Re SECRETARY, DEPARTMENT OF FAMILY AND COMMUNITY SERVICES

Decision The decision under review is affirmed.

Social Security - rate of pension - ordinary income test - determination of ordinary income on a yearly basis - income obtained from employment over short period each year - whether exceeded income free area.

Social Security Act 1991 - s.1064-E1

Harris v Director-General of Social Security [1985] HCA 1; (1985) 59 ALJR 194

Re Dunning and Secretary, Department of Social Security (1986) 10 ALD 89

Re Secretary, Department of Social Security and Morris (1996) 23 AAR 99

Re Secretary, Department of Social Security and Moroney (1998) 27 AAR 441

Read v Commonwealth [1988] HCA 26; (1988) 167 CLR 57

1. There are two applications before the Tribunal for the review of a decision made by the Social Security Appeals Tribunal ("the SSAT") on 15 July 1998. The respondents are age pensioners. They are husband and wife. Mr. Lennon, the respondent to application N1998/1237, for a number of years has done casual work for the Board of Studies (NSW) in connection with the marking of Higher School Certificate examination papers. In 1997 he did such work from 29 October until 28 November. These applications raise an important question as to how his income from that work should be treated for the purposes of the income test provisions in the Social Security Act 1991 ("the Act").

2. The applicant contends that Mr. Lennon's fortnightly income during the fortnights that he worked should be taken into account in assessing his rate of pension for each relevant payday. The SSAT, by majority, took the view that his income from that work had to be taken into account over a one-year period. This produced a result favourable to the respondents. They contended that the SSAT's approach was correct.

3. Mr. Lennon earned a total of $2,329.51 from the employment in question. On 15 December 1997 a delegate of the applicant decided to reduce the age pension rate of both respondents for the pension paydays that fell on 13 November 1997 and 27 November 1997 on the basis that Mr. Lennon's ordinary income on a yearly basis from employment was $25,332. That decision was affirmed by an authorised review officer on 11 May 1998. On 15 July 1998, the SSAT set aside the delegate's decision, and remitted the matter for reconsideration with a direction that the respondents' age pension rate for the two paydays in question be recalculated on the basis that Mr. Lennon's ordinary income on a yearly basis from employment was $2,329.51.

4. Under s.55(a) of the Act, a person's age pension rate has to be worked out using a Pension Rate Calculator A, which is found in s.1064 of the Act. Under s.57(1), a full instalment of age pension is payable on each pension payday on which a person is qualified to receive age pension, and on which the pension is payable to the person. At all material times, by virtue of a definition in s.23 of the Act, pension paydays were alternate Thursdays. By virtue of s.59(1), the annual amount of an instalment of age pension is the amount worked out by dividing the amount of the annual rate of the pension by 26.

5. Pension Rate Calculator A is divided into a number of modules. To calculate a person's rate of pension, Steps 1 to 4 in Module A require the person's "maximum payment rate" to be calculated. Step 5 provides as follows:

"Step 5. Apply the ordinary income test using MODULE E, below to work out the income reduction."

6. Module E, which is headed "Ordinary Income Test" includes the following provisions:

"1064-E1. This is how to work out the effect of a person's ordinary income on the person's maximum payment rate:

Step 1 Work out the amount of the person's ordinary income on a yearly basis.

Note: for the treatment of the ordinary income of members of a couple see

Step 2 Work out the person's ordinary income free area (see points 1064-E4 to 1064-E9 below).

Note: a person's ordinary income free area is the amount of ordinary income that the person can have without any deduction being made from the person's maximum payment rate.

Step 3 Work out whether the person's ordinary income exceeds the person's ordinary income free area.

Step 4 If the person's ordinary income does not exceed the person's ordinary income free area, the person's ordinary income excess is nil.

Step 5 If the person's ordinary income exceeds the person's ordinary income free area, the person's ordinary income excess is the person's ordinary income less the person's ordinary income free area.

Step 6 Use the person's ordinary income excess to work out the person's reduction for ordinary income using points 1064-E10 to 1064-E12 below.

1064-E2 If a person is a member of couple, add the couple's ordinary incomes (on a yearly basis) and divide by 2 to work out the amount of the person's ordinary income for the purposes o this Module.

Pension reduction for ordinary income in excess of ordinary income free area

1064-E10 A person's reduction for ordinary income is worked out by dividing the person's ordinary income excess by 2.

1064-E11 A person's ordinary income excess is the person's ordinary income less the person's ordinary income free area."

7. It is clear from the definition of "ordinary income" in s.8 that Mr. Lennon's earnings from his casual work constituted "ordinary income".

8. Under s.72(2) of the Act, a determination of the rate of an age pension continues in effect until a further determination in relation to the pension under either s.76 or s.77 has taken effect. The provisions of s.76 relate to favourable determinations increasing the rate of age pension. Under s.77, the Secretary may make a determination reducing the rate if satisfied that the rate at which age pension is being paid is more than the rate provided for by the Act. Under s.81, such an adverse determination takes effect, at the earliest, on the day on which it was made, except in case where there has been a contravention of the Act or some false statement or misrepresentation. No such circumstances exist here.

9. The critical question for the Tribunal in this case is how one must properly apply Step 1 of the method statement in s.1064-E1. It will be recalled that Step 1 says, "W_ork out the amount of the person's ordinary income on a yearly basis_". The applicant contends that Step 1 requires Mr. Lennon's rate of income during the period he was working to be converted to an annual figure as if he would continue to earn an income at the same rate for a whole year. The respondents contend that the amount earned by Mr. Lennon during the few weeks that he worked should be treated as his yearly income from employment.

10. The High Court considered a similar question in Harris v Director-General of Social Security [1985] HCA 1; (1985) 59 ALJR 194. That case concerned the provisions of s.28(2) of the Social Services Act 1947 (as it was then named). That provision read as follows:-

"The annual rate at which an age or invalid pension is to be determined shall, subject to sub-section (2AA), be reduced by one-half of the amount (if any) per annum by which the annual rate of the income of the claimant or pensioner exceeds -

(a) in the case of an unmarried person - $1,040 per annum; or

(b) in the case of a married person - $897 per annum."

11. The leading judgment in Harris was given by Gibbs CJ, Brennan, Deane and Dawson JJ. At 196 their Honours said this:

"The distinction between an annual amount of income and an annual rate of income is critical to an understanding of s.28(2). If an annual amount of income were a component in the s.28(2) calculation, it would be necessary to identify a commencing date of the income year in order to ascertain what receipts fell into one year and what into the next. But a rate of income, like a rate of interest, may vary within any annual period though it is expressed as an annual rate. It is a current rate of income, expressed as so much per annum. An annual rate of income may not subsist for a year: an annual rate of income that obtains in one week may change in the week following. Annual income is the sum of the products of each annual rateof income that obtained during any part of the year multiplied by the fraction of the year during which it obtained."

"When a pensioner is in receipt of weekly wages from employment ... his annual rate of income from that source is calculated on the assumption that his earnings at the current rate will continue for the year. If he were to retire from work, that source of that income would be gone and the annual rate of income attributable to that source would be nil. In cases where pensioners or claimants are employed intermittently, it may be appropriate in some cases to treat the intermittent work as a continuing source of income and to take an average of earnings over a period as the yield from that source, and in other cases to treat each employment as a separate source of income yielding its particular amount of earnings. The former method would establish a comparatively constant rate of income; under the latter method, the annual rate of income would change as the pensioner or claimant went into and out of employment. The circumstances of the particular case would show which method is more appropriate.

Similarly, if a change occurs in the level of income derived from a particular source, the new level is the basis on which, from the time of the variation, the annual rate of income attributable to that source is to be calculated. If a pensioner is in casual employment earning different amounts each week, as Mrs. Harris was, it may be appropriate - it is a question of fact - to determine the annual rate of income attributable to casual employment by striking an average of earnings over a period. Section 45(1) [of the 1947 Act] refers to a period of eight consecutive weeks. Although that provision relates to notification, not to calculation, it may be administratively sound in many cases to strike an average over a period of eight weeks. But the circumstances of the case must determine what is a fair method of ascertaining the current rate of income at a particular time...

An annual rate of income, at whatever time it is ascertained for the purposes of s.28(2), is the aggregate of those income payments which would be received by the pensioner during the ensuing year on the assumption that he retains all his current sources of income for the year and that they continue to yield income at the current level. The annual rate thus ascertained endures until something occurs which falsifies the assumption on which the particular annual rate was ascertained - that is, until a source of income is gained or lost, or the level of income yielded by a source of income changes. Then a new annual rate of income must be ascertained on a new set of assumptions that accord with the then current sources of income and the then current levels of income yielded by those sources."

13. The eight-week notification period that was provided for in s.45(1) of the 1947 Act is a thing of the past.

14. Harris was considered by this Tribunal (differently constituted) in Re Dunning and Secretary, Department of Social Security (1986) 10 ALD 89. The applicant in that case was receiving a widow's pension under the 1947 Act. She was doing casual work. Her income fluctuated. Her rate of pension was re-assessed by a delegate of the Secretary. At that stage a pensioner was permitted to have an income at the rate of $1,560 per annum without the rate of pension being reduced. It was argued on behalf of the applicant that she should have been permitted to receive the maximum rate of pension until such time as her earnings during a particular year reached $1,560, and that her rate of pension should be reduced thereafter to take account of her earnings in excess of the first $1,560 for the balance of that year. The Tribunal quite properly rejected that approach as inconsistent with Harris. At 92, after referring to the passages I have quoted from Harris, the Tribunal said:

"As these remarks indicate, different means may have to be adopted to calculate the annual rate of income of different pensioners, the means being suited to the source or sources of the pensioner's income and the manner in which the pensioner derives that income. But the adoption of a means of calculating the annual income is not a matter of discretion, though it may involve judgment or evaluation. In any particular case, there is a means of calculating the annual income which is the most appropriate in the circumstances of that case. That means, once identified, is the only correct means to adopt to calculate the income."

15. At 93-94, after referring to the notification requirement in s.74(1) of the 1947 Act, which related to a pensioner's average weekly rate of income in a period of eight consecutive weeks, the Tribunal said this:

"The period of eight weeks specified in this sub-section is at least an indication on parliament's part as to an appropriate period on which to base a calculation of the rate of annual income. Of course, an eight weeks' period should be adopted for the purpose only when to do so produces a result which fairly reflects the pensioner's current rate of income calculated on an annual basis. For example, income received on one day ought not to be averaged over an eight week period if it does not result from a continuing source of income and therefore has no relationship to the rate of income received either before or after the date of its receipt. There will be many other such circumstances."

16. It is necessary to consider whether the decisions in Harris and Dunning are applicable to the 1991 Act, given that they related to the provisions of the 1947 Act. The applicant contends that, in repealing the 1947 Act and enacting the 1991 Act, Parliament did not intend any relevant change to the law. Ms Koller, who appeared for the respondents, contended that the 1991 Act was intended by Parliament not only to preserve the effect of the existing legislation, but also to preserve its practical application in accordance with departmental policy documents created for the purposes of the 1947 Act, and in accordance with case law.

17. In the relevant Second Reading Speech (Hansard, House of Representatives, 6 December 1990, pp.4641 to 4644) the then Minister for Health and Community Services, Mr. Howe, said the following:

"The object of this Bill is to overcome the problem of readability by using a 'clear English' drafting style and format. That style and format should make it a more accessible piece of legislation that ordinary Australians can reasonably be expected to understand." (p.4642)

"The rewrite of the Act does not involve any major policy initiatives and it does not have any financial impact. The new legislation is intended to reflect existing policy which is, in turn, reflected by the existing legislation. The primary purpose of the rewrite is to overcome readability problems that had developed mainly as a result of the volume of changes made to the current Act since 1947." (pp.4643-4644)

18. Similar statements appear on p.1 of the Explanatory Memorandum (Exhibit A6).

19. In Re Secretary, Department of Social Security and Morris (1996) 23 AAR 99, a case which concerned the meaning of the words "ordinary income on a yearly basis", this Tribunal (differently constituted) took the view that Parliament intended in 1991 to change the law so that under the 1991 Act, in working out the amount of a person's ordinary income on a yearly basis, regard must now be had to the person's income over a twelve-month period.

20. That case concerned a pensioner who was entitled to an annual benefit of $14,634.65 under the Defence Force Retirement Deaths Benefit Act 1973. It is an inconvenient fact that a year consists of not precisely 26 fortnights, but of 26 fortnights and one day (or 26 fortnights and two days in the case of leap years). Each fortnight Mr. Morris was receiving a benefit under the 1973 Act that amounted to 14/365ths of the yearly figure. The Secretary argued that his "ordinary income on a yearly basis" amounted to 365 days' money, but Mr. Morris argued that it amounted to 26 instalments, or 364 days' money. It seems that about $20 per annum was at stake. The Tribunal ruled in favour of Mr. Morris. But they said this (at 106-107):

"it is appropriate that the Tribunal makes some comment on the applicability of what was said in Harris on the matter of 'annual rate of income'. In that case the High Court referred to 'annual rate of income', as contained in the 1947 Act, but this concept has not been preserved by the 1991 amendment [sic] to the Act. In Harris, emphasis was placed on the distinction between 'annual rate of income' and 'annual amount of income'. In the Tribunal's view, the phrase 'ordinary income on a yearly basis' is closer and more analogous to the phrase 'annual amount of income' than to the phrase 'annual rate of income'. The applicant submits that the 1991 Act was not intended to affect the substance of the Act, but merely to convert the language of 1947 Act into plain English, and that such a notion is supported by the Second Reading Speech (Ex A4) and Explanatory Memorandum (Ex A5). However, as the words in the 1991 Act are clear and unambiguous, there is no need to consider the Explanatory Memorandum. Once can not envisage the words 'annual rate' having any role in calculating a person's ordinary income on an annual basis. To do so would be nonsensical. Further, merely because the DFRDB Act refers to the benefit as being an annual rate, does not mean that the calculation of the respondent's income for the purpose of ascertaining his entitlement to age pension should be in an annual rate."

21. If in that paragraph the Tribunal was intending to say that the 1991 Act changed the pension means test, so that one must now consider a person's income for a 12-month period, rather than his or her income from time to time expressed as an annual rate, then I must disagree. If Parliament had intended to make such a change, it could have used much plainer language. One would expect it to have specified what 12-month period was to be taken as the basis for calculating a person's income, e.g. the calendar year or the tax year. Such provisions appear in the Family Allowance Rate Calculator in s.1069. I do not regard the words "the amount of the person's ordinary income on a yearly basis" to be clear or unambiguous. When one has regard to their context, the likely cost to the Commonwealth that would result if they had been intended to effect a change to the means test, and the fact that the 1991 Act was primarily intended to rewrite the 1947 Act in plain English, I think those words should be interpreted as referring to a person's rate of income from time to time, expressed as an annual rate.

22. I agree with Mr. Gageler, who appeared for the applicant, that s.15AC of the

Acts Interpretation Act 1901 is a clear statement of parliamentary intention that a change of wording adopted by Parliament should not be interpreted as producing a change of result merely because a different form of words is used.

23. For the reasons I have stated I consider that Parliament in repealing the 1947 Act and enacting the 1991 Act did not intend to make any relevant change to the law. It follows that what the High Court said in Harris is applicable to the provisions of Pension Rate Calculator A in s.1064.

24. Mr. Gageler submitted that another relevant decision of this Tribunal (differently constituted), Re Secretary, Department of Social Security and Moroney (1998) 27 AAR 441, was wrongly decided and should not be followed. The respondent in that case earned $1,800 in employment as Santa Claus between 1 December 1997 and 24 December 1997. He and his wife had no other income other than from maximum age pensions. The Secretary claimed that Mr. Moroney's income was such that his annual rate of income was $23,400, and that he and his wife had each been overpaid $181. The Tribunal took the view that Mr. Moroney's ordinary income on a yearly basis was $1,800, and that therefore there was no overpayment. In my view the Tribunal came to the correct conclusion, given the facts of that case. It was open to the Tribunal to find as a fact that the adoption of a 12-month period was the appropriate means for working out Mr. Moroney's ordinary income on a yearly basis.

25. I turn to consider how the principles enunciated in Harris should be applied to the facts of this case. The respondents are in a stable financial situation. They receive a small income from investments. Mr. Lennon worked for the Board of Studies at the time of the Higher School Certificate examination for four consecutive years, from 1994 to 1997, for periods varying between two and four weeks per year.

26. In my view the respondents' situation should be distinguished from that of persons in irregular employment, and from that of persons in short-lived employment. In my view the means of calculating the "ordinary income on a yearly basis" that is most appropriate in the circumstances of this case is to treat Mr. Lennon's earnings in his employment with the Board of Studies each year as referable to a 12-month period. I do not think that this is an appropriate case for the striking of an average over any shorter period. I see that approach as being generally appropriate when a pensioner is earning different amounts each fortnight, as contemplated by the majority in Harris at 197. I do not think it appropriate to treat Mr. Lennon's earnings during the relevant period in 1997 as referable to the pension paydays that fell whilst he was working, since that employment was following a stable annual pattern. It appears from the decision in Moroney (at 445) that the Secretary was then prepared to treat an investor's dividend income as having been derived over periods of 12 months or 6 months, depending on whether the dividends were paid annually or biannually. In my view that approach is appropriate not only for dividend or interest income, but also for earnings that follow the sort of pattern established by Mr. Lennon.

27. Mr. Gageler made a submission on behalf of the applicant that the approach of the Act requires one to look not to a pensioner's annual amount of income, but to his or her current rate of income at a particular time, and thus to the need for income support at the time a pension instalment is paid. He relied on a passage in the judgment of Brennan J in Read v Commonwealth [1988] HCA 26; (1988) 167 CLR 57 at 68 for the proposition that the purpose of an income-related pension is to ensure that pensioners in the lower income brackets receive a measure of social security. In my view those matters are more important considerations in cases involving pensioners with fluctuating incomes. I see those matters as much less significant in cases involving pensioners with sources of income that yield payments according to a predictable annual pattern e.g. pensioners who receive annual dividend payments, or 6-monthly interest payments, or seasonal earnings from Santa Claus jobs.

28. It is common ground that the result of treating Mr. Lennon's earnings as referable to a 12-month period is that his ordinary income does not exceed his ordinary income free area, and that the respondents therefore would remain entitled to the maximum rate of age pension. That is the result that the SSAT came to, though by a somewhat different route. I have therefore decided to affirm the decision under review.

I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President A M Blow OAM, QC.,

Signed: .....................................................................................

Solicitor for the Applicant Australian Government Solicitor

Solicitor for the Respondent Ms S Koller (Welfare Rights Centre)