Case: Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35
Outcome: distinguished
The AAT affirmed the decision of the SSAT. Deputy President Hack in the AAT identified the key issue as whether a contractual obligation on the part of an employee to make good till shortfalls should be taken into account in determining the employee's income from that employment. It is useful to set out in full relevant observations from the AAT decision: "[19] As it seems to me, the critical issue for determination is whether Ms Richards ordinary income was the nominal amount calculated by reference to a number of hours at an hourly rate or the actual rate that is the nominal amount less any shortfall that Ms Richards had to make good. In my view the employment contract between Ms Richards and the Hotel was one where Ms Richards' wages were determined by reference to three factors - the number of hours worked in a week, an hourly rate and any till shortages. It is unnecessary for present purposes to determine whether it was lawful for the employer to oblige Ms Richards to make good the shortfall, rather the question is whether in circumstances where she did make good the shortfall her gross ordinary income was the nominal amount or the actual amount. [20] In Secretary, Department of Social Security v McLaughlin (1997) 81 FCR 35 at page 42 French J said, "The definitions of 'income' and 'income amount' in the Social Security Act indicate that like their statutory predecessors they are of wide application. This meets the public policy requirement that 'public expenditure is directed to those who stand in actual need of the periodic support which income-related pensions provide' - Read v Commonwealth [1988] HCA 26 ; (1988) 167 CLR 57 at 69 (Brennan J)." His Honour went on to make the point that the concept of income in the Act is entirely different from that embodied in the comparable provisions of the Income Tax Assessment Act 1936 . ... [21] At pages 43-44 his Honour said, "The definition of 'income' extends to income amounts 'received' by a person. There is no requirement in the Act that such amounts are received in exchange for anything. They may therefore extend to gifts. This is reinforced by the extension of the definition of 'income' to 'a periodical payment by way of gift or allowance.' There is no requirement in the definition for the payment received to constitute a net gain. Absent such a requirement a payment of money received by a person for that person's own use or benefit is a payment of an income amount." [22] In my view the key to the present issue is to ask whether the amounts that went to making up the shortfall in the till were amounts that were received to Ms Richards' own use or benefit. That is so I consider because the definition of gross ordinary income in s 1072 of the Act incorporates the s 8 definition of income relevantly an amount earned, derived or received by a person for the person's own use or benefit. Thus s 1072 looks at income earned, derived or received for the use or benefit of the person in issue. It is in my view not to the point that s 1072 goes on to speak of 'without any reduction.' To treat the amounts of shortfall in this way simply recognises the reality that those sums were not received by Ms Richards for her own use or benefit. There was at best a nominal receipt but given that Ms Richards used those sums to satisfy her contractual obligation to make good shortfalls it could not be said that in any real sense she earned, derived or received those sums or that she had the use or benefit of them. [23] The Secretary was unable to identify any benefit to Ms Richards from these amounts beyond the benefit of retaining her employment. I do not think, with respect, that that could be seen as a benefit of the type contemplated by the definition of income in s 8. [24] It follows that in my view the decision of the Social Security Appeals Tribunal was correct and ought to be affirmed." 48 Finally, in my view a construction of the phrase which would characterise moneys required to be repaid to the employer as being for the employee's "own use and benefit" is at odds with the purpose of the Act to maintain a basic level of income for those who are unable to receive sufficient income to provide for themselves ( Garvey 22 FCR at 136, Secretary, Department of Social Security v McLaughlin (1998) 81 FCR 35 at 42). Such an arrangement means that the money paid by the employee to the employer is not actually usable by the employee as income, and cannot be taken into consideration in any realistic way in maintaining a basic level of income for the employee. Contrary to the submissions of the applicant, I do not find the reporting by the Hotel for superannuation purposes helpful in this context. Secretary, Department of Social Security v McLaughlin 49 The applicant relied in its submissions on the decision of French J in McLaughlin 81 FCR 35. In that case the respondents, who had carried on business as milk vendors for a number of years, received $121,950 from the Western Australian Dairy Industry Authority under an industry deregulation scheme, in consideration for an undertaking of the respondents to have no involvement in the milk distribution or milk vending businesses in Western Australia for three years. The AAT found on the facts that the arrangement was for the Authority to pay the principal sum to the respondents without any intention that the respondents repay the money, but subject to a contractual term in the event of a breach of covenant giving the Authority the discretion to recover a similar amount. French J held that the amounts received by the respondents were "income" within the Act, notwithstanding that they had been not been received in exchange for anything; further his Honour accepted that the amounts had been received for the respondents' own use or benefit (at 44). However in my view the facts of the case before me are distinguishable from McLaughlin 81 FCR 35, in that: &#8226; whereas the income in fact earned, derived or received by the respondent in these proceedings was determined by reference to, inter alia , till shortfalls - &#8226; in McLaughlin 81 FCR 35 the power of the Authority to demand repayment of the amount paid to the respondents would appear to have required a determination that there had in fact been a breach of a term of the contract by the respondents; further the terms of the agreement between the Authority and the respondent stated that, if the Authority did not seek repayment by the respondents before a certain time, the respondents were not liable to repay any amounts paid by the Authority. Other than the provision with respect to possible breach of contract, there appeared to be no limitation on the entitlement of the respondents to deal with the moneys paid by the Authority as they chose. 50 In identifying whether amounts received are for the "own use and benefit" of the recipient, there is in my view a substantial difference between: &#8226; the obligation of the respondent to "make good" till shortfalls (however incurred) arising in the course of her employment, which in turn determines the income of the respondent, as was the case here, and &#8226; the contractual power of the Authority in McLaughlin 81 FCR 35 to demand repayment of paid amounts being limited to a period of time, and dependent upon a breach by the respondents of any terms of the agreement, but which power depended upon identification of such "breach" having taken place as a matter of contract law. 51 Accordingly, contrary to the submissions of the applicant I do not find the decision in McLaughlin 81 FCR 35 helpful in identifying whether moneys received by respondent in the case before me were for her "own use and benefit". $1,300 TAB till shortfall 52 The applicant also submitted that the circumstances surrounding the repayment by the respondent to the Hotel of a till shortfall of $1,300 and subsequent reimbursement of that sum by the Hotel highlights the error in the Tribunal's approach. However in my view it is clear that if moneys representing TAB till shortfalls are paid by the employee to the employer, but subsequently refunded to the employee - as occurred in relation to the $1,300 the subject of the fraud perpetrated on the Hotel - it is at the point they are refunded to the employee that they become income amounts for the own use and benefit of the employee. In those circumstances where the employee is in receipt of Centrelink benefits the employee at that point is required to advise Centrelink of the receipt of that income, because it is only at that point that the money becomes income for the employee's "own use and benefit" within the meaning of the Act. I find no error in the reasoning of Deputy President Hack in relation to this issue. 53 In light of my findings in this case the appropriate order is that the appeal be dismissed. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier. Associate: Dated: 9 November 2007 Counsel for the Applicant: E Ford Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: JA Logan SC Solicitor for the Respondent: Welfare Rights Centre Date of Hearing: 8 November 2006 Date of Judgment: 9 November 2007 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2007/1710.html