Editors --- "Whether retirement pension retained by overseas fund is derived income" [2013] SocSecRpr 13; (2013) 15(2) Social Security Reporter, Article 6

• DAVID and SECRETARY to the DFHCSIA
• Background
• Issues
• Legislation
• Consideration
• Formal decision

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Whether retirement pension retained by overseas fund is derived income

DAVID and SECRETARY to the DFHCSIA

(2013/181)

Decided: 28th March 2013 by A.K. Britton

Background

Mr and Mrs David migrated to Australia twenty five years ago. Both worked for the Portuguese civil service and each received a pension from the Portuguese pension fund, the Caixa Geral de Aposntações and the Australian government. Mr David received age pension and Mrs David received disability support pension (DSP), paid at a reduced rate, based on their joint ‘income’ including their overseas pension. Centrelink had counted the ‘full rate’ of Portuguese pension as ‘income’.

In order to be eligible for retirement pension, Portuguese civil servants must contribute to the pension fund managed by the Caixa. The rate of pension payable is based on a formula which includes the person’s age and the amount of contributions made. A nominated figure must be contributed before a person becomes entitled to receive the full rate of pension (the contribution figure). At pensionable age the Caixa contributor is entitled to receive age pension but at a reduced (according to a formula) rate and the difference between the full pension and the reduced pension is returned to the fund until the contribution figure has been reached. The full rate of pension is only payable when the contribution figure has been reached.

Caixa advised that Mrs David needed to contribute €34,000, that she would be ineligible to receive the full rate of pension for about 15 years and that during the interim she would receive approximately €270 per month less than the full rate of pension from the fund. The Caixa information suggested that if Mrs David did not survive for the 15 years, that neither she nor her estate would benefit from the notional contributions made from the date she first received the Portuguese pension to the date of her death.

Issues

The AAT needed to decide whether the full rate of the Portuguese pension or the actual amount received by Mrs David (the shortfall amount), constituted ‘income’ within the meaning of paragraph (a) of the definition given in s.8(1) of the Social Security Act 1991 (the Act).

Legislation

The rate of the age pension and DSP is calculated by applying the Pension Rate Calculator A in s.1064 the Act. That calculator operates to reduce a pensioner’s maximum rate of pension by the amount of the pensioner’s ‘ordinary income’.

Section s.1072 decrees that ‘ordinary income’ means a person’s gross ordinary income from all sources for the period calculated without any reduction. The definitions section further adds:

Section 8

Income test definitions

(1) In this Act, unless the contrary intention appears:

‘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;

...

‘income amount’ means:

(a) valuable consideration; or

(b) personal earnings; or

(c) moneys; or

(d) profits;

(whether of a capital nature or not). Earned, derived or received

(2) 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; and

(b) an income amount earned, derived or received from any source (whether within or outside Australia).

Consideration

The AAT found that the shortfall amount was not received or earned by Mrs David. The Secretary contended that it was ‘derived’. The AAT held that to come into the definition of ‘income’ it must be for Mrs David’s own use and benefit.

The AAT considered the following authorities. The definitions of ‘income’ and ‘income amount’ as used in the Act are terms of wide application (Read v Commonwealth [1988] HCA 26; (1988) 167 CLR 57 at 69; Secretary, Department of Social Security v McLaughlin [1997] FCA 1456; (1997) 81 FCR 35 at 42). In Secretary, Department of Employment and Workplace Relations v Richards (2007) 98 ALD 310; [2007] FCA 1710 at [34] Collier J summarised the authorities relating to the concept of income being‘earned, derived or received’:

• the use of the verbs ‘earned’, ‘derived’ and ‘received’ in juxtaposition in the definition of ‘income’ in the Act suggests that each was intended to have a different meaning: Sheppard J in Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307 at 311.

• income cannot be ‘earned, derived or received’ unless it is also realised: Read v Commonwealth (1988)167 CLR 57 per Mason CJ, Deane and Gaudron JJ at 67.• income can be realised — and hence received — even if temporarily it is not accessible: Rose v Secretary, Department of Social Security [1990] FCA 59; (1990) 21 FCR 241 at 245.

• income can be ‘derived’ within the meaning of s 8(1) even if it is not at that time received: Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307 at 311.

The AAT considered the ordinary meaning of the word ‘derive’. The Macquarie Dictionary defines ‘derive’ to mean ‘to receive or obtain from a source or origin’. The Oxford English Dictionary offers this definition: ‘to draw, fetch, get, gain, obtain (a thing from a source)’.

The AAT held that Mrs David did not have a legal entitlement to the full Portuguese pension. As a past Portuguese civil servant who had reached retirement age she was eligible to receive the full pension but, until she made further contributions to the pension fund (approx. €34,000), her legal entitlement was the short fall sum from the Portuguese pension fund.

The AAT held that Mrs David had no entitlement to any benefit from the additional €34,000: her entitlement would simply be to receive the full rate of Portuguese pension applicable when the contribution figure had been reached. The income could be said to have been ‘derived’ when a legal entitlement to receive it arose.

Formal decision

The AAT set aside the decision of the SSAT and decided that only the amount actually received by Mrs David was income for the purposes of s.8(1) of the Act. [M.R.]