Editors --- "Income maintenance period: reasonable or unavoidable expenditure" [2011] SocSecRpr 31; (2011) 13(4) Social Security Reporter, Article 4

• GUERRIERO and SECRETARY TO THE DFHCSIA
• Background
• The legal framework and issues
• Discussion
• Formal decision

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Income maintenance period: reasonable or unavoidable expenditure

GUERRIERO and SECRETARY TO THE DFHCSIA

(2011/2585)

Decided: 11th November 2011 by K. Bean

Background

Guerriero has a disability support pension (DSP). In 2009 her husband took a voluntary redundancy and was paid a total termination payment of $133,474.91. The couple decided to use a large portion of this money to buy a block of land and build a new home on it.

Centrelink decided that an income maintenance period (IMP) applied to Guerriero’s DSP because her husband had received the termination payment. It decided that the period applied from 31 July 2009 to 20 July 2012 and it reduced her rate of payment to approximately $240 per fortnight until the IMP expired.

Guerriero applied for review of Centrelink’s decision. A Centrelink Authorised Review Officer and the SSAT affirmed Centrelink’s decision and she then applied for review by the AAT.

The AAT also affirmed the decision.

The legal framework and issues

Section 1064 of the Social Security Act 1991 (Cth) (the Act) stipulates, in effect, that if a person receives a termination payment he or she is taken to have received ordinary income calculated pro rata by reference to the period to which the payment relates. This period is the IMP, which begins from the date of termination.

A person who is a member of a couple may be affected by the ordinary income his or her partner is deemed to receive under this provision.

However, under s.1064 there is also a discretion to reduce the IMP if the person is in severe financial hardship because he or she has ‘incurred unavoidable or reasonable expenditure while an income maintenance period applies’ to him or her.

Section 19C of the Act defines ‘severe financial hardship’ and, for a member of a couple, states that the couple’s liquid assets must be less than twice the maximum fortnightly rate of the person’s payment.

Section 19C also defines ‘unavoidable or reasonable expenditure’ by reference to an open-ended list of specified expenses, such as ‘essential medical expenses’. It also allows for that expenditure to include ‘the reasonable costs of living’ of the person during any part of the IMP he or she has served. Again, the section gives an open-ended list of items which can count as ‘reasonable costs of living’ but it also caps the amount that can be claimed under this head at twice the amount of the payment he or she would have received during the part of the IMP already served.

The AAT was satisfied that the IMP had been correctly imposed and that Guerriero was in severe financial hardship. So the only issue was whether her financial hardship was due to unavoidable or unreasonable expenditure. As most of the termination money was used to purchase the property and build a new home, the AAT decided that the issue was whether this particular expenditure was unavoidable or reasonable.

Discussion

The AAT decided that the purchase of the property and construction of a new home was not unavoidable or reasonable expenditure. There was no evidence that the couple had to leave their existing home. It did not accept Guerriero’s evidence the couple had no choice but to proceed with the purchase by the time they found out about the impact of the IMP as it found they could have halted the building or sold the property.

The AAT therefore concluded that her severe financial hardship was not caused by unavoidable or unreasonable expenditure and it could not exercise the discretion to shorten the IMP.

Formal decision

The AAT decided that Guerriero was subject to an IMP from 31 July 2009 to 20 July 2012, which could not be reduced and affirmed the SSAT’s decision.

M.B.