Editors --- "Disability support pension: income test; assessment of income protection payments; effect of assignment of income protection policy" [2014] SocSecRpr 14; (2014) 16(2) Social Security Reporter, Article 6

• WATSON and SECRETARY TO THE DSS
• Background
• Issues
• Decision and reasons
• The double counting issue
• The allowable deductions from the income protection payments issue
• Formal decision

---

Disability support pension: income test; assessment of income protection payments; effect of assignment of income protection policy

WATSON and SECRETARY TO THE DSS

(2014/333)

Decided: 29th May 2014 by K. Bean and N. Manetta

Background

Watson had received a disability support pension since 2001, after treatment for a brain tumour left him with per-manent restrictions on his ability to work. Between 1996 and April 2009 he operated a business as a sole trader providing financial advice. He also re-ceived regular payments under an income protection policy he had with AXA.

In April 2009, Watson began to carry on his business through a company of which he was sole director and shareholder. He provided financial advice services as the company’s employee. In October 2009, he assigned the benefit of the income protection policy to the company and payments under the policy were then made to the company. The assignment was a gift in so far as no consideration passed to Watson.

Since 2001, Watson’s rate of disability support pension had been affected by his business and the income protection payments. Watson appealed the assessment of his income. In April 2011, a Centrelink complex assessment officer de-termined that for the purpose of calculating his rate of pension, his income between 1 October 2009 and 10 June 2011 was:

(i) attributed income of $32,032.00 pa, which represented income protec-tion payments made to the company;

(ii) net rental income of $3887.50 pa, which he received from the company; and

(iii) salary income of $3302 pa, paid to him by the company.

The decision was affirmed by the Social Security Appeals Tribunal (SSAT) and Watson then appealed to the Admin-istrative Appeals Tribunal (AAT). The AAT used its power to remit matters back to a decision-maker for reconsid-eration in s.42D of theAdministrative Appeals Tribunal Act 1975 (Cth) and, when no Centrelink officer reconsidered the matter within the allowed time, the matter resumed at the AAT on the basis that a Centrelink officer had reaffirmed the decision (subs.42D(7), 42D(8)).

Issues

Under s.1207Y of the Social Security Act 1991 (Cth) (the Act), income received by a company can be treated as an individual’s personal income for the purpose of assessing their rate of disability support pension under s.117 and s.1064 of the Act. The Act calls this ‘attribution’ of income.

Relevantly, the scheme allows the Secretary to determine that certain amounts are to be excluded as income from any attribution (ss.1207Y (2), 1207Y (3)). It also allows certain losses and expenses to be deducted from the company’s income if it carries on a business or holds an investment (s.1208B).

In applying this scheme to Watson’s financial arrangements, the AAT considered, in substance, two specific questions:

(i) Was it appropriate to treat the income pro-tection payments received by the company, as well as rent and salary payments to Watson, as income and aggregate them for the purpose of calculating his rate of pension or did this involve ‘double counting’? and

(ii) Should the income protection payments received by the company be offset by the company’s losses or outgoings?

Decision and reasons

The double counting issue

The starting point was the fact that the company’s main income was, in reality, the income protection payments assigned to it by Watson. It then used some of that income to make the rental and salary payments to him.

At the hearing, the Secretary finally acknowledged this reality and conceded that aggregating these three amounts involved inappropriate ‘double counting’ of a portion of the income support payments as those payments were, in reality, the source of the rental and salary payments.

The Secretary then made a further concession that an amount equivalent to the rent and salary amounts should be determined to be ‘excluded’ under s.1207Y of the Act.

Watson, for his part, conceded that the income payments to the company should be otherwise treated as though his own; that is, attributed to him under s.1207Y.

These concessions effectively disposed of this issue.

The allowable deductions from the income protection payments issue

Watson’s position was that he should only be attributed with the net amount of the income protection payments after allowing for the company’s outgoings. He had previously litigated this argument as far as the Federal Court and lost. The relevant provision allowing sole traders to deduct losses or outgoings is s.1075 of the Act, which only permits deductions against income ‘from the business’. The Federal Court found that the income protection payments were not income from the business and therefore s.1075 did not apply.

Watson argued that this reasoning no longer applied, as he now carried on his business as an employee of the company.

The Tribunal decided that the Federal Court’s earlier reasoning still applied. As the income from the income protection policy was not derived from the financial advice business the company operated, the company’s losses or outgoings could not be deducted from it. In this respect, s.1208B of the Act (the applicable provision for attribution of company income) was not materially different from s.1075 of the Act.

Formal decision

The Tribunal set aside the SSAT’s decision. It remitted the matter to Centrelink for redetermination of Watson's income in light of the Secretary’s concession that certain amounts should be excluded from Watson’s attributed income. It otherwise affirmed the SSAT’s decision in so far as it found that the gross amount of income protection payments should be assessed. [M.B.]