FEDERAL COURT OF AUSTRALIA
Secretary, Department of Employment and Workplace Relations v Richards [2007] FCA 1710
WORDS AND PHRASES – “income” – “earned, derived or received” – “own use or benefit”
Held: Appeal dismissed. Money subsequently repaid by the respondent to her employer pursuant to her employment contract not money earned, derived or received by her for her own use and benefit. No error of law in the decision of the AAT.
Administrative Appeals Tribunal Act 1975 (Cth) s 44(1)
Social Security Act 1947 (Cth)
Social Security Act 1991 (Cth) ss 8, 503, 1068A, 1072
Social Services Consolidation Bill 1947
Barry v Repatriation Commission (1993) 41 FCR 529 cited
Director-General of Social Services v Hales (1983) 47 ALR 281 cited
Ergon Energy Corporation Limited v The Commissioner of Taxation [2006] FCAFC 125 cited
Flannery v Secretary Department of Social Security (1987) 78 ALR 431 cited
Haldane-Stevenson v Director-General of Social Services (1985) 9 FCR 73 applied
Inguanti v Secretary, Department of Social Security (1988) 80 ALR 307 considered
Kear v Secretary, Department of Social Security [1998] 1087 FCA distinguished
Marsh v Secretary to the Department of Social Security (1986) 12 FCR 100 distinguished
Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389 cited
Nelson v Secretary, Department of Social Security (Bowen CJ, Toohey and French JJ, 10 December 1986) cited
Read v Commonwealth (1988) 167 CLR 57 cited
Rose v Secretary, Department of Social Security (1990) 21 FCR 241 cited
Secretary, Department of Family and Community Services v Geeves [2004] FCAFC 166 cited
Secretary Department of Social Security v Davies [1997] 1024 FCA cited
Secretary, Department of Social Security v Garvey (1989) 22 FCR 132 considered
Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35 distinguished
Secretary, Department of Social Security v “SRA” (1993) 43 FCR 299 cited
Secretary to the Department of Social Security v Cuneen [1997] 1033 FCA cited
Watson v Secretary, Department of Family and Community Services [2003] FCA 415 cited
Carney T and Hanks P, Social Security in Australia (Oxford University Press, Melbourne, 1994)
SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS v KARLA RICHARDS
QUD195 OF 2006
COLLIER J
9 NOVEMBER 2007
BRISBANE
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IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
QUD195 OF 2006 |
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ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY |
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BETWEEN: |
SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS Applicant
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AND: |
KARLA RICHARDS Respondent
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COLLIER J |
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DATE OF ORDER: |
9 NOVEMBER 2007 |
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WHERE MADE: |
BRISBANE |
THE COURT ORDERS THAT:
1. The appeal be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
QUD195 OF 2006 |
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ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY |
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BETWEEN: |
SECRETARY, DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS Applicant
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AND: |
KARLA RICHARDS Respondent
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JUDGE: |
COLLIER J |
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DATE: |
9 NOVEMBER 2007 |
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PLACE: |
BRISBANE |
REASONS FOR JUDGMENT
1 This is an appeal from the decision of the Administrative Appeals Tribunal (AAT) constituted by Deputy President Hack, given on 12 May 2006, in which the AAT affirmed the decision of the Social Security Appeals Tribunal (“SSAT”) of 18 October 2005. The SSAT had set aside the decision of the Secretary, Department of Workplace Relations (the “applicant”) and returned the matter for reconsideration in accordance with a direction that, for the purposes of calculating her entitlement to a Centrelink parenting payment, the income of the respondent did not include amounts repaid by her to her employer in accordance with the terms of her employment contract.
2 At the hearing the applicant sought the following orders:
1. The appeal be allowed.
2. The decision of the AAT be set aside and the decision of the Authorised Review Officer of Centrelink be affirmed.
3. Alternatively, that decision of the AAT and the matter be remitted to the AAT to be determined according to law.
4. Such further orders as the Court sees fit.
Background facts
3 The background to this appeal, as outlined in the AAT decision, does not appear to be in contention, and may be summarised as follows:
· On 3 December 2002 the respondent lodged a claim with Centrelink for a Parenting Payment, which claim was approved.
· At that time the respondent was employed at the Queensport Hotel on a part time basis. On or about 19 September 2003 the respondent advised Centrelink that she had changed employment and was working for the Wellington Point Hotel (“the Hotel”) managing the TAB agency there.
· It was an oral term of the employment agreement between the respondent and the Hotel that she was to repay to the Hotel any shortfalls in the TAB till that occurred while she was operating it.
· The respondent believed that she was obliged to declare to Centrelink her wages after making good any TAB till shortfalls and that this amount would be used to calculate her Parenting Payment from Centrelink.
· During the period September 2003 to June 2004 the respondent repaid till shortfalls on eight occasions totalling $1,746.50. This included one occasion where a fraud was perpetrated on the TAB in the amount of $1,300. The person responsible for the shortfall was subsequently prosecuted for criminal conduct, and that person repaid the loss to the Hotel. I understand that the Hotel subsequently reimbursed the respondent the sum of $1,300.
· In the financial year ending 30 June 2005 the respondent repaid till shortfalls on a number of occasions in the total sum of $807.75.
· In April 2005 an “Employee Payment Summary” was provided by the Hotel to Centrelink indicating that the respondent had been paid wages of $30,600 during the period 20 September 2003 to 9 April 2005. On the declarations of income that the respondent had made to Centrelink her income for that period was stated as $27,761.76 (representing the wages the respondent had received minus till shortfalls repaid to the Hotel).
· Because parenting payment varies depending upon income, Centrelink reviewed the discrepancy. Centrelink informed the respondent that:
o deductions relating to employment were not classed as deductions for Centrelink purposes
o the repayment of money to the Hotel due to till shortfalls did not change the amount earned by the respondent in the particular pay period
o the obligation to repay the shortfall was part of her employment terms and did not directly affect the amount of wages earned
o because the respondent had understated her income, she had been overpaid an amount of $1,341.87 by Centrelink which she was required to repay.
· Centrelink forwarded the decision for further review by an Authorised Review Officer (ARO) who informed the respondent that the view the respondent had taken of the amount of income to inform Centrelink was not correct, and Centrelink’s decision to ask the respondent to repay a debt of $1,341.87 was correct.
· The respondent repaid the amount of $1,341.87 to Centrelink, but appealed the decision to the SSAT.
SSAT decision
4 The SSAT set aside the decision of the ARO, and remitted the matter for reconsideration with a direction that the respondent’s income for the purposes of the parenting payment did not include amounts repaid by her to the Hotel in respect of TAB till shortfalls. In particular, the SSAT considered that, because the respondent had not made “personal use or obtained benefit from the moneys required to be repaid” pursuant to the definition of “ordinary income” in s 8 of the Social Security Act 1991 (Cth) (“the Act”), these repayments could not be considered separately from her employment contract.
5 The applicant sought a review of the decision of the SSAT by the AAT.
AAT decision
6 The AAT affirmed the decision of the SSAT. Deputy President Hack in the AAT identified the key issue as whether a contractual obligation on the part of an employee to make good till shortfalls should be taken into account in determining the employee’s income from that employment. It is useful to set out in full relevant observations from the AAT decision:
“[19] As it seems to me, the critical issue for determination is whether Ms Richards ordinary income was the nominal amount calculated by reference to a number of hours at an hourly rate or the actual rate that is the nominal amount less any shortfall that Ms Richards had to make good. In my view the employment contract between Ms Richards and the Hotel was one where Ms Richards’ wages were determined by reference to three factors - the number of hours worked in a week, an hourly rate and any till shortages. It is unnecessary for present purposes to determine whether it was lawful for the employer to oblige Ms Richards to make good the shortfall, rather the question is whether in circumstances where she did make good the shortfall her gross ordinary income was the nominal amount or the actual amount.
[20] In Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35 at page 42 French J said,
“The definitions of ‘income’ and ‘income amount’ in the Social Security Act indicate that like their statutory predecessors they are of wide application. This meets the public policy requirement that ‘public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide’ - Read v Commonwealth (1988) 167 CLR 57 at 69 (Brennan J).”
His Honour went on to make the point that the concept of income in the Act is entirely different from that embodied in the comparable provisions of the Income Tax Assessment Act 1936. ...
[21] At pages 43-44 his Honour said,
“The definition of ‘income’ extends to income amounts ‘received’ by a person. There is no requirement in the Act that such amounts are received in exchange for anything. They may therefore extend to gifts. This is reinforced by the extension of the definition of ‘income’ to ‘a periodical payment by way of gift or allowance.’
There is no requirement in the definition for the payment received to constitute a net gain. Absent such a requirement a payment of money received by a person for that person’s own use or benefit is a payment of an income amount.”
[22] In my view the key to the present issue is to ask whether the amounts that went to making up the shortfall in the till were amounts that were received to Ms Richards’ own use or benefit. That is so I consider because the definition of gross ordinary income in s 1072 of the Act incorporates the s 8 definition of income relevantly an amount earned, derived or received by a person for the person’s own use or benefit. Thus s 1072 looks at income earned, derived or received for the use or benefit of the person in issue. It is in my view not to the point that s 1072 goes on to speak of ‘without any reduction.’ To treat the amounts of shortfall in this way simply recognises the reality that those sums were not received by Ms Richards for her own use or benefit. There was at best a nominal receipt but given that Ms Richards used those sums to satisfy her contractual obligation to make good shortfalls it could not be said that in any real sense she earned, derived or received those sums or that she had the use or benefit of them.
[23] The Secretary was unable to identify any benefit to Ms Richards from these amounts beyond the benefit of retaining her employment. I do not think, with respect, that that could be seen as a benefit of the type contemplated by the definition of income in s 8.
[24] It follows that in my view the decision of the Social Security Appeals Tribunal was correct and ought to be affirmed.”
7 Further, in relation to the instance where the respondent had been required to repay a till shortfall of $1,300 to the Hotel, but the Hotel had subsequently returned the money to her, the AAT found that the receipt by the respondent of the $1,300 must be regarded as being income at the time of the receipt. The AAT directed that, when the matter was reconsidered and recalculated, it ought to be on the basis that in mid June 2005, in addition to what other wages may have been declared by the respondent at that time, she received as well a further amount of $1,300 which answers the description of ordinary income (at [26]).
Appeal to the Federal Court
8 The applicant has raised six questions of law before me:
1. The proper construction and operation of ss 8(1), 8(2) and 1072 of the Act.
2. Whether the extended definition of “ordinary income” in s 1072 of the Act is of no relevance if the facts do not first satisfy the definition of “income” in s 8(1) of the Act.
3. Whether, on the facts as found by the Tribunal, the Respondent’s ordinary income included the sums subsequently repaid by her to the hotel in respect of TAB till shortfalls within the meaning of s 8(1) and s 1072 of the Act.
4. Whether, on the facts as found by the Tribunal, the Respondent earned, derived, or received for her own use or benefit the sums subsequently repaid by her to the hotel in respect of TAB till shortfalls within the meaning of s 8(1) and s 1072 of the Act.
5. The proper construction and operation within the legislative scheme of the phrase “without any reduction” in s 1072 of the Act.
6. The proper construction and operation of the phrase “own use or benefit” in s 8(1) of the Act.
Grounds of appeal before the Federal Court
9 The applicant’s ground of appeal are as follows:
1. The application of the “ordinary income” test in Module E of the Rates Calculator does not involve consideration first being given to the definition of “income” in s 8(1).
2. On the facts as found by the Tribunal, the Respondent’s ordinary income included the sums subsequently repaid by her to the hotel in respect of TAB till shortfalls within the meaning of s 8(1) and s 1072 Act.
3. On the facts as found by the Tribunal, the Respondent earned, derived or received for her own use or benefit the sums subsequently repaid by her to the hotel in respect of TAB till shortfalls within the meaning of s 8(1) and (2) of the Act irrespective of any contractual obligation to make good any TAB till shortfalls.
4. The phrase “without any reduction” in s 1072 of the Act is applicable to the “ordinary income” test in Module E of the Rate Calculator and cannot be circumvented by first applying the definition of “income” in s 8(1).
5. The phrase “own use or benefit” in s 8(1) of the Act denotes income earned, derived or received by a person in the person’s own right as distinct from income earned, derived or received by the person for another person’s use or benefit and is applicable irrespective of any contractual obligation to make good any TAB till shortfalls.
Submissions of the applicant
10 The submissions of the applicant combine grounds of appeal 1 and 4, and grounds 2 and 3. They deal with ground 5 separately.
Grounds of appeal 1 and 4
11 In respect of grounds 1 and 4 the applicant contended that the AAT erred in law in its interpretation of the “ordinary income” test in Module E of the Rates Calculator. In particular,
· As provided by Note 2 of Module E of the Rates Calculator, the application of the ordinary income test is affected by s 1072. Step 1 of Module E of the Rates Calculator requires the calculation of the person’s ordinary income on a yearly basis.
· Section 1072 defines “ordinary income” and refers in turn to subs 8(1) for the definition of “income”.
· Section 1072, when construed in light of the provisions in s 8(1) and (2) provides in effect that a reference in the Act to a person’s ordinary income is a reference to the gross income amount earned, derived or received for the person’s own use or benefit by any means and from any source, without any reduction.
· The AAT failed to take that approach and in effect ignored the provisions of s 1072, focusing in isolation on the s 8(1) definition of “income”. In other words, the AAT seems to have construed s 1072 only by reference to the s 8(1) definition of income, rather than the provisions of s 1072 itself.
· The AAT expressly said, in error, that the words of s 1072 “without any reduction” were “not to the point”, and ignored the words “gross” and “from all sources”.
Grounds of appeal 2 and 3
12 Although the AAT acknowledged that there had been a “nominal receipt” by the respondent of the amounts of the till shortfalls, and that the respondent “used those sums to satisfy her contractual obligation to make good shortfalls”, the AAT erred in failing to find that the money had therefore been “received by the person for the person’s own use” as prescribed in s 8.
Ground of appeal 5
13 In summary, the applicant submits that the AAT misapplied the term “own use or benefit” within the context of s 8(1). In particular:
· The phrase does not call for an assessment as to whether a person can in fact use the earnings as they wish or benefit from the earnings in an absolute sense.
· The fact that the money may be earmarked to meet a particular obligation does not detract from the fact that the money is for the person’s own use or benefit: Kear v Secretary, Department of Social Security [1998] 1087 FCA.
· The fact that the repayments were made in respect of tasks performed by the respondent and made to the same entity who paid her wages seems to have clouded the issue. The situation is analogous to an employee who is found liable to the employer for damages for negligence arising out of the employee’s actions in the workplace: even if the damages awarded were deducted from wages of the employee it could not be said that the employee’s earnings were the lesser sum after the deduction of the damages award.
· The circumstances surrounding the payment by the respondent and later reimbursement of $1,300 highlights the error in the AAT’s approach.
· The AAT appears to have been influenced by the fact that the applicant was unable to identify a benefit to the respondent from the amounts of the shortfalls. This is clearly an irrelevant consideration as the Act provides for the alternative of “use or benefit”. The respondent in this case clearly used the amounts to meet her obligations. In any event the respondent did benefit from such amounts in that her superannuation entitlements were calculated on the basis of her gross earnings without deduction for the shortfalls as was apparent from the Employee Payment Summary provided by her employer.
Submissions of the respondent
14 In summary, the respondent submitted:
1. So-called questions of law 1, 5 and 6 specified in the notice of appeal are not, in fact, questions of law.
2. The AAT correctly recognised that the key question is whether the whole of the respondent’s nominal gross wages can be said to be “income” as that term is defined for the purposes of s 8 of the Act. Expressed alternatively, could the amount of the withheld shortfall be said to be earned, derived or received by her for her own use or benefit?
3. The phrase “for the person’s own use or benefit” entails the notion of a person being able to use property or income as the person wishes or sees fit, as opposed to being obliged to apply the property or income in a particular way. The respondent was never able, at the time of earning, derivation or (constructive) receipt to use the whole of her nominal gross wage as she wished or saw fit. Rather, to the extent of any shortfall, her employer was contractually entitled to withhold the amount of that shortfall from that gross wage and the respondent was obliged to accept that such an amount could be so withheld.
4. The words “without any reduction” which appear in s 1072 of the Act qualify only “income” as defined, namely the income earned, derived or received for the person’s own use or benefit.
5. Reference by the applicant to the sum of $1,300 later received by the respondent by way of refund from her employer is a distraction as the appeal is unconcerned with that sum, although it will be relevant in any recalculation by the applicant of the amount, if any, of any overpayment of benefit. In any event, the AAT correctly regarded that sum as “ordinary income” for the purposes of the Act.
Are the questions “questions of law”?
15 Appeals from the AAT are not appeals in the strict sense as they lie within the original jurisdiction of the Court. A party to a proceeding before the AAT may appeal to the Court from any decision of the AAT in that proceeding, but only on questions of law: s 44(1) Administrative Appeals Tribunal Act 1975 (Cth).
16 In my view questions 1, 5 and 6 as pleaded in the applicant’s notice of appeal are not questions of law which can form the basis of an appeal from the AAT, and upon which the Court can rule. While construction of any legislation undoubtedly raises legal issues, advancing as propositions for the court “the proper construction and operation” of a either a section of an Act (question of law 1 in the notice of appeal) or a phrase (questions of law 5 and 6 in the notice of appeal) do not, without more, present questions which the Court can properly consider. This is not a case where a question of law has been inelegantly drafted but nonetheless is a question the purport of which is tolerably clear (Ergon Energy Corporation Limited v The Commissioner of Taxation [2006] FCAFC 125 at [51]) - questions 1, 5 and 6 simply do not raise questions.
17 However, questions 2, 3 and 4 do raise questions, which can be characterised as questions of law. Indeed, for reasons I outline later, in my view questions 3 and 4 can be considered together.
18 I propose to look at the relevant legislation, and then consider each of these questions in turn.
Relevant legislation
19 Section 503 of the Act provides:
A person’s parenting payment is worked out using:
(a) if the person is not a member of a couple - the Pension PP (Single) Rate Calculator at the end of section 1068A (see Part 3.6A)
...
20 The Rate Calculator at the end of s 1068A provides for a method of calculating the rate of pension by a number of steps. The step in contention in these proceedings is Step 5, which provides:
“Apply the ordinary income test using Module E below to work out the income reduction.”
21 So far as relevant, Module E provides:
“Module 5 - Ordinary Income Test
Effect of income on maximum payment rate
1068A-E1 This is how to work out the effect of a person’s ordinary income on the person’s maximum payment rate:
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Method statement
Step 1 Work out the amount of the person’s ordinary income on a yearly basis. Step 2 Work out the person’s ordinary income free area (see points 1068A-E14 to 1068A-E18 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 1068A-E19 and 1068A-E20 below. |
Note 1: See point 1068A-A1 (Steps 5 and 6) for the significance of the person’s reduction for ordinary income.
Note 2: The application of the ordinary income test is affected by provisions concerning the following;
(a) the general concept of ordinary income (sections 1072 and 1073)
(b) business income (sections 1074 and 1075)
(c) deemed income from financial assets (sections 1076 to 1084)
(d) income from income streams (sections 1095 to 1099D)
(e) disposal of income (sections 1106 to 1112).”
22 The concept of “ordinary income” is defined by s 1072 as follows:
A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 2 or 3.
Note 1: For ordinary income see subsection 8 (1).
Note 2: For other provisions affecting the amount of a person’s ordinary income see sections 1074 and 1075 (business income), sections 1076 to 1084 (deemed income from financial assets) and sections 1095 to 1099 (income from income streams).
23 “Ordinary income” is defined by s 8(1) of the Act as meaning income that is not maintenance income or an exempt lump sum.
24 “Income” in relation to a person is defined by s 8(1) of the Act as meaning:
(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 or gift or allowance; or
(c) a periodical benefit by way of gift or allowance;
but does not include an amount that is excluded under subsection (4), (5) or (8).
(Subsections 8 (4), (5) and (8) are not relevant in the context of these proceedings.)
Question: Is the extended definition of “ordinary income” in s 1072 of the Act of no relevance if the facts do not first satisfy the definition of “income” in s 8(1) of the Act?
25 It is clear from Note 1 to s 1072 that, in interpreting the term “ordinary income”, regard must first be had to the definition of “ordinary income” in s 8(1) of the Act. However, in my view it is equally clear that in considering the meaning of “ordinary income” in s 8(1), regard must first be had to the definition of “income” in s 8(1). I take this view because:
1. the derivation of income and its impact upon social security payments is a key concept in the Act.
2. the Act contemplates different types of income - for example, ordinary income, business income (ss 1074 and 1075), deemed income from financial asserts (ss 1076 to 1085), employment income (s 8(1A) and (1B)) and income from personal exertion (s 8(1)) and maintenance income (s 10). Each is clearly a species of income. I agree with comments of the learned authors of Social Security in Australia (T Carney & P Hanks, Oxford University Press, Melbourne 1994 at 120) that “income under the Social Security Act is a multi-layered concept. At the core is ‘income in relation to a person’...”.
3. “Ordinary income” is defined as a species of income, namely income that is not maintenance income or an exempt lump sum.
26 It therefore follows that in order for facts to give rise to “ordinary income” within the meaning of s 1072 and Mod 5 1068A, it is necessary that they first demonstrate “income” as defined by s 8(1).
27 The applicant submitted that the AAT had erred in ignoring the words “gross” and “from all sources”, and had (in error) focused in isolation on the s 8(1) definition of “income”. However no error was demonstrated by the AAT’s approach. As I have held, the threshold issue in relation to identifying ordinary income is determining whether it is actually “income” within the meaning of the Act. Once income is identified, ordinary income can be calculated in accordance with s 1072 by reference to the gross income from all sources for the relevant period without reduction other than reduction under Div 1A of the Act. Expressed another way, the adjective “gross” applies to income once it is identified as income. An example of the application of this principle is in Watson v Secretary, Department of Family and Community Services [2003] FCA 415 where Finn J considered whether payments received by the applicant in that case under an income protection policy bore the character of ordinary income of the applicant’s business so as to allow the reduction for losses and outgoings permitted by Div 1A. In that case his Honour, correctly in my opinion, accepted the submissions of the parties that the relevant moneys in that case were “income” within the meaning of the Act. Similarly in this case, the first question is whether the moneys received in this case, in particular the moneys repaid by the respondent to the applicant, actually constitute “income” within the meaning of s 8(1).
Question: on the facts as found by the AAT, does the respondent’s ordinary income include the sums subsequently repaid by her to the Hotel in respect of TAB till shortfalls within the meaning of s 8(1) and s 1072 of the Act?
28 This question was clearly viewed by the SSAT and the AAT as the key issue in this case. Indeed in considering whether the respondent’s ordinary income included these sums, the question may be recharacterised as whether the sums subsequently repaid by the respondent to the Hotel in respect of TAB till shortfalls constituted income amounts earned, derived or received by the respondent for her own use or benefit. In this respect, as I indicated earlier in this judgment, this question subsumes question of law 4 posed by the applicant, and I will consider both questions of law 3 and 4 together.
“Income” under the Act: general principles
29 In considering the meaning of “income” as defined by the Act, a number of propositions are clear.
30 First, the Act is remedial legislation in that it gives benefits to persons and thereby remedies Parliament’s perceptions of social injustice (Social Services Consolidation Bill (Cth), Second reading speech, 15 May 1947, Minister for Health and Social Services, the Hon Senator McKenna). Accordingly, it calls for no narrow or pedantic construction: Lockhart, Gummow and Einfeld JJ in Rose v Secretary, Department of Social Security (1990) 21 FCR 241 at 244, Secretary, Department of Social Security v “SRA” (1993) 43 FCR 299 per Black CJ at 303 (for similar observations, I also note Director-General of Social Services v Hales (1983) 47 ALR 281 per Sheppard J at 321 and Secretary, Department of Family and Community Services v Geeves [2004] FCAFC 166 at para 53).
31 Second, however, the settled rules of construction apply to the Act, and ordinary words used in the Act should receive their ordinary and natural meaning unless, in accordance with accepted rules of statutory construction, there is good reason to prefer some other meaning (Black CJ in SRA 43 FCR at 303, Rose 21 FCR at 244).
32 Third, the concept of “income” under the Act is broad. As Brennan J observed in Read v The Commonwealth (1988) 167 CLR 57 at 69 in relation to the definition of “income” under the Social Security Act 1947 (Cth) (which in the context of the proceedings before me is not materially different to the definition of income in s 8 of the Act):
“The definition is exhaustive: the term ‘income’ means what it is defined to mean; it does not mean what ‘income’ would be understood to mean if the definition were not in the Act. The definition is couched in the widest terms, presumably to ensure that public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide.”
(I note that Brennan J was in dissent in his judgment in Read 167 CLR 57. However, like Foster J in Secretary to the Department of Social Security v Cuneen [1997] 1033 FCA, I do not read the other judgments in Read 167 CLR 57 as differing from Brennan J’s construction of the meaning of “income”).
33 Fourth, it is important to note that the concept of “income” under the Act is not to be equated with “income” under income tax legislation: Haldane-Stevenson v Director-General of Social Services (1985) 9 FCR 73 per McGregor and Pincus JJ at 75 and Davies J at 80. It is an act which provides for income maintenance: Davies J in Haldane-Stevenson 9 FCR at 80; Morling, Hartigan and Lee JJ in Secretary, Department of Social Security v Garvey (1989) 22 FCR 132 at 136; cf comments of O’Loughlin J in Barry v Repatriation Commission (1993) 41 FCR 529 at 532.
“Earned, derived or received”
34 In relation to the concept of income being “earned, derived or received”, it is clear that:
· 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 167 CLR per Mason CJ, Deane and Gaudron JJ at 67
· income can be realised - and hence received - even if temporarily it is not accessible: Rose 21 FCR at 245
· income can be “derived” within the meaning of s 8(1) even if it is not at that time received (Inguanti 80 ALR at 311)
· “earned” relates to personal earnings and profits (Inguanti 80 ALR at 310).
35 In this case, although Deputy President Hack expressed doubt as to whether the relevant income in these proceedings had been “earned, derived or received” (at [22] of the AAT’s Reasons for Decision), it does not appear in dispute before me that the respondent has derived, or “constructively” received, the gross amount from the Hotel including the TAB till shortfalls withheld (TS p 11 ll 32-45, p 12 ll 32-37). Accordingly, it is not necessary for me to consider this issue further.
36 It is in contention, however, that the respondent earned, derived or received the sums representing the TAB till shortfalls for her “own use or benefit” within the meaning of s 8(1).
Were the sums representing the TAB till shortfalls income earned, derived or received by the respondent for her “own use or benefit”?
37 Interestingly, the meaning of the phrase “own use or benefit” in s 8(1) of the Act has not previously been the subject of judicial decision in this Court, although it has been raised in argument in a number of cases without the need for the Court to make a decision (for example, in Secretary Department of Social Security v Davies [1997] 1024 FCA; Nelson v Secretary, Department of Social Security (Bowen CJ, Toohey and French JJ, 10 December 1986)).
38 After considering submissions of counsel, I consider that the sums representing the TAB till shortfalls did not represent income earned, derived or received by the respondent in these proceedings for her own use or benefit. Accordingly, no error of law was made by the AAT in so finding.
39 I take this view for the following reasons.
40 First, the repayment by the respondent of the TAB till shortfalls in appropriate circumstances appeared to be a fundamental term of her contract of employment. I agree with Deputy President Hack that the income of the respondent was determined by reference to three factors, namely the number of hours worked in a week, an hourly rate and any till shortfalls. Contrary to the submission of the applicant, this case is not analogous to circumstances where an employee becomes subject to damages payable to the employer arising from a separate cause of action unrelated to contractual provisions determining income.
41 Second, although the definition of “income” in the Act is construed broadly, the phrase “own use and benefit” necessarily implies rights of ownership of the relevant income amounts by the person receiving them. The breadth of the definition is demonstrated, for example, by the fact that it is not necessary that the relevant person does not have legal capacity to deal with the income amounts for the income amounts to be for the person’s “own use and benefit”. Income is for the “own use and benefit” of the person once it becomes their property which they can dispose of at will: cf Flannery v Secretary Department of Social Security (1987) 78 ALR 431 at 436 and Latham CJ in Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389 at 398.
42 Third, in my view the phrase does not contemplate moneys which, although received, are repayable to the employer under the employment contract against income earned. Such moneys are clearly not for the “own use and benefit” of the employee within the plain meaning of this phrase. The employee has no ownership of them in any meaningful sense until the employer has undertaken a reconciliation of the till.
43 Fourth, although not raised in argument before me, I note that it would not be sufficient to suggest that such moneys are for the employee’s own use and benefit because, for example, they are in some fashion the price the employee must pay for having the employment and the entitlement to such remaining income as he or she may keep. Such a concept would represent a significant stretch of the ordinary meaning of the term “own use and benefit”.
44 Fifth, in interpreting the phrase “own use or benefit” it is clear that the obligation of the respondent in this case can be contrasted, for example, with payments made by a person as a result of arrangements otherwise within his or her control, such as outgoings on residential properties of the person which constitute an expense in generating rental income on those properties. As pointed out by the Full Court in Garvey 22 FCR at 136 in relation to such circumstances,
“It was not the purpose of the Act to provide a further source of income for a person who had applied his or her income to maintain a business conducted at a loss or upon outgoings incurred in acquiring or maintaining assets. (See Read v Commonwealth (1988) 167 CLR 57 per Brennan J (at p 69).”
45 Similarly, the facts of the case before me may be contrasted with those in Marsh v Secretary to the Department of Social Security (1986) 12 FCR 100 where, in finding that a training allowance paid to a part-time trainee was “income” within the meaning of the Social Security Act 1947 (Cth), Burchett J said at 104:
“The whole of it was paid, so far as appears, not on condition that he expended any part of it upon a purpose associated with his part-time training, but to assist in his support whilst he was undergoing that training. How he chose to organize his life and expenditure during the period of the part-time course was entirely a matter for him…One can readily imagine a case of an allowance entitlement to receive which was dependent upon its expenditure for specified purposes, unrelated to the ordinary incidents of life, so as to entail the conclusion that either the whole of it, or some proportion of it, could not fairly be regarded as a net receipt ‘for his own use and benefit’, within the meaning which the Full Court in Haldane-Stevenson’s case ascribed to the definition…” (emphasis added)
46 A strong analogy can be drawn between the case before me and the case hypothesised by Burchett J in Marsh 12 FCR 100 - namely circumstances where income received is subject to the requirement of expenditure for certain purposes. The facts before me however may be distinguished from those in Marsh 12 FCR 100 where the manner in which the relevant employee spent his training allowance was a matter of choice for him.
47 It is for the same reason that I find distinguishable from these facts the decision in Kear [1998] 1087 FCAwhere Heerey J held that the relevant money received by the applicant in that case was “his own money to deal with as he saw fit” notwithstanding that the applicant had other commitments or arrangements for which that money was earmarked.
48 Finally, in my view a construction of the phrase which would characterise moneys required to be repaid to the employer as being for the employee’s “own use and benefit” is at odds with the purpose of the Act to maintain a basic level of income for those who are unable to receive sufficient income to provide for themselves (Garvey 22 FCR at 136, Secretary, Department of Social Security v McLaughlin (1998) 81 FCR 35 at 42). Such an arrangement means that the money paid by the employee to the employer is not actually usable by the employee as income, and cannot be taken into consideration in any realistic way in maintaining a basic level of income for the employee. Contrary to the submissions of the applicant, I do not find the reporting by the Hotel for superannuation purposes helpful in this context.
Secretary, Department of Social Security v McLaughlin
49 The applicant relied in its submissions on the decision of French J in McLaughlin 81 FCR 35. In that case the respondents, who had carried on business as milk vendors for a number of years, received $121,950 from the Western Australian Dairy Industry Authority under an industry deregulation scheme, in consideration for an undertaking of the respondents to have no involvement in the milk distribution or milk vending businesses in Western Australia for three years. The AAT found on the facts that the arrangement was for the Authority to pay the principal sum to the respondents without any intention that the respondents repay the money, but subject to a contractual term in the event of a breach of covenant giving the Authority the discretion to recover a similar amount. French J held that the amounts received by the respondents were “income” within the Act, notwithstanding that they had been not been received in exchange for anything; further his Honour accepted that the amounts had been received for the respondents’ own use or benefit (at 44). However in my view the facts of the case before me are distinguishable from McLaughlin 81 FCR 35, in that:
· whereas the income in fact earned, derived or received by the respondent in these proceedings was determined by reference to, inter alia, till shortfalls -
· in McLaughlin 81 FCR 35 the power of the Authority to demand repayment of the amount paid to the respondents would appear to have required a determination that there had in fact been a breach of a term of the contract by the respondents; further the terms of the agreement between the Authority and the respondent stated that, if the Authority did not seek repayment by the respondents before a certain time, the respondents were not liable to repay any amounts paid by the Authority. Other than the provision with respect to possible breach of contract, there appeared to be no limitation on the entitlement of the respondents to deal with the moneys paid by the Authority as they chose.
50 In identifying whether amounts received are for the “own use and benefit” of the recipient, there is in my view a substantial difference between:
· the obligation of the respondent to “make good” till shortfalls (however incurred) arising in the course of her employment, which in turn determines the income of the respondent, as was the case here, and
· the contractual power of the Authority in McLaughlin 81 FCR 35 to demand repayment of paid amounts being limited to a period of time, and dependent upon a breach by the respondents of any terms of the agreement, but which power depended upon identification of such “breach” having taken place as a matter of contract law.
51 Accordingly, contrary to the submissions of the applicant I do not find the decision in McLaughlin 81 FCR 35 helpful in identifying whether moneys received by respondent in the case before me were for her “own use and benefit”.
$1,300 TAB till shortfall
52 The applicant also submitted that the circumstances surrounding the repayment by the respondent to the Hotel of a till shortfall of $1,300 and subsequent reimbursement of that sum by the Hotel highlights the error in the Tribunal’s approach. However in my view it is clear that if moneys representing TAB till shortfalls are paid by the employee to the employer, but subsequently refunded to the employee - as occurred in relation to the $1,300 the subject of the fraud perpetrated on the Hotel - it is at the point they are refunded to the employee that they become income amounts for the own use and benefit of the employee. In those circumstances where the employee is in receipt of Centrelink benefits the employee at that point is required to advise Centrelink of the receipt of that income, because it is only at that point that the money becomes income for the employee’s “own use and benefit” within the meaning of the Act. I find no error in the reasoning of Deputy President Hack in relation to this issue.
Conclusion
53 In light of my findings in this case the appropriate order is that the appeal be dismissed.
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I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. |
Associate:
Dated: 9 November 2007
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Counsel for the Applicant: |
E Ford |
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Solicitor for the Applicant: |
Australian Government Solicitor |
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Counsel for the Respondent: |
JA Logan SC |
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Solicitor for the Respondent: |
Welfare Rights Centre |
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Date of Hearing: |
8 November 2006 |
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Date of Judgment: |
9 November 2007 |
