SOCIAL SECURITY - Newstart allowance - Debt raised - Whether deposits in applicant's bank account income - Source of deposits - Applicant's evidence not reliable - Held certain deposits applicant's income - Debt to be recalculated to exclude deposit that was not income - No basis for non-recovery - Decision set aside and remitted for recalculation of debt

Bankruptcy Act 1966, s 153

Social Security Act 1991, ss 8, 608, 643, 1223, 1236, 1237A, 1237AAD

1. Mr Philip Dodd received newstart allowance and rent assistance between 1 August 2001 and 22 January 2004 (the debt period). Mr Dodd was declared bankrupt in May 2004, although he did not advise Centrelink about that until October 2004.
2. On 19 July 2004, Centrelink decided to raise and recover a debt from Mr Dodd arising from an overpayment of $23,064.06 for newstart allowance ($18,616.75) and rent assistance ($4,290.13) during the debt period.
3. On 30 September 2004, a Centrelink Authorised Review Officer (ARO) affirmed the decision to raise and recover a debt. The ARO found that information in Mr Dodd's bank statements indicated that deposits were made from unexplained sources, that he had not declared income from alternative sources deposited into his bank account, and that there were no special circumstances to waive the debt. That decision was affirmed by the Social Security Appeals Tribunal (SSAT) on 7 February 2008.
4. Mr Dodd seeks review of the SSAT's decision in this Tribunal.

a) Is Centrelink entitled to seek recovery of a debt, most of which accrued before Mr Dodd entered bankruptcy?

b) Were certain deposits (according to Centrelink, totalling $143,870.00) made into Mr Dodd's Commonwealth Bank Streamline account (the Streamline account) between 1 August 2001 and 22 January 2004 (the deposits) "income" as defined in s 8 of the Social Security Act 1991 (the Act)?;

c) If so, has Mr Dodd been overpaid $23,064.06 in newstart allowance and rent assistance during the debt period and consequently does he owe a debt to the Commonwealth?; and

d) If so, is there any basis for non-recovery of the debt?

1. Mr Dodd represented himself at the hearing. He argued that the deposits were not his income because they came from the following sources:

(a) Money totalling $75,275 that he had received from his son, his step-daughter, and three other flatmates for rent and utility bills which he paid;

(b) Cheques that he had cashed on behalf of a friend, Mr Higham, totalling $69,010.00;

(c) Cash advances that he had obtained from credit cards that he held with Citibank and the Commonwealth totalling approximately $14,250.00;

(d) A payment from an NRMA insurance in relation to damage to his motor vehicle; and

1. Mr Dodd calculated that deposits made into his Streamline account were $197,208.86 during the debt period. I understand that calculation to exclude newstart payments to which he was entitled. Mr Dodd argued that he could account for $157,390.70. Therefore it followed that only $39,818.16 worth of deposits remained unaccounted for. He said that about $29,900 of this remaining amount could have been from cash advances he had obtained from his ANZ credit card, records of which were no longer held by that bank.
2. Mr Dodd complained that it was difficult for him to obtain evidence supporting his claims so long after the events had occurred, and asked the Tribunal to accept his explanations. He said that the Centrelink officer who had investigated his case in 2004 could have verified his claims at that time but chose not to.

1. Section 643 of the Act provides that a person's rate of newstart allowance is calculated in accordance with the rate calculator set out in s 1068 of the Act (the rate calculator).
2. The rate calculator requires any income earned, derived or received by Mr Dodd to be taken into account in determining the rate of newstart allowance he is paid.
3. Section 8 of the Act defines "income" as including "income earned, derived or received for the person's own use or benefit".
4. Section 608 of the Act provides that newstart allowance is not payable if a person's rate would be nil.
5. Section 1223(1) of the Act provides that a debt is due to the Commonwealth if a person received social security payments to which they were not entitled.
6. In certain circumstances, a debt can be written off if a debtor lacks capacity to repay the debt (s 1236). A debt may be waived if there is administrative error by the Commonwealth (s 1237A) or if there are special circumstances which warrant waiver (s 1237AAD).

1. I have taken into account all the evidence that was before me which included the documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, Mr Dodd's oral evidence, and additional documentary material provided by Mr Dodd and by Ms Mantaring who appeared for the Secretary, Department of Education, Employment and Workplace Relations (the Secretary).
2. The proceedings were adjourned at the end of the first day of hearing to allow Mr Dodd the opportunity to issue summonses for his credit card records held by various banks and American Express, which he said would assist his case.

1. The following matters are not in dispute.
2. In March 2000, Mr Dodd sold a house he owned in Birchgrove Road, Balmain for $584,000. He told the Centrelink investigator in January 2004 that he bought a Porsche motor vehicle with the net proceeds of the sale which were $50,000 - $60,000.
3. On 1 August 2001, Mr Dodd contacted Centrelink about receiving newstart allowance and advised that he was unemployed. He was living at Mort Street, Balmain. He was granted newstart allowance and rent assistance on 27 August 2001, and was paid from 1 August 2001 at the basic rate of $357.80 per fortnight plus rent assistance of $88 per fortnight (the maximum rate for non-sharers).
4. Between 27 August 2001 and 23 January 2003, Centrelink sent eighteen notices to Mr Dodd advising that he was required to inform Centrelink if there were any changes in his circumstances that might affect payment of his newstart allowance. Relevantly, he was to notify Centrelink if he received any income.
5. Mr Dodd travelled to the United States on 4 February 2003 and returned on 6 March 2003. He said that he went for his health, to investigate care for cancer and ischaemic heart disease. He also said that his son helped pay for his tickets and his step-daughter helped pay for their costs when they met up and backpacked together in South America and Mexico. It is unnecessary to make any finding in relation to his reasons for travelling. His newstart allowance was cancelled from 4 February 2003 for a period because he was not in Australia.
6. Around that time, Mr Dodd moved out of Mort Street, Balmain, and moved into premises at Grove Street, Birchgrove.
7. On 8 May 2003, Mr Dodd was arrested and charged with manufacture prohibited drug - commercial quantity, supply prohibited drug and possess prohibited drug. He was detained in the custody of the NSW Department of Corrective Services from 9 May 2003 until 6 June 2003, when he was released on bail.
8. On 23 May 2003, Centrelink began a review of Mr Dodd's records in response to a public denunciation. Information was sought from Mr Dodd, the Commonwealth Bank, some government departments, local councils, and Telstra.
9. On 5 June 2003 Centrelink wrote to Mr Dodd advising him that information had been received that he was working and that an investigation had begun.
10. Mr Dodd told Centrelink on 13 June 2003 that he was sharing rent with another person and that his share of the rent was $100 per week. This was the first time Mr Dodd had advised Centrelink that he was sharing accommodation.
11. On 15 July 2003, Mr Dodd advised Centrelink he was no longer sharing accommodation and was paying rent of $2,042.25 every four weeks.
12. Centrelink records show that on 7 August 2003, Mr Dodd moved from Grove Street, Birchgrove to Warayama Place, Rozelle. He advised Centrelink that he was paying rent of $2,042.25 per month and was not sharing accommodation.
13. Mr Dodd was living at Warayama Place, Rozelle, when he filled out a payment review document on 29 October 2003.
14. On 29 January 2004, a Centrelink investigator interviewed Mr Dodd. Mr Dodd denied allegations made in a tip-off report. He explained deposits into his Streamline account as repayments of loans that he had made to friends who had been gradually paying him back. He said that he had no records of the loans because he is a very trusting person. He told the interviewer that the Porsche had been repossessed about two or three weeks before, not because of default on the repayments but because there was an outstanding encumbrance.
15. Mr Dodd was asked to provide information, including names and addresses of people to whom he had lent money.
16. On 24 March 2004, Mr Dodd wrote to the Centrelink investigator. He enclosed a form in which he stated that a "close friend/daughter" was sharing accommodation and paying $350 per week as of 18 December 2003, and also a medical certificate. The doctor gave a diagnosis of major depression and drug addiction.
17. On 7 May 2004, Mr Dodd was declared bankrupt on his own petition.
18. On 16 July 2004, Centrelink decided that monies in Mr Dodd's Streamline account were not from the sources Mr Dodd had suggested, and that there was evidence that the money was from another source of income.
19. On 19 July 2004, Centrelink advised Mr Dodd that he had a newstart allowance debt of $23, 064.06 for the debt period. Mr Dodd had not declared any income to Centrelink throughout the debt period.
20. On 1 October 2004, Mr Dodd notified Centrelink that he was bankrupt. Centrelink ceased automatic withholdings of $54.49 per fortnight from Mr Dodd's debt, monies already recovered were refunded, and the balance of Mr Dodd's newstart allowance/rent assistance debt of $23, 064.06 was written off until 8 May 2007, when his bankruptcy ended.
21. During his oral evidence Mr Dodd said that he served a 15 month gaol sentence between August 2006 and October 2007. Although he was charged with conspiracy to manufacture a prohibited substance, he pleaded guilty to the lesser charge of conspiracy to manufacture pseudoephedrine.

Is Centrelink entitled to seek recovery of a debt, most of which was incurred before Mr Dodd entered bankruptcy?

1. I am satisfied that, if I do not accept Mr Dodd's explanations as to the source of the deposits, Centrelink is entitled to recover the sum overpaid to Mr Dodd even though a significant portion of the debt had been incurred before the date of bankruptcy. In that circumstance the Bankruptcy Act 1966 does not apply to release him from the debt or liability incurred by means of fraud (see s 153(2)(b) of the Bankruptcy Act 1966 and ss 1236(1A) and 1236(1B) of the Act).

Do I accept Mr Dodd's explanations for the deposits?

1. Mr Dodd provided a number of documents to Centrelink and to the Tribunal to support his case. He provided to Centrelink three statements dated early May 2004 from his step-daughter, his son, and another person who stated that they had shared accommodation with Mr Dodd and paid him for rent and utility bills. Each statement specified the address of the premises shared with Mr Dodd, the period the person lived in the premises, and an amount of money paid to Mr Dodd for rent and utilities. He calculated that $75,257 was attributable to that source.
2. Mr Dodd tendered photocopies of two "Maritime Workers of Australia Credit Union Ltd" cheques from Mr "M E Higham" both dated 23 December 2002. One was for $5,200.00 and the other was for $8,450.00. He also provided a Commonwealth Bank deposit slip dated 27 December 2002 that records the deposit into his account of two cheques for $8,450.00 and $5,200.00. A further Commonwealth Bank deposit slip dated 7 January 2003 records that two cheques for $20,960.00 and $20,000.00 were deposited into a Commonwealth Bank account at Balmain NSW. The name "Higham" appears on the slip. A similar deposit slip dated 8 January 2003 appears to show a deposit of $14,650.00. That is a total of $68,260. Mr Dodd explained these transactions as cashing cheques for a friend who had received a compensation payment, but whose credit union could not give him cash. Some similar amounts were withdrawn after the deposits.
3. The credit card records produced under summons from Citibank and the Commonwealth bank show cash advances totalling $14,250. There were no statements provided for the period 1 August 2001 to 22 May 2002 in respect of the Commonwealth Mastercard. There were no statements for the whole debt period available for the ANZ visa card, but there was evidence that the balance of that account in January 2004 was $29,999.09 in debit. Mr Dodd said that he remembered that most of the cash advances came from that card during the relevant period. He also said that he paid credit cards using other credit cards.
4. Mr Dodd provided to Centrelink statements from three people who stated that they had loaned him money. One was a handwritten statement, dated 26 April 2004, stating that the person had loaned $6,000.00 to Mr Dodd due to financial hardship. The second was a typed statement dated 29 April 2004, advising that this person had given Mr Dodd a Westpac cheque for $355 due to financial hardship on 15 November 2002. The third was a typed statement dated 30 April 2004, stating that a loan of $5,000 had been made to Mr Dodd due to financial hardship, and which was transferred into Mr Dodd's Commonwealth Bank account on 30 September 2003.
5. Mr Dodd supplied a letter from NRMA Insurance Limited, dated 7 July 2003, which stated that it enclosed a cheque for $1,750.00 in settlement of a collision on 10 October 2002. There is a matching deposit of $1750.70 into the Streamline account on 10 July 2003.

1. I agree with the SSAT that, while Mr Dodd spoke confidently at the hearing, he did not impress me as a credible witness, for the following reasons.
   • (a) Mr Dodd was involved in serious criminal activity relating to drug manufacture during part of the debt period before his arrest in May 2003. I take into account that it is well known that drug manufacture and supply can generate large quantities of cash.
   • (b) Deposits, other than from newstart allowance payments, totalling approximately $126,000 were made into the Streamline account in the four month period before Mr Dodd travelled to the Americas between 1 October 2002 and 22 January 2003.
   • (c) During the debt period Mr Dodd advised Centrelink that he was sharing accommodation only during the period 13 June to 15 July 2003.
   • (d) Mr Dodd's first response, in January 2004, to the question what were the sources of the deposits was that they were repayments of loans he had made to friends for which he had no records. It was only after he had been requested to provide documentation to support his version of the sources of loans that he said that the source was people with whom he had shared accommodation.
   • (e) The deposits of the Higham cheques and withdrawal of equivalent funds are unusual transactions. The only evidence that Mr Dodd gave the funds to Mr Highan was Mr Dodd's oral evidence which I do not accept as being reliable.

(f) Mr Dodd's oral evidence was contradictory and inconsistent, and changed in response to perceived difficulties. For example, it was only at the hearing that Mr Dodd attributed deposits to cash withdrawals from credit cards, and when he realised that there was still an amount in excess of $30,000 he could not explain, he recalled that most of the cash advances he made had been on the ANZ credit card, for which there were no records other than a balance in January 2004 of $29,999.09. He was unable to recall the source of specific deposits.

1. Mr Dodd did not call witnesses to give evidence in support of his case. He said that was because he was unable to locate them. He argued that what he says could have been verified in 2004 by the Centrelink investigator but that person chose not to. I am not persuaded by this argument. I infer that Mr Dodd did not seek the review of the ARO's decision because he was made bankrupt and he was not being pursued for the debt. I do not accept the evidence in the statements that Mr Dodd provided in the absence of the witnesses being available to support that evidence and independent evidence of the alleged payments. For example, the statement of one of the people who claimed to share with Mr Dodd in Grove Street was inconsistent with Mr Dodd's bank records in relation to payments he made for rent at those premises.
2. Having considered all of the material, I am not persuaded by Mr Dodd's evidence about the source of the deposits. That such a large proportion of the deposits was made in a four month period does not support his evidence of receiving cash over a period of more than two years. Even if had I accepted Mr Dodd's evidence about the loans and the credit card cash advances, both would still be income because the money was for his own use or benefit (s 8 of the Act). Mr Dodd gave evidence that he did not have to pay back the loans and he had not paid back the banks because of his bankruptcy.
3. However, I find that the $1,750.70 deposited into the Streamline account on 10 July 2003 was from the NRMA Insurance cheque and this amount was not Mr Dodd's income. I find this on the basis of the NRMA letter and Streamline bank account records. I understood Ms Mantaring, who appeared for the Secretary, to agree with this finding.
4. I therefore conclude that the deposits into Mr Dodd's Commonwealth Bank Streamline Account during the debt period, except for $1750.70 deposited on 10 July 2004, was Mr Dodd's income as defined in s 8 of the Act. The money was for Mr Dodd's own use or benefit and must be taken into account in assessing his rate of newstart allowance and rent assistance.

CAN OR SHOULD THE DEBT BE WRITTEN OFF OR WAIVED?

1. On the evidence, there is no basis for writing off the debt pursuant to s 1236 of the Act or waiver pursuant to s 1237A of the Act. Mr Dodd did not provide evidence that he presently lacks capacity to repay the debt. He is currently receiving newstart allowance.
2. Section 1237AAD of the Act allows a debt to be waived in special circumstances, but not where it is the result of making a false statement or false representation or a failure or omission to comply with a provision of the Act. I find that Mr Dodd has failed to notify Centrelink of his income. He cannot benefit from the application of this provision. In any event, special circumstances were not established by the evidence.

1. It follows that deposits into Mr Dodd's Streamline account between 1 August 2001 and 22 January 2004, totalling $143,870 according to Centrelink's calculation, were relevantly Mr Dodd's income, except for the NRMA cheque for $1,750.70 which, on the evidence, was included in that total.
2. I find that a debt for newstart allowance and rent assistance received by Mr Dodd from 1 August 2001 to 22 January 2004 is owed to the Commonwealth (s 1223 of the Act), however, it must be recalculated taking into account my finding in relation to the deposit of the cheque from the NRMA.

3. Accordingly, I set aside the decision of the SSAT dated 7 February 2008 and remit the matter to the Secretary for reconsideration with the direction that the amount of the debt is to be recalculated, taking into account that the amount of $1,750.70 deposited into Mr Dodd's Commonwealth Bank Streamline account on 10 July 2003 was not Mr Dodd's income.

I certify that the 53 preceding paragraphs are a true copy of the reasons for the decision herein of Mrs Josephine Kelly, Senior Member.

Representative for the Respondent: Centrelink Legal Services and Procurement