Editors --- "Disability support pension: deemed income from ?nancial assets; effect of a charge or encumbrance on the value of ?nancial assets; whether special circumstances for debt waiver must be unique to the debtor" [2010] SocSecRpr 34; (2010) 12(2) Social Security Reporter, Article 20

• FISCHER v SECRETARY TO THE DFHCSIA
• Background
• Legislation
• Issues
• Discussion
• Findings
• Formal decision
• [MO]

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Disability support pension: deemed income from financial assets; effect of a charge or encumbrance on the value of financial assets; whether special circumstances for debt waiver must be unique to the debtor

FISCHER v SECRETARY TO THE DFHCSIA

(Federal Court of Australia)

Decided: 7th May 2010 by Katzmann J.

Background

Fischer had been in receipt of disability support pension (DSP) since September 2002, backdated to 1999. Her rate of payment was at all relevant times calculated by reference to the income test under s.1064 of the Social Security Act 1991 (the Act).

Fischer held shares in companies listed on the Australian Stock Exchange. The shares were subject to a margin loan. On 31 May 2004, Centrelink issued Fischer with a notice requiring her to notify, amongst other things, if her financial investments exceeded $80,843. Fischer notified Centrelink of employment earnings between 2004 and 2006 but did not provide a new declaration about financial investments until May 2007 when she advised that the ‘net worth’ of her shares was $200,856. On 20 February 2008 Fischer advised that as at 20 December 2007, the ‘net value’ of her shares was $145,361. She said that her shares were ‘worth more’ but subject to a margin loan.

Centrelink suspended Fischer’s DSP until more information was provided. It was restored when Fischer provided margin loan statements disclosing the value of her shares and the margin loan balance for the period from 1 January 2004 to 31 December 2007.

On 18 June 2008 Centrelink raised a debt against Fischer of $16,164 for the period from 13 April 2004 to 21 April 2008 and cancelled her DSP. In order to calculate Fischer’s ‘ordinary income’ from the shares, Centrelink had applied s.1076 of the Act which provides that deemed income should be calculated by reference to the ‘total value’ of the financial assets which in this case was the shares. In other words, the ‘total value’ of the shares was not reduced by the amount of the margin loan before the calculation to determine the deemed income was applied.

Fischer sought internal review with an authorised review officer (ARO). The ARO decided that the decision to cancel the DSP was incorrect and also that the debt period should be reduced to the period from 30 June 2004 to 18 March 2008. The debt was recalculated to $16,062.20. The ARO found that the overpayments outside that period arose solely from Centrelink error and should be waived under s.1237A of the Act.

Fischer appealed the ARO’s decision to the Social Security Appeals Tribunal (SSAT). The SSAT affirmed the decision. The SSAT also found that Fisher’s circumstances were not ‘special’ within the meaning of s.1237AAD of the Act and that the exercise of discretion to waive the debt under that section was not warranted. Fischer’s circumstances were that the value of her shares had fallen when the stock market crashed in the global financial crisis.

Fischer then sought review at the Administrative Appeals Tribunal (AAT). The AAT varied the decision under review by reducing the debt to $9005.56 because there was a further period from 25 May 2007 to 21 April 2008 when the overpayment was attributable solely to Centrelink’s administrative error and received in good faith by Fischer and was therefore waived under s.1237A of the Act.

Legislation

The relevant legislation is set out in ss.9, 117, 1064, 1072, 1076, 1083, 1118, 1121, 1237A, 1237AAD of the Act. In particular:

• Section 9 which defines ‘financial assets’ as ‘financial investments’ which is in turn defined to include a ‘listed security’. ‘Listed security’ is defined to mean a share in a company or another security listed on a stock exchange.

• Section 1083 which provides that actual returns on financial assets are not to be taken as ordinary income.

• Section 1076 ( in Division 1B of Part 3.10 of the Act) which provides that a person who is not a member of a couple and who has financial assets is taken to receive ordinary income on those assets and prescribes a formula for calculating the person’s deemed ordinary income based on the ‘total value’ of the person’s financial assets.

• Section 1121(1) of the Act which stated at the relevant time: If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person’s assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance.

• Section 1237AAD which provides for discretion to waive debt in ‘special circumstances’ if the overpayment was not received ‘knowingly’.

Issues

There were two issues in dispute. The first was the proper method of calculation of income deemed to have been derived from financial assets for the purpose of working out a single person’s rate of payment for the DSP. The second was the approach the AAT took to the question of whether there were special circumstances which could enliven Centrelink’s discretion to waive the debt under s.1237AAD of the Act.

The Court considered the appeal on the two bases of Fischer’s written submissions; namely,

1) whether the reference to ‘total value of value of assets’ in s.1076 meant the gross rather than the net value; and,

2) whether the AAT erred in its treatment of ‘special circumstances’.

Discussion

Consideration was given to the ordinary English meaning of the word ‘value’ in the dictionary. Even though that meaning could be taken to be the ‘real or net’ value, this interpretation was ‘not necessarily so’.

The Court closely examined the case of Secretary, Department of Family and Community Services v Draper [2003] FCA 1409. This case concerned the interpretation of s.1121(1) before it was amended, with effect from 31 March 2004, to include the words ‘other than Division 1B of Part 3.10’. In Draper the applicant was on a newstart allowance and the decision was that deemed income from his financial assets should be calculated by disregarding the value of the margin loans. Katzmann J. distinguished Draper on the grounds that the Act had been relevantly amended subsequently.

Extrinsic material was considered in regard to the new words inserted as a result of the amendment. There was only one possible reference in the explanatory memorandum to the amending bill, the Social Security Amendment (Further Simplification) Bill 2003, which was that the amendment was to clarify the operation of the income and assets test provisions. Katzmann J. found that there was only one available construction of s.1121 (1) which was in accord with Centrelink’s decision to calculate the deemed income without reference to the margin loans. To do anything else would mean that the additional words had no job to do. In fact, ‘the additional phrase creates a special case for assets of the kind in question in this case’ (Reasons, para. 63).

The Court then turned to the question of debt waiver and the meaning of ‘special circumstances’ in s.1237 AAD. Fischer argued and the Court accepted that the AAT sought to impose a fetter upon the application of the section by excluding from consideration any circumstance that was shared by others: ‘...but it does not mean unique circumstances as the Tribunal implies...’ (Reasons, para. 78). This fetter was not consistent with the requirement of the Act as explained by French J in Secretary v Department of Social Security v Hales [1997] FCA 1565; (1998) 82 FCR 154 at 162 C-G.

The Court then explored whether the AAT fell into error, finding that it was implicit in the AAT decision that the ‘adverse effect of the crisis on a pensioner shareholder could never be a special circumstance’ because all shareholders were affected (Reasons, para. 88). This meant that the Senior Member of the AAT misdirected herself and therefore committed an error of law.

Findings

With regard to the first question of law, the Court agreed with the Department’s argument that the proper construction of the Act is that the ‘total value of the person’s financial assets’ in s.1076 means the aggregate value of all assets without reduction for any charge or encumbrance. The Court conceded there may be some ambiguity about the words ‘total value’ in s.1076. Nevertheless, the proper construction of s.1121 (1) as amended, when read with s.1076, was that the decision-maker was required to assess the gross value of the financial assets without regard for the margin loan.

The Court also found that the AAT erred at law by failing to properly consider whether the erosion of the value of Fischer’s shares brought about by the stock market crash amounted to ‘special circumstances’ within the meaning of

s.1237AAD of the Act.

Formal decision

1. The appeal was allowed.

2. The decision of the AAT was set aside and the matter remitted to the AAT to be determined according to the law.

3. The Department was ordered to pay Fischer’s costs.

[MO]