Decision impact statement

Applicant and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: 2009/4550
Judge Name: O'Loughlin SM
Judgment date: 1 October 2010
Appeals on foot: No
Decision Outcome: Adverse

Impacted Advice

Relevant Rulings/Determinations:

• N/A

Subject References:
Higher Education Loan Program (HELP) debt
Financial Supplement (FS) debt
Discretion to defer debts
Whether serious hardship or special reasons exist

Précis

Outlines the ATO's response to the AAT's decision to exercise the discretions in s 154-50 of the Higher Education Support Act 2003 (HESA) and s 1061ZZFK of the Social Security Act 1991 (SSA) to defer payment of the applicant's accumulated Higher Education Loan Program and Financial Supplement debts.

Brief summary of facts

On 13 July 2009, the Commissioner assessed the applicant under the HESA and the SSA, respectively, for accumulated HELP and FS debt repayment obligations for the 2007 and 2008 years. The Commissioner applied PAYG Withholding credits, to which the applicant was entitled in relation to his employment income, against both his HELP and FS assessment debts and his income tax liabilities for the 2007 and 2008 years under s 8AAZLD of the Taxation Administration Act 1953 (TAA). However, because of a mistake that the applicant made in completing an employment declaration, his PAYG Withholding credits were not sufficient to cover all his liabilities for the 2007 and 2008 years.

The applicant applied to the Commissioner to have his HELP and FS assessment debts amended to nil under s 154-50 of the HESA and s 1061ZZFK of the SSA on the basis of either serious hardship or special reasons. The Commissioner refused the applications. The applicant applied to the AAT to have those decisions reviewed. The effect of a decision to amend is that the assessed liability is added back to the accumulated debts and deferred for payment until later years.

Before the AAT, the applicant contended that: his medical and psychological conditions, and the limiting effect they have had on his lifestyle and income earning capacity; incorrect advice he received from an insolvency practitioner that his accumulated HELP and FS debts had been extinguished when he was made bankrupt in 2005; and the resulting mistake he made in completing an employment declaration, constituted the necessary financial hardship or special reasons that justified the AAT in exercising the discretions to defer the debts.

Based on the views expressed in previous AAT decisions on the exercise of the deferral discretions, the Commissioner argued that the applicant's strained financial circumstances were not sufficiently unusual, uncommon or exceptional to be regarded as special reasons that would justify the AAT in granting deferral to the applicant.

Issues decided by the court or tribunal

In preliminary comments, the AAT noted that the previous AAT decisions relied on by the Commissioner were of limited assistance in this case, because they were based on rules developed in cases that dealt with discretions to permanently relieve debtors from financial obligations to the Commonwealth or the community, and because they didn't discuss the differences between deferral relief and permanent relief discretions (paragraphs 9-11).

The deferral discretions in this case grant only temporary relief from payment, and their exercise does not frustrate the integrity of the underlying policy in the HESA and SSA that beneficiaries of education assistance pay for that assistance over time. As there is a lesser impact on the community, the criteria for exercise of the deferral relief discretions should be less stringent than those involved in the exercise of the permanent relief discretions. In particular, difficult financial circumstances coupled with other special circumstances should be enough to support the exercise of the discretions (paragraphs 14-16).

The applicant and his wife live a modest existence, and have financial difficulties that are caused by the applicant's medical and psychological conditions. There was also erroneous advice given to the applicant that resulted in him lodging an employment declaration that led to insufficient PAYG deductions being made to cover his HELP and FS repayment obligations. These are unusual circumstances that, while not sufficient to warrant permanent relief, are sufficient to be regarded as special in the context of temporary relief (paragraphs 30-31).

ATO view of Decision

The ATO notes that the AAT seemed to approach this case based on an understanding that the Commissioner had applied the applicant's PAYG Withholding credits first against his income tax liabilities for the 2007 and 2008 years, and then against his HELP and FS assessment debts. In fact, as required by s 8AAZLD of the TAA, the Commissioner had applied those credits first against the applicant's HELP and FS assessment debts, and then against his income tax liabilities, leaving part of the income tax liabilities unpaid. However, the ATO accepts that, even if a person's HELP and FS assessment debts have been dealt with fully under s 8AAZLD, the discretions in s 154-30 of the HESA and s 1061ZZFK of the SSA are still available to amend the relevant assessments. In practical terms, this may lead to increased credits against other non-RBA tax debts, or to refunds.

While the AAT commented that previous AAT decisions on the exercise of the amendment discretions were of limited assistance in this case, its decision was not based on the 'serious hardship' limb of the discretions, and it did not expressly disagree with any of those previous decisions. The ATO also notes that the AAT did not disagree with previous decisions that 'special reasons' must be those that are unusual, uncommon or exceptional in the context in which they occur.

The ATO considers that it is not entirely clear how the AAT has concluded that the discretions should be applied. At least in relation to the 'special reasons' limb of the discretions, the AAT has found that difficult financial circumstances, coupled with other special circumstances can justify the exercise of the discretions. Based on the facts as found in this case by the AAT, the ATO accepts that the decision to apply the 'special reasons' limb of the discretions was reasonably open to it.

Administrative Treatment

Implications on current Public Rulings & Determinations

None

Implications on Law Administration Practice Statements

None

Court citation:
[2010] AATA 756
80 ATR 751

Legislative References:
Higher Education Support Act 2003 (Cth)
154-50

Social Security Act 1991(Cth)
1061ZZFK

Taxation Administration Act 1953
8AAZLD

Case References:
Devenish v Jewel Food Stores Pty Ltd
(1991) 172 CLR 32
[1991] HCA 7
99 ALR 275

Beadle v Director-General of Social Security
[1984] AATA 176
(1985) 60 ALR 225
6 ALD 1

McAusland v DFCT
(1993) 47 FCR 369

Szekely and FCT
[2001] AATA 704

Re Taxpayer and FCT
[2004] AATA 1073
2004 ATC 234
57 ATR 1200

O'Reilly and FCT
[2009] AATA 235
75 ATR 502