or before the date of bankruptcy (s.82(1) Bankruptcy Act 1966).In Hughes’ situation, the Tribunal noted that at the date of her bankruptcy she faced the possibility of some debt liability being imposed at some future time. However, she was not subject to a future liability at that stage as, to be such, the liability must be one that will become fixed at some definite time in the future (Pyramid Building Society (in Liq) v Terry [1997] HCA 48; (1997) 148 ALR 174). Similarly, when she become bankrupt there was no provable debt ‘on the horizon’ nor had any debt ‘crystallised’ into at least a possible, likely or expected amount (Lyford v Carey (1985) 3 ACLC 515; Gaffney v Commissioner of Taxation (1998) 81 FCR 574; Re McLaren; Ex Parte Aboriginal and Torres Strait Islander Commission, Federal Court, 22 May 1997, 397/1997.)

Finally, the Tribunal considered whether there was a debt to which Hughes was subject before her discharge from bankruptcy because of an obligation which had been incurred at or before she became bankrupt. The Tribunal applied the conclusion drawn in Commissioner of Taxation v Kavich (1996) 68 FCR 519 that the term ‘obligation’ was a wide term, to be ‘considered over a wider spectrum of the administrative process, rather than a discrete process’ (Reasons, para 37). Applying this to Hughes’ situation, the Tribunal concluded that her obligation to provide estimates of her combined family income was met prior to and after her date of bankruptcy, and that her obligation to lodge a tax return upon which the reconciliation process was later undertaken was met after her date of bankruptcy. As such, there was no relevant obligation of which Hughes was in breach that created any liability before the date of bankruptcy; the debts occurred after the date of bankruptcy and were not provable debts in that bankruptcy.

Formal decision

The Tribunal affirmed the decision under review; that is, the FTB and CCB debts were recoverable.

[P.A.S.]