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1998—1999—2000
HOUSE OF REPRESENTATIVES
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Family and Community Services, Senator the Hon Jocelyn Newman)
ISBN: 0642 436967
FAMILY AND COMMUNITY SERVICES AND VETERANS’ AFFAIRS LEGISLATION AMENDMENT (DEBT RECOVERY) BILL 2000
This Bill gives effect to the Government’s 1999-2000 Budget
measure providing for the simplification, clarification and strengthening of
debt recovery.
The legislation involved is the Social Security Act
1991, the Social Security (Administration) Act 1999, the
A New Tax System (Family Assistance) (Administration) Act
1999, the Veterans’ Entitlements Act 1986
and the Safety, Rehabilitation and Compensation Act
1988.
Amendments are made to the overpayment and debt recovery provisions of
the Social Security Act 1991 to ensure that where a person receives an
amount which the person is not entitled to receive for any reason, that
amount is recoverable. Payments made incorrectly due to the operation of a
computer system or due to an administrative error are included in the payments
which will be recoverable. The amendments provide for an interest charge and an
administrative charge to be incurred where a person fails, within a specified
period, to enter into, and comply with, an arrangement to repay an outstanding
debt. The amendments also provide for the recovery of amounts, directly from
financial institutions, where those amounts have been paid in error into
accounts kept at the financial institution.
Date of Effect: Schedule
1, Items 1 and 2 commence on Royal Assent.
Schedule 1, Items 3 to
27, 29 and 31 to 33 commence on 1 January 2001.
Schedule
1, Items 28 and 30 commence on 1 July 2000 or the day on which
this Act receives Royal Assent, whichever is the later.
Financial
Impact:
2000-01 $12.0m (savings)
2001-02 $27.6m
(savings)
2002-03 $28.6m (savings)
The amendments made by Schedule 2 mean that, where the Secretary could
make a decision in accordance with the social security law and that decision is
made as a result of the operation of a computer program, that decision is taken
to be a decision made by the Secretary. The amendments also provide that a
determination to grant a person’s claim for a social security payment or
that a social security payment is payable to the person ceases to have effect on
the day that the person dies.
Date of Effect: Schedule 2 commences
on Royal Assent.
Financial Impact: Included in the financial
impact figures for the amendments
made in Schedule 1.
Schedule 3—Amendments of the A New Tax System (Family Assistance)(Administration) Act 1999
Schedule 3 amends the overpayments and debt recovery provisions in the A
New Tax System (Family Assistance) (Administration) Act 1999 in a manner
consistent with the amendments made to the Social Security Act by Schedule 1 to
this Bill.
Amendments are made to replace the existing penalty interest
regime with a new system of interest and administrative charge in respect of an
outstanding debt. Provisions are inserted to enable amounts to be recovered
directly from financial institutions in prescribed circumstances. Other
amendments are made to maintain consistency between the debt recovery regimes in
the family assistance and social security laws and to address some minor
technical issues.
Date of Effect: Schedule 3, Items 1 to 15 commence on
1 January 2001.
Schedule 3, Item 16 commences on Royal
Assent or 1 July 2000, whichever is the later.
Financial
Impact: Included in the financial impact figures for the amendments
made
in Schedule 1.
Schedule 4—Amendments of the Veterans’ Entitlements Act 1986
These amendments will introduce a better targeted regime for managing
outstanding debts. Penalty provisions, consisting of an administrative charge
and interest, will target only persons who are not receiving a pension,
allowance or other pecuniary benefit under either the Veterans’
Entitlements Act 1986 or the social security law. The amendments will also
facilitate the recovery of overpayments directly from financial institutions in
certain circumstances.
Date of Effect: The amendments made by
Schedule 4 commence from
1 January 2001.
Financial
Impact:
2000-01 $0.1m (savings)
2001-02 $0.1m
(savings)
2002-03 $0.1m (savings)
Schedule 5—Amendments of the Safety, Rehabilitation and Compensation Act 1988
Certain compensation payments are made under to the Safety,
Rehabilitation and Compensation Act 1988. The amendment made by Schedule 5
allows for garnishee action to be taken in respect of those payments where the
person has a debt under the social security law.
Date of
Effect: Schedule 5 commences on Royal Assent.
Financial
Impact: Included in the financial impact figures for the amendments
made
in Schedule 1.
FAMILY AND COMMUNITY SERVICES AND VETERANS’ AFFAIRS LEGISLATION AMENDMENT (DEBT RECOVERY) BILL 2000
Clause 1—Short Title
Clause 1 of the Family and
Community Services and Veterans’ Affairs Legislation Amendment (Debt
Recovery) Bill 2000 sets out how the amending Act is to be
cited.
Clause 2—Commencement
Clause 2 specifies when
the various clauses and Schedules of the amending Act are to
commence.
Clause 3—Schedule(s)
Clause 3 provides that
each Act that is specified in a Schedule to the Family and Community Services
and Veterans’ Affairs Legislation Amendment (Debt Recovery) Bill 2000 is
amended as set out in the applicable Items in those
Schedules.
• Acts amended by this Bill are:
♦ the
Social Security Act 1991; and
♦ the Social Security
(Administration) Act 1999; and
♦ the A New Tax System
(Family Assistance)(Administration) Act 1999; and
♦ the
Veterans’ Entitlements Act 1986; and
♦ the
Safety, Rehabilitation and Compensation Act 1988.
1. Summary of proposed changes
The Social Security Act 1991 (the Social Security Act) is
amended to ensure that, where a person is paid an amount of social security
payment that, for any reason, the person should not have been paid, that
amount is recoverable from the person. The amendments also introduce a scheme
under which a person may be liable to pay interest and an administrative charge
in respect of an outstanding debt.
The amendments also provide that, in
certain specified circumstances, financial institutions may be required to pay
amounts to the Commonwealth.
2. Background
The Social Security Act codifies the situations in which a recoverable
debt occurs. If an ‘overpayment’ occurs in a situation not covered
by a specific provision in Part 5.2 of the Social Security Act, the amount is
not recoverable as a debt. Under the current provisions, where a person has
correctly advised his or her circumstances but that information has been
incorrectly or inaccurately recorded, any resulting overpayment may not be
legally recoverable when the error is rectified. Similarly, recovery may not be
possible where a computer program error results in payments being made to which
customers have no entitlement.
Currently, the Social Security Act
provides for interest to be applied to outstanding debts. The aim of the
interest charge is to encourage debtors to make arrangements for repayment of
their debts and to comply with those arrangements. A loophole in the operation
of this scheme may be exploited by debtors so that no interest is payable
despite the fact that the person is not making repayments.
Where payments
are made incorrectly to financial institutions, recovery of the payment directly
from the financial institution is the most efficient and cost effective method.
At present, the Social Security Act does not expressly provide for that
approach. One consequence is that, where payments are made incorrectly after
the death of a customer, recovery action may be necessary through the
person’s executors, which can be a time consuming process. The monies are
often frozen in the deceased person’s bank account or have been
incorrectly released by the executor.
3. Explanation of the changes
Item 1 amends the definition of the term ‘assurance of support
debt’ contained in subsection 23(1). In effect, the definition
currently contains two separate requirements:
• there must be a
debt due to the Commonwealth because of the operation of certain Migration
Regulations; and
• the debt must be in respect of one of the payments
listed in subsection 23(1).
The Migration Regulations provide for a
debt to arise where an assurance of support is in effect in respect of a person
and that person receives one of the payments listed in the Regulations. This
list is intended to be identical to that contained in
subsection 23(1).
This approach involves unnecessary duplication.
Whenever it is considered desirable for a new social security payment to be
included in the payments which can give rise to an assurance of support debt,
the Social Security Act as well as the Migration Regulations must be amended.
Item 1 repeals the reference to the various payment types contained in
subsection 23(1). The effect of the amendment is that, in future, only the
Migration Regulations will need to be amended in order to include a new payment
type.
Item 2 amends the definition of the term ‘financial
institution’ contained in subsection 23(1). The effect of that
amendment is that a body that is an ‘authorised deposit-taking
institution’ according to the Banking Act 1959 is taken to be a
‘financial institution’ for the purposes of the Social Security
Act.
Subsection 1222(1) states that Chapter 5 of the Social Security Act
provides the methods of recovery that are available for the debts referred to in
paragraphs 1222(1)(a) to 1222(1)(d). At present, paragraph 1222(1)(a)
refers to debts owed under Part 5.2 and paragraph 1222(1)(b) specifically refers
to assurance of support debts. As assurance of support debts are also debts
under Part 5.2, the specific reference to those debts contained in paragraph (b)
is unnecessary. Item 3 omits that reference and substitutes a reference to
debts owed under section 1135 (which is a reference to debts arising under the
pension loan scheme).
Item 4
Note 1 to subsection 1222(1)
lists the debts that may be owed to the Commonwealth under Part 5.2. Item 4
amends Note 1 to reflect the changes made to Part 5.2 by the amendments
contained in this Bill.
Item 5 repeals Note 2 to subsection 1222(1). At present, paragraph
1222(1)(b) specifically refers to assurance of support debts and Note 2 refers
the reader to the definition of assurance of support debts. As Item 3 omits the
reference to assurance of support debts from paragraph 1222(1)(b), Note 2 is no
longer required.
Existing subsection 1222(2) contains a Table setting out the methods of
recovery available for the various types of debt. Item 6 amends that Table to
reflect the changes to Chapter 5 by the amendments contained in this
Bill.
The language used in existing subsection 1223(1) has the potential
to create uncertainty, causing difficulties for effective and equitable debt
recovery. For example, the subsection provides that a debt exists if an amount
has been paid to a ‘person’ and the amount was not payable to the
‘recipient’. It is not immediately clear whether or not the
‘person’ and the ‘recipient’ are intended to refer to
the same person. It is also not clear whether the term ‘recipient’
is intended to mean the person who actually received the payment or whether it
should be read as meaning the person for whose benefit the payment was made.
For example, a payment which was intended to be made for the benefit of
Mr John Smyth might be incorrectly paid to a Mr John Smythe. If the first
interpretation of the term ‘recipient’ is adopted, the payment will
be recoverable. This is because the amount was not payable to the person who
actually received it, ie Mr Smythe. If the second interpretation is followed,
it is arguable that the payment would not be recoverable. This is because the
amount in fact was payable to the person for whose benefit the payment was made,
ie Mr Smyth. The amendments made by Item 7 remove the opportunity for that
uncertainty.
Subsection 1223(1) provides that where a social security
payment is made and the benefit of the payment is obtained by a person other
than the person who was entitled to obtain the benefit of that payment, the
amount is a debt due to the Commonwealth by the person who obtained the benefit
of the payment. The debt is taken to arise when the person obtains the benefit
of the payment.
The term, ‘obtains the benefit of the
payment’, should not be read as introducing a requirement for a person to
have actually received some tangible benefit before a debt can be taken to have
arisen. Nor should it be read as introducing an obligation on Centrelink to
enquire into whether the payment has been disposed of or the purpose for which
the payment was used. The plain English meaning of the term is intended and the
phrase is to be distinguished from the phrase “obtains a benefit from the
payment”. It would be undesirable (and perhaps even impossible) to
attempt to list the circumstances in which a person should be considered to have
obtained the benefit of a social security payment. However, in broad terms,
where a social security payment is made and a person’s wealth is directly
increased as a result, the person has obtained the benefit of that payment. The
purpose for which the payment, or any part of the payment, is subsequently used
is irrelevant. It is also of no significance that the person who has obtained
the benefit of the payment has not requested that the benefit be conferred. The
perspective of the recipient is not a relevant consideration in determining the
question of whether the benefit has been obtained.
The effect of
subsection 1223(1AA) is to ensure that where a payment has been paid to the
person who is entitled to the payment (or has been paid to a third party at the
request of the person entitled to the payment), the person is taken to have
obtained the benefit of the payment and no debt due to the Commonwealth can
arise if another person subsequently obtains the benefit of that payment. This
means that, where a payment has been paid into the bank account of the person
who is entitled to the payment, the person is taken to have obtained the benefit
of the payment. Similarly, where the person entitled to a payment has requested
that the payment be paid to a third party (either as nominee for the person or
for any other purpose) and the payment is made to that third party, no debt due
to the Commonwealth can arise for social security purposes as the person has
obtained the benefit of the payment.
Significantly, where a person has
made a mistake in connection with the manner in which he or she wishes social
security payments to be made and a third party obtains the benefit of one or
more of those payments, subsection 1223(1) would still operate to give rise
to a debt due to the Commonwealth by the third party. For example, if a person
has advised Centrelink to make payments into a particular bank account and it
turns out that the bank account details are incorrect because the details
provided are actually those of a third party, subsection (1AA) does not operate
to prevent a debt arising which is due to the Commonwealth by the third
party.
For new subsection 1223(1) to apply, a person must have obtained
the benefit of a payment and the person was not entitled to obtain that benefit
for any reason. New subsection 1223(1AB) sets out some examples of when
a payment should not have been made resulting in a person obtaining the benefit
of the payment which the person was not entitled to obtain. The provision does
not imply limitations on the circumstances in which it can be considered that a
person was not entitled to obtain the benefit of a payment.
Examples of
where a payment or a part of a payment should not have been made, with the
result that a person will be taken to have obtained the benefit of a payment
that they should not have obtained, include:
• where the payment,
or part of the payment, was made by mistake as a result of a computer error or
an administrative error;
• where, according to the provisions of the
social security law, the person for whose benefit the payment was made was not
qualified for the payment (or part of the payment);
• where, according
to the provisions of the social security law, the payment (or part of the
payment) was not payable to the person;
• where the payment (or part of
the payment) was made due to a contravention of the social security law, a false
statement or a misrepresentation by any person;
• where the person
entitled to the benefit of the payment has requested the payment (or part of the
payment) be made to a third party and the person has, prior to the payment being
made, revoked or withdrawn that request but the payment has still been made to
that third party;
• where the person entitled to the benefit of the
payment has died before the payment was made.
Currently, the social
security law provides for the continuing effect of determinations–that is,
a determination, once made, continues in effect until a further determination is
made which changes the effect of the first determination. Further, when a
determination is made in respect of a person’s social security payment,
provisions of the social security law provide for ‘when’ that
determination takes effect. Depending on the nature of the determination, those
provisions may prevent a determination from taking effect at a date earlier than
the date on which the determination is actually made. In some circumstances,
the combined effect of these provisions is that payments which have been made
incorrectly are not recoverable. This undesirable outcome is most evident in
cases where a computer error or an administrative error has occurred. New
subsection 1223(1AC) makes specific provision for situations where a
payment (or a part of a payment) has been made due to the occurrence of a
computer error or an administrative error.
The term ‘computer
error’ is used to describe situations where the operation of a computer
program results in a payment, or a part of a payment, being made that should not
have been made. Although it would be undesirable (and perhaps impossible) to
attempt to list all situations where a computer error could arise, the following
are two examples.
When changes occur to social security policy and programs, complex
computer programs are often developed to assist in the delivery of those
policies and programs. When these new programs are implemented, there are
occasional unintended outcomes. Although there are safety mechanisms in place
which protect against such outcomes affecting payments to customers, there are
rare occasions where payments are affected. Where changes to the computer
system or computer programs result in an incorrect payment, it is appropriate
that the Commonwealth be able to recover those public funds.
In determining a person’s qualification for a social security
payment or the rate of a payment, Centrelink may rely on information from a
variety of sources, including other agencies such as the Child Support Agency.
In some instances, that information-sharing is facilitated by operation of
computers, with the computer systems which are operated by the different
agencies being able to ‘interface’ and share information. Rarely,
when such interfacing occurs, the information obtained does not correctly
identify a person’s true current situation. For example, the information
stored in the system of one agency might show the income of a person as nil when
in fact the person has already advised Centrelink that he or she is earning $300
per fortnight. Where interfacing results in an incorrect payment, it is
appropriate that the Commonwealth be able to recover those public
funds.
Where the term is used in section 1223, ‘administrative
error’ means those situations where a person, in compliance with the
provisions of the social security law, provides information to Centrelink which
affects the person’s qualification for, or rate of, social security
payment, and that information is incorrectly or inaccurately processed,
resulting in the person receiving an amount which would not have been payable if
the information had been correctly/accurately processed. One example of
administrative error is where a person has advised that he or she has earnings
of $1000 per fortnight and this information is recorded as earnings of $10.00
per fortnight.
In cases of computer error and administrative error, the
provisions providing for the date of effect of determinations and the continuing
effect of determinations may operate to prevent the recovery of any excess
payment. The purpose of new paragraph 1223(1AC) is to ensure that that
undesirable outcome is avoided.
Paragraph 1223(1AC)(a) provides that,
where a payment (or a part of a payment) is made as a result of computer or
administrative error, a debt may still arise even if the payment was made under
an existing valid determination. The effect of paragraph (a) is two fold.
First, the provisions dealing with the continuing effect of determinations are
not applicable in cases where a payment is made by mistake due to a computer
error or an administrative error. The second effect of paragraph (a) relates to
certain provisions of the social security law which provide that, where certain
actions occur because of the operation of a computer program, that action is to
be treated as being a valid determination of the Secretary. The effect of
paragraph (a) is that, irrespective of whether another provision of the social
security law would mean the payment has been made under a valid determination
(eg due to the operation of a computer program), subsection (1) is still
applicable where that payment has been made by mistake as a result of computer
error or administrative error.
The term administrative error is not
intended to be applicable in all circumstances where an administrative
‘oversight’ has occurred. Of particular concern are the provisions
of the social security law which operate to impose obligations on customers to
advise Centrelink of the occurrence of certain events or changes in
circumstances. No obligation can arise unless customers have received a valid
notice informing them of the requirement to notify Centrelink of those events or
changes in circumstances. The effect of subsection 1223(1AD) is that the
failure to send a valid notice to a person advising the person of relevant
obligations is not to be treated as an administrative error. If that were not
the case, a person could incur a debt even though the person had not been
advised that there was a requirement to provide the relevant
information.
Divisions 8, 9 and 10 of Part 3 of the Social Security
(Administration) Act 1999 (the Administration Act) contain the provisions
providing for the continuing effect of determinations and those dealing with the
date of effect of determinations. Those provisions can operate to prevent the
full recovery of payments made by mistake as a result of a computer error or an
administrative error. The effect of paragraph 1223(1AE)(a) is that, where
a payment has been made by mistake due to a computer error or an administrative
error, Divisions 8, 9 and 10 are disregarded in calculating the amount of any
incorrect payment.
Sections 79 and 80 of the Administration Act
respectively provide for:
• the reduction in the rate of payment
where the Secretary is satisfied that the rate at which the payment is being, or
has been, paid is more than the rate provided for by the social security law;
and
• the cancellation or suspension of a payment where the Secretary
is satisfied that the payment is being, or has been, paid to a
person:
(i) who is not, or was not, qualified for the payment;
or
(ii) to whom the payment is not, or was not, payable.
The date that
a determination under section 79 or 80 takes effect is worked out according to
the provisions in Division 9 of Part 3. Paragraph 1223(1AE)(a) expressly
provides for that Division to have no operation in cases of computer and
administrative error. Accordingly, paragraphs 1223(1AE)(b) and (c) provide
that, for situations involving payments made by mistake due to computer or
administrative error, a determination made under section 79 or 80 takes effect
from the date stated in the determination, even if that date is a date earlier
than the one on which the determination is actually made.
Items 8 and
10
Subsections 1223(2A) and 1223(5) and section 1224 currently
provide for debts to arise in certain circumstances. The change made by Item 7
provides for debts to arise in similar circumstances. Accordingly, Items 8 and
10 repeal those provisions as they are no longer required.
Item 9 inserts new subsection 1223(9). The effect of that subsection is
to make it clear that, for the purposes of section 1223, a reference to a social
security payment includes a reference to a part of a social security payment.
The rationale behind this is that, in many circumstances, a debt may arise only
in respect of a part of a payment, not in respect of the whole payment.
Existing section 1224AB is concerned with certain situations where a
person is liable to repay a debt under section 1224 (which deals with debts
which have arisen due to a contravention of the Social Security Act by the
person). Where another person is convicted of an offence under various
provisions of the Crimes Act 1914 in relation to that contravention, the
two persons are jointly and severally liable to pay the debt. As Item 10
repeals section 1224, the reference in section 1224AB to that provision is no
longer appropriate. Item 11 substitutes a new section 1224AB which has the same
effect as the existing provision, without reference to the repealed section
1224.
Currently, the Social Security Act provides for interest to be applied to
outstanding debts. Significantly, no interest can be incurred where a person is
making regular instalments to repay the outstanding amount of a debt. Debtors
who are in receipt of social security payments or payments from the Department
of Veterans’ Affairs are also not liable to incur interest. The aim of
the interest charge is to encourage debtors to make arrangements for repayment
of their debts and to comply with those arrangements. A loophole in the
operation of this scheme may be exploited by debtors so that no interest is
payable despite the fact that the person is not making repayments.
In
order for a person to be liable to pay interest, the Secretary must first have
given the person a notice asking the person to repay the debt. Where, within 21
days after the notice, the person has not entered into negotiations to repay
(or, having entered negotiations, has not entered into an agreement to repay),
the Secretary may give a second notice to the person advising them that, unless
within 14 days the person pays the debt or enters an agreement to repay,
interest may become payable. In effect, provided a person enters an arrangement
within the 14 day period, interest cannot be incurred. This is irrespective of
whether the person subsequently fails to comply with that arrangement. Where
the person fails to make any repayments in accordance with an arrangement, the
process described above must be followed again. Accordingly, provided a person
is willing to enter into a new arrangement each time they receive the second
notice, no interest is payable even if the person is making no repayments in
relation to the debt. In order to address that loophole, Item 12 repeals and
substitutes sections 1229 and 1229A.
Under the changes made by Item 12, a
person cannot incur interest until at least 112 days (that is, more than 3
months) after the date on the notice sent to the person advising the person that
a debt exists and that repayment is required. Interest will not be incurred for
any period during which a person is complying with an arrangement to repay the
debt or any period during which the person is receiving a social security
payment. In these cases, the Secretary would exercise the power in new
section 1229AA to determine that interest is not payable.
New
subsection 1229(1) provides for a notice to be sent to a person who has a debt
due to the Commonwealth. The notice will advise the person of the outstanding
amount of the debt. It will also advise the person that the debt is due and
payable on the 21st day after the date on the notice.
A notice
may also be sent pursuant to subsection 1229(3). Where a debtor has not entered
into an arrangement to repay a debt or, having entered an arrangement, fails to
comply with that arrangement, a notice may be sent to the debtor
stating:
• the date on which the subsection (3) notice was issued;
and
• the outstanding amount of the debt at the time of the notice;
and
• the effect of the provisions providing for the interest charge
and administrative charge; and
• how interest under section 1229A is to
be calculated.
Importantly, a person can only incur an interest charge if
the person has received a subsection (3) notice.
The effect of subsection
1229(4) is that, where it is desirable or convenient, the notice referred to in
subsection (1) and that provided for by subsection (3) may be sent at the same
time and may be sent as a single notice. An example of where that approach
might be considered desirable would be in cases of customers who have previously
incurred debts and have failed to comply with an arrangement to repay that debt.
In those circumstances, it might be considered desirable to simultaneously issue
both the notice of the debt as well as the notice advising of the new interest
charge and administrative charge scheme in an attempt to encourage early entry
into a repayment arrangement.
Where that approach is adopted, the effect
is simply that the debtor has received the subsection 1229(1) notice and the
subsection 1229(3) notice simultaneously. This approach has no adverse
consequences for a person who owes a debt as the person cannot become liable to
pay interest at an earlier time than he or she would have so liable if the
notices had been sent (and received) separately.
New section 1229A sets
out when interest will be payable. The effect of paragraph 1229A(1)(a) is
that interest cannot be incurred unless the person has received a notice under
subsection 1229(3). The effect of paragraph 1229A(1)(b) is that interest
cannot be incurred by a person who is in receipt of a social security payment or
a pension or allowance under the Veterans’ Entitlements Act 1986.
In these latter circumstances, deductions are made from the debtor’s
payment and those deductions are applied in satisfaction of the debt.
New subsection 1229A(4) defines the term ‘final payment day’
for the purposes of subsections (2) and (3). The final payment day is the later
of:
• the 90th day after the day on which the debt
became due and payable (ie the 111th day after the date of the notice
issued under subsection 1229(A)(1)); or
• the 21st day
after the date of the notice given under subsection 1229(3).
New
subsection 1229A(2) deals with situations where a debtor has not entered into an
arrangement to repay a debt on or before the final payment day and the Secretary
has notified the person that the person will be required to pay interest. In
these circumstances, the debtor is liable to pay interest from the day after the
final payment day.
New subsection 1229A(3) deals with situations where a
debtor has entered into an arrangement but subsequently has failed to comply
with the arrangement and the Secretary has notified the person that the person
will be required to pay interest. Two different scenarios are relevant
here.
Paragraph 1229A(3)(d) is concerned with the situation where a
person has entered an arrangement and, before the final payment day, the
person fails to comply with the arrangement. In those circumstances, the debtor
is liable to pay interest from the day after the final payment day. Paragraph
(e) is concerned with the situation of where a person fails to comply with an
arrangement at any time after the final payment day. In those
situations, the debtor is liable to pay interest from the day after the day in
respect of which, in accordance with the arrangement, the last payment was made
in respect of the debt.
Subsection 1229A(5) provides that any amount of
interest that becomes payable is a debt due to the Commonwealth. Subsection
1229A(6) provides for how repayments made by a debtor will be allocated.
Repayments will first be used to reduce the original debt - that is, excluding
any amount of interest that has become a recoverable debt. Once the original
debt has been repaid, future payments by the debtor will be used in satisfaction
of the interest that became payable on the original debt.
New subsection
1229A(7) provides a definition of the term “arrangement” for the
purposes of section 1229A.
The combined effect of subsections 1229A(1) to
(4) is that the earliest a debtor can become liable to pay interest is 112 days
after the date on the notice issued under subsection 1229(1). Debtors need
only enter into (and be complying with) an arrangement to repay the debt within
a period totalling 112 days (ie more than 3 months) in order to avoid having to
pay interest. It is only where debtors fail to enter an arrangement or, having
entered an arrangement, fail to comply with the arrangement that interest can be
payable. The emphasis is on encouraging debtors to negotiate arrangements to
repay debts from an early stage, not on trying to collect interest on
outstanding amounts of debts.
New section 1229AA creates a discretion for
the Secretary to determine that interest is not payable or is not payable in
respect of a particular period. The purpose of this provision is to facilitate
efficient and cost effective recovery of outstanding debts by providing
flexibility in repayment negotiations. The kind of circumstances where it is
anticipated that this discretion would be used is:
• where a
decision to impose the penalty is made on an assumption that is subsequently
shown to have been incorrect;
• where the charge is applied as a result
of clerical or system error;
• where judgement interest has been
awarded by a Court on the outstanding amount of a debt and the Department wishes
to adjust the amount of interest payable under the social security law
provisions
• where a person has been advised that he or she will be
required to pay interest and the person subsequently enters into, and complies
with, an arrangement under 1234.
Subsection 1229AA(3) provides that a
determination under subsection (1) may be subject to the person complying with
specified conditions. It must be recalled that interest can only become payable
where, after a period of 112 days, a debtor is not complying with an arrangement
entered into in respect of the debt (or where the debtor has failed to enter any
arrangement at all). In those circumstances, it is appropriate that any
subsequent determination for that interest to be not payable should be supported
by adequate safeguards which mitigate against any further non-compliance with
the arrangement by the debtor. The following is an example of where it might be
contemplated that the determination should be subject to a condition.
A
debtor who has been advised that interest is being incurred might seek a
determination that the interest should not be payable on the grounds that he or
she is expecting to receive an amount of income from some source within a
certain period and undertakes to pay an amount in satisfaction of the debt. The
Secretary may wish to determine that interest not be payable in these
circumstances on condition the debtor provide the Secretary with evidence that
the income amount is expected or on condition the debtor pays the amount on, or
by, an agreed date.
In part, subsections 1229A(2) and (3) require the
Secretary to notify a debtor if the debtor will be required to pay interest.
The effect of subsection 1229AA(4) is that, where a person has received
notification under subsections 1229A(2) or (3) and the Secretary makes a
determination under section 1229AA that interest is not payable, the Secretary
must give the person written notice of that latter determination.
Subsection 1229AA(5) states that a failure to notify the debtor under
subsection (4) does not invalidate the determination that interest is not
payable.
Subsection 1229AA(6) provides that, where a person contravenes a
condition imposed according to subsection (3), the determination that interest
is not payable ceases to have effect from and including the day on which the
contravention (or, if there has been more than one contravention, the earliest
contravention) occurred.
There may be cases where a determination has
been made that interest should not be payable in respect of a particular period
and subsequently it becomes evident that the period expressed in the
determination is incorrect. Accordingly, subsection 1229AA(7) states that
the Secretary may cancel or vary the determination by written notice to the
person.
New section 1229AB provides for an administrative charge to be
incurred when a debtor first becomes liable to pay interest in respect of a
particular debt. That is, an administrative charge may only be incurred on one
occasion in respect of any particular debt. The rationale behind this charge is
to encourage debtors to enter arrangements for repayment and also recognises the
cost incurred by the Commonwealth in recovering debts where people fail to enter
arrangements to repay. Subsection 1229AB(2) states that where a person incurs
an administrative charge, that amount is a debt due to the Commonwealth by the
person.
The amendments made by this item omit superfluous words from
subsection 1229B(2).
Item 15 omits the reference in section 1230B to section 1224 which is
repealed by Item 10.
Section 1230C provides the methods by which a debt is recoverable by the
Commonwealth. Item 16 amends section 1230C so that the methods of recovery
include repayment by instalments according to an arrangement under section 1234
(see Item 24).
Section 1231 provides for the recovery of certain debts by means of
deductions from debtors’ social security payments.
At present,
paragraph 1231(1)(a) deals with debts under the Social Security Act. The
Administration Act, which commenced on 20 March 2000, introduced the concept of
‘the social security law’. That term incorporates the Social
Security Act and the Administration Act as well as any other Act that is
expressed to be part of the social security law. Item 17 amends paragraph
1231(1)(a) so that debts arising under the Social Security Act as in force
before the commencement of the Administration Act as well as debts arising under
the broader notion of the social security law are capable of being recovered by
deductions according to section 1231.
Currently, where a person who has a
debt is entitled to receive an amount of social security payment in arrears, no
deductions can be made from the payment in full, or part, satisfaction of the
debt. This is despite the fact that, in many cases, if the arrears payment had
been received as regular instalments of the person’s social security
payment, deductions would have been able to have been made. Accordingly, Item
18 amends subsection 1231(1) to provide that the debts specified in
paragraphs (a) to (d) may be recovered from any social security payments as
well as from any arrears payment of social security payments.
Existing subsection 1231(1A) provides that the Secretary is to decide the
amount by which each payment of a person’s social security payment is to
be reduced in order to repay a debt. This has been interpreted as
preventing the Secretary from withholding the full amount of a debtor’s
payment, even if the debtor has consented to that approach. The Federal Court
has also decided that section 1231 does not provide authority for arrears of
social security payments to be withheld in satisfaction of a debt owed by the
person nor for an amount to be deducted from an arrears payment.
The
effect of the amendments made by Item 19 is that the Secretary, in determining
the amount of a deduction that is to be made from a particular payment, may
reduce the payment to nil if:
• the payment is pension bonus or an
arrears payment; or
• the payment is not pension bonus and the person
who would have received the payment has consented to the payment being reduced
to nil.
The second scenario described above is concerned with situations
where deductions are to be made from a person’s instalments of social
security payments and the result would be that one or more instalments would be
reduced to nil. Due to the nature of those payments, it is appropriate that,
before such action is taken, the consent of the person whose payment will be
reduced should be obtained.
New subsection 1231(1AA) states that the
Secretary must not make a determination that would reduce a person’s
payment to nil if that reduction would result in the person being in severe
financial hardship.
Existing subsections 1231(2B), 1232(3) and 1233(7B) deal with the time
limitations relevant to commencing actions for the recovery of debts, where the
debt has arisen under section 1224. As Item 10 repeals section 1224, the
reference in those subsections to that provision is no longer appropriate.
Items 20, 21 and 22 respectively omit the reference to section 1224 and
substitute a reference to debts arising under the Social Security Act as in
force before 20 March 2000 or under the social security law.
Existing section 1234 provides for the Secretary to allow a person to
repay a debt by instalments. The usual practice is for an arrangement to be
entered into whereby the person agrees to make repayments of a certain amount on
a periodic basis. However, where, for example, a person’s capacity to
repay a debt increases due to increased earnings, section 1234 does not
expressly allow the Secretary to terminate an existing arrangement in order to
renegotiate a new arrangement which better reflects the debtor’s changed
circumstances and capacity to repay the debt.
New subsection 1234(1)
provides that the Secretary may enter into an arrangement, with a person who
owes a debt, which sets how the person is to pay the debt. Subsection (2)
provides that the arrangement has effect from the date specified in the
arrangement. That day may be the same day as the arrangement is entered into or
such other day as is specified in the arrangement. Where no date is specified
in the arrangement, subsection (3) provides that the arrangement has effect from
the day on which it is entered into.
Subsection (4) states that the
Secretary may at any time terminate an arrangement entered into under subsection
(1). Subsection (5) provides that, for the purposes of subsection (1), the term
‘debt’ means a debt recoverable under Part 5.2 or a debt under the
1947 Act.
New section 1234AA provides for the recovery of certain amounts directly
from financial institutions.
Centrelink is responsible for the
distribution of a large amount of Commonwealth funds to an extensive customer
base. For example, in the fortnight ending 30 March 2000, $1.639
billion was paid in respect of 13.3 million people. It is inevitable that a
small number of mistakes will occur in making those payments. For example, a
payment intended to be paid into the bank account of Mr John Smythe could be
incorrectly credited to the account of Mr John Smyth. Where errors of this
nature do occur, it is both appropriate and the most efficient approach for the
Commonwealth to be able to require recovery of the incorrect payment directly
from the relevant financial institution. The existing provisions of the social
security law do not effectively provide for recovery directly from financial
institutions in these circumstances.
Payments also can continue to be
made into a person’s bank account after a person has died because
Centrelink has not been made aware that the person has died. Again, it is both
appropriate and the most efficient approach for the Commonwealth to be able to
require recovery of those payments directly from the relevant financial
institution. The existing provisions of the social security law do not
effectively provide for recovery directly from financial institutions in these
circumstances.
The effect of new subsection 1234AA(1) is that, where the
Secretary is satisfied that a social security payment has been made to the
account of a person who was not intended to obtain that benefit, the Secretary
may, by written notice, require the financial institution to pay the amount of
the payment to the Commonwealth within a specified period. The period specified
must be a reasonable period. Significantly, where the amount of the payment
exceeds the amount that remains in the account when the notice is given, the
obligation imposed on the financial institution is to repay only the amount
remaining in the account.
The effect of subsection 1234AA(2) is that,
where a social security payment (or payments) is made to the account of a person
who has died before the payment (or payments) was made, the Secretary may, by
written notice, require the financial institution to pay the amount of the
payment (or payments) to the Commonwealth within a specified period. The period
specified must be a reasonable period. Significantly, where the amount of the
payment (or payments) exceeds the amount that remains in the account when the
notice is given, the obligation imposed on the financial institution is to repay
only the amount remaining in the account.
Subsection 1234AA(3) makes it
an offence for a financial institution to fail to comply with the notice, to the
extent that the institution is capable of complying with it.
Subsection
1234AA(4) provides that it is a defence to a prosecution of a financial
institution for failing to comply with a notice given under subsection (1) or
(2) if the institution proves that it was not capable of complying with the
notice. Significantly, it is the financial institution that bears the
evidential burden of proving the matter mentioned in subsection (4).
The
effect of new subsection 1234AA(5) is to make it clear that, where an amount has
been paid by a financial institution to the Commonwealth pursuant to this
section, that amount is to be deducted from any debt owed to the Commonwealth by
any other person in respect of that social security payment.
Section 1234A currently allows a person, who is not the debtor, to
consent to deductions being made from the person’s social security payment
in satisfaction of the debtor’s liability. For example, a spouse might
agree to deductions being made from his or her own payments in satisfaction of
his or her partner’s debt.
For section 1234A to apply, the debt
must have arisen under certain enactments listed in paragraph 1234A(1)(a). Item
25 adds the A New Tax System (Family Assistance) (Administration) Act
1999 (the Family Assistance (Administration) Act) to that list. The effect
of that addition is that, where a person has a family assistance payment debt,
another person may consent to the recovery of that debt from his or her social
security payment.
Part 5.4 of the Social Security Act deals with the non-recovery of debts.
Section 1236 allows the Secretary to write off debts in certain
circumstances. Paragraph 1236(1A)(d) provides that the Secretary may write
off a debt if the debtor is not receiving a social security payment and
it is not cost effective for the Commonwealth to take action to recover the
debt. The dual requirements in paragraph (d) recognise the fact that,
where a debtor is in receipt of a social security payment, it will be cost
effective for the Commonwealth to take recovery action and, accordingly, the
debt should not be written off. Where a person is receiving a social security
payment and has an outstanding debt owed to the Commonwealth, a computer program
will automatically make deductions from the person’s payments. These
deductions will be automatically applied to reduce the amount of the outstanding
debt. As this procedure is automated, that action will always be a cost
effective means for the Commonwealth to recover debts. The same approach will
be applied in relation to family assistance payment debts.
In these
circumstances, the words “the debtor is not receiving a social security
payment under this Act and” are superfluous and are omitted by Item
26.
Part 5.4 of the Social Security Act deals with the non-recovery of debts.
Section 1236 allows the Secretary to write off debts in certain
circumstances. Paragraph 1236(1A)(a) provides that the Secretary may write
off a debt if the debt is irrecoverable at law. Subsection 1236(1B) sets out
the circumstances in which a debt is taken to be irrecoverable at law and, in
part, paragraph 1236(1B)(a) provides that a debt is irrecoverable at law if the
debt cannot be recovered by means of deductions from a person’s youth
training allowance.
As there is no longer a payment called the youth
training allowance, Item 27 omits the reference to that payment from paragraph
1236(1B)(a).
Item 28
Part 5.4 of the Social Security Act
deals with the non-recovery of debts. Section 1236 allows the Secretary to
write off debts in certain circumstances. Paragraph 1236(1A)(a) provides
that the Secretary may write off a debt if the debt is irrecoverable at law.
Subsection 1236(1B) sets out the circumstances in which a debt is taken to be
irrecoverable at law. One such circumstance is where the 6 year limitation
period for the commencement of recovery action, mentioned in sections 1231,
1232 or 1233, has elapsed.
The new family assistance scheme provides for
the recovery of debts by means of deductions or setting off. Section 86 of the
Family Assistance (Administration) Act provides for a 6 year limitation period
for the commencement of recovery action. The amendments made by Item 28 expand
the operation of subsection 1236(1B) so that one of the circumstances in which a
debt is taken to be irrecoverable at law is where the debt cannot be recovered
by means of deductions or setting off because the relevant 6 year period
mentioned in section 86 of the Family Assistance (Administration) Act has
elapsed.
Item 29
Part 5.4 of the Social Security Act deals
with the non-recovery of debts. Section 1236 allows the Secretary to write
off debts in certain circumstances. Paragraph 1236(1A)(a) provides that
the Secretary may write off a debt if the debt is irrecoverable at law.
Subsection 1236(1B) sets out the circumstances in which a debt is taken to be
irrecoverable at law. Paragraph 1236(1B)(c) states that one such circumstance
is where “the debtor is discharged from bankruptcy and the debt was
incurred before the discharge and was not incurred by fraud”.
The
effect of this provision as currently expressed is that a person who has been
declared bankrupt could incur a debt which, on the person’s discharge from
bankruptcy, would be taken to be irrecoverable at law. In fact, the debt should
only be taken to be irrecoverable in more limited circumstances, namely, where
the debt was incurred before the debtor became bankrupt. The requirement that
the debt not have been incurred by fraud would be retained. Item 29 amends
paragraph 1236(1B)(c) to provide for the intended outcome.
Item
30
Part 5.4 of the Social Security Act deals with the non-recovery of
debts. Section 1236 allows the Secretary to write off debts in certain
circumstances. Paragraph 1236(1A)(b) provides that the Secretary may write
off a debt if the debtor has no capacity to repay the debt. Subsection 1236(1C)
provides that, if a debt is recoverable by means of deductions from a
person’s social security payment, the person is taken to have the capacity
to repay the debt unless recovery by those means would cause the person severe
financial hardship.
The new family assistance scheme provides for the
recovery of debts by means of deductions from, or setting off against, a
person’s family assistance payment. Accordingly, Item 30 expands the
operation of subsection 1236(1C) so that, subject to the requirement that the
debtor not be placed in severe financial hardship as a result, a debtor is taken
to have the capacity to repay a debt if the debt is recoverable by means
of:
• deductions under section 84 of the Family Assistance
(Administration) Act; or
• setting off under section 84A of that
Act.
Item 31
Section 1237AA of the Social Security Act
provides that, where a debtor is convicted of an offence that gave rise to a
part of a debt and the Court, in sentencing the debtor, has indicated that it
imposed a longer custodial sentence because the debtor was unable or unwilling
to pay the debt, the Secretary must waive the right to recover any part
of the debt that arose in connection with the offence.
In the absence of
an express statement that a longer custodial sentence has been imposed due to
the debtor’s inability or unwillingness to pay the debt, the question of
whether a Court has made sufficient ‘indication’ to allow the
application of section 1237AA introduces undesirable and subjective
consideration of the Court’s intention in imposing sentence.
The
amendments made by Item 31 make it clear that section 1237AA can apply only in
circumstances where the Court has made an express statement that a longer
custodial sentence has been imposed due to the debtor’s inability or
unwillingness to pay the debt.
Item 32
Subsection
1237AAB(4) provides that, if the Secretary and a debtor agree that the
debtor’s debt will be fully satisfied if the debtor pays the Commonwealth
an agreed amount which is less than the outstanding amount of the debt (the
unpaid amount), the Secretary must waive the right to recover the difference
between the unpaid amount and the agreed amount. The effect of subsection
1237AAB(5) is that the Secretary cannot enter agreement under subsection (4)
unless the Secretary is satisfied that:
(a) the debtor cannot pay more
than the agreed amount; and
(b) the agreed amount is at least the present
value of the unpaid amount repaid in instalments whose amount and timing is
determined by the Secretary; and
(c) it would take at least a year to recover
the unpaid amount if subsection (4) did not apply.
Subsection (6)
provides a formula for working out the present value of the unpaid amount
referred to in paragraph (b) above.
The conditions specified in
paragraphs (a) and (c) above are unnecessary limitations on the capacity of the
Secretary to adopt effective debt recovery procedures. The amendments made by
Item 32 omit those limitations.
Item 33
In broad
terms, the effect of section 1237B is that the Secretary may determine that
interest that has become payable by a person in respect of a certain period is
not payable. As Item 12 inserts new section 1229AA which provides for similar
determinations in respect of the new interest charge scheme, section 1237B is
superfluous and is repealed by Item 33.
Item 34
Item 34
contains application provisions.
Application provision (1) deals with
Items 1, 7 to 10 and 25. Those items make certain amendments to various
provisions dealing with what constitutes a recoverable debt pursuant to the
social security law and how such debts may be recovered. The effect of
application provision (1) is that the new provisions apply only to social
security payments made on or after 1 January 2001. The existing
provisions apply to payments made prior to that time.
Application
provision (2) is concerned with Items 6, 16 to 23, and 32. Item 6 contains a
Table which sets out the methods of recovery available for various types of
debt. Item 16 is also concerned with the methods of recovery for debts due to
the Commonwealth. Item 17 and 18 extend the application of section 1231 (which
is concerned with recovery of debts by deductions from social security
payments). Item 19 provides that the Secretary may determine that the
amount of a deduction may reduce a payment to nil in certain circumstances.
Items 20 to 22 omit the reference to section 1224 in certain provisions as that
section is repealed. Item 23 provides for the Secretary to terminate an
existing arrangement relating to the payment of a debt so that a new arrangement
can be made which better reflects the debtor’s changed circumstances and
capacity to repay the debt. Item 32 omits certain unnecessary limitations on
the capacity of the Secretary to adopt effective debt recovery procedures. The
amendments made by these items apply to:
(a) debts that are owed at the
commencement of 1 January 2001; and
(b) debts that arise after that
time.
Application provision (3) provides that the amendment made by Item 11 to
section 1224AB applies in respect of convictions occurring on or after
1 January 2001.
Application provision (4) is concerned with the
amendments providing for the interest and administrative charge scheme. The
effect of application provision (4)(a) is that, if, before
1 January 2001, a debtor has been given a notice in relation to a debt
under current subsection 1229(1) of the Social Security Act, the amendments
made by Item 12 do not apply in relation to that debt. Instead the
provisions of the Act as in force before 1 January 2001 would apply.
Where no such notice has been given to the debtor before
1 January 2001, the new provisions contained in Item 12 would
apply.
Application provision 4(b) provides that the amendments made by
Item 12 apply in respect of debts which arise on or after
1 January 2001.
Application provision (5) makes it clear that,
if a person owed a debt to the Commonwealth before 1 January 2001 and
the person had, before that date, been given a notice under section 1229(1) as
it existed before the changes made by this Act, sections 1229 and 1229A as in
force prior to 1 January 2001 continue to apply to the person in
respect of the debt.
Application provision (6) provides that the
amendments made by Items 28 and 30 apply to debts that arise after the
commencement of those items.
Application provision (7) provides that the
amendment made by item 29 applies to a person who is discharged from bankruptcy
on or after 1 January 2001.
Application provision (8) provides
that the amendments made by Item 31 apply where the relevant sentence is imposed
on or after 1 January 2001.
4. Commencement
Subclause 2(1) provides that, subject to subclauses 2 and 3, these
amendments commence on Royal Assent. Subclause 2(2) provides that Items 3 to
27, 29, and 31 to 33 commence, or are taken to have commenced, on
1 January 2001. Subclause (3) provides that Items 28 and 30
commence on the later of 1 July 2000 or the day on which this Act
receives Royal Assent.
1. Summary of proposed changes
The Social Security (Administration) Act 1999 (the Administration
Act) is amended to provide that the Secretary may arrange for the use of
computer programs for any purpose for which the Secretary could make decisions
pursuant to the social security law. In these circumstances, the decision made
by the operation of the computer program is taken to be a decision made by the
Secretary.
Amendments are also made which make it clear that a
determination that a person’s claim for a social security payment is to be
granted or that a social security payment is payable to a person ceases to have
effect once the person dies. Similarly, the amendments provide that a
determination of the rate of a social security payment ceases to have effect
once the person dies.
2. Background
Many of the powers and functions provided for by the social security law
can be effectively exercised by the operation of a computer program. Schedule 2
provides for decisions to be made by computer program where the decision is one
which the Secretary could have made pursuant to the social security
law.
At present, the social security law provides that a determination
that a person’s claim for a social security payment is to be granted or
that a social security payment is payable to a person continues in effect until
a further determination is made under certain provisions or the payment ceases
to be payable according to the operation of certain other provisions. It is
arguable that the effect of these provisions is that, where a person who is in
receipt of a social security payment dies, the determination to grant the
person’s claim or that the social security payment is payable continues in
effect until one of the events discussed above occurs. The amendments made by
Schedule 2 make it clear that a determination that a person’s claim for a
social security payment is to be granted or that a social security payment is
payable to a person ceases to have effect at the end of the day before the day
on which the person dies.
3. Explanation of the changes
New section 6A provides that the Secretary may arrange for the use of
computer programs for any purposes for which the Secretary is able to make
decisions under the social security law. A decision made by the operation of
the computer program is taken to be a decision of the Secretary.
The amendments made by this Item provide that a determination that a
person’s claim for a social security payment is to be granted or that a
social security payment is payable to a person ceases to have effect at the end
of the day before the day on which the person dies.
Item 3
Item 3 is an application provision which states that
the amendments made by Item 2 apply to determinations in force immediately
before the day on which this Act receives the Royal Assent and determinations
made on or after that day.
4. Commencement
The amendments made by this Schedule commence on the day on which this
Act receives the Royal Assent.
1. Summary of proposed changes
The overpayments and debt recovery provisions in the A New Tax System
(Family Assistance) (Administration) Act 1999 (the Family Assistance
(Administration) Act) are amended as follows:
• the existing
interest regime is replaced with a system of interest and administrative charge
in respect of an outstanding debt.
• provisions are inserted to enable
amounts to be recovered directly from financial institutions in prescribed
circumstances.
• further amendments are made to maintain consistency
between the debt recovery regimes in the family assistance and social security
laws.
• some minor technical amendments are also made.
2. Background
Part 4 of the Family Assistance Administration Act deals with
overpayments and debt recovery. The provisions in Part 4 are modelled as
closely as possible on the overpayments and debt recovery provisions in the
Social Security Act 1991 (the Social Security Act). The intention is to
maintain this alignment wherever possible.
The amendments made by
Schedule 1 to this Bill simplify, clarify and strengthen the debt recovery
provisions in the Social Security Act. Some of these amendments respond to
issues that arise in the social security context but not under the family
assistance law. This is primarily due to the different payment and
determinations structure used in the family assistance law. However, other
amendments are made to social security provisions that do have an equivalent in
the family assistance law. In these cases, similar amendments are made to the
relevant provisions in the Family Assistance Administration Act. The most
significant of these relate to interest and recovery from financial
institutions.
3. Explanation of the changes
Item 1 inserts a definition of “financial institution” into
subsection 3(1) of the Family Assistance (Administration) Act. This definition
is relevant for new section 93A.
Item 2
Item 2 makes a
technical amendment to section 71 of the Family Assistance (Administration) Act.
Subsection 71(1) is currently expressed as being subject to
subsection 71(2). This is incorrect and therefore omitted by Item
2.
In addition, the heading to subsection 71(1) is modified so that it
accurately reflects the scope of the provision.
These amendments have the effect of repealing the existing penalty
interest regime in the Family Assistance (Administration) Act and replacing it
with a new regime of interest and an administrative charge in respect of an
outstanding debt.
Item 3 repeals the penalty interest provisions in
sections 77 and 78 of the Family Assistance (Administration) Act. New sections
77, 78, 78A and 78B replace these provisions.
In broad terms, new section
77 provides for the giving of notices to a debtor regarding an outstanding debt.
These notices inform the debtor of the outstanding amount of the debt, the time
in which the debt must be repaid and that interest may be payable on the debt.
New section 78 outlines the circumstances in which a debt may attract interest.
Under new section 78A, the Secretary can determine that interest is not payable
on a debt while new section 78B provides for the payment of an administrative
charge by a debtor when he or she becomes liable to pay interest on a
debt.
These new family assistance provisions will operate in the same way
as the equivalent social security provisions (that is, new sections 1229, 1229A,
1229AA and 1229AB of the Social Security Act, as inserted by Schedule 1 to this
Bill). The effect of these provisions is more fully explained in the context of
the social security amendments.
Item 4 makes a consequential amendment to
subsection 79(2) of the Family Assistance (Administration) Act.
Item 5
inserts new section 79A into the Family Assistance (Administration) Act. This
new provision requires the Minister to make guidelines regarding the operation
of the new penalty interest regime.
This provision is consistent with new
section 1229C of the Social Security Act, as inserted by Schedule 1 to this
Bill.
Item 6 makes a minor consequential amendment to paragraph 82(1)(c) of the
Family Assistance (Administration) Act so that it more accurately describes the
method of recovery available under section 91, that is, “repayment by
instalments under an arrangement entered into under section 91”.
The operation of section 84 of the Family Assistance (Administration) Act
is modified by Item 7 to enable the Secretary to reduce a person’s
instalments of family tax benefit to nil if the person consents to the
reduction.
This amendment is consistent with new subsection 1231(1A) of
the Social Security Act, as inserted by Schedule 1 to this Bill.
Item 8 remakes section 91 of the Family Assistance (Administration)
Act.
New section 91 allows the Secretary to enter into an arrangement
with a debtor regarding the repayment of a debt and provides a set of rules that
apply in relation to the arrangement.
New section 91 will operate in a
similar manner to new section 1234 of the Social Security Act, as inserted by
Schedule 1 to this Bill. The effect of the new provision is more fully
explained in the context of the social security amendment.
Item 9 inserts new section 93A into the Family Assistance
(Administration) Act. In broad terms, this provision allows action to be taken
to recover a debt from a financial institution in prescribed
circumstances.
New section 93A will have a similar effect to new section
1234AA of the Social Security Act, as inserted by Schedule 1 to this Bill. The
effect of the new provision is more fully explained in the context of the social
security amendment.
Section 95 of the Family Assistance (Administration) Act outlines the
situations in which the Secretary may write off a debt.
Paragraph
95(2)(d) is modified by Item 10 to allow the Secretary the option of writing off
a debt if it is not cost effective for the Commonwealth to take action to
recover the debt.
Under subsection 95(2), the Secretary may write off a
debt if, among other things, the debt is irrecoverable at law. The concept of
“irrecoverable at law” is then further defined in subsection 95(3).
Items 11 and 12 make some changes to this concept to ensure that a debt can be
written off by the Secretary where:
• a debtor is discharged from
bankruptcy and the debt was incurred before the debtor became bankrupt
and was not incurred by fraud; or
• the debt cannot be recovered by
means of deductions under section 1231 of the Social Security
Act.
Subsection 95(2) also allows a debt to be written off if the debtor
has no capacity to repay the debt. The concept of a “capacity to repay
the debt” is further defined in subsection 95(4). Item 13 refines this
concept by ensuring that a person is taken to have capacity to repay the debt if
the debt is recoverable by means of deductions under section 1231 of the Social
Security Act unless recovery by that means would cause the person severe
financial hardship.
Section 98 of the Family Assistance (Administration) Act provides for the
waiver of a debt relating to an offence in prescribed circumstances.
Item
14 clarifies existing paragraph 98(1)(b) so that a debt relating to an offence
can only be waived if the court imposed a custodial sentence on the debtor and,
in doing so, the court stated that the sentence was longer than it otherwise
would have been because the debtor was unwilling or unable to repay the
debt.
Section 100 deals with the waiver of debts in cases where a settlement is
reached with the debtor. Under subsection 100(4), if the Commonwealth and
debtor come to an agreement that the debt will be fully satisfied by a
part-payment, then the Secretary must waive the right to recover the difference
between the full amount of the debt and the unpaid amount.
The effect of
subsection 100(5) is that the Secretary cannot enter agreement under subsection
(4) unless the Secretary is satisfied that:
(a) the debtor cannot pay
more than the agreed amount; and
(b) the agreed amount is at least the
present value of the unpaid amount repaid in instalments whose amount and timing
is determined by the Secretary; and
(c) it would take at least a year to
recover the unpaid amount if subsection (4) did not apply.
Subsection (6)
provides a formula for working out the present value of the unpaid amount
referred to in paragraph (b) above.
The conditions specified in
paragraphs (a) and (c) above are unnecessary limitations on the capacity of the
Secretary to adopt effective debt recovery procedures. The amendments made by
Item 15 omit those limitations.
Section 223 of the Family Assistance Administration Act provides for
computer generated decisions in prescribed circumstances (ie, to increase,
decrease or cease payment).
Item 16 repeals existing section 223 and
replaces it with a broader provision that allows the Secretary to arrange for
the use of computer programs for any purpose for which the Secretary may make
decisions (such as entitlement determinations and variations of entitlement
determinations) under the family assistance law. Such a decision would be taken
to be a decision made by the Secretary.
This provision is consistent with
new section 6A of the Social Security (Administration) Act 1999, as
inserted by Schedule 2 to this Bill.
Item 17 is an application provision that specifies how various amendments
to the Family Assistance Administration Act will operate.
These
application provisions are consistent with the application provisions that apply
in relation to the equivalent social security amendments.
4. Commencement
Subclause 2(2) provides that Items 1 to 15 commence, or are taken to have
commenced, on 1 January 2001. Subclause (3) provides that Item
16 commences on the later of 1 July 2000 or the day on which this Act
receives Royal Assent.
1. Summary of proposed changes
Changes to the debt recovery provisions of the Department of Family and
Community Services (FaCS) and the Department of Veterans’ Affairs (DVA)
legislation were agreed to in the 1999-2000 Budget. To maintain parity between
the two portfolios, DVA adopted relevant aspects of the FaCS measure. The
changes are designed to clarify, simplify and strengthen the debt recovery
provisions of both portfolios. The mirrored changes between FaCS and DVA will
maintain consistency in the rules applicable to both veteran and non-veteran
pensioners.
2. Background
An overpayment occurs when an amount of pension is paid that is greater
than the legal entitlement. This can be the result of pension not being
appropriately reduced or cancelled following changes in circumstances, pension
being granted at a higher rate than it should have been, or pension being
granted when there is no legal entitlement, including as a result of false
representations. These overpayments are generally referred to as a
“recoverable amount” which is defined in subsection 205(8) of the
Veterans’ Entitlements Act 1986 (the Veterans' Entitlements
Act).
Currently, under the Veterans' Entitlements Act, an administrative
charge, which is a flat fee of $15, plus 10% of the balance of the recoverable
amount (up to a maximum of $515), is applied to recoverable amounts incurred
under paragraph 205(1)(a) of the Veterans' Entitlements Act, that are not paid
within three months. (Paragraph 205(1)(a) provides for debts incurred as a
result of a false statement or representation, or of a failure or omission to
comply with a provision of the Veterans' Entitlements Act or the Veterans’
Entitlements Regulations.) This includes a recoverable amount that is being
repaid, often through deductions from a person’s payment under the
Veterans' Entitlements Act. If any amount of the recoverable amount is still
outstanding after three months, the administrative charge is applied plus 10% of
the outstanding amount. This penalises those least well off who are not in a
financial position to repay a debt quickly, including those already repaying the
recoverable amount.
The amendments proposed in this Bill will replace
these existing penalty provisions. The new penalty interest provisions will
apply only to persons who incur a debt and are not in receipt of a payment under
either the Veterans' Entitlements Act or social security law and who have not
entered into arrangements, or have breached the arrangements, with the
Department of Veterans’ Affairs to repay the debt. The amendments will
remove the anomaly which penalised those making a genuine effort to repay their
debt.
To maintain consistency with social security law, the
administrative charge will be increased to $100 and a new penalty interest rate
will be introduced, which will be set at the rate that is applicable from time
to time under section 1229B of SSA. The new administrative charge is more
commensurate with the real cost of recovery action.
Overpayments can also
occur when a pension continues to be paid after the person has died and the
Department has not been notified of the death. These payments often remain
frozen in accounts or are released in error by executors and it often takes
considerable time to recover these payments. In a similar vein, payments may
occasionally be credited to an incorrect bank account. The proposed changes will
introduce provisions to facilitate the quick recovery of monies in both these
situations.
3. Explanation of the changes – Schedule 4
Item 1 inserts, in alphabetical order, into the Index of
Definitions in section 5, the term recoverable
amount.
Item 2 provides a new definition for
financial institution in subsection 5Q(1). This new definition is
consequential to amendments to the Banking Act 1959 which was amended to
extend its coverage to a wider range of financial institutions known as
authorised deposit-taking institutions (ADI’s).
Item 3
inserts, in alphabetical order, the term recoverable amount
into subsection 5Q(1)—General Definitions. Recoverable
amount is defined in subsection 205(8).
Item 4 amends
subsection 205(1A). Subsection 205(1A) provides for the methods of recovery for
recoverable amounts. These amendments ensure that all available methods of
recovery are provided for in subsection 205(1A) and that any one method or a
combination of the methods may be used. The different methods of recovery that
may be employed are:
• deductions from a person’s pension,
allowance or other pecuniary benefit under the Veterans' Entitlements Act;
and/or
• deductions, with consent, from another person’s pension,
allowance or other pecuniary benefit under the Veterans' Entitlements Act;
and/or
• recovery from any amount that, because of the person’s
death, is to be dealt with in accordance with section 123A to 123E;
and/or
• proceedings in a court of competent jurisdiction;
and/or
• repayment by instalments; and/or
• recovery from a
third party under section 205A.
Item 5 inserts a new subsection
after 205(1C). New subsection 205(1D) is a technical amendment to
include as a method of recovery under section 205, the repayment of a
recoverable amount by instalments as determined by the Commission under
paragraph 206(1)(c).
Item 6 repeals subsections 205(5) and 205(6).
These subsections provided for the existing penalty provisions that applied to
debts due to the Commonwealth, incurred under paragraph 205(1)(a). These
penalty provisions applied an administrative charge of $15 plus 10% of the
outstanding amount (to a maximum of $515). As these penalties will no longer
apply the provisions are no longer required.
Item 7 inserts four
new sections after section 205.
New subsection 205AAA provides for
the sending of a notice to persons who owe a debt to the Commonwealth. The
section applies where the person owes a recoverable amount that has not been
fully repaid and where the amount has not been waived or deferred under
paragraph 206(1)(b).
New subsection 205AAA(1) provides that, the
Commission must give the person a notice, informing them:
• of the
date the notice was issued;
• the amount to be repaid;
and
• the date that amount is due.
New subsection
205AAA(2) provides that the outstanding amount is due and payable on the
21st day after the date of the notice sent to them under new
subsection 205AAA(1).
New subsection 205AAA(3) provides
for the sending of a further notice. If the recoverable amount has not been
fully repaid and the person has not entered into an arrangement with the
Commission to pay the outstanding amount, or the person has entered into an
arrangement and breaches that arrangement, then the Commission may give the
person a further notice informing them:
• of the date of the
further notice;
• of the outstanding amount at the date of the further
notice;
• that an additional amount of penalty interest may be
incurred (under section 205AAB);
• that an administrative charge
may be incurred (under section 205AAD); and
• how the penalty interest
amount will be calculated.
New subsection 205AAA(4) will enable
the Commission to inform a person of the effects of sections 205AAB and 205AAD
and how the interest is to be calculated under section 205AAB in a notice given
under subsection 205AAA(1). This means that a notice and a further notice may
be combined. Such a notice is taken to be both a notice under subsection
205AAA(1) and a further notice under subsection 205AAA(3).
New
section 205AAB inserts new provisions that will enable the Department to
charge interest on the outstanding amount of a recoverable amount.
New subsection 205AAB(1) specifies the persons who may be
affected by the charging of interest on the outstanding amount of a recoverable
amount. Persons who may be charged interest on the outstanding amount of a
recoverable amount are those who:
• receive a further notice under
new subsection 205AAA(3); and
• are not in receipt of a payment
(pension, allowance or pecuniary benefit) under either the Veterans'
Entitlements Act or the social security law.
New subsection
205AAB(2) provides for when interest may be charged on the outstanding
amount of a recoverable amount where the person has not entered into an
arrangement with the Commission to repay the outstanding amount. Interest may
be charged if the person has not paid the outstanding amount by the final
payment day. Interest is charged from the day after the final payment day at
the penalty interest rate.
New subsection 205AAB(3) provides for
the when interest may be charged on the outstanding amount of a recoverable
amount where a determination (arrangement) has been made under paragraph
206(1)(c) for a person to repay the outstanding amount by instalments and the
person fails to pay an instalment.
A written determination by Commission
under paragraph 206(1)(c), in relation to the repayment arrangements, is made
only after consultation with the person and with the person’s agreement to
the terms of the repayment schedule.
Where a determination has been made
under paragraph 206(1)(c), and the person fails to pay an instalment, interest
charged at the penalty interest rate will be payable:
• if the
failure occurs on or before the final payment day – from and including the
first day after the final payment day until the recoverable amount is fully
paid; or
• if the failure occurs after the final payment day –
from and including the day after the day the last payment was made until the
recoverable amount is fully paid.
New subsection 205AAB(4) defines
a final payment day for the purposes of subsection
205AAB(2) and (3). The final payment day is the later of the following
days:
• the 90th day after the day on which the
outstanding amount of the recoverable amount was due and payable. (The amount
is due and payable 21 days after the date of the notice issued under new
subsection 205AAA(1)); or
• the 21st day after the date of
the further notice issued under new subsection 205AAA(3).
New
subsection 205AAB(5) makes it clear that the interest payable on the
outstanding amount of a recoverable amount is a debt due to the Commonwealth and
may be recovered as if it were a recoverable amount. That is, in accordance
with section 205.
New subsection 205AAB(6) provides for the
attribution of the repayments where interest is payable on the outstanding
amount of a recoverable amount. Any repayments are first attributed to pay off
the outstanding amount of the recoverable amount. Once the outstanding amount
of the recoverable amount has been fully repaid, then the repayments are
attributed to the repayment of the interest that has become payable on the
outstanding amount of the recoverable amount.
New section 205AAC
provides for a Commission discretion to determine that interest, that would
otherwise be payable under new section 205AAB, is not payable.
New subsection 205AAC(2) provides that the determination may apply
to a period before, or include a period before, the making of the
determination.
New subsection 205AAC(3) provides that the
determination may specify one or more conditions with which the person must
comply in order for the interest to be not payable.
New subsection
205AAC(4) requires that, where the person has been notified that they will
be required to pay interest, the Commission must give the person written notice
of the determination as soon as practicable after it is made.
New
subsection 205AAC(5) provides that the determination is still valid even if
the person was not given written notice of the determination as soon as
practicable after it was made.
New subsection 205AAC(6) puts it
beyond doubt that if a person does not comply with a condition or conditions
specified in the determination, then the determination ceases to have effect and
interest on the outstanding amount of the recoverable amount will be payable.
The interest will be payable from and including the day of the contravention or
from and including the day of the earliest contravention, if there was more than
one contravention.
New subsection 205AAC(7) provides that the
Commission may cancel or vary the determination by written notice to the
person.
New section 205AAD institutes the new administrative
charge.
New subsection 205AAD(1) provides that the administrative
charge is payable when a person first becomes liable to pay interest under
section 205AAB. The administrative charge is payable once only per recoverable
amount, when the person first becomes liable to pay interest. Should a person
be charged interest, more than once on the same recoverable amount, the
administrative charge is not re-applied.
New subsection 205AAD(1)
also provides that the administrative charge payable by the person is
$100.
New subsection 205AAD(2) makes it clear that any
administrative charge incurred is a debt due to the Commonwealth and may be
recovered as if it were a recoverable amount. That is, in accordance with
section 205.
New section 205AAE provides for the rate at which the
interest will be charged, or the “penalty interest rate”. The
penalty interest rate is the rate that is in force from time to time under
section 1229B of the SSA.
Item 8 inserts a new section
205AB after section 205AA. New section 205AB provides for the
recovery of payments from financial institutions where the pensioner has died or
where the payment has been credited to a wrong account.
New subsection
205AB(1) provides for the recovery of an overpayment directly from a
person’s account held at a financial institution, where the payment or
payments was credited to a wrong account. Being able to recover the monies
directly from the bank account through the financial institution is a more
effective remedy than attempting to recover the monies from the person into
whose account the money was incorrectly credited.
If the Commission
determines that the person who was intended to benefit from the payment, is not
able to benefit from that payment or payments because they are not the person or
one of the persons in whose name the account was kept, then the Commission may
send a notice to the financial institution where the account is kept. The
financial institution is required to comply with the notice. The notice will
explain the situation, ie. the payment or payments went to the wrong account,
and requires the financial institution to pay to the Commonwealth, within a
reasonable period, the lesser of the following amounts:
• the
amount specified in the notice, being the amount or combined amounts of the
payment; or
• the amount in credit in the account when the notice is
given to the institution.
New subsection 205AB(2) provides for the
recovery of an overpayment directly from the financial institution, where the
overpayment has occurred because the person has died. In many cases, the
Department is not notified of the death for some time, payments are continued
and thus overpayments are created.
Currently, the Department is required
to take recovery action through the person’s executors, which can be a
time consuming process. The monies are often frozen in the deceased
person’s bank account or incorrectly released by the
executor.
Where a payment has been made to an account and the person has
died prior to the payment or payments being made, then new subsection
205AB(2) enables the Commission to send a notice to the financial
institution where the account is kept. The notice will explain the situation,
ie. the person died prior to the payment or payments being credited to the
account, and the financial institution is required to pay to the Commonwealth,
within a reasonable period, the lesser of the following
amounts:
• the amount specified in the notice, being the amount or
combined amounts of the payment; or
• the amount in credit in the
account when the notice is given to the institution.
New subsections
205AB(3) and (4) makes it clear that the financial institution must
comply with a notice given under subsection (1) or (2) to the extent that it is
capable of complying. It should be noted however, that new subsection 205AB(4)
requires the financial institution to prove that it was incapable of complying
with the notice.
New subsection 205AB(5) provides that any amount
repaid by the financial institution reduces the amount of the debt by that
amount.
Item 9 makes application and transitional provisions for
this Schedule.
Subitem 1 provides that the amendments made by
items 6 and 7 apply to a person in respect of an amount that becomes a
recoverable amount on or after 1 January 2001.
Subitem 2 provides
that the following subitems of Item 9 provide for the application and
transitional arrangements to apply to a person in respect of an amount that was
a recoverable amount immediately before
1 January 2001.
Subitem 3 provides that where a person
was at 1 January 2001 receiving a pension, allowance or other
pecuniary benefit under the Veterans' Entitlements Act or social security
law:
(a) if the person had not become liable to pay the additional amount
under subsection 205(5), then neither repealed subsections 205(5) and (6) nor
the new provisions inserted by item 7, apply to the person in respect of that
debt. The person will not be subject to the new penalty regime in respect of
their current debt; or
(b) if the person had become liable to pay the
additional amount under repealed subsection 205(5), then the repealed
subsections 205(5) and (6) continue to apply. That is the additional amount
remains as part of their recoverable amount, but the new provisions inserted by
item 7 do not apply to the person in respect of that debt. The person will not
be subject to the new penalty regime in respect of their current
debt.
Subitem 4 provides that if the person was not, at
1 January 2001 receiving a pension, allowance or pecuniary benefit
under the Veterans' Entitlements Act or the social security law, and the person
is repaying the debt, then:
(a) if the person had become liable to pay
the additional amount under repealed subsection 205(5), then the repealed
subsections 205(5) and (6) continue to apply. That is the additional amount
remains as part of their recoverable amount. Also, should the person fail to
make a repayment or instalment in accordance with an arrangement entered into
with the Commission, then the Commission may give the person a further notice in
accordance with new subsection 205AAA(3) and new sections 205AAB, 205AAC and
205AAE will apply to the person. The person will not be subject to the new $100
administrative charge as they will have already paid an administrative charge as
part of the additional amount under repealed subsection 205(5); or
(b) if the
person had not become liable to pay the additional amount under subsection
205(5) and the person fails to make a repayment or instalment in accordance with
an arrangement entered into with the Commission, then the Commission may give
the person a further notice in accordance with new subsection 205AAA(3) and new
sections 205AAB to 205AAE will apply to the person.
Subitem 5
provides that if the person was not, at 1 January 2001 receiving a
pension, allowance or pecuniary benefit under the Veterans' Entitlements Act or
the social security law, and the person is not repaying the debt,
then:
(a) if the person had become liable to pay the additional amount
under repealed subsection 205(5), then the repealed subsections 205(5) and (6)
continue to apply, that is the additional amount will remain as part of their
recoverable amount and current proceedings will continue; or
(b) if the
person had not become liable to pay the additional amount under repealed
subsection 205(5) then the Commission may give the person a further notice in
accordance with new subsection 205AAA(3) and new sections 205AAB to 205AAE will
apply to the person.
4. Commencement
Subclause 2(2) provides that Items 1 to 8 of this Schedule commence or
are taken to have commenced on 1 January 2001.
1. Summary of proposed changes
The changes provide for the recovery of debts from amounts of
compensation payable under the Safety, Rehabilitation and Compensation Act
1988 (the Safety, Rehabilitation and Compensation Act).
2. Background
Subsection 112(3) states that, except as provided under certain
enactments mentioned in subsection (3), amounts of compensation payable under
the Safety, Rehabilitation and Compensation Act are not subject to attachment.
The Social Security Act 1991 (the Social Security Act) is not included in
the list of enactments in subsection (3). It is currently unclear whether the
recovery provisions of the Social Security Act take precedence over the
provisions of the Safety, Rehabilitation and Compensation Act so as to allow
recovery of a debt from an amount of compensation payable under the Safety,
Rehabilitation and Compensation Act.
3. Explanation of the changes
Item 1 amends subsection 112(3) of the Safety, Rehabilitation and
Compensation Act to include a reference to the Social Security Act. The effect
of that change is to make it clear that amounts of compensation payable under
the Safety, Rehabilitation and Compensation Act are subject to attachment
according to the provisions of the Social Security Act.
4. Commencement
The amendments made by this Schedule commence on the day on which this
Act receives the Royal Assent.