Editors --- "Overpayment: ordinary income; race horse winnings; exempt lump sums" [2008] SocSecRpr 8; (2008) 10(1) Social Security Reporter, Article 8

• HODGSON and MCGLADE and SECRETARY TO THE DEWR
• Background
• The issues
• Formal decision

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Overpayment: ordinary income; race horse winnings; exempt lump sums

HODGSON and MCGLADE and SECRETARY TO THE DEWR

(2007/2044)

Decided: 7th December 2007 by J. D. Campbell

Background

McGlade and Hodgson were a de facto couple. They purchased a property in joint names. It was their intention to pursue their race horse interests as well as grow and sell vegetables on this property. McGlade’s physical health declined and, on 16 December 1996, he was granted disability support pension (DSP). On 13 December 2003 Centrelink raised a debt of $53,921.71 arising from overpayment of DSP between 26 December 1996and 4 November 2003. Hodgson also received two notices of decisions to raise debts, one in the amount of $6693.74 and one in the amount of $42,398.13 for overpayments of parenting payment. Such overpayments were due to monies received from McGlade’s horse training activities and winnings, which were assessed as gross income without any allowance for business expenditure.

On review, an authorised review officer, taking into account business expenses associated with the horse training activities, revised McGlade’s debt to$2713.07 and Hodgson’s debt to $5811.91. On 7 July 2006, the SSAT set aside the decision to raise the debts, and requested that the debts be recalculated due to revised social security income calculations. As a result of the SSAT direction, Centrelink determined the debt owed by McGlade to be $187.23, and in relation to Hodgson the debt was recalculated to $2106.68. On appeal, there was no question as to the quantum of the debt.

The issues

The issues before the AAT were:

. Should Hodgson’s horse race winnings of $4209be considered ordinary income for the purposes of the Social Security Act1991 (the Act)?

. Are such earnings considered exempt under s.8 of the Act?

. If the debts remained, could they be waived pursuant to sole administrative error by the Commonwealth or alternatively as a consequence of special circumstances being found to exist?

Horse race winnings as ordinary income

McGlade and Hodgson contended that such winnings were windfall gains and should not be included in their ordinary income for social security purposes. The AAT noted the definition of income and other terms in s.8 of the Act. Section 8(1) provides:

‘income’, in relation to a person, means:

(a) an income amount earned, derived or received by the person for the person’s own use or benefit; or

(b) a periodical payment by way of gift or allowance; or

(c) a periodical benefit by way of gift or allowance;

but does not include an amount that is excluded under subsection (4), (5) or (8);

‘ordinary income’ means income that is not maintenance income or an exempt lump sum.

‘income amount’ means:

(a) valuable consideration; or

(b) personal earnings; or

(c) moneys; or

(d) profits.

Section 8 (2) provides:

A reference in this Act to an income amount earned, derived or received is a reference to:

(a) an income amount earned, derived or received by any means.

Hodgson received two amounts of $4209 and $5940 being composite amounts relating to winnings by two horses in which she had a 25%interest. The AAT concluded that the amounts comprising a number of lump sums were ordinary income for the purposes of the Act, unless they were exempt lump sums.

Section 8 (11) of the SS Act provides:

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

....

(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.

The AAT acknowledged that the winnings would fall into the term ‘class of amounts’. However, the accrual of lump sum winnings by Hodgson did not fall within any determination that had been made. In the absence of the existence of such a determination the AAT decided that it did not have jurisdiction to consider whether Hodgson’s lump sum series of winnings was an exempt lump sum pursuant to s.8(11)of the Act.

The AAT found that the winnings were ordinary income and not subject to exemption. The AAT also found that neither debt could be waived and were thus recoverable.

Formal decision

The AAT affirmed the decision under review.

[M.L.]