1073 Certain amounts taken to be received over 12 months

(1) Subject to points 1067G-H5 to 1067G-H20 (inclusive), 1067L-D4 to

1067L-D16 (inclusive), 1068-G7AA to 1068-G7AR (inclusive), 1068A-E2 to 1068A-E12 (inclusive) and 1068B-D7 to 1068B-D18 (inclusive), if a person receives, whether before or after the commencement of this section, an amount that:

(a) is not income within the meaning of Division 1B or 1C of this Part; and

(b) is not:

(i) income in the form of periodic payments; or

(ii) ordinary income from remunerative work undertaken by the person; or

(iii) an exempt lump sum

the person is, for the purposes of this Act, taken to receive one fifty-second of that amount as ordinary income of the person during each week in the 12 months commencing on the day on which the person becomes entitled to receive that amount. [Emphasis added]

1. The Department of Social Security's Guide to Social Security Law (Guide) provides decision-makers with policy guidance in relation to the application of the SSA.[2]
2. Section 4.7.3.20 of the Guide states:

A beneficiary is entitled to receive an amount under a discretionary trust when the trustee exercises their power under the trust deed and makes a RESOLUTION to distribute in favour of the beneficiary. Allocations and distributions are assessed as income for 12 months under SSAct subsection 1073(1) from the date of the resolution to distribute.

There may be instances where a resolution to distribute was made but the trust tax return has not been lodged at the time of resolution. Where this is the case, the onus is on the income support recipient to find out how much s/he is entitled to receive. Distribution income should still be assessed from the date the resolution was made and not from the date the tax return was lodged.

An example would be where a resolution was made on 1 July 2001, but the tax return was done on 1 October 2001. The income support recipient, as trustee, may know of the distribution prior to receipt, or may be ignorant of the distribution until it is paid. In either case, assessment is from the date of resolution which is the 1 July 2001.

1. Section 4.12.7.50 of the Guide provides that distributions paid to a non-attributable stakeholder, on or after 1 July 2000, will be assessed as "income" of the non-attributable stakeholder for 12 months from the date of the resolution to distribute.
2. On 27 August 2015, Mrs Zohar's son emailed Mrs Zohar's response to the "Respondent's Statement of Fact and Contentions", dated 31 July 2015, which included the following "summary and conclusion":

The distribution from [The Zohar Family Trust] to the applicant was made. The applicant was not then entitled to receive the distribution and it was not recorded as being unpaid at that time. It was - immediately at the time of distribution - offset against the amount owing by the applicant to [The Zohar Family Trust]. The applicant refers to section 564 of the Corporations Act regarding set off provisions of mutual debts.

1. The distribution of $111,017 from The Zohar Family Trust to Mrs Zohar in the 2010 year and the distributions of $5,000 and $2,819 from The Topez Trust to Mrs Zohar in the 2011 and 2012 years, respectively, constitute "income'", within the meaning of s 8 of the SSA, that should be assessed as having been received by Mrs Zohar over 12 months from the date of the relevant resolution pursuant to s 1073 of the Act and s 4.7.3.20 and s 4.12.7.50 of the Guide.
2. With regard to The Topez Trust, the trust tax returns are the only documentary evidence of the distributions from the trust to Mrs Zohar. That is, there is no evidence of any resolutions having been made by the trustee in respect of the distributions: s 4.7.3.20 of the Guide_; Re Christensen and Secretary, Department of Social Security_ (1995) 37 ALD 795 at [17] and Flaskas and Secretary, Department of Family and Community Services [2002] AATA 1255 at [44]. In the absence of resolutions by the trustee, the Tribunal considers it is appropriate to determine that Mrs Zohar received the income from The Topez Trust on 30 June of the relevant tax year (i.e. 30 June 2011 year in respect of the $5,000 distribution and 30 June 2012 in respect of the $2,819 distribution).

1. Division 1B of Part 3.10 of the SSA (General Provisions Relating to the Ordinary Income Test), titled "Income from Financial Assets", provides for the calculation of deemed income from "financial assets".
2. Of particular relevance to this application is s 1076 of the SSA, titled "Deemed income from financial assets - persons other than members of couples", which provides that a person who is not a member of a couple and who has "financial assets" is taken, for the purposes of the SSA, to receive "ordinary income" in respect of those assets and prescribes a formula for calculating the person's deemed "ordinary income" based on the "total value of the person's financial assets".
3. "Financial asset" is defined in s 9 of the SSA as follows:

(a) a financial investment; or

(b) a deprived asset.

Note: For deprived asset see subsection (4). [Emphasis added]

property or money (including property or money outside Australia).

1. "Financial investment" is defined in s 9 of the SSA as follows:

(a) available money; or

(b) deposit money; or

(c) a managed investment; or

(d) a listed security; or

(e) a loan that has not been repaid in full; or

(f) an unlisted public security; or

(g) gold, silver or platinum bullion; or

(h) an asset-tested income stream (short term); or

(i) an asset-tested income stream (long term) that is an account-based pension within the meaning of the Superannuation Industry (Supervision) Regulations 1994; or

(j) an asset-tested income stream (long term) that is an annuity (within the meaning of the Superannuation Industry (Supervision) Act 1993) provided under a contract that meets the requirements determined in an instrument under subsection (1EA);

but does not include a designated NDIS amount.

1. Section 1121 of the SSA, titled "Effect of charge or encumbrance on value of assets", makes provision in respect of a charge or encumbrance over assets. However, s 1121 of the SSA does not allow a reduction in the value of an asset for the purpose of Division 1B of Part 3.10 of the Act, including s 1076 of the SSA as set out above. Section 1121(1) of the SSA states:
   • (1) If there is a charge or encumbrance over a particular asset of the person, the value of the asset, for the purposes of calculating the value of the person's assets for the purposes of this Act (other than Division 1B of Part 3.10), is to be reduced by the value of that charge or encumbrance. [Emphasis added]
2. Section 1122 of the SSA, titled "loans" states:

If a person lends an amount after 27 October 1986, the value of the assets of the person for the purposes of this Act includes so much of that amount as remains unpaid but does not include any amount payable by way of interest under the loan.

1. Section 4.12.5.10 of the Guide provides that loans to an entity will be recognized as a genuine liability of the entity and therefore allowed as a genuine deduction from the gross asset value of the borrowing entity if:
   • They appear on the balance sheet, and
   • They are made under a written agreement signed by all parties to the agreement and witnessed by a third party (associates are not considered to be third parties), and
   • They are not made by a person who is under 18 years of age, and
   • Considering the circumstances of, nature of and parties to the loan, the loan can be considered to be genuine and not created as part of a scheme to gain social security advantage.

.........

Note: Regardless of whether a loan is recognized as a liability of an entity or not, the value of the loan is considered to be a personal financial asset of the lender and is subject to deeming.

1. Therefore, s 4.12.5.10 (read together with s 4.4.1.30 of the Guide) makes it clear that regardless of whether a loan is recognized as a liability of an entity or not, the value of the "loan" is considered to be a personal "financial asset" of the lender and is subject to deeming.
2. Section 1.1.L.65 of the Guide provides the following definition of a "loan":

• An actual lending of money or an asset (1.1.A.290) of a particular value, AND
• A clear intention to repay.

• An advance of money, or
• The payment of an amount for, on account of, on behalf of or at the request of a person where there is an obligation, whether expressed or implied, to repay the amount.

1. The Tribunal finds that because Mrs Zohar's loan to Sanvar was "a loan that has not been repaid in full" it was a "financial investment" and, it follows, a "financial asset" of Mrs Zohar, pursuant to the relevant definitions in s 9 of the SSA, that generated deemed income under s 1076 of the SSA.
2. Further, pursuant to s 1122 of the SSA, the value of Mrs Zohar's loan to Sanvar was the face value of that loan recorded in Sanvar's financial accounts, and not some lesser or reduced rate reflecting recoverability or unrealisability, that must be taken into account for the purpose of calculating pension entitlements: Re Lyons and Secretary, Department of Family and Community Services [2007] AATA 1095 at [49], and authorities referred therein.
3. In Mrs Zohar's son's response (dated 27 August 2015) to the "Respondent's Statement of Fact and Contentions", dated 31 July 2015, he states:

Any loans made to Sanvar by my mother - were not loans to a solvent entity they were loans made to prop up and replenish working capital which had been lost already - as such the funds being "loaned" / injected into the business were to prop it up and provide working capital to trade and pay existing creditors - this being the case there would not and could never be a surplus of fund or an ability for these funds to be repaid by my mother.

Where income of a related entity is deemed to form part of my mother's income then so too should the expenses of that entity (and debts payable) be treated as expenses of my mother - i.e. The net income of the entity should be considered.

So any purported loans to Sanvar were not able to be recovered and any accounting standards would not recognized such loans as assets - but rather the realisable value / recoverable value of them is nil.

The accountant would not write this however as there remained a legal obligation to pay and therefore any slim prospect of future profit - dictates that losses carry forward can be used down the track to erduce (sic.) tax - hence the c/f loss rules.

1. Based on the above response and the background provided to the ARO (refer to paragraph 33 above), Mrs Zohar's son appears to contend that Mrs Zohar's loan to Sanvar should have been characterised by her accountant as a shareholder contribution to Sanvar's capital. The Tribunal considers that Sanvar's financial accounts are contemporaneous documentary evidence establishing that the proper characterisation of the transaction which occurred between Mrs Zohar and Sanvar is that of a "loan" (refer to paragraphs 61-63 and 65 above), noting that Sanvar's financial accounts have been prepared by Mrs Zohar's accountant, Butler Settineri, and that at least one of the sets of accounts before the Tribunal (i.e. the accounts for the year ended 30 June 2010) was signed off by Mrs Zohar and her accountant: refer to paragraph 30 above. On this basis, the Tribunal finds that Sanvar's financial accounts are conclusive evidence of the nature of the relevant transaction between Mrs Zohar and Sanvar, being that of a "loan". In any event, the Tribunal does not have the power to re-characterise the transaction contrary to the evidence in the financial accounts: Lyons at [36]-[37].
2. Section 4.6.2.20 of the Guide provides that once a "loan" ceases to exist for social security purposes it is no longer assessed under s 1122 of the SSA. Section 4.6.5.65 of the Guide (the relevant portion of which is set out at Attachment 1) indicates when a loan will be taken to no longer exist.
3. There is nothing to indicate that, during the Debt Period, Mrs Zohar had taken the necessary legal steps in respect of her loan to Sanvar such that the loan could be considered to no longer exist pursuant to s 4.6.5.65 of the Guide. Further, Mrs Zohar's alleged understanding that her loans to Sanvar were "forgiven" and that Sanvar was on the "path to winding up" is not sufficient to satisfy the requirements of s 4.6.5.65 of the Guide: Greenhill and Secretary, Department of Family and Community Services [2006] AATA 176 at [42]- [43].
4. For the above reasons, the Tribunal finds that Centrelink was correct to determine that Mrs Zohar received deemed income from her "loan" to Sanvar, pursuant to s 1076 of Division 1B of Part 3.10 of the SSA, and finds that the amount of deemed income has been correctly calculated for the purpose of raising the debt for overpayment of AP to Mrs Zohar during the Debt Period.

The transaction recorded in The Zohar Family Trust's financial accounts as "Philippa Zohar- Unpaid Distribution from 2010"

1. The Zohar Family Trust balance sheets indicate that, as at 30 June 2010, and, as at 30 June 2011, The Zohar Family Trust had a "current liability" described as 'Phillipa Zohar - Unpaid Distribution from 2010' valued at $89,051.89. However, The Zohar Family Trust's records indicate no liabilities in respect of Mrs Zohar, as at 30 June 2012.
2. Mrs Zohar's son's explanation of this transaction indicates that the net result of the distribution was a reduction in The Zohar Family Trust's tax liability: refer to paragraph 36 above.
3. The Zohar Family Trust's 2010 tax return indicates that Mrs Zohar was distributed $111,017 in the year ended 30 June 2010. The Zohar Family Trust's accountant indicated that the resolution effecting the distribution would have occurred on 30 June 2009: refer to paragraph 13 above. There is no evidence before the Tribunal that The Zohar Family Trust has lodged an amended tax return for the 2010 tax year. A letter from Mrs Zohar's accountant, dated 20 June 2013, indicates that Mrs Zohar received the full $111,017 distribution as taxable income during the year ending 30 June 2010: refer to paragraph 12 above. The Zohar Family Trust's accounts indicate that $89,051.89 of that distribution remained unpaid until 30 June 2012: refer to paragraph 38 above.
4. The Tribunal takes the view that, in such circumstances, the only rational inference to be drawn is that the amount of "$89,051.89", recorded in the Zohar Family Trust's financial accounts as "Phillipa Zohar - Unpaid Distribution from 2010", was an amount which was loaned back to The Zohar Family Trust by Mrs Zohar out of the distribution to her of $111,017. That is, the amount of $89,051.89 was "a loan that has not been repaid in full" and, therefore, a "financial investment" and "financial asset" (as defined in s 9 of the SSA) of Mrs Zohar which was subject to deeming under s 1076 of the SSA while it remained unpaid: see Sangster v Secretary, Department of Family and Community Services [2004] AATA 991 at [12]- [13]; Corporate Initiatives Pty Ltd v Commissioner of Taxation [2005] FCAFC 62 at [25] per Spender, Fleerey and Lander JJ and Pope v Commissioner of Taxation [2014] AATA 532 wherein DP Hack accepted at [15] that where a trust's balance sheets indicated a current liability to a beneficiary following a distribution, the only rational inference is that the balance of the distribution was effected under the trust deed and that the monies distributed in that way constituted a loan at call between the beneficiary and the trust.
5. The Tribunal considers that The Zohar Family Trust's 2010 tax return and Mrs Zohar's accountant's letter, dated 20 June 2013, read with The Zohar Family Trust's financial accounts, provide objective evidence that a "loan" occurred: refer to paragraphs 76-77 above. Further, the SSAT recorded Mrs Zohar's evidence that she was aware of, and agreed to, the distribution: refer to paragraph 27 above: cf Bayliss v Secretary, Department of Social Services [2014] AATA 964 at [30] and [34].
6. For the above reasons, the Tribunal finds that in relation to the "loan" from Mrs Zohar to Sanvar, the amount of deemed income has been correctly calculated for the purpose of raising the debt for overpayment of AP to Mrs Zohar during the Debt Period.

1. Section 110(1) of the Social Security (Administration) Act 1999 (SSAA) provides that if a favourable determination is made following a person informing Centrelink of an event or change of circumstance, the determination takes effect on the later of the day on which the person informed Centrelink, or the day on which the event or change occurred.
2. In the Income and Assets Form (lodged by Mrs Zohar along with her claim for AP), Mrs Zohar states that she was earning a $200 per fortnight wage from Sanvar: refer to paragraph 4 above. Mrs Zohar did not inform Centrelink that she was in fact not receiving that wage until April 2014: refer to paragraph 19 above. Mrs Zohar's handwritten notation in the Income and Assets Update Form *lodged with Centrelink on 20 June 2013) was not sufficiently clear to amount to a notification of a change in circumstances: refer to paragraph 11 above.
3. On this basis, the Tribunal finds that Mrs Zohar's income from Sanvar has been correctly calculated for the purpose of raising the debt for overpayment of AP to her during the Debt Period.

(ii) Is the overpayment a debt due to the Commonwealth?

1. Pursuant to s 1223 of the SSA, if a social security payment is made and the person who obtains the benefit of the payment was not entitled for any reason to obtain the benefit, the amount of the payment is a debt due to the Commonwealth.
2. In accordance with s 1223 of the SSA, the overpayment of AP to Mrs Zohar in the Debt Period is a debt due to the Commonwealth.

(iii) Should all or part of the debt be waived or written off?

1. Part 5.4 of Chapter 5 of the SSA allows for debts to the Commonwealth to be waived or written off for a period in certain circumstances.

Waiver of debt due solely to administrative error of the Commonwealth

1. Section 1237A of the SSA provides that the Secretary "must" waive the right to recover the proportion of a debt that is "attributable solely to an administrative error made by the Commonwealth" if the debtor received in good faith the payment(s) that gave rise to that proportion of the debt.
2. In Sekhon v Secretary, Department of Family and Community Services [2003] FCAFC 190; (2003) 132 FCR 126, the Full Federal Court considered the meaning of the phrase "attributable solely to" for the purposes of s 1237A of the SSA. The Court said at [35]:

The ordinary or usual interpretation of the phrase "attributable solely to" is that it refers to the single or sole cause of the relevant act or event. The word "attributable" means "capable of being attributed". It involves an objective assessment of causation. The words "a debt attributable solely to an administrative error" can be paraphrased as meaning that the only cause that objectively can be ascribed to the relevant debt is an administrative error.

1. Mrs Zohar's evidence before the SSAT was that she did not know why she had answered questions on her Income and Assets form incorrectly, and that she may have mis-read the questions. Further, in Mrs Zohar's response (dated 27 August 2015) to the "Respondent's Statement of Facts and Contentions", dated 31 July 2015, Mr Zohar stated:

The applicant denies that she knowingly failed to comply with the relevant legislative requirements - the applicant maintains that any non-compliance was an inadvertent error and/or misunderstanding

1. On the available evidence, the Tribunal finds that Mrs Zohar's overpayment of AP (i.e. her debt due to the Commonwealth), arose, at least in part, from her failure to accurately declare her circumstances to Centrelink. Mrs Zohar's debt cannot, therefore, be said to be "attributable solely to" an administrative error by Centrelink. As such, it is not appropriate to waive any part of Mrs Zohar's debt pursuant to s 1237A of the SSA.

1. Section 1237AAD of the SSA provides that the Secretary "may" waive the right to recover all or part of a debt if the Secretary is satisfied that:

(a) the debt did not result wholly or partly from the debtor or another person knowingly:

(i) making a false statement or representation; or

(ii) failing or omitting to comply with a provision of this Act [i.e. the SSA], or the Administration Act [i.e. the SSAA]; and

(b) there are special circumstances (other than financial hardship alone) that make it desirable to waive the debt; and

(c) it is more appropriate to waive than to write off all or part of the debt. [Emphasis added]

1. The term "knowingly" is not defined in the SSA for the purposes of s 1237AAD(a) of the SSA but has been interpreted by the Tribunal as meaning "actual" as opposed to "constructive" knowledge: see Re Callaghan and Secretary, Department of Social Security [1996] AATA 413; (1996) 45 ALD 435 at [48] and [49]; Re Secretary, Department of Family and Community Services and Jonauskas [2001] AATA 72 at [69]; Re Anderson and Secretary, Department of Families and Community Services [2002] AATA 309; (2002) 69 ALD 484 at [47] and Davy and Secretary, Department of Employment and Workplace Relations [2007] AATA 1114 at [74].
2. As stated above (in the "Factual & Procedural Background), on 22 September 2010, Centrelink informed Mrs Zohar of its understanding of her assets and income, based on information provided to it by Mrs Zohar in in the Income and Assets Form.: refer to paragraphs 4 and 6 above. On the same day, Centrelink notified Mrs Zohar that she must tell Centrelink within 14 days if, among other things, her income changes or her financial investments were more than $1,100 above the value of financial investments Centrelink had recorded for her: refer to paragraph 7 above. There is no evidence to support a finding that that Mrs Zohar was not aware of the distributions made to her from The Zohar Family Trust or The Topez Trust. Mrs Zohar's son's explanation suggests that Mrs Zohar was aware of the distribution from The Topez Trust (if not its tax implication): refer to paragraph 40 above. In addition, Mrs Zohar's and her son's evidence before the SSAT indicates that Mrs Zohar was aware of and agreed to the distribution from The Zohar Family Trust: refer to paragraph 27 above. Further, there is no evidence to support a finding that Mrs Zohar, as sole director and shareholder of Sanvar, would not have been aware of her ongoing loan to Sanvar. Mrs Zohar's son's explanation indicates that, despite any view Mrs Zohar may have had regarding the recoverability of her loan to Sanvar, Mrs Zohar was at least aware of this loan: refer to paragraph 33 above. The verbal evidence given by Mrs Zohar at the hearing of this application supports these findings.
3. As stated above (in paragraph 88), Mrs Zohar's position is that she did not knowingly fail to comply with the relevant legislative requirements. However, for the above reasons, the Tribunal finds that Mrs Zohar did knowingly fail to accurately declare her circumstances in the Income and Assets Form (refer to paragraph 4 above) such that she knowingly made a false statement or representation for the purposes of s 1237AAD(a)(i) of the SSA. Alternatively, the Tribunal finds that Mrs Zohar failed to notify Centrelink of relevant changes in her income and the value of her financial investments, as required by the s 67(2) notices sent to her in the relevant period, such that she knowingly failed or omitted to comply with the provisions of the SSA for the purposes of s 1237AAD(a)(ii) of the SSA .
4. Even if the Tribunal is incorrect in this regard, it nevertheless finds that Mrs Zohar's debt should not be waived under s 1237AAD of the SSA as no "special circumstances" exist in her case, making it desirable to do for her debt to be waived pursuant to s 1237AAD(b) of the SSA.
5. The expression "special circumstances" has been considered extensively by the Federal courts and Tribunal in the social security and family assistance law context. Broadly, it has been held that for circumstances to constitute "special circumstances" they must be circumstances which are "unusual, uncommon or exceptional," "markedly different from the usual run of cases," "special" or "out of the ordinary" and they include "events which would render the (strict application of the rule in question) unfair or inappropriate:" see for example, Re Ivocic and Director General of Social Services [1981] AATA 57 at [45]; Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 3 per Toohey J; Beadle and Director General of Social Security [1984] AATA 176; (1985) 60 ALR 225 at 228 as per Bowen CJ, Fisher and Lockhart JJ; Groth and Secretary, Department of Social Security [1995] FCA 1708; (1995) 40 ALD 541 at 545 per Kiefel J; Dranichnikov v Centrelink [2003] FCAFC 133; [2003] 75 ALD 134 at [66] per Hill J; Angelakos and Secretary Department of Employment and Workplace Relations [2007] FCA 25 at [33] and Davy and Secretary Department of Employment and Workplace Relations [2007] AATA 1114 at [80]. Circumstances might be "special", although they apply to more than one person or class of persons, provided they are not of universal application (for example, they are a common or universal characteristic of social security recipients): see ; at .
6. In Mrs Zohar's sons response (dated 27 August 2015) to the "Respondent's Statement of Facts and Contentions", dated 31 July 2015, Mrs Zohar appears to raise the financial hardship caused by Centrelink's decision to raise the debt, and the fact that her loan to Sanvar was "subsequently irretrievable and forgiven", as "special circumstances". However, s 1237AAD(b) of the SSA, expressly states that "financial hardship alone" will not constitute "special circumstances": refer to paragraph 89 above. Regarding Mrs Zohar's loans to Sanvar, the Tribunal is of the view that Mrs Zohar's decision to loan money, to what eventually turned out to be a failed business venture, does not amount to "special circumstances" for the purposes of s 1237AAD of the SSA. Beyond these circumstances, there is nothing sufficiently unusual or uncommon about Mrs Zohar's circumstances to render them "special circumstances" for the purposes of s 1237AAD of the SSA.

1. Section 1236(1A) of the SSA Act provides that the Secretary "may", on behalf of the Commonwealth, decide to write off a debt, for a stated period or otherwise under s 1236(1) of the SSA, if, and only if, one or more of the following applies:

(a) the debt is irrecoverable at law; or

(b) the debtor has no capacity to repay the debt; or

(c) the debtor's whereabouts are unknown after all reasonable efforts have been made to locate the debtor; or

(d) it is not cost effective for the Commonwealth to take action to recover the debt.

1. In short, none of the circumstances referred to in s 1236 of the SSA apply in Mrs Zohar's case.

1. For the above reasons, the Tribunal affirms the SSAT Decision.

I certify that the preceding 99 (ninety nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member CR Walsh

[1] In the SSAT Decision, the SSAT found, contrary to the Original Decision, that a transaction recorded in The Zohar Family Trust's financial accounts as "Sanvar Pty Ltd - Unpaid Distribution from 2010" should have been taken into account in calculating Mrs Zohar's debt amount (although the SSAT did not vary the debt amount). For reasons discussed below, the Tribunal does not consider that this transaction should be taken into account in calculating Mrs Zohar's debt.

[2] The Tribunal should apply lawful ministerial policy unless there are cogent reasons not to. For example, its application would produce an unjust decision in the particular circumstances of the case: Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 639-645 per Brennan J.