Editors --- "Income maintenance period: discretion for waiver confined to necessary expenditure" [2009] SocSecRpr 44; (2009) 11(4) Social Security Reporter, Article 7

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Income maintenance period: discretion for waiver confined to necessary expenditure

ERGIN and SECRETARY TO THE DEEWR

(2009/740)

Decided: 25th September 2009 by B. H. Pascoe

Background

Ergin’s employment with Cadbury Schweppes was terminated and he received $51,729: a lump sum comprising redundancy, payment in lieu of notice, annual leave and long service leave – equivalent to 53 weeks ordinary income. Ergin confirmed that he had received $46,000 net in redundancy payment. He had spent $8000 on a holiday to Bali, $20,000 to repay debts, $6000 in living expenses and he had gambling losses of $12,000.

Issues

Ergin sought a reduction in the ‘income maintenance period’ (a benefits preclusion period) because he was unable to find a job, was in serious financial difficulty and was reduced to sleeping in his car because he could not afford to pay rent.

Legislation

The income maintenance period was calculated under s.1068-G7AH of the Social Security Act 1991 (the Act) and the calculation was not disputed. When a person receives an employment termination payment, the payment is treated as ordinary income for the period to which it relates: commencing on the day it is received, in this case 27 March 2009 to 31 March 2010.

Discretion

The AAT stated that ‘Under s.1068-G7AM, part or all of the income maintenance period can be waived if the Secretary is satisfied that a person is in severe financial hardship because the person has incurred unavoidable or reasonable expenditure while an income maintenance period applies to the person...’ It was accepted by the Tribunal that Mr Ergin was in severe financial hardship. It was further accepted that he had incurred unavoidable and reasonable expenditure of $27,898 to the date of the Tribunal’s decision made up of:

Loan repayments $20,000

Car Registration $560

Living costs $7338

$27,898

The AAT noted that pursuant to s.19C(6), living costs are capped at the amount of the newstart allowance that would have been payable if the income maintenance period had not applied. In this case it would have been $564.50 per fortnight for 13 fortnights. Given the terms and intention of the legislation, it was not possible to regard the expenditure on gambling and an expensive holiday as unavoidable or reasonable expenditure.

Nevertheless, the AAT decided that it was appropriate to exercise the discretion provided by s.1068-G7AM to determine that part of the income maintenance period did not apply relative to the unavoidable and reasonable expenditure. The AAT noted that the method of doing so is not prescribed and decided that ‘an appropriate method would be to reduce the period by a calculation of the proportion of the net termination expended on unavoidable and reasonable expenditure over the total termination payment. Such calculation is as follows:

Unavoidable and reasonable expenditure

Loan Repayments $20,000

Car Registration $560

Living Costs -

11 fortnights at $564.50 $6209

$26,769

Net Termination

Payment $46,000

Balance to be taken

into account $19,231

Income Maintenance Period

based on termination

payment 53 weeks

Income Maintenance period to be waived

$26,769 /$46,000 of 53 weeks = 31 weeks

Balance of income maintenance

period 22 weeks

Income maintenance period expires 20 August 2009’

Formal decision

The AAT reduced the income maintenance period by 31 weeks to expire on 20 August 2009.

[M.R.]