Editors --- "Definition of income: treatment of income from gambling" [2008] SocSecRpr 7; (2008) 10(1) Social Security Reporter, Article 7

• SECRETARY TO THE DFHCSIA and NGUYEN
• Background
• The issues
• Discussion
• Formal decision

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Definition of income: treatment of income from gambling

SECRETARY TO THE DFHCSIA and NGUYEN

(2007/2075)

Decided: 20th December 2007 by R. W. Dunne

Background

Centrelink raised a debt of$27,473.25 for the period 13 November 2003 to 26 April 2006 on the grounds that money paid into Nguyen’s bank account (around $311,000) represented undeclared income causing an overpayment of his disability support pension (DSP) during that period. The SSAT set aside the decision under review on the grounds that for Centrelink purposes, there had been no income ‘earned, derived or received’ by Nguyen from his gambling or other activities during the period.

At the AAT, Nguyen argued that$90,000 of the total deposits represented cash loans made to him by his son and an acquaintance for the purposes of sponsoring his wife to come to Australia. He argued that a further $45,000represented proceeds from the sale of vehicles he had purchased and that sometimes he would withdraw cash and, if not spent, he would re-deposit it. He contended that the majority of the remainder of the money deposited came from proceeds of his gambling.

The issues

The main questions for the tribunal were:

· whether Nguyen’s receipts from gambling and other activities were ‘income’ for the purposes of the Social Security Act 1991 (the Act);

· whether Nguyen had been overpaid and if so, whether the overpayment should be recovered.

The law

Section 8 of the Act contains income definitions which include the following;

· ‘income’, in relation to a person, means an income amount earned, derived or received by the person for the person’s own use or benefit;

· ‘income amount’ means valuable consideration, personal earnings, moneys or profits (whether of a capital nature or not); and

· ‘earned, derived or received’ means an income amount earned, derived or received by any means and from any source (whether within or outside Australia) (s.8(1)).

Excluded from the definition of income is a periodical payment by way of gift or allowance, or a periodical benefit by way of gift or allowance, from the person’s father, mother, son, daughter, brother or sister(s.8(8)).

Further, s.8(11) states that:

‘An amount received by a person is an exempt lump sum if:

(a) the amount is not a periodic amount (within the meaning of subsection (11A)); and

(b) the amount is not a leave payment within the meaning of points 1067G-H20, 1067L-D16 and1068-G7AR; and

(c) the amount is not income from remunerative work undertaken by the person; and

(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.’

Section 1072 states that a person’s ordinary income for a period is the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A.

Section 1075 in Division 1Alists permissible reductions of business income.

Discussion

The AAT decided that, apart from$32,000 from the sale of vehicles, the deposits to Nguyen’s bank account represented proceeds of gambling.

The Tribunal found that the proceeds of gambling were not exempt lump sums within the meaning of s.8(11)and, in relation to the note at the end of that subsection, stated that ‘given the extent of the gambling activities in Nguyen’s case, it would ....be difficult to describe his gambling receipts as ‘one-off’ receipts or gifts’ (Reasons, para. 23).

The Tribunal had regard to the broad definitions of ‘income’, ‘income amount’ and ‘earned, derived or received’ and held that Nguyen’s gambling receipts were ‘moneys’ earned, derived or received by him. It was found that the moneys were ‘for his own use or benefit’ and that this was evidenced by the uses to which he put the money (eg purchasing vehicles). The Tribunal stated:

The receipts do not represent a one off windfall, nor are they amounts which could not be foreseen or predicted or expected or which are unlikely to occur again. There has been a course of conduct by Nguyen which takes his gambling receipts outside the ambit of the exempt lump sum provisions in s 8(11). (Reasons, para. 24)

The Tribunal next considered the question of whether net or gross amounts should be taken into account. The Tribunal held that the effect of s.1072 of the Act is that ‘ordinary income’ means gross income from all sources without deduction, other than allowable deductions against business income as provided for in s.1075. If the gambling was regarded as ‘an ordinary business activity’ and if the corresponding deposits were treated as income, then losses associated with producing the income could be taken into account for the purposes of the income test.

The Tribunal noted that the expression ‘carries on a business’ is not defined in the Act. Rather the expression bears the meaning it has in ordinary speech and is a question of fact. The Tribunal found that Nguyen was not carrying on a business stating:

‘There was no suggestion that he kept records of his gambling activities, there appeared to be no system or regularity in approach and, as the SSAT noted, he was not carrying on a professional activity to make profit.’

Formal decision

The Tribunal affirmed the existence of a debt due to gambling receipts being income, but concluded that the debt should be recalculated to reflect the finding that $32,000 of the deposits were proceeds from the sale of vehicles, not gambling. The Tribunal found that there were no grounds for special circumstances waiver of the debt.

[A.M.]