COMPTON v FC of T
Members:G Ettinger SM
Tribunal:
Administrative Appeals Tribunal
MEDIA NEUTRAL CITATION:
[1999] AATA 351
G Ettinger (Senior Member)
The decision under review before the Administrative Appeals Tribunal (``the Tribunal'') was the decision of the Deputy Commissioner of Taxation, the respondent in these proceedings, dated 30 September 1998 (T14), which denied Mr Geoffrey Compton, the applicant's application to defer the Higher Education Contribution Scheme (``HECS'') repayment component of his income tax assessment for the year ending 30 June 1998, pursuant to section 106W of the Higher Education Funding Act 1988 (``the Act''). The application for review by the Tribunal was made pursuant to section 106X(1)(a) of the Act.
2. The applicant, Mr Geoffrey Compton, who is a practising solicitor, was self-represented, and the respondent, the Commissioner of Taxation was represented by Mr John Davis.
3. The Tribunal had before it documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (``the T-documents''), as Exhibit R1 and the following other exhibits:
+--------------------------------------------------------------+
| ITEM | DATE | NAME |
|--------------------------------------------------------------|
| Letter from Dr V Roller | 27 April 1999 | Exhibit A1 |
|--------------------------------------------------------------|
| Statement of Facts and | | |
| Contentions of the applicant | 15 March 1999 | Exhibit A2 |
|--------------------------------------------------------------|
| Explanatory Memorandum | | |
| Higher Education | | |
| Funding Act | | |
| Amendment Bill 1993 | 1993 | Exhibit R2 |
|--------------------------------------------------------------|
| Higher Education | | |
| Funding Act Amendment | | |
| No. 116, 1993: Second | | |
| Reading Speech | 1993 | Exhibit R3 |
|--------------------------------------------------------------|
| Tax Pack 1997; | | |
| Pages 1-9 | 1997 | Exhibit R4 |
|--------------------------------------------------------------|
| Tax Pack 1998; | | |
| Page 106 | 1998 | Exhibit R5 |
|--------------------------------------------------------------|
| HECS leaflet | | |
| Page 1 | Undated | Exhibit R6 |
|--------------------------------------------------------------|
| ``Fax from Tax'' | July 1998 | Exhibit R7 |
|--------------------------------------------------------------|
| Income Tax Ruling | | |
| Number 2569 | Undated | Exhibit R8 |
|--------------------------------------------------------------|
| Income Tax Ruling | | |
| Number 2570 | Undated | Exhibit R9 |
|--------------------------------------------------------------|
| ATO Internal Document | | |
| HECS Manual, Chapter 8 | February 1999 | Exhibit R10 |
+-------------------------------------------------------------+
Issue before the Tribunal
4. The issue before the Tribunal was whether it should exercise a discretion pursuant to section 106W of the Higher Education Funding Act 1988:
- (a) to defer payment of the applicant's HECS for the year ending 30 June 1998 because payment of the assessed amount would cause serious hardship to Mr Compton [section 106W(1)(a)]; or in the alternative
- (b) whether the Tribunal should find there were special reasons in this case to make it fair and reasonable to defer the making of the assessment [106W(1)(b)].
Legislation
5. The relevant legislation in this matter was section 106W of the Higher Education Funding Act 1988. As relevant, section 106W follows:
``106W Power of Commissioner to defer assessment or reduce assessment to nil
(1) The Commissioner may, on written application by a person, defer the making of an assessment in relation to the person under
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section 106T if the Commissioner is of the opinion that:
- (a) if the assessment were made, payment of the assessed amount would cause serious hardship to the person; or
- (b) there are other special reasons that make it fair and reasonable to defer the making of the assessment.
(2) The Commissioner may defer the assessment for any period that he or she thinks appropriate.''
Evidence before the Tribunal
6. Mr Compton, whose date of birth is 26 July 1956, gave oral evidence before the Tribunal and relied on his and his family's financial circumstances (Exhibit A2), and a letter to the Tribunal dated 28 February 1999, to argue that he would suffer serious hardship if payment of his HECS as assessed for the year ending 30 June 1998 was not deferred. He argued that in the alternative, because of his financial circumstances and the impact on his family, there were special reasons that made it fair and reasonable to defer the making of the assessment.
7. Mr Compton is married; his wife is a mothercraft nurse who currently does not work outside the home. They have two children, one aged three and the other seventeen months.
8. I am mindful that a HECS semester debt is incurred where the Commonwealth has made a loan to a person and applied that loan in making a payment to an institution to discharge a person's semester liability.
9. Section 106J defines the HEC semester debt:
``106J HEC semester debt
(1) When the Commonwealth under section 57:
- (a) makes a loan to a person; and
- (b) uses the amount lent to make a payment in discharge of the person's liability to pay a contribution in respect of a course of study in respect of a semester;
the person incurs an HEC semester debt to the Commonwealth equal to the amount of the loan.
(2) The HEC semester debt is taken to have been incurred immediately after the census date in respect of the course of study in respect of the semester, whether or not the Commonwealth has made a payment to the institution in respect of the contribution.''
10. The debt is deemed to be established immediately after the census date referred to in section 34 of the Act. Relevant definitions of the Act follow:
``34 Interpretation
(1) In this Chapter, unless the contrary intention appears:
...
`census date' , in relation to a course of study undertaken by a student at an institution in a semester, means:
- (a) in the case of a course undertaken in a period that is taken to be a semester by virtue of subsection 37(2) or (3):
- (i) if the course is of not less than 6 weeks duration - the date that is 14 days after the date on which the student starts to undertake the course of study; or
- (ii) if the course is of less than 6 weeks duration - the date on which the student starts to undertake the course of study; or
- (b) in any other case - such date as is specified for the purposes of this definition by the Minister, by notice published in the Gazette, in relation to courses of study undertaken in that semester;
...
`HEC assessment debt' means an amount that is required to be paid in respect of an accumulated HEC debt under section 106Q and is included in a notice of an assessment made under section 106T;
`HEC semester debt' has the meaning given by section 106J.''
11. A document headed ``Higher Education Contribution Scheme Information Statement'' (T15), dated 14 December 1998, which listed the semester debts incurred by Mr Compton from 31 March 1989 to 4 December 1998 was before the Tribunal. I noted that Mr Compton had over a period of time, enrolled amongst others, for courses at Monash and La Trobe University, Queensland Institute of Technology, University of Southern Queensland, and the University of Technology in Sydney. A variety
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of courses were involved including a Graduate Diploma in Arts and Archaeology, Bachelor of Applied Science, a Graduate Diploma in Business Law and Master of Laws. His evidence relating to most instances was that he had withdrawn from the courses after the census date, thus incurring HECS debt.12. The statement of the Deputy Commissioner of Taxation made pursuant to section 37(1)(a) of the Administrative Appeals Tribunal Act 1975 (``AAT Act'') recorded that at 30 June 1997, Mr Compton had a HECS liability of $16,511. Mr Compton did not dispute this.
13. The records showed that Mr Compton made the 2% HECS voluntary threshold election and received a discount of $1,266.30 (T5). It was undisputed that he then applied for, and was granted a deferment of his HECS repayment for the year ending 30 June 1997 (T5 and T6). He was assessed for $470.68 for the year ended 30 June 1997, which left him with a HECS balance of $14,774.02. Mr Compton received a refund of $2,250.70.
14. Following that, on 13 September 1998, he applied for deferral of his HECS repayment for the year ending 30 June 1998, (T12), based on many of the same financial circumstances raised inrgument to defer HECS in 1997. His application for deferral was rejected (T13). The letter of the Commissioner of Taxation to Mr Compton, dated 30 September 1998, at T14 stated:
``Your application has been considered and denied for the following reasons.
Tax instalments deducted from your pay cover the HECS repayment raised in your income tax assessment notice and, as there is no outstanding amount you cannot claim that payment would cause you serious hardship.
It is our view that the financial constraints being experienced by you will not place you in a position of serious hardship as addressed in the following paragraph.
The office considers the term `serious hardship' to connote an unduly oppressive effect that would lead to persons being deprived of basic necessities according to normal community standards. Therefore, serious hardship would be seen to exist where payment of a tax liability would result in the taxpayer being left without the means to achieve reasonable acquisition of food, clothing, medical supplies, accommodation, education for children and other basic requirements .
It is our view that in your case, there are no special reasons which would make deferral fair and reasonable.''
15. The reasons given by the respondent in the document provided to the Tribunal pursuant to section 37(1)(a) of the AAT Act stated as follows:
``Tax instalments deducted from the taxpayer's fortnightly income were sufficient to cover both the tax payable on the taxable income and the HECS repayment component. Since a net refund was issuing after the HECS repayment it was not considered that serious hardship would be caused to the taxpayer in all of the above circumstances.''
16. The respondent's documents indicated that Mr Compton's HECS debt at 1 June 1998 which had been indexed, was $19,427.00.
17. I noted that Mr Compton currently works for Koffel Solicitors & Barristers (T12). He told me that his annual salary for the 1998 year was approximately $39,000. His current weekly income and weekly expenses (letter of Mr Compton to the Tribunal of 28 February 1999 and oral evidence), were given as follows:
- Income - net weekly
- Mr Compton's salary$584
- Mrs Compton's parenting and family payments$56
- Total net weekly income$640
- Expenses - weekly
- Rent$285
- Transport$16 (varies)
- Pre-school fees$30
- National Australia Bank loan repayment$60
- Credit card repayments$30-$50
- Food, utilities and household$180
- Total:$621
- Balance remaining: $19
18. Mr Compton said that expenses varied slightly between the 1997 and 1998 year, noting in particular that he had renegotiated the family rental to $285 per week from the $300 previously paid.
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19. Mr Compton told the Tribunal that these listed expenses did not take into account any additional costs such as dental and medical expenses and clothing. He said that he had approximately $1,500 in a bank account which he had set aside for dental work for his wife. He said he and his wife had consolidated their debts, and taken out a National Australia Bank loan of $10,685.43. Of this amount, $10,100 was outstanding. He said they also held a number of credit cards with outstanding debts. He gave figures for these:
- Westpac credit card:$52.19
- David Jones card:nil
- Grace Bros card:$404.51 (repayment of $26 monthly)
- Grace Bros Mastercard:$1,700
20. Mr Compton told me that he had incurred some unexpected expenses in July and August 1997 when he flew from Toowoomba to Sydney for a job interview. He said that he stayed in a hotel while in Sydney. On being informed that he had been successful in obtaining the position, Mr Compton travelled to Sydney again, and stayed a week in a youth hostel while he looked for accommodation for his family. Then, he said, there were the additional costs of moving the household from Toowoomba to Sydney, a bond for the newly rented premises, the cost of connection of utilities, and associated costs. Mr Compton estimated that the total costs associated with moving to Sydney were $4,500. A part of these costs was financed by a loan of $1,300 from his new employer, $300 of which remained outstanding he said.
21. Mr Compton told me that his expenses sometimes exceeded his net income, and as a result he occasionally had to use a credit card to make purchases. He said that his wife purchased nursery equipment and shoes for their three year old son using the Grace Brothers credit card. Mr Compton also told me that he had sold his car for $250 in September 1998, due to inability to pay registration and insurance charges. Mr Compton also said that the family's finances were so limited they could not afford a bed for their three year old, who sleeps on a mattress on the floor. Mr Compton said however, that he and his wife set aside money to send their son to St Peter's Pre- School two days a week at a cost of $30 per week. They considered this to be a necessity rather than a luxury as it impacted on their son's intellectual development.
22. In relation to his studies, Mr Compton told me that he was currently enrolled in a Master of Laws, which he commenced in 1998, and a Graduate Diploma in Business Law (by correspondence at the University of Southern Queensland), which he commenced in 1999.
23. Mr Compton told me he had enrolled in a Graduate Diploma in Arts at La Trobe University in 1994. He had withdrawn from the course after the HECS census date, thereby incurring a HECS debt. He had enrolled in a Graduate Diploma in Arts and Archaeology at Melbourne University in 1997, and had also withdrawn from the course after the HECS census date, thereby incurring a HECS debt. Mr Compton said that he had enrolled in a Bachelor of Applied Science degree course at Monash University in 1994. He had discontinued the course after the HECS census date, thereby incurring a HECS debt (T15).
Submissions and conclusions
24. I must take into account the evidence both written and oral and the relevant legislation to determine whether Mr Compton's HECS debt for the year ending 30 June 1998 should be deferred pursuant to section 106W of the Higher Education Funding Act 1988.
25. As noted above, there is a discretion pursuant to section 106W(1)(a) of the Act to defer such debt if I find that payment of the assessed amount would cause serious hardship to the applicant, or in the alternative, if I am satisfied that special reasons in Mr Compton's case would make it fair and reasonable to defer the making of the assessment [section 106W(1)(b)], I may so find.
26. I am mindful that Mr Compton works as a solicitor, is married with a three-year-old and a seventeen-month-old child, and that he relocated to Sydney with regard to employment. His income and expenditure are detailed above, and certainly do not indicate that things are easy for him and his family, financially. Mr Compton submitted that he could not easily move to cheaper accommodation as that alone could cost up to $1,000, and would disrupt the children and his son's attendance at pre-school, as well as result in increased transport costs for attendance.
27. Mr Compton referred me to the case of
Powell v Evreniades & Ors (1989) 21 FCR 252
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which dealt with issues of serious hardship in the payment of tax related to the beneficiary of a deceased estate, and the discretion of the Tax Relief Board pursuant to section 265(1)(b) of the Income Tax Assessment Act 1936 (Cth) to waive such tax in part or in full. Hill J said at 260 that: ``There is some merit in this submission''... referring to the submission made that if the whole of the tax owing were to be paid in the case of Mrs Powell, then she would be destitute, and such destitution clearly constituted ``serious hardship''. In considering Mr Compton's circumstances, I did not come to the conclusion at all that there was any question of destitution.28. Mr Compton said that he had looked at every possible way of reducing his debts, and to ``enjoy a comfortable life-style''. He indicated that he did not want to avoid his HECS liability and did ``everything possible to live within [ my] means and obligations''. This application was for short term assistance he said.
29. Mr Compton also submitted that if the HECS debt were not deferred, his family would be exposed to hardship which made it only fair and reasonable to defer the payment. I noted that at T11, Mr Compton's salary was recorded as $39,774, and that in his notice of assessment for 1997/8, his HECS debt to 1 June 1998 was $19,427. The HECS repayment was $2,276.88 and there was a refund of $2,374.88 made. Mr Davis made the point that there was a surplus, albeit small, after payment of all expenses and that the discretion to defer Mr Compton's HECS debt was not indicated as its payment would not cause him serious hardship and there were no special reasons that made it fair and reasonable to defer the HECS assessment.
30. Mr Davis submitted that in looking at ``hardship'' or ``special circumstances'' pursuant to the legislation and the exercise of the discretion in section 106W of the Act, Mr Compton's view regarding a ``comfortable'' life was not pitched correctly. He submitted that attending pre-school was discretionary, and indicated that cheaper shopping venues than those indicated by the applicant may be available. He submitted that a bed base which the applicant had said he needed for his son, might cost no more than $100.
31. Mr Davis submitted that Mr Compton should have been fully aware of his responsibilities in relation to the HECS liabilities. I agree with that submission. Mr Compton has no problems with English, he has a tertiary education, and various documents including the ``Tax Pack'' (part Exhibit R4) and ``Fax from Tax'' (Exhibit R7), with full explanations and threshold levels were available to him. I have no evidence which would satisfy me that Mr Compton was given incorrect advice.
32. Mr Davis told me that the threshold for HECS for 1998 was an income of $20,701, and that Mr Compton's salary was well above that, and well above that of an average income earner. That cannot be disputed, and I am satisfied also that Mr Compton, by his own evidence, living frugally, can meet all his expenses. His figures produced to the Tribunal actually showed that he had a small surplus of approximately $19 after all his commitments.
33. I noted from the evidence that Mr Compton has no assets such as real estate, or liabilities other than those mentioned above. I noted that he relocated to Sydney to find full- time paid work in which he is now engaged, and that he was assisted to relocate with a loan from his employer. I further noted from the evidence before me that neither he nor his family have been subject to any loss through natural disaster.
34. I appreciate that Mr Compton wants to improve his knowledge and his opportunities for employment, and has hence commenced study in various courses. However, I do find that enrolling in such a number of courses and discontinuing after the census date so as to incur HECS liability is irresponsible in a case where finances are not abundant. I am also curious how Mr Compton could have considered that he would be able to take on, in addition to a job and family, study for a Graduate Diploma in Business Law and a Master of Laws simultaneously in 1998.
35. Mr Davis drew my attention to amendments of Income Tax Assessment Act 1936 as they applied to the Higher Education Funding Act 1988, and payment of HECS debt. Mr Davis indicated section 221ZY(1) and (2) pursuant to which the Commissioner of Taxation is required (a mandatory provision), to apply payment by the applicant in payment of his HECS debt. As relevant it follows:
36. Section 221ZY deals with ``Application of deductions in payment of HEC contribution assessment debts.''
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``221ZY(1) In this section:
`HEC assessment debt' has the same meaning as in Chapter 4 of the Higher Education Funding Act 1988;
...
221Z(2) Where:
- (a) the Commissioner would, but for this section, be required by a relevant provision to credit, apply, pay or refund an amount or sum for the benefit of a person in a manner specified in that provision; and
- (b) the person has an HEC assessment debt;
the Commissioner shall, despite that provision, first apply that amount or sum in payment or part payment of that debt and, if that amount or sum exceeds the debt, then credit, apply, pay or refund the excess in accordance with that provision.''
37. Mr Davis drew my attention to the Second Reading Speech of the Higher Education Funding Legislation Amendment Bill 1993 on 28 September 1993, in particular statements as follows:
``These amendments acknowledge that in a climate of budgetary restraint the opportunities of newcomers to the system, including recent school leavers, have to be protected and that our students need to think very carefully about their study options''... and ``All the HECS measures introduced in this bill will reduce Commonwealth government outlays to higher education and hence the public sector financial burden. HECS is not a tax. It is a deferred repayment loans system.''
38. And on 26 October 1993:
``Concurrently with this change income thresholds for repayment of the HECS debt will be re-aligned with actual average weekly earnings. In addition, from July 1994 HECS repayments will be made on a PAYE and provisional tax basis.''
39. Mr Compton's employer was thus liable to deduct instalments of his HECS liabilities along with his income tax.
40. I considered the evidence regarding Mrs Compton's dental work (unsigned letter of Dr V Roller 27 April - no year given, Exhibit A1) and what Mr Compton had said in evidence about the dental work for his wife. There is no indication that this is urgent or that a life threatening situation has arisen, and no evidence was given on time frames or whether any negotiations have been entered into regarding payment by instalment for such work.
41. I have considered what constitutes special circumstances in other areas of the law such as in relation to waiver of an overpayment of social security. In doing so, I noted that in
Beadle v Director-General of Social Security (1985) 7 ALD 670 at 674, the Full Court of the Federal Court, in examining ``special circumstances'' within the terms of section 102(1) of the Social Security Act 1947 (then current) said:
``It would depend upon the circumstances of the particular case whether these constituted special circumstances. We do not think it is possible to lay down precise limits or precise rules. The matter is one for the Director-General bearing in mind the purpose for which the power is given.''
42. I am mindful that the (Social Security) Act has been amended many times since the decisions in Beadle and
Re Ivovic and Director- General of Social Services (1981) 3 ALN N95 referred to below, but am also mindful that the principles as developed in those cases, still apply.
43. In
Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at 4, the Tribunal said:
``The question is whether, when the relevant circumstances of the applicant are looked at in their entirety, they may fairly be described as unusual, uncommon or exceptional so as to warrant payment of the allowance earlier than the date from which it would ordinarily be paid.''
(emphasis added)
44. In Re Ivovic (supra) the Tribunal, at N97, said:
``The reference to special circumstances `by reason of which' a person liable `should be released' requires, in our view, that there must exist in the circumstances of the case, a factor or factors which justify the making of an exception in whole or in part to the principle of liability which the Act otherwise establishes... Thus whilst keeping the dominant principle of s 115 in mind, he must nevertheless be prepared to respond to
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the special circumstances of any particular case by reason of which strict enforcement of the liability created by the section would be unjust, unreasonable or otherwise inappropriate.''
45. I was also provided with a document which is before me as Exhibit R10, an internal departmental guide to circumstances to be taken into account when considering indicia for the exercise of the discretion in section 106W of the Act. I am not bound by these but I have considered them in relation to Mr Compton, and considered also Taxation Ruling IT 2569 (Exhibit R9) and Taxation Ruling IT 2570 (Exhibit R8).
46. I realise that Mr Compton and his family are not having an easy or affluent lifestyle, but I cannot be satisfied that payment of the assessed amount of HECS would cause him or his family severe hardship within the terms of section 106W of the Act. Neither I am satisfied that there are special reasons which would make it fair or reasonable to defer the making of the assessment. 47. The decision under review of 30 September 1998 to disallow deferral of HECS repayment pursuant to section 106W of the Higher Education Funding Act 1988 for the year ending 30 June 1998 by the Commissioner of Taxation is affirmed.
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